Too Big to Fail

Commentary Magazine ^ | March 23, 2009 | Francis Cianfrocca

[Jbny]

Congress debated a very important subject this past week: how to regulate the financial industry in order to reduce what is called “systemic risk.” Although the debate was overshadowed by the flap over bonus payments at AIG, the insurance industry is playing an important behind-the-scenes role.

Senators Dodd and Shelby (respectively the Chairman and ranking minority member of the Finance Committee) are involved in the debate, but the key individual is Chairman Barney Frank of the House Financial Services Committee. Questions have been raised about the degree to which Dodd is even interested in the debate, and, as a Republican, Shelby hasn’t much of a voice anyway.

[Carley]

The failure of any insurance company could be devastating.

Life insurance, home insurance, bond insurance, all very critical instruments that involved millions of people.

Think if you are suddenly without life insurance after paying premiums for decades, etc.

[quintr]

Let’s see now — the definition of a bubble is when something just grows and grows and grows until it finally can’t sustain itself. Isn’t that like a Ponzi scheme?

Isn’t that “too big to fail” argument what they’re also saying about GM?

If AIG is too big to fail, then it will either continue to grow and grow because of rubber cash infusion that the government is giving it. That just means it will make a bigger splat, doesn’t it?

And if companies get too big to fail, what about the federal government? It keeps growing and growing and growing. Getting too big to fail? Not really. There comes a time when it starts to feed on itself because there’s no outside support from which to draw.

That’s when China will force the U.S. into involuntary bankruptcy because China is helping the federal government continue to grow by buying more and more U.S. debt.

If my views are incorrect, where is the fallacy of my opinion? Anybody?

[Vaduz]

No questions here.