Worst-case scenario for failing mega-banks:
- As many liabilities will be dumped on goverments
- Remaining assets will be marked-to-market
- Anything of value will be acquired by stronger firms
In effect, the biggest banks will consolidate their strengths. As you pointed out, they'll off-load or socialize the losses.
The real losers in this are governments. Banks can simply shift their operations to another region, but governments are geographically locked-in and will have to either relinquish control or fight for survival.
An excellent indication of what's coming is posted here
Agreed. Losses will be offloaded or socialized, govs will ultimate deal with this by inflating, and most of the populace will be saddled by the burden (but generally won't realize/understand it directly due to the insidious nature of inflation).
@skilo: I don't see how mega-banks as a corporate class will go away under the current monetary/political system. Too many advantages as primary dealers, and too many incentives for congressmen to cater to them.