The real issue is how to avoid repeating past mistakes with future variations of them, and in so so doing, reduce the amount of institutions that are truly TBTF, and their ability to reach such lofty proportions.

Capital cushions need to be stronger for a start, so the recent proposal by US regulators that they want to change accounting rules such that ‘goodwill’ can be counted as capital strikes me as rather odd, ineffective, and oblivious to the problems they actually face. They can blame short sellers all they like, but regulators are the ones to blame here. They are consistently getting it wrong.

Might I suggest they actually address the root cause of the housing meltdown and susequent asset price destruction? Once the downward spiral is halted, so are the constant writedowns.

Ultimately, they have to ask themselves what kind of financial system they want. Do they want one that is actually strong and delivers true services, backed by sufficient capital and appropriate regulation, or one that is prone to over-leverage and instability? We are about to find out in coming months.

As long as they don’t ask the muppets at CNBC for advice, the same goons who scream free market ideology, but are inordinately cheered by Federal Reserve intervention.

A look at why AIG was too big to fail and Lehman Brothers was not….