DOWNTIME Part 3 – Collapse of the Colossus
“It’s too big to fail, it’s too big to fail,” has been the mantra of the U.S. government bailout program. If crises occur because these organizations are such behemoths that a single institution falling can cripple the economy under it, why have the top gurus in the Bush administration insisted upon making each institution far bigger still in order to save it?
The U.S. Addiction to Size Matters
While people focus on the folly of subprime lending and deregulated banking, there is a bigger picture here, against which all of this is strong testimony — GIGANTISM. America is suffering from its addiction to size in everything. Many love power, and size is power. So, American’s conglomerate to where things become so large that, if they do fall, they create a catastrophic tsunami. We are, after all, a conglomeration of semi-sovereign states in the first place. America carries this love of size to extremes in everything.
So, whenever one of our economic titans teetered on the edge of bankruptcy this past year, the peril from its collapse to everything in its shadow pressured the executive branch to create a deal over the weekend before the market opened again on Monday. The masterminds of mayhem rushed in to pump some “good” news into Wall Street ahead of the market opening to avert disaster. At every turn, the government’s answer to the risk of corporate obesity was to take two weak and wobbly mammoths and cobble them together into some bigger and more ungainly creature. Each resulting conglomeration came out looking like Frankenstein’s monster with all its seams showing. Thus, many of the following solutions were amalgamated during midnight hours in the board room laboratories of the Washington Wunderkind:
The Feeding Frenzy
Standalone investment banks, facing a rapid die-off of their kind, ceased to stand alone. Cash-starved institutions sought to feed themselves by eating each other, thus creating a new meaning for the term “consumer bank.”
J.P. Morgan Chase and Company, a name that was already a mouthful of earlier conglomerations, gulped down a belly full of Bear. I guess that would make them the J.P. Morgan, Chase, Bear, Stearns, and Company company. The Federal Reserve helped prepare the Bear to make it more palatable for Morgan to eat. Apparently that role is the meaning behind their nickname “Fed.” Somehow the Fed thought a dying beast fed on Bear would be an improvement on the “too big to fail” scale.
Fat on Bear, you’d think the beast would have been satisfied for a little while, but within a month it felt the need to digest the largest bank failure in world history — Washington Mutual. Again, the Fed. cooked the meal. I won’t even try to squeeze that addition into J.P.’s burgeoning name, except to say that the feeding frenzy was mutual. And with that, J.P and Companies acquired a bank that was even a different breed from itself. An investment bank consumed a consumer bank.
Others jumped in. Barclays, the British bank with an appetite the size of an empire, digested parts of the Lehman Brothers, pulling off an arm and a leg, according to taste. Bank of America, already a Leviathan, swallowed Merrill Lynch whole and became even bigger and sweatier. It also took the leisure to snack on Countrywide Financial Corp. for dessert.
In order to save themselves from extinction, as the rest of their species died off, the only two remaining major investment banks in the U.S., Goldman Sachs and Morgan Stanley, evolved into the most elephantine “bank holding companies” the world has known. That meant they evolved into another species that already existed. That was something new in the cosmos. They became what regulation did not allow — investment banks that can contain entire other banks inside of themselves.
Meanwhile, Well’s Fargo, in a fairly strong position, swallowed the wavering Wachovia. Citigroup, once the largest known corporation in the galaxy by market value, buckled under the strains of the current economic load, and also began looking for meat in order to save its fat and floppy body. Citigroup and Morgan Stanley have been seen eying each other recently as if they want to marry their large mouths by mutually consuming each other — an obese way of saying merger… because they feel they’re just not big enough to survive apart. They were already the biggest artificial creatures in our little neck of the cosmos. For now, they’re just sucking on each other’s thumbs, but each hoping to bite a thumb off in the short term, while still eying each other adoringly for mutual total consumption.
Most of these companies above didn’t make their acquisitions because they were strong companies, seeking to devour weak prey. Their taste for evolving into other species by eating them is something they’ve acquired while drowning in a sea of bad debt or in a sinking stock market. All of these new and bigger beasts have their parts held together by baked clay, and the government is the baker … and the clay.
The Right Recipe for Economic Recovery?
If these immense institutions were “too big to fail” before — such that tax payers have to pony up for their salvation just to keep their dead weight from crushing us — what are these monstrosities now? It’s not easy for one beast to swallow another whole; so, to make this possible the government had to remove more regulations from a situation where the removal of regulations played a central role in creating the problem. So, likewise, I ask, if deregulation was a big part of the problem, why is final deregulation of the most foundational barriers the ultimate solution?
What we are witnessing in these twilight days is the end of the United States as the money market of the world. It is a colony of gluttonous creatures dying of their own gigantism, who only know how to save themselves by eating more… of their dying colleagues. The mergers we have witnessed in the past few months are different than all others. Because the banking industry has become too big and heavy to lift its own arms in order to save itself, it has begged for the help of government to bring in the food, trim out the spoiled meat, remove the toxins by giving them to the taxpayer to eat, so that these institutions can finally safely swallow each other. Eating has become a medical procedure that needs a third party to remove the risks and carry the load.
This is a solution for economic collapse?
If these institutions are “too big to fail,” then failing is exactly what they needed to do. A new economy of the slim and trim needed to be created to remove the risk of “too big to fail.” Any bonehead could figure that out. In other words, the way to end that risk was to break the fallen giants up and restructure them. We have a word for that process — “bankruptcy.” It’s an organized way of parting out what is salvageable.
There seemed to be essentially two choices the government could have made last year. Let the dying dinosaurs break apart and become the food of smaller mammals, or save each pair of ailing beasts by surgically sewing them into a bigger beast made of sick parts. The government has pretty consistently chosen the latter. Why? Because all the gurus are from the same school of mergers. It’s what they know. It’s what happens when you put the people who presided over the creation of this mess, in charge of fixing it.