On January 30, we learnt that CLICO, part of one of the largest Caribbean conglomerates, approached its government for assistance to deal with a liquidity crunch. The memorandum of understanding (MoU) that was signed is the clearest agreed statement of intent in the public domain.

The CL Financial group (CLF), of which CLICO is a part, is not publicly listed, so information is scanty. But we can harvest detail by implication from the MOU.

It cites the principals as the government of the Republic of Trinidad and Tobago (GORTT) on the one hand, and CLF on the other.

CLF is defined as "acting for itself and as agent for its affiliates" to include Colonial Life Insurance Company Trinidad Limited (CLICO), CLICO Investment Bank Limited (CIB) and British American Insurance Company Trinidad Limited (BAIC).

rehabilitation effort

In its intervention and rehabilitation effort, GORTT negotiates with CLF for financial services elements of the group.

The MoU undertakings straddle the entire group. Financial vital signs of CLICO, CIB and BA threaten themselves, depositors, policyholders and creditors. Their size in the twin-island state's financial services sector transforms the group's liquidity problems into systemic threats.

The idea 'too big to fail' emerges, so GORTT must intervene to avoid this. The question we must ask for the future is whether the idea 'too big to exist' has surely come.

The group owns and/or controls holdings in activities including insurance, banking, money manage-ment, methanol production and real-estate development among others. As it turns out, the MoU speaks to its selling all shareholdings in Republic Bank Limited, Methanol Holdings Trinidad Limited, Caribbean Money Market Brokers Limited (CMMB), and all or any of their other assets as may be required to achieve rehabilitation.

Obvious from this small fractional list of assets for the auctioneer's hammer and block, is the spread of the group's activities.

Compared to Jamaica's indigenous financial services sector, which went belly up in mid-1996, CL Financial's interests are decidedly more diverse - straddling the range of financial services and real-estate sector activity with Caribbean-wide and international reach.

Former Bank of Jamaica governor, Jacques Bussierres, once lamented the dilution of core competence and the risky decisions that non-arms-length group transactions encourage. The Trinidad Express tells us this fear was reality in the twin-islands.

"Flawed strategies saw CLICO's parent company, the Lawrence Duprey-led CL Financial conglo-merate, shift billions of dollars of policyholders' funds to other projects in the group," the newspaper reported.

This is the issue with which we have to deal, not only here in the Caribbean, but in the whole capitalist world. The Wall Street meltdown unambiguously demonstrates this. Alas, if only some with influence should abandon their blinkers and look!

CLICO and BAIC, under Trinidad's 1980 Insurance Act, are in breach, apparently, for several months now, of Statutory Fund requirements.

Reserves moved from surplus in 2006 to an adjusted deficit of TT$10 billion today. Trinidad's central bank governor, Ewart Williams - in classic bank-speak - says the group's financial position is "much worse than we envisaged".

CIB, the investment bank, has an imbalance of third-party assets and liabilities in its portfolio. But the big clinker is that some of the statutory fund assets, coming from the parent company CL Financial, are described as "practically worthless".

significant assets

Normally, an insurance company holds significant assets that grow, or should do so every month, as investments provide returns and premium income continuously rolls in.

A life-insurance company, like a Las Vegas banker, should never lose.

The company's actuaries, risk analysts and investment professionals are there to see to this. The issue: Balance risk with prudence in deploying liquid funds continuously placed at the company's disposal.

So, the financial services regulatory system failed.

All business history tells us that left to their own devices, stables of unregulated, inter-connected fin-ancial services supercentres run into trouble. We are not even talking about fraudulent Ponzi schemes à la Madoff, or alternative investment schemes à la Cash Plus. Stock markets, for all the algorithms, mathematical sophistication, super computer speed and precision we boast and deploy today, still boil down to human herd instinct.

The bull metaphor evokes confidence approaching euphoria. A bull's other characteristic is panic, stampede.

CL Financial performed fantastically in the past; its CEO described as genius, a wizard at investment decision-taking.

All this may well have been true. But just as absolute power corrupts in the political sphere, so too, Midas' touch in a huge group leads to hubris - the more so if surrounded by an adoring public gripped by euphoria coupled with a dash, even a mere speck, of greed.

Amid euphoria, can you imagine a board member opposing acquisition of one of the gems on offer when his objection can be defended only by reference to 'prudence'?

He'll soon be the skunk at the party, off the cocktail invitees' list. Then the board itself!

From London to Basle to Washington, Mumbai and Kingston, we have over the years, stumbled upon regulatory systems.

We create firewalls, provide oversight, and inspect books. We create rules, appoint umpires and referees with power. But we often don't use them; don't enforce regulations, particularly when players grow large and game changing innovations occur.

How could CLICO be in breach of statutory reserve for months?

Now, the reserve problem appears simple: plug the reserve dyke by selling Republic Bank, which is expected to net TT$8 billion.

GORTT has already injected TT$1 billion. But other issues have to be tackled. Some of these are thorny: conflict among shareholders, government and opposition.

Once settled, there are still the public policy and governance issues that allowed failure in the first place.

Jamaica created strong legislation with oversight but needs more. Trinidad has a longer way to go. Seemingly its piggy bank is more robust. Nevertheless, try we must to really get it right this time.