Jamie Dimon, CEO of JP Morgan is testifying again today before Congress regarding their “$2 Billion loss”. He made the statement “I would like to get rid of too big to fail” to which if you think it through at all, is asinine! Think about the array of entities that are considered “too big to fail”, …and the reasons why.
Many banks are considered too big to fail and for good reason, were a Bank of America or Citigroup or God forbid…a JP Morgan itself to fail, what would happen? First off you have counter party risk that would cause waves like a boulder hitting a kiddie pool. A cascade of failures by scores of banks, brokers and insurers would occur within days (i.e. 3 day settlement) and spread virtually overnight to “counter party’s counter parties”. Then you have clearing failures (anyone remember MF Global) and capital being locked up which affects payrolls, the ability to make monthly payments etc. Yes yes, we have the FDIC you say? Hogwash, FDIC could not cover half, a quarter or even 10% of a big money center bank going down. FDIC’s ability is dwarfed by so many banks in the US and then you have to add in all of the foreign banks that are part of this counter party orgy.
Then you have “financial entities” like GM or GE and a slew of others, what if one of these went down? Are they not also “too big to fail”? What about cities? States? Or foreign sovereign governments? Would Detroit failing be big enough to cause a cascade? How about the state of Illinois or…California? Would the failure of $ Billions upon $ Billions of muni bond defaults, pension defaults and mass layoffs be big “too big”? What if “they” let Spain go down? Are the Spanish banks and Spain itself “BIG ENOUGH”?
The reality? NOTHING that is involved in the “counter party chain” can be allowed to fail outright and NOTHING will be allowed to fail “outright”. Every government and central bank everywhere on the planet will print whatever is necessary to prevent the chain from breaking. The chain cannot be allowed to break ANYWHERE because that would expose the entire system for what it really is, a Ponzi scheme! In order to hide the truth and prolong the Ponzi, every paper fiat currency will be printed and provided in whatever amounts necessary to prevent a failure of something, anything deemed “too big to fail”. Currencies themselves will be sacrificed in lieu of allowing the truth (default) to occur.
Mr. Dimon knows all of this full well. Do you think he would have gone along with letting MF Global if they were owed $ Billions instead of “holding” $ Billions? Would it still be OK if an entity were to default on $10 Billion worth of bonds that JPM held as assets? Or worse, what if an entity was going down that JPM had written $ Billions worth of CDS and had to actually pay out to cover the losses? WHOA! Let’s take a step back here, maybe its not such a great idea to let some entity go down that would suck out more cash than we have on hand! So basically folks, I must call bullshit once again. “Too big to fail” is here to stay unless it is finally decided to allow the ENTIRE system to go down. The problem as I see it is that “too big” is getting smaller and smaller every day as the system gets more and more levered up. No one can ever know “when” the final straw will arrive, we just know that mathematically it will because the “system itself” has been and is getting bigger and bigger than the central banks (and planners) themselves. If I had to guess, I think that something deemed “irrelevant” will eventually be what turns out to be big enough to FAIL EVERYTHING, just my guess.