Too Big to Fail? Or Too Big to Exist? [Redux]

In light of the recent JPMorgan Chase $3B trading loss and the unrestrained chaos that was the Facebook IPO, I am republishing a blog post from 3/7/09. Over three years have passed…and it appears no lessons have been learned. What was trenchant then is just as relevant today.

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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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One Comment on “Too Big to Fail? Or Too Big to Exist? [Redux]

  1. Sadly, you’re right when you say it’s as true now as it was when initially written. Critics might point to the BS profits GM is supposedly posting, but they failed to force the unions to necessary concessions, and I wouldn’t be caught dead owning GM.

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