I remarked on another blog about the notion of too big to fail with respect to banks etc. It is bandied about with little regard to the magnituded of the underlying problem which in my view goes beyond the ability of a single gov't to step in and triage. Given that BSC's rescue came at the expense of 25% of our Nation's balance sheet being pledged (if Maria B of CNBC is to be believed), then if we've other institutions, large and deeply in trouble, I'd posit that we have some institutions to big to save.
This notion of too big to fail and some banks being too big to save morph's into a broader issue that the US has become too big to fail. Our bonds and GSE debt are all over the place, and in hands that care if rates soar or currency plummets due to the impact on their investments. I suspect that there are many meetings with other countries.
There is almost a collected sigh of relief in the financial sector; though I cannot believe that this black cloud has passed. Our good friend G. C. Selden (Psychology of the Stock Market) has some terrific insights:
Historical parallels are likely to be misleading. Every situation is new, though usually composed of familiar elements. Each element must be weighed by itself and the probable result of the combination estimated. In most cases the problem is by no means impossible, but the student must learn to look into the future and to consider the present only as a guide to the future. Extreme prices will come at the time when the news is most emphatic and most widely disseminated. When that point is passed the question must always be, "What next?". (p. 54)
I think that a very interesting statement ending with a very elegant question of "What next?" If capital is scarce, I suspect that interest rates will go up so long as there is a demand for it. Perhaps we need a "wink, wink, nod" approach to bank capitalization as was done with Latin American debt crisis (not an original thought by me, but one that I've seen expressed by Jim Cramer and someone else (though I don't look to Cramer for credible guidance on anything)). And the of course, we've money on the sidelines, in gold and in bonds that is itchin' to deploy. So in a sense, the "what next?" is "Where next?"
Also, Martin Pring has a free report out. I really like Martin Pring. Though he is one of the technical luminaries that was very early in calling a bear market. You can find his "Reason for Optimism" here: http://www.pring.com/pdfs/ptgletter.pdf