WORLDVIEW: Eskom highlights SA’s “too big to fail” problem
During the last financial crisis – or I should say, the most recent financial crisis, since I'm sure it's not the last one we'll see – one major problem that regulators faced was that many banks were "too big to fail." In other words, these banks accounted for such a big chunk of the world's financial system that, even though they had made terrible decisions and wasted billions of dollars, they couldn't be allowed to fail because their failure would bring down the global economy.
This was great for the banks, which received generous government bailouts, and terrible for taxpayers, who are funding those bailouts. At the time, regulators said that we needed to learn from that experience and use competition law to prevent banks from getting too big in the future. Obviously, we have done no such thing and there are just as many giant, systemically risky banks today as there were in 2007.
But that's neither here nor there. The important point is that South Africa today is much like the financial system in 2007 – it is full of clunky, inefficient giants that survive because they are too big to fail, and they use this fact to their advantage.
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