Too Big To Fail?

The European Commission indeed did just that last week when it forced ING to divide itself in half. ING is a worldwide banking and insurance giant. Its properties are well-known and in the U.S. at least, its insurance units are well-respected.

The problem is that ING sank a ton of funds into investments that went south, including bad mortgages, and had to go to the Dutch government for a 10 billion euro bailout and guarantees for toxic mortgage assets that were in the range of 20 billion euros. This year that particular bird came home to roost, with the EU demanding that ING get smaller and divest itself of some operations in order to repay the loan.

The plan that ING announced is that it will sell its U.S. insurance operations and its online banking company, thus raising some of the money to start repaying the government.

The rationale behind the EUs demand was that the company had to reduce its exposure to risk. There was also the feeling that the Dutch government had perhaps treated ING too lightly and thus gave it a competitive advantage over troubled companies whose governments did not treat them quite so well.

Contrast that with the kid-glove treatment that has been accorded Goldman, Sachs and JPMorgan Chase, among others. They repaid the TARP funds to the U.S. government and now its back to business as usual. In fact, business is better than ever since everybody now knows the government wont let these companies go down.

I know we hate to think that Europe has anything to offer us or can do anything better than we can. But considering what theyve done in regard to ING, I think its worth inquiring whether the EU has some cojones for rent.