Too Big to Fail...

We in Trinidad have a dubious habit of importing things straight off of the news wholesale and making them our own. Who doesn't remember the US Presidential caucus causing Panday to have caucuses of his own? Or who hasn't been to a Machel Montano concert and, seeing the stage set up and the costumes, have not had cause to say...'wait, I've seen this before.' 

In all funny and harmless instances I just chalk it up to us being 'follow fashion' and let it go.

With the stumble of the US economy and the subsequent failure of the CLICO empire, I was not surprised to hear the botched bailout in all its versions as occurring because it was 'too big to fail.'

What exactly does that mean?

I don't mean in the United States and Europe where the interconnectivity of financial institutions could result in systemic collapse like a domino effect if one member fails, I mean here, where Caroni was shut down, directly impacting a third of the population without so much as a murmur. Or Hindu Credit Union collapsing without so much as a financial hiccup.

Now I know Caroni is not CLICO, and I know that CLICO is not HCU, but seriously, at what point does one become too big to fail?

Can the CLICO failure really cause systemic collapse if broken apart, sold off, with the proceeds being used to offset debt?

My personal view on the CLICO fiasco is both well known and documented so I don't need to revisit it here, but what I would like to know is, what is the criteria, the threshold at which an organization becomes too big to fail?

Do we have any other such organizations here?

For example, Guardian Life and all its subsidiaries, Sagicor, Neal & Massy, ANSA McAl, Republic Bank, RBTT, Unit Trust, etc, are any of these organizations too big to fail?

My overly capitalist brethren who are accustomed to eating their cake and having it too and are actively resisting Government intervention beforehand, yet rely on State bail outs after the fact should any of their enterprises go belly up.

This is not the true spirit of free enterprise, and it is my view that they should have no say in policy making for oversight whatsoever as this is akin to putting the cat to guard the bird. All decisions as to national policy has to be removed from the hands of vested interest(s) and enshrined in service of all the people all the time.

If we do agree that there is a point (determined by scientific criteria) at which a Company or a Group of Companies becomes too big to fail, the Government through the Ministries of Trade and Finance need to to set guidelines to prevent such expansion without adequate cover should the worst occur.

My suggestions include:

Mandatory Financials submitted to the Ministry of Finance

State appointees in key positions on Boards as oversight

Subscription to financial instruments as 'failure insurance'

These suggestions, while not all encompassing, directs a path to which the socialism of a bail out can merge with the capitalism of unencumbered expansion with protections for everyone who may be exposed in place and squared away.

I should not have to say that business has to stop expecting to have things both ways all the time, and should welcome  some measure of tightening and restructuring to prevent another CLICO in our near future.

We have serious questions about the chartered accounting firms that prepared and signed off on the financials of both CLICO and HCU, and we have seen nothing like a 'shake up' or a 'hearing' similar to what obtains in civilized countries to determine who is guilty of malfeasance and what steps need to be taken to prevent such breeches in the future.

The Central Bank and the Supervisor of Insurance have both failed us in the hour of need, and besides having their current Boards and Management fired, we need to know that legislators legislate to make sure that the proverbial dogs on guard have teeth and can bite future offenders.

Mature and responsible management in this town has been the exception and not the norm when greed takes its seat at the table of commerce. The State has been remiss in the provision of oversight to protect the people and the treasury when level headeness gives way to drunken policy making in the past, and this is something that must be addressed as we go forward with business as usual.

All those charged with fiduciary responsibility (both public and private) need to be guided by the strongest ethics in their business affairs.

Anything else is unacceptable.

Something to think about...