Too Big to Fail?

Click the following link to go to an article in The Atlantic, by Simon Johnson. He is a professor at MIT’s Sloan School of Management and was the chief economist at the International Monetary Fund during 2007 and 2008.An alternative to the reassuring words of some finance types

Some financial institutions have been said to be too big to fail. If this is true then it seems obvious that a sustainable global economy should never allow them to get this big again. Too big to fail, in future, must mean too big to be allowed to exist.

Page 4 of the article has the following gloomy outlook about the consequences of one of a couple of "options" that the USA now faces, depending on what it does next. Note that the rest of the world does not come off lightly... Remember this guy came from the IMF so he is not financially "illiterate".

"It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression — because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries"

Remember Gordon Gecko's speech in Wall Street (the movie)? "Greed is good... greed works" that launched a whole generation of yuppies? Not looking so workable now, is it?