Who is too big to fail?

Escrito el 24 julio 2008 por Juan Toro en Financial Markets

We now know that Freddie and Fannie are too big to fail. But also the next fail of a big US bank is also a too big to fail. The Fed and the Treasury are doing whatever they can to avoid a significant bank to fail. Both institutions will let small banks fail easily. And that is what is happening. Some people estimate that as far as 300 small US regional banks are likely to fail in this crisis. But the true problem is to allow a reknown and traditional bank to be swallowed by its debts. It might have to do with the fact that the failure of a big bank might represent the fail of the US economy itself with its corresponding consequences. US bonds will be trashed and the dollar will collapse. The NYT has an article holding that view: the US might be too big to fail, so we all should plan a rescue for that economy.


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