Too Big To FAIL?

If you are too big to fail, maybe you are too big?

Here is a novel idea: How about making a law or something that is kind of the opposite of Glass Steagal. If a business is too big to fail, it is determined to be fundamentally necessary for the operation of society. At that point, a company has to open itself to extraordinary public scrutiny, since the public has been proven its "on the hook" for these companies' screw-ups.

In order to enforce this program, any company with a certain market share, revenue levels, or employment base would have to submit annual reports from an economic consulting firm that indicated that the company was "not to big to fail", and the corporate officers would have to sign the report a la Sarbanes-Oxley requirements for audits (brought about by the Bush-term accounting failures in 2002). Then, if the company claiming to be small did fail, it would subject its leaders to fraud investigations should they require some type of bailout.

This would also go a long way toward preserving the competitive model that we Americans believe in: along with our other pillars of faith in God, Guns, and Flags.


UPDATE: The NYT is reporting that all the big banks we just bailed out are still going to suffer, suffer, suffer once all the commercial real estate purchased/overvalued during the past decade implodes.

Stock analysts say commercial real estate is the next ticking time bomb for banks, which have already received hundreds of billions of dollars in capital and other assistance from the federal government. Big banks — like Bank of America, JPMorgan Chase and Morgan Stanley — each hold tens of billions of dollars in commercial real estate securities. The banks also invested directly in properties.

Regional banks may be an even bigger concern. In the last decade, they barreled their way into commercial real estate lending after being elbowed out of the credit card and consumer mortgage business by national players. The proportion of their lending that is in commercial real estate has nearly doubled in the last six years, according to government data.

Just as home loans were pooled, then carved up and sold to investors as securities over the last two decades, commercial property loans were repackaged for the financial markets. In 2006 and 2007, nearly 60 percent of commercial property loans were turned into securities, according to Trepp, a research firm that tracks mortgage-backed securities.

Now that the market for those securities has dried up, borrowers cannot easily roll over the loans that are coming due.

Did I mention the number of "zero-interest" credit card offers I have received in the past few weeks? Some banks never learn....