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Politics : American Presidential Politics and foreign affairs

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To: TimF who wrote (41647)	3/5/2010 2:23:33 AM
From: DuckTapeSunroof	Read Replies (1) of 71588

I believe that the true (and very pernicious) status quo nature of the "too big to be allowed to fail" problem has ESCAPED you somehow.... If we do not FIX that huge problem then we are condemned to suffer a REPEAT of the financial crisis and crash... or else a Great Depression II this time FOR REAL. It is the interlocking nature of these huge institutions (and their global linkages) that CREATES the systemic risk.... Risk to the world, and risk to the economy, and risk to the TAXPAYERS. Why did all the I-banks convert to bank holding corps? A - to get ACCESS to the fed window and fed support in time of crisis and secure the low cost funding stream that is MADE POSSIBLE by taxpayer backed-up federal deposit insurance. (But, as I have just stated... that is but one of the three main reasons.) Cheap funding can then be diverted to proprietary trading, subsidiary 'hedge funds', Credit Default Swap or Securitization shops, or any damn thing ELSE that they might dream up to get rich off of. And, you forget the nature of federal deposit insurance --- the sinking fund for it can easily be overwhelmed because it's account is holding but a tiny almost insignificant fraction of the gross amount of the deposits it is insuring. A system-wide financial panic (caused by any of the mega-sized financial titans blowing up like AIG... or L.T.C.M... or Lehman...) can EASILY overwhelm all the reserves and RESULT IN DIRECT ASSESSMENTS on the federal government... because there is no other source in time of panic, with enough SIZE. That is the problem. WHAT POSSIBLE WAY can we think of that can GUARANTEE that none of these titanic firms can go rogue and then BLOW UP disastrously? Write paper in such size that they not only cannot make good on it all, but are destroyed themselves... and drag the entire global financial system down into 'no one trusts any one else' gridlock and financial collapse?

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