Allowing our too-big-to-fail financial system to fail anyhow would mean wiping out so much wealth at one fell swoop that the world economy would be forced to a sudden, and potentially disastrous, halt. The stock markets of the world would crash to the very bottom, trillions would be lost instantaneously, the fortunes of the rich and famous would be wiped out, but so would the pensions, 401(k)s, and other nest eggs of ordinary people everywhere. Every bank would fail, every mortgage would be foreclosed, every insurance policy suddenly be rendered worthless, as a wave of bankruptcies swept the world. Unemployment would become almost universal as business after business failed. "Market forces" could not come into play because the private sector driving such forces would, very simply, have ceased to exist.
The Ponzi scheme that is the world financial system is indeed too big to fail. Bernie Madoff's system, as outrageously inflated as it became, could be allowed to fail. The world financial system, very clearly, cannot.
If it cannot be allowed to fail, then what means do we have at our disposal to fix it? As with any Ponzi scheme, there are really only two alternatives: allow it to fail, as in the Madoff case, or find some way to perpetuate it. The latter "solution" is, as I argued in my last post, the one chosen, albeit indirectly (i.e., deceptively), by the Obama administration. However, perpetuating a Ponzi scheme can never be a fix -- unless we find some magical way of perpetuating it unto perpetuity, i.e., keeping it afloat forever -- possible only if one has unlimited monetary resources, or is in a position to print ever increasing quantities of money forever. This latter option is indeed being attempted at the present time, under the absurd rubric "quantitative easing" -- and maybe we can pull it off for a while. But sooner or later, the amounts of virtual cash needed to keep the game going will reach truly absurd levels -- and the classic "Emperor's New Clothes" syndrome will inevitably take effect. At some point, confidence in the system will totally collapse, taking the system with it. (See, for example, the recent blog post at The New Republic: Is the Dollar Doomed to Crash? by Zubin Jelveh.) And returning us to our first alternative: allowing the system to fail after all. But the system cannot be allowed to fail. And so on and so forth, ad infinitum.
This is what was called, by the ancient Greeks, an aporia -- literally "without a path" or "impasse."
"Nan-in, a Japanese master during the Meiji era (1868-1912), received a university professor who came to inquire about Zen. Nan-in served tea. He poured his visitor's cup full, and then kept on pouring.
When the nun Chiyono studied Zen under Bukko of Engaku she was unable to attain the fruits of meditation for a long time.
At last one moonlit night she was carrying water in an old pail bound with bamboo. The bamboo broke and the bottom fell out of the pail, and at that moment Chiyono was set free!
In commemoration, she wrote a poem:
In this way and that I tried to save the old pail
Since the bamboo strip was weakening and about
Until at last the bottom fell out.
No more water in the pail!
No more moon in the water!