Too Big to Fail? Or Too Big to Exist?

AIG is saved once, and then resuscitated again, because it is judged “too big to fail.” Billions are pumped into General Motors because it also is “too big to fail.”

I say step back and look at what “too big to fail” should have suggested long before the current financial cliff edge was reached: If it is too big to fail, it is too big to exist.

Capitalism rewards successful innovation and efficiency; saving what has rotted is antithetical. I realize, of course, that by the time AIG was infused, there may have been no choice. GM, on the other hand, may have been DOA. This week, according to The New York Times, auditors expressed “substantial doubt'” about GM’s ability to survive “even if it received all $30 billion it hoped to borrow from the federal government.”

The past is past; I am now talking prospectively.

Corporations, sine qua nons of capitalism, reward their stockholders and employees though policies that seek growth and accumulation of profit. Although we have anti-trust laws to prevent over-concentration of corporate power, “free market” advocates abhor governmental intervention, and in recent years, they have gutted regulation.

But there are benefits to splitting up behemoths. Our communication system was actually improved, and innovation was spurred, when in 1984 AT&T was forced to split into seven independent companies.

A corporate monster will not voluntarily watch its weight. Keeping the leviathan from selfishly overeating and destroying the loch is our government’s job.

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3/16/09 follow up:  A shorter version of the above appeared in print today as a San Francisco Chronicle letter to the editor.

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4 Comments on “Too Big to Fail? Or Too Big to Exist?

  1. I have a very capitalistic point of view when it comes to these big companies being kept afloat- WHY??? If they aren’t profitable, why do they need to stay in business? It seems so simple, but I understand that there are many downstream effects for the businesses that these companies deal with. But still. Why must I pay to keep a company going that has driven itself into the ground?

  2. Thanks for saying so succinctly what so many of us have struggled to adequately express.

    Even the baby bells were eventually large enough to inspire criminality. Ebbers, Nacchio, Winnick et al. gave us a taste of too big and too unregulated nearly a decade ago. Too bad we didn’t see Hobbes’ writing on the wall.

  3. Hard to believe that we save em and save em and save em until there is so little left to save…intervention in Chrysler was a bad idea then, and a worse idea now…amazing fun facts:

    the total cummulative profits of GM since founding is? yes, ZERO.

    Similarly, the total amount of the “stimulus package” is equivalent to the to the sum total of monies spent in IRAQ war 2 thru 2010.

    The stock market has given back over one half of all gains since the absolute bottom in 1932 at 41, yes you read that right, forty one in the DOW, in 1932.

    Now how ya feeling? Hug your children, the dream is gone.

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