From "Too Big to Fail" Banks to "Too Big to Default" Nations to What's Next?

We've had financial bubbles before. This one's got a twist though. It's fraught with complexity, scope, depth, widespread fraud and bad underwriting practices making coming out of it, all the more difficult.
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I received an email from someone who was deeply touched by the way a gelateria near her home conducts its business. Their motto, Ante Lucrum Nomen -- "reputation before profit." My former mentor in the business echoed the same sentiment.

What happened along the way?

We've had financial bubbles before. This one's got a twist though. It's fraught with complexity, scope, depth, widespread fraud and bad underwriting practices making coming out of it, all the more difficult.

As if the crisis and fallout weren't enough, this week another headline caught my attention, "SEC Accused of Destroying Files," (9000 documents "relating to inquiries of Wall Street banks and hedge funds").

No headline exists in a vacuum as we flit from one to the next. Thread them together, and they tell a story.

We have "Too Big to Fail" banks. We now have "Too Big to Default" nations too -- the US, the biggest. The names just reflect the movement of the underlying debt as private bank bad debts moved on to the US balance sheet. So as not to default, we raised the debt ceiling to 16 trillion.

Meanwhile, "across the pond," we have the Eurozone "Too Big to Defaults" -- like the PIIGS (Portugal, Ireland, Italy, Greece and Spain). These sovereigns are "Too Big to Default" as any default may put both Eurozone and US banks at risk in our financially interconnected world.

So when I read the headline, "Fed Eyes European Banks," Regulators Scrutinize Ability of Institutions' U.S. Units to Fund Themselves," no surprise. It's like a seesaw between here and our friends "across the pond."

To address the conundrum, a Tuesday tete-a-tete between Chancellor Merkel and President Sarkozy was supposed to move things further along, beyond what's looked like, so far, as a "rob Peter to pay Paul" approach. The idea of floating Eurobonds to help restructure European sovereign and bank debt seems scrapped for now. The tete-a-tete, yielded talk about procuring a Euro Chief and more collaboration on fiscal discipline. The markets did not much like the prospect of raising revenue by, for example, taxing financial transactions. Exchange stocks tumbled.

Let's step back here for a moment.

Are we making headway?

Here's a thought:

As the philosopher and labor activist Simone Weil put it in the 1930s, "Our weakness may indeed prevent us from winning but not from comprehending the force by which we are crushed."

What does that mean for us today?

At present that force is a financial industry that operates with impunity. Three years into a partial collapse of the global money system that has caused mass unemployment, no executives have been held publicly responsible. The banks that were too big to fail are larger than they were before the onset of the crisis. They do not lend to small businesses. And even the weak regulations that Congress managed to pass are being stymied and their implementation delayed by fierce lobbying and Republican defunding of regulatory bodies.

As I continued my headline sojourn, I kept looking for "What's next" in this ongoing saga.

A headline about Moratalla, Spain got me thinking -- "Spanish Towns Face Funding Crisis, Rack Up Debts." At some point, reality sets in.

Don't know how many of you have visited the Medieval towns peppered throughout Europe. The walkways and roadways have twists and turns. It's rather hard to find one's way around, let alone one's way out -- a metaphor for the conundrum the Western developing nations now find themselves in. Massive debt and obligations, amidst slowing economies and joblessness, not to mention changing demographics.

Where exactly are we and what's next? Is this Too Big to Fix?

I came across this piece, "Mob Violence and the 'Looting Bankers' Defense." In short, the article discusses the "looting-bankers defense" as justification for mob violence activity.

But, do two wrongs make a right?

Then I stumbled upon the following headline, "U.K. Leader Blames Riots on 'Moral Collapse.' It sort of brings it right back to the front doorstep, doesn't it?

Amidst the maze of headlines, a hopeful sign this week. Howard Shultz, CEO of Starbucks, spoke up on jobs, discipline and leadership. He appealed to his fellow colleagues to boycott campaign donations to incumbents until we fix our problems.

We heard from a few Federal Reserve Governors as well. Dallas Fed President Richard Fisher notes, "I believe what is restraining our economy is not monetary policy but fiscal misfeasance in Washington." This in response to the Federal Reserve's policy to hold short-term interest rates near zero over the next two years.

More candles are being lit. Some take steps to say "good-bye" to a throttled corporate existence to start their own businesses.

Maybe, there's something to what Buckminster Fuller (20th century American engineer, author and futurist) wrote in his book Critical Path:

You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.

What's next?

The Renaissance is up to us.

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