Companies “Too Big To Fail” Should Be Illegal

25 11 2008

In this, the land of eternally capitalistic motivations, companies have learned that to be dominant, or at least competitive, it’s better to be big. Big gives you economies of scale. Big means you’ve bought up your competitors and, by default, now command more market share. Big apparently also means that you are unnaturally immune to the detrimental aspects of taking extreme risks or incompetent management.

Yes, today the new corporate nirvana is reached when your company has been deemed to be too big to fail (TBTF).

Looking at the current economy and the behemoth players flailing for rescue I understand the mutual benefit that necessitates saving them. We as a country cannot function without their continued existence. I get it. I understand we are backed into a corner on this and that we (and of course by “we” I mean our government) must save these companies from their own excessive greed and criminal negligence.

However, if a company has been deemed “too big to fail” and we are required to rescue it I would like to suggest the application of one of two mandates.

  1. Any TBTF company receiving government bailout money must be divided into two or more smaller economically non-critical corporations.
  2. If it is not feasible to divide the TBTF company then it is apparent that the company in question has grown so large that it can no longer assume ultimate responsibility for its own actions. Since that responsibility by default falls onto the shoulders of the American public such a super critical company must, by necessity, become a part of the federal government.

These sort of sanctions would solve the TBTF problem but would also serve to act as a deterrent to companies (*cough* auto industry *cough*) from looking for free handouts just because the government looks like it’s in a giving mood.  Additionally all government regulatory bodies that review corporate mergers (like the FDIC, FCC, FTC, SEC, etc.) be required to consider future deals with the TBTF test in mind.

Maintaining healthy competition among equals would go a long way towards strengthening our economy and would inspire new innovations. It would also encourage companies that feel they are above the laws of capitalism to rethink the risks they assume knowing now that if they fail their company will be divided or absorbed into the federal government.

What do you think? Do you have a better idea?

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6 responses

26 11 2008
benafia

I like your ideas. They address the runaway train wreck that predatory capitalism represents when it has no controls for when the train outgrows the tracks.

That we are expected to pick up the pieces and help the contraption get back onto the tracks as is, is unacceptable.

Well, it will be accepted if we do not keep these issues before the public. The view around, that white collar jobs must be preserved at all cost, while blue collar (or unemployed) should be looking out for themselves and not expect saving grace from Big Brother, does hint at a contradiction of intentions and interest.

How that unquestioned prevailing societal paradigm keeps who is who in proper to it order of importance.

27 11 2008
Barbara

This was well said. Why would/should the government support the bailouts of eventual monopolies? After having read some interesting material, it seems their is too much investment from said companies that are going straight to capital hill. So another loophole to close is the lobbyist loophole. 😦

The big 3 is another problem in and of itself……

29 11 2008
Bryan

my sentiments exactly! however the privately owned FED wouldnt like it too much…

3 12 2008
UUbuntu

I came here from your Onegoodmove link. Thanks. Honestly, I hadn’t really considered the concept of government ownership of any company deemed too big to fail (in exchange for a bailout) until viewing the video there and reading your post.

Your post makes sense, though before it ever happens, we (as the USA) need to decide what we expect from our government. Unfortunately, only libertarian conservatives seem to offer a concise coherent vision of government (only border defense and internal policing), which sounds sweetly persuasive until you realize it actually makes no sense. Until we accept that the basic expectation of government should go further than “protection of property” toward a paradigm of “protection of people” we will have difficulty persuading many folks that public ownership of TBTF companies like GM or Fannie Mae is really in their interest.

Your post made me think about this. Thank you.

26 10 2009
euandus

How about relying not only on regulations, but also considering Paul Volcker’s advice from experience: being too big is itself a problem that can and should be remedied? I’ve just posted on it at http://euandus3.wordpress.com/2009/10/25/bigger-banks-too-big-to-fail/

You might want to read the article I read: http://www.msnbc.msn.com/id/33477077/ns/business-the_new_york_times/

26 10 2009
Too Big To Fail Redux (or) There Really IS A Regulation Fairy!!! « The Gospel of Super Jesus

[…] my memory serves me I seem to recall writing a little ramble nearly a year ago that suggested that it should be illegal for any company to become ” too big to fail”.  I might have even suggested if a company deemed “too big to fail” requires government rescue […]

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