Sunday, October 18, 2009
Banks are too big to fail, too big to manage, basically just too big
Far from expertly manipulating their firmsâ€™ books, many bank bosses could not understand them. UBSâ€™s own post mortem found that â€œat no stageâ€ did managers have a decent assessment of its subprime exposure. Perhaps the clearest lesson is that big banks are as close as businesses can get to being unmanageable. Bank of America's assets are now ten times those of Exxon Mobil, Americaâ€™s most valuable firm. A balance-sheet of $2.3 trillion is beyond the ken of mere mortals. Even firms staffed only by all-knowing deitiesâ€”such as Goldman Sachsâ€”look like giant black boxes to outsiders. If the new bank bosses want to be in charge, they must shrink and simplify their firms. That way, next time round, they really can be blamed for everything.