To this day the bridge remains an enduring, beautiful and functional icon beacuse its components' limits were not stretched to the max; rather the nature of stone and steel coming together were what? Studied, analyzed, scrutinized, understood, calibrated and prudently designed; when? Before the bridge was built. Because through hard work, identifying, addressing and overcoming immense tragedies including too many lives lost, large and small unpredictable challenges even in its circa 1886 era it was then as it is today - knowable and doable, a testament, then as now to American ingenuity and the sacrifice of all (and their families) who played both large and small parts in the project; to quote Kevin Garnett, the champion Boston Celtic, "anything is possible!"
Before we react, before we rush to judgments, before we rush headlong into new financial regulations let us consider this.
Diversification, another ion-ending word, can be better and should be applied to our banking, insurance and financial systems in the service of and for the protection of our whole economy for whom? All current and future taxpayers a.k.a. ultimately the interests of current and future American citizens. Not just a select few; the type A's on steriods of financial, self-interested, self-inflated, end-justifies-the-means, greedy masters of the financial universe; you know who you are / were.
Fact: over 95% of FDIC regulated banks are NOT on the watchlist, why? Because their boards, shareholders, managers were more prudent, less greedy, more patient and knew their customers better back in the day. Said another way they practiced "safety and soundness" every day; a select few "too big to fail" apparently placed that mandate far down on the list of their priorities. Although as a student of CSPAN - I note that the Big 8 banks CEO's all proclaimed in front of the Senate Finance committee that the one and the same "safety and soundness" was now job #1...things that make you go hhhhhmmmmm.
Too big to fail is largely an industry, lobby self-invented term perpetrated as part of a threat to the US financial system, coined by and for the various outstretched hands / parties in interest in the financial services industry; rather too big is an admission of just that, too large, to big for its britches on a hot and humid day in DC, too unwieldy, concentrated, powerful and last and most important and OBVIOUS too difficult to manage, control, account for and report - all the things we don't need.
The real test is this - how did the customers make out? Take any bank - commercial or investment, broker or insurance company; take any merger, take these newly expanded girths (er, excuse me the industry prefers the term footprint) as a result of the size of the institution, whether it be the numbers of branch offices, employees, assets, size of managements' compensation or off balance sheet exposures - show me how the customers gained!
A select few "Too Big to Fail" banks, insurance companies and erstwhile investment banks / brokerage firms - remain a blot on the American economic landscape.
As was penned here in the early fall of 2008, and unfortunately been adopted by Mr Geithner with continued support from Mr Bernanke. With a financial services industry as concentrated as Paulson suggests we need to let that industry rise and fall on its own - as the players, (they all wear adult, big boy pants), have clamored for, pounded the table, kicked their heels, indeed demanded and lobbied for the past 25 years - and along the entire way, boards went along, audit committees went aong, shareholders and bondholders went along, credit ratings agencies went along, regulators went along, state, local and federal elected officials went along and the financial print, TV, radio and internet media went along dancing, making merry to the "music of the night" (the leverage hidden in off balance sheet entities and over the counter created, traded and valued securities and related credit default contracts marked to SEC sanctioned proprietary marks to mystery models) strummed by the managers / maestros of the financial services industry!
Mr Geithner, Mr Bernanke, despite Ms Bair's correct admonitions, continue to foster / misstate that the industry is too interconnected and requires a continued taxpayer-funded bailout fails to appreciate, fails to understand and fails to recognize the obvious.
First an intentional but noted digression then I'll tie it back to diversification.
This past week Mr Geithner correctly stated that he owes, in his current position "a fiduciary duty" [to the US taxpayer - we agree] however, this writer asks when was that duty known and applied during his tenure as NY Fed president?
The primary function is loyalty, an undivided loyalty; the agent to the principal, a prohibition against self dealing. The second most important expression of fiduciary duty, especially in the age of unequal access, understanding and ability to independently evaluate information (the assymetry of information) is disclosure. On this score, Mr Geithner hedged his comments several times in responding to an elected officials' inquiries - we ask why? The third most important element is the duty to be careful, to investigate, analyze, to use any special skills BEFORE taking action, and to be impartial with all the taxpayers (current and future generations - this last point receives no congressional, political or media attention) in dealing with assets, property in the sole interests of taxpayers; diversfication is required UNLESS, under the circumstances it is prudent not to do so.
Absent any plausible argument to the contrary to which we are all "ears and hearts too" DIVERSIFICATION, as in all other investment programs, businesses and the public policy surrounding financial intermediation and more importantly in all parts of the credit markets is one thing; PRUDENT. Look it up!