...how big is too big to fail? And how would you measure it anyway? In the case of banks and giants like A.I.G. and Fannie Mae, policy makers argue that the interconnectedness of modern finance, as much as the size of the players, is the real issue. The collapse of one big financial company could cascade through the industry. In the case of General Motors and Chrysler, a failure could mean that thousands of jobs — not only at those companies, but at their suppliers as well — could evaporate.
The too-big-to-fail doctrine, sometimes called T.B.T.F., goes back at least as far as Brandeis’ time, when, in 1914, the Treasury stepped in to provide financial aid to New York City. In the 1980s, when the government rescued Continental Illinois Bank, Stewart B. McKinney, a Connecticut Congressman, declared that the government had created a new class of banks, those too big to fail. The phrase returned and stuck.
Ben S. Bernanke, the chairman of the Federal Reserve, often uses a wonkish euphemism. He refers to Brobdingnagian banks as “systemically critical” institutions. The Obama administration rolled out another description last week: “Tier 1 Financial Holding Companies.”
What is remarkable is that, even now, the T.B.T.F. club and some of its members are actually growing, not shrinking. A decade-long run of mergers in the banking industry has concentrated power in fewer hands. Last autumn, when the financial crisis was at its height, policy makers pushed some banks to buy weaker ones to head off failures. (See Merrill Lynch, acquisition of, among others.)
Frederic S. Mishkin, a former Federal Reserve governor from 2006 to 2008, for one, said there could be no turning back on too big to fail. “You can’t put that genie in the bottle again,” he said. “We are going to have to deal with it.”
Especially when it's such a useful djinni. It enriches so many of the people with the right stuff. Every now and then it makes some embarrassing move like funding Adolf or Osama bin Laden, but all in all it certainly complements the tasteful among us. It is a pity it lives on human souls, but really, the ones with the beautiful minds never even notice, lacking much in this department anyway.
These djinn don't live in bottles, but on a Mobius strip:
Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.
A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm.
Staff in London were briefed last week on the banking and securities company's prospects and told they could look forward to bumper bonuses if, as predicted, it completed its most profitable year ever. Figures next month detailing the firm's second-quarter earnings are expected to show a further jump in profits. Warren Buffett, who bought $5bn of the company's shares in January, has already made a $1bn gain on his investment.
Goldman is expected to be the biggest winner in the race for revenues that, in 2006, reached £186bn across the entire industry. While this figure is expected to fall to £160bn in 2009, it will be split among a smaller number of firms.
Barclays Capital, Credit Suisse and Deutsche Bank are among the European firms expected to register bumper profits, along with US banks JP Morgan and Morgan Stanley following the near collapse and government rescue of major trading houses including Citigroup, Merrill Lynch, UBS and Royal Bank of Scotland.
In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London.
Critics of the bonus culture in the City said the dominance of a few risk-taking investment banks is undermining the efforts of regulators to stabilise the financial system.
Vince Cable, the Liberal Democrat treasury spokesman, said: "The investment banks more than any other institutions created the culture of excessive leverage, excessive risk and excessive bonuses that led to the downfall of the financial system. Now they are cashing in and the same bonus culture has returned. The result must be that we are being pushed to the edge of another crash."
Goldman Sachs said it reviewed its bonus scheme last year and switched from a system of guaranteed rewards that were paid over three years to variable payments that tied staff to the firm. It told employees last year that profit-related bonuses would be delayed by 12 months.
Until the release of its first quarter profits in April, it seemed inconceivable that a firm owing the US government $10bn would be looking to break all-time records in 2009.
David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.
"These banks are intermediaries in the bond markets where governments and companies are raising billions of pounds of new money. There is also a lack of competition that means they can charge huge sums for doing business."
Last week, the firm predicted that President Barack Obama's government could issue $3.25tn of debt before September, almost four times last year's sum. Goldman, a prime broker of US government bonds, is expected to make hundreds of millions of dollars in profits from selling and dealing in the bonds.
You read that last sentence right. Goldman-$acks Amerika is having a windfall year selling the U.S. government bonds financing the bailout of Goldman-$acks Amerika.
[tip o'teh tinfoil to Lambert]
Goldman-Sachs and friends fund the campaigns of Lyndon Baines Obama, the DINOcrats, and the Rethuglicans. They provide a friendly business environment, not only bailing out the Company, but ensuring its business selling the bonds that finance the cash flow for its bailout. The Company, in its gratitude, ensures the people with the Right $tuff get $elected again.
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