Tuesday, November 10, 2009

Size queens

The current debate in Congress about the financial power of the mega-banks is a reminder that, as in all things, it's not the size that matters but rather the skill and intent. OK, agreed, we have supersized the financial services firms, but is it really necessary to "lipo" these companies down to featherweight class?

It's a phony argument, and not surprising coming from lawmakers who are not well equipped to understand complex financial matters and demagogue the issue instead. Though I am sympathetic to the argument that we should turn the clock back and re-institute legal provisions which separate commercial and investment banks, it may be too late. The financial genie is out of the bottle and rather than dismantle much of what we have, we ought to be having a wide-ranging debate about government regulation in the era of global financial mega-firms (which, incidentally, ought to include not just US-based companies). Say what you want about federal public health insurance options, in the arena of global finance there is a key role for the expansion of government activity. And indeed a unique one.

The prognosticators regarding these matters suggest that there will be roughly a dozen financial firms that matter which emerge out of the Catastrophe, in order to compete on a global scale. We can either cede this competition to other nations, or allow our firms to find their own appropriate scale, albeit under tight but encouraging supervision.

The key to whether we are serious about a rerun of 2008 lies in the solutions being debated in DC right now. Stay engaged, because gazillions are at stake.

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