At yesterday’s “Warren Commission” panel featuring Vikram Pandit, TARP chief Herb Allison said, with respect to large firms, “There is no too-big-to-fail guarantee on the part of the U.S. government,” according to WSJ.
Elizabeth Warren correctly responded that it doesn’t matter what Allison thinks, or what is official policy, what matters is that the market thinks Citi is TBTF and thus it has an easy time raising cash.
Hopefully this concept is understood by the folks at Treasury. Too big to fail isn’t a policy, it’s a state (Bernanke has even said this). Unless the government breaks the too big to fail banks, or takes soe other step to violently change the too big to fail presumption, merely saying there’s no government guarantee doesn’t mean jack.
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