Wednesday, February 18, 2009

The casino, the cruise line and the utility company

Going into this financial crisis, the financial services sector has become one part casino, one part cruise line and one part utility, all unfortunately jumbled up and intertwined. The situation was dressed up and described in complimentary terms as the 'financial supermarket' model of the future. Citicorp was the exemplar.

Well into the mess, using summer 2007 and the time when innocence ended, we can now see that rolling those three kinds of activities into single entities, and, in effect, cross collateralizing the liabilities associated with each was, not to put too fine a point on it, insane.

The crying need de jour is to somewho unsort the jumble. Shut down the casino, leaving the players to bear (and bare) their losses. Let the cruise line sail away, to thrive or sink on the skills of its crew and the public's demand for asset management and investment advisory services. And nationalize the utility, so that deposits can be gathered, credit extended, transactions cleared, and so on, for the smooth functioning of the general economy.

Easier said than done.

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