Out of bare necessity, bank mergers between giants are being conducted. The Treasury Secretary and Federal Reserve Chairman, along with the FDIC are abetting marriages of mammoth financial asset pools for the sake of securing stability across the regulated monetary system.

It’s difficult to see how this won’t have to be unwound as part of the reconstructive regulation package that is yet to be considered and built. If they can achieve stabilization and have it hold, the US will be left with staggering amounts of its financial assets and related monetary system risk, in a relative few hands (rough figures have JPM, BAC, C & WFC holding approximately half the nation’s deposits, bank loans & credit card debt).

Risk concentration is the recipe for what killed the financial markets and the stabilization process will put us in a similar set-up. Making this brew more tenuous is the ownership interests the US is prepared to take in financial institutions as part of the compromise between politicians. A few banks holding market shaping authority and the federal government financing the arrangement as owner begs the “J” word….Japan.

Distributed risk is a cornerstone of a safe, prudent and sustainable banking system. This isn’t lost on the Treasury/Fed tandem either. If the politicians clear the road and let the digging-out work get done, we’ll come to the reconstruction phase. At that time, it’s going to be clear to the informed policy makers that what they’re left with – a handful of banks owning most of the capital and the risk – won’t work in the tomorrowland of a better way for modeling a free market financial system.