By Simon Johnson
At the heart of the Treasury Department’s strategy for refloating our largest financial institutions is an important assumption – decision-makers at our largest institutions have “learnt their lesson” and will be more careful going forward.
The latest string of pronouncements from the top of Wall Street suggests that this assumption is badly flawed.
In a column now running on Bloomberg, I review the recent statements of Robert Benmosche (AIG) and Bob Diamond (Barclays). Their views are not encouraging. They want to run bigger, more global and extremely complex financial institutions. They also appear to favor a great deal of leverage (high debt relative to equity) wherever possible.
Steve Eckhaus – a top Wall Street compensation lawyer (he will get you your bonus) – articulated the underlying view with great clarity to Saturday’s Wall Street Journal, “To blame Wall Street for the financial meltdown is absurd.” (p.B13 of Feb.5-6 print edition).
The absurdity here is that we have created Too Big To Fail banks (and insurance companies) and that we are allowing them to become Too Big To Save – while our political elite blithely looks the other way.
Direct link to Bloomberg column: http://www.bloomberg.com/news/2011-02-07/wall-street-knows-meltdown-was-just-bad-dream-commentary-by-simon-johnson.html