Life As It Goes By

Too Big to Fail? Overused terms in this financial crisis? Does anyone care to explain what this mean really? What is too big (what is really the yardstick to that? Number of employment? Or market capitalization? Or “interconnectedness” in the financial system)? and what is to fail (how to gauge the possibility? how sure is one that it would happen?)?

The biggest insurer of the world, AIG, has bagged more than US$150 billion of government charity at this point of time. Is that the price for not failing? Or is that the reward for getting so big? GM follows closely behind in the queue.

The question is what if… what if the “too big to fail” fails? Here is the counter, “is that possible?” Apart from the US government withdrawing all the help, what are the chances of this happening? A good example of this happening is probably the latest word in town. Bailout payouts for AIG has been distributed to the other financial institutions that are in trouble but kept mum. In other words, these funds won’t really used for solving AIG’s problems (part of which is the payment to these institutions). Will these companies stop extracting funds from AIG? Who, in the right mind, would reject such help in the name of the other? At the end of the day, it’s about who has the better terms in the contract. My guess is these contracts are drafted for emergency use such as default of payment or foreclosure, rather than normal insurance or financial investment. Making payments for such claims would take away what’s available for other types of claims. Pray to God that there won’t be another 9/11 or any disaster in near term… (See what I mean? Even if the Government is willing to help, there would still be a scenario whereby no help can be rendered.)

Of course, this is an exaggerated, lopsided hypothesis. Fear is the last thing that is desired in the state of the world now. More questions would only raise more doubts which in turn reduce confidence and improve the fear level. The US government is taking great bets on recovering this crisis, turning the tides. Aggressive, confident and courageous as always, policies and measures have been taken in a way that no one in such situations have ever taken. Many others have followed suit. The effect though not immediate is starting to show. The brakes have been applied and things are slowing down. Ripple effects can be felt in widespread areas. It seems that the climb upwards will take some more time. This is the time when the winner shall be determined. If one fails to hold on and keeps falling, everything will go tumbling down to the bottom. Then, this will be the time when the big can fail…