If You’re “Too Big To Fail” Are You Too Big?

It’s a question that has aligned an interesting mix of people. As impossible as it might seem, everyone from House and Senate Republicans to the AFL-CIO, Ralph Nader, and Democrats of virtually every stripe agree that the answer is a resounding, “yes.”

Admittedly, liberals and conservatives have their own reasons for drawing the same conclusion, but they agree that Citigroup, Bank of America, JPMorgan Chase, and others that are too big. And the sentiment is shared on the other side of the Atlantic as well. European politicians are pushing for the break-ups of ING, KBC and Lloyds.

The bankers are understandably not so keen on the idea of being broken up.  They do present the valid argument that their size makes them a powerful force in the world market.  If forced to break up, they maintain, banks in countries that are not forced to downsize (Possibly themselves after they move?) will have the advantage.

The option to a break up is more regulation — so much regulation, in fact, that these banks would function as quasi-public institutions like AIG, Fannie Mae or Freddie Mac.

So what will happen? That’s easy. When you have two unpleasant options and banks pushing millions into campaign coffers to keep the status quo, all the consensus in the world is useless.  Not only will nothing happen, these mega banks will have less incentive than ever to avoid staggering risks … because they’re “too big to fail.”