Remember the "Baby Bells" that came out of the breakup of the AT&T telecom monopoly? Well you heard it here first -- after reality sets in and we finally nationalize the insolvent bohemeths of Bank of America, Citibank, etc. the likely outcome will be a group of smaller "baby banks."
Let's do a quick reality-based (the non-fiction version) review:
- Several (and perhaps most) of the major US "money center" (aka large) banks are effectively insolvent.
- The success of the Geithner plan is predicated on overpaying for toxic assets in order to prevent #1.
As Paul Krugman, summarizes:
"This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work."
So what happens when the reality finally collectively smacks us in the face? Look for an expensive restructuring of these monsters into smaller Baby Banks, in theory none of which will be too big to fail (again).
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