Thread: Too Big To Fail

was looking for a good article on companies and being too big to fail and i found one i think does a decent job and makes a few good points.

Originally Posted by Dave Lindorff

he one thing we are not hearing from Congress or from incoming president Barack Obama in the current economic crisis facing the country are the words "anti-trust" and "public ownership."

From the moment the crisis first struck, with the near collapse of AIG, the mantra has been that companies like AIG, Morgan Stanley, Merrill Lynch, Citibank, etc.--and more recently General Motors Corp. and Ford--are "too big to fail." That is, it is argued that these companies are so huge that if they were to collapse into the rubble they deserve to be, it would damage the nation irreparably.

The question is, if that is genuinely the case, why were they allowed to be that big in the first place, and why aren't we rethinking that policy?

It's not as though they got that way through organic growth by being successful at what they did. Hardly. GM was the quintessential result of a merger of smaller automakers. Ford grew too, by acquiring the competition, most recently Volvo. Most, if not all of those acquisitions were first vetted and approved by the Federal Trade Commission and found to be acceptable as a matter of economics and public policy.

In the banking industry, which is regulated, the picture is even worse, with the government first opening the door to the creation of national banking companies, and then routinely approving the gobbling up of one after another regional or even national bank by another. At some point we reached the point where the giants in the industry--Citibank, JP Morgan Chase, Bank of America, Wells Fargo, etc.--were able to say, when they ran into trouble, that allowing them to fail would have dire consequences for the national economy. This kind of extortion should never have been allowed to happen.

First of all, the argument for national banks never made sense for ordinary people, and wasn't necessary for large customers either. Large corporate fundings have always been done by bank consortia, and this could have been accomplished with the nation's banking industry fragmented into small state-chartered institutions. Meanwhile, small businesses and individuals always lose when a bank is national in scale. It is much more costly to handle the banking business of small enterprises and individual families than it is to handle the business of huge corporate clients, with the result that the major banks have made it costlier and costlier for small customers to do business with them.

The answer is clear. Bigness is fundamentally bad when it comes to capitalism. There is a point where any company in any industry becomes too big for it to be socially acceptable. Big companies not only attempt to behave in a monopolistic fashion by destroying or buying up the competition, both nationally or, as in the case of a retailer like WalMart or a bank like Citibank, locally, using their huge financial power to locally underprice the competition and drive them out of business (after which they are free to gouge the local customer base). They also ride roughshod over local political interests, demanding tax breaks, zoning waivers, etc. This being the case, the government should simply not be allowing corporations to achieve such scale and market dominance.

Companies, whether banks, car makers, or media companies, should never be allowed to grow to a point that they become "too big to fail." If that can be said about any company, whether because of the assets it holds, or because of the number of people it employs, it is time to break it up.

Think of GM. If GM were ripped up into six or seven competing companies, it is certain that at least one of those smaller entities would be producing electric cars by next year. The Saturn plant already made one, the Impact, that was wildly popular (see the excellent documentary "Who Killed the Electric Car"), and if left to its own devices to sink or swim, could probably be cranking those out in volume for the 2010 model year.

Some companies would certainly fail. But that's what is supposed to happen in a capitalist system.

This piece is not meant to be a paen to capitalism. But having said that, if you're going to have capitalism, which is the ruling ideology here in the US of A, you have to let it function as intended. As soon as the government comes in and starts encouraging the establishment of monopolies or quasi-monopolies, and preventing the failure of poorly managed enterprises or dying industries, as it is doing in the case of the banking and automotive sectors, it is no longer true capitalism.

Originally Posted by Dave Lindorff

There is, of course, another reason that companies should never be allowed to become "too big to fail." That is political clout. The US political system is already largely an owned-and-operated subisidiary of corporate America. When companies become as large as AIG or GM or Bank of America, they also gain a disproportionate influence over the political apparatus that is an order of magnitude larger than their share of the national GDP. It's not just that they have limitless money to donate to political campaigns. They also, by their size, are able to dispense political favors in virtually every congressional district, much as the Pentagon has been doing for the past half century, and also to threaten national havoc if they don't get their way.

http://www.commondreams.org/view/2008/11/12-1

He goes into the idea of public control as well, which i don't agree with. But i do agree with anti-trust and lets break up bigger companies into smaller ones. Not only will you have more competition, but like he said, should you have an AIG type CEO, they can't get taxxpayer money because they would no long be too big to fail.

I still think people are greedy and it may backfire and see the companies work together to screw the consumer (which i feel alot of businesses do). I don't like big business, but i think we could see less screw the consumer for personal gain, and more respect the consumer to get the edge with smaller companies.

Free markets need some control, anti-trust regulations (being enforced) would fix alot of the problems our economy runs into, in my opinion.

anyways, just my thoughts. discuss, share your ideas etc etc. the usual

I have said since August that the bottom line is this:
Do we believe in capitalism or not? Because if we do, bailouts are out of the question. In capitalism, businesses fail. Big ones, little ones, medium ones, they can all fail. It is part of the process. It is an important part of the system, in fact. Capitalism does not promise a rose garden. It promises you freedom to sink or swim on your own skill, talent, and luck.

You guys should come here to Europe if you want to see what over regulation of everything does to an economy. It ain't pretty in a lot of ways.

anti-trust is hardly over-regulation, it just says "hey wal-mart, gotta break it up you can't control 90% of your industry" when you have 5-6+ entities in the market of near similar size, its much better the one giant that can collapse a whole market.

Look at the AT&T break-up, i don't see the telecom industry needed bailouts, nor do i hear about Quest or Pac Bell struggling and losing billions of dollars.

Hell even in economic theory it is said that a monopoly and monopolistic competition rarely operate at optimum efficiency.

Originally Posted by Nuckle

Originally Posted by Gumby

You guys should come here to Europe if you want to see what over regulation of everything does to an economy. It ain't pretty in a lot of ways.

Wait a minute, Triggerhappy makes out like you guys got it whipped and we are sucking ass over here. Please tell me it aint so. I thought everything was better across the pond.

LOL Nuck, I almost posted something like this but second guessed myself and decided not to flame, even in jest.

LMAO

Originally Posted by Nuckle

Originally Posted by Gumby

You guys should come here to Europe if you want to see what over regulation of everything does to an economy. It ain't pretty in a lot of ways.

Wait a minute, Triggerhappy makes out like you guys got it whipped and we are sucking ass over here. Please tell me it aint so. I thought everything was better across the pond.

Not at all. I advocate a system that lies between capitalism and socialism. That aside, I agree with the article completely.