MARK BARNES: Too big to fail is not too big to cause failure
Is a sub-prime crisis around the corner again — only this time involving corporate debt?
Sometimes we just can’t resist the urge to make the same mistakes, even if we know it will end in tears. It all came into fashion in the first decade of this century. The mortgage sub-prime crisis came to a head in 2007/2008 and nearly caused the collapse of the entire financial system. Well, it’s coming back — the corporate debt sub-prime crisis is only another interest hike away, maybe? Like all these dam busters, it starts with a trickle, a manageable little stream we could deal with but choose to feed. On the fundamentals, the mortgage loan crisis might not have happened; it was the contamination, the spread of the disease, that turned it into a plague, with greed its catalyst. Leverage, generous leverage, had fuelled what became the housing price bubble, and bubbles, in order not to be found out, must be fed. There will always be clever accomplices around, at a price, to repackage specific risk into asset-class risk, in the name of diversification, if not confusion. Mixing thes...
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