November 11, 2015

TPP – A Recipe for Financial Market Contagion

In response to the mantra, repeated ad nauseam in the media, of “Too Big To Fail”, activists around Occupy Wall Street developed “TIBACO” – that is, too interconnected, big, and complex to oversee.
By reframing the issue that large banks, insurance companies, and hedge funds hold positions in so many areas of the market that it is impossible to engage in any type of effective oversight, it becomes clear that the problem is a financial industry out of control. “Too big to fail” argues that big banks that are so essential to the adequate functioning of the global economy that they need the government to provide a backstop to whatever activities they pursue. TIBACO, on the other hand, makes the case that the system needs to be disaggregated to allow for effective regulatory oversight and to prevent trusts and monopolization.
It’s this framework – TIBACO – that should guide any analysis of the TPP’s financial services chapter, which is outside of ISDS, the most important, and of course, least reported on, part of the TPP. This chapter recreates the condition for an explosion of financial industry consolidation – magnifying the effects of a future financial crisis.
There are two clear issues with the TPP’s financial services chapter:
1) It mandates that nations – particularly Vietnam and Malaysia- – treat foreign banks in the same manner that they treat their own domestic banks. This will give rise to rapid market consolidation dominated by predominantly American financial firms.
2) It will mandate the partial privatization of Japan Post’s life insurance business – by far the largest untapped life insurance market in the world, with over $1.2 trillion in assets (total life insurance assets in the US were $3.2 trillion in 2011).
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