With regards to the banks/dogs parallel, banks' relation with their respective governments is more of a puppeteer/puppet relation.
The governments, or rather the individuals in those governments depend on banks to finance their politically driven agendas- which may succeed or fail- in exchange for the government to pass legislation in favor of those banks, and ensure that banks never fail.

So banks are much more powerful than the government. In fact, While the media rationalizes the government's actions, governments do the same for the banks!

To put it simply, would you open an account for your Chihuahua and deposit all your money it?

I am not sure that either "class" of people - bankers or government officials - deserve the moniker of puppeteers, if for nothing because markets are more powerful than both. The background for the analogy is to find the guardian who doesn't usually have to respond to market forces (governments, which tend to ignore signals until it is too late); and then be their pet lap dog.... good strategy; and leaves the taxpayers scooping up the waste

As for the Chihuahua .. the point is that the bank IS there already, what with the governments lavishing attention at every juncture and handing over the taxpayer wallet with no questions asked ...

Chan Akya wrote:
The United States is not my model of a free market economy, actually - although many parts of it (technology, pharma and heck even financial services before 2008) do qualify.

WOW so you actually endorse the financial sector as it was up to 2008? So what exactly went wrong in 2008? Was the whole mess caused by government action? Or can I assume that your view is the government should have done nothing and allow the market to operate freely which means letting AIG, LEH, BAC and GS all fell like dominoes.

That would indeed be fair, principled, and honest. But wouldn't that be resulting in the Asian SWFs (and sundry) to come in become the majority shareholder of Corporate America? I.e. you end up letting planned economy triumph over free market economies. To counter that unacceptable scenarios, the only solution was to throw away the free market ideology and force government/taxpayers to collectivize the banks. One way or another the free market banks are getting collectivized, let it be an American collective than a Chinese one.

To a large extent, my model is the global MNC economy - what drives the global asset allocation decisions of large companies that operate around the world. They aren't a 'country' per se, but combined their output is larger than many economies; hence the interest.

Hmmm IMHO, the MNC economy has had a very short and spotty history. A few decades may be? And how would you summarize the 90s Asian Flu experience? That local governments' collective greed/ignorance/corruption earned them what they deserves by the rules of the jungle? Or MNCs swoop in, made a ton of money for themselves and leave the free market small flies in tatters?

Do you think there's a chance Vietnam will leap over Thailand in gross and per capita? If and when that happens what would be the lesson to be derived from it?

You are absolutely correct - I certainly endorse the idea that the marginal institutions should have been allowed to fail. At the very least, we will have avoided today's 'small dog' problem with respect to the banks.

The overall leverage of the banking sector in the US - and particularly that of institutions securing state support - has actually increased. This is a function of the denominator shrinking (i.e. capital hits) but its not as if the numerator declined markedly either - it simply got reallocated to other financial institutions.

As for MNCs, there is a certain trend in one direction; you asked me what my 'ideal' was at the current juncture.

CA