The federal government is identifying more than 50 large banks and non-bank financial companies as too big to-fail. These would receive taxpayer funds to prevent failure, and they would also be heavily regulated.
That part about regulation is a laugh (when you can stop crying). The feds didn’t foresee the 2008 real estate crisis. The Madoff ponzi scheme occurred right under regulator noses. So did the Stanford ponzi scheme and the MF Global debacle.
Financial transactions are too complicated for the government to codify what’s safe and what isn’t. Instead, Congress has authorized the regulators to use their gut instinct. But regulatory gut instinct is less reliable than that of the company executives being regulated.
The regulators hold the power, however. It’s the blind leading the sighted – probably over a cliff.
There’s no limit on how far the regulators will thrust their grasping paws. Large industrial companies use financial products to lock in the prices for future delivery of raw materials. They also offer financing to vendors. Such financial activities may pull these large industrials companies into the too-big-to-fail quagmire, raising problems and costs for everyone.
Mirror, mirror on the wall, who’s the biggest failure of all? The obese federal government.
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