In the financial crisis of 2007, the term too big to fail entered the history of the market, with the collapse ending at AIG, that domino piece that at the time was too important not to be rescued, since the ramifications of non-compliance with the agreements of the insurance giant, would bring the chaos of unpredictable consequences for the global financial system. Other names joined the lot and in the aftermath of the crisis, extraordinary safeguard mechanisms were created for financial groups considered to be a systemic risk, such as the need for additional capital, as well as a specific regulation for the sector that tried to ensure that the episode did not happen if repeated, legislative measures that have since been relaxed in Trump’s term.
Almost 14 years later, the rescuers of 2008 are back in the spotlight, namely the EDF, which has gained little relevance in the financial and economic system, and I say little recommendable considering that they are institutions that should only serve as a last resort and stabilization of the system, and not as primary sources of economic growth or support for the financial markets. But the reality now is different, and this increased importance puts the FED, as well as the other main central banks, in a very complicated situation, since on the one hand, they have an obligation to keep inflation under control, on the other they are forced to act with surgical clamps, so as not to cause a catastrophe in the markets that leads to a financial crisis. That is why Jerome Powell has insistently said that interest rates will not change in the short to medium term, however, investors are not so confident about the FED’s ability to remain faithful to this guideline, given that inflation may rise by such as to force the most powerful hand in the system to change its extra dovish monetary policy.
