Too smart to fail

I trust it is clear to everyone that my intelligence is so superlative and important to the Internet that any admission of a mistake would be catastrophic and risk a total meltdown of the global communications system:

Today, amid the wreckage of the gravest financial crisis since the Great Depression, bigness is one of our biggest problems. Major banks, the Detroit automakers, the financial basket case that is the American International Group — the only reason these giant, sclerotic companies are still standing is that they have been deemed “too big to fail.” Or, more precisely, too big to be allowed to fail. Policy makers fear companies like these are so enormous and so intertwined in the fabric of the economy that their collapse would be catastrophic. Hence, all those multibillion-dollar, taxpayer-financed bailouts.

In its overhaul of financial regulation last week, the Obama administration proposed several measures to try to contain the biggest of America’s big banks. But it stopped far short of calling for the dismantling of those institutions.

Now, if it were possible for me to make a mistake – theoretically speaking, you understand – then it might be admitted that the following chart should have accompanied my WND column today. As it happens, the amount of deposits in the depository institutions that failed between 1988 and 1991 was $60 billion less than the amount estimated for 2008 through 2011 should the present rate of failure apply. It’s also interesting to note that FDIC insurance has only reduced the amount of estimated losses to depositors from 24 percent during the pre-FDIC era to 15 percent since 1934. At only 6.8 percent, the estimated losses to depositors for the 65 bank failures in 2008 and 2009 are half the historical norm, and yet even if this unusually low figure proves to be correct, it is already almost equal to the total amount lost in 1930-1933 even when corrected for inflation.


The reason Washington will remain committed to the “too big to fail” policy is that if they do not keep the zombies propped up, the costs of all that doubling-down revealed by the chart above will become due. The straws are being piled on ever higher and faster. When the camel’s back finally snaps it is unlikely to make for an attractive picture.