Bankers pocketing big bonuses while stuffing the tax-payer with their losses. Traders taking wild risks with other people's money, safe in the knowledge that the government has got their backs. Speculators piling bet upon bet and then walking away scot-free when the whole house of cards comes tumbling down.
In the years since the financial crash we have grown used to the idea that many financial institutions had become 'too big to fail' and we have, quite rightly, spent a lot of time since then working out ways to regulate them so the rest of us don't get stuck with the bill for their mistakes.
But in the past couple of weeks, something else has become frighteningly apparent. It's not just the banks that are too big to fail so are many other firms. As the global economy becomes more interconnected and interdependent, dozens of businesses might fall into this category.
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Take Glencore, for example. As it wobbled last week, there was lots of debate in the markets about whether its collapse might turn into another 'Lehman moment' a shorthand phrase for the collapse of the Wall Street investment bank that was the trigger for the credit crunch back in 2008. The mining and trading giant had an estimated $148bn in assets, and potentially far more than that in derivative contracts around the world.If it went down, no one really knew how that might ripple out across the system.
It's a similar tale with Volkswagen. The crisis at the car manufacturer following the revelation that it was cheating on emissions tests has led to fears that it might damage the whole of Germany's most important industry. Worse, it too might trigger a wider financial crash because of the vast quantity of car loans, many of which are ultimately secured on VW's balance sheet. Whether Glencore or VW could create a collapse on the scale of the 2008 financial crisis, we'll hopefully never know but you wouldn't want to risk it. Too big to fail, or just very big?
Of course, some companies are just very big. But to qualify as 'too big to fail' a company has to be systemically important that is, if it goes down, then lots of other companies go down as well, and the whole system freezes up. The banks certainly come into that category. If the cash machines suddenly stop working, then the whole economy would grind to a halt very quickly. But quite a few others are starting to join their ranks.
Such as? Well, if, say, Nestl went bust, it probably wouldn't be much of a problem. The same applies to the likes of General Electric and Glaxo. These are, of course, huge companies making important products, but their collapse probably wouldn't create a systemic risk.
Insurers, on the other hand, certainly qualify. Like Glencore, the insurers have so many contracts spread out around the financial system that losses would start popping up everywhere. An increasing number of the tech and telecoms giants are also starting to look too big to fail. It would be very hard to let Google collapse, for example. The same is probably true of Amazon, especially considering its cloud computing unit, upon which much of the internet relies. With the web down, few of us would be able to get much work done.
Telecoms companies, such as Vodafone, are probably in this league too, as are many of the car companies, as well as some of the bigger hedge funds and commodity dealers. There are probably quite a few more that no one has thought much about yet. We might only find out when they get into trouble.
And the ranks are growing
The ranks of the 'too big to fail' seems likely to grow and grow. The trouble is, if more and more businesses start to come under that category, then you simply create more and more moral hazard. What that means is that, just as with the banks, there is no real downside for the executives. They can just keep taking extravagant and dangerous risks, confident that if it all goes terribly wrong, the government will have no choice but to step in and rescue them.
That is going to be a big problem, and one that is not going to be easy to fix. None of the companies I've mentioned are really monopolies, so you can't just break them up. But then the banks were not monopolies either that didn't stop many new regulations coming their way in the wake of the crisis.
In some cases, perhaps businesses might need to be split into smaller units because they are simply too large for anyone's good that might have been the case with VW. In others, they will need more regulation, and stricter control of their balance sheets they might have to be forced to carry less debt and hold more capital, for example, as the banks have been.
If such regulation doesn't happen, then expect the threat of Lehman moments to just keep on coming. Sooner or later one of them might turn out to be for real. And if that happens, then, just as with Lehman, it will already be too late to do anything much about it.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
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