Too Big to Fail: A Gordian Knot

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If a business is too big to fail, is it the job for government to cut it down to a size that at least will not take the whole economy down if the business fails? If it is too big to fail, does it not have too much power in the market place and does it not have a competitive advantage because it will not be allowed to fail? Let me hasten to add, I am a market guy and read on, please.

Remember back to ATT when it was broken up into the baby Bells. Ma Bell, once everybody’s phone company, was a “natural monopoly” that had been permitted by the government. In 1984, it was split up into many regional companies. The consequences were a dynamic telecommunications business and an explosion of technology. To a somewhat lesser degree, we’ve seen the same thing with the public utility companies.

Now I’m thinking about Bank of America, Citi Bank and others which we have been assured are too big to be allowed to fail and in some cases were either forced or encouraged to swallow other financial institutions. In a way the government “made” these companies too big to fail. In some cases they endorsed mergers that were questionable. Remember when Citi and Travelers Insurance merged? The Federal Trade Commission approved that merger of giants. All Americans are paying the bill for that cluster-mess.

Is it time to deregulate America’s massive financial institutions and perhaps let them (force them?) break up into regional companies? The Obama administration has of course gone in the opposite direction by passing Dodd-Franks and other regulation. The new regulation seems to have caused a further “seizing-up” of the financial system. The winners of the over-regulation are of course the lobbyists, the politcos and the giant financial firms that have seen the bar raised very high to additional competition. Everything always turns out golden for Goldman. Must be some kinda law.

I believe in the market but now after years of massive government interference, political pressure and regulation, the country is saddled with these massive financial institutions for which taxpayers are on the hook. How is the market ever going to deal with it? It wasn’t market forces that got us into this mess.

Mr. Milton Friedman had very specific ideas about the role of government and free markets. Let’s listen to his wisdom:

There’s truth in that Friedman clip. Would it surprise you economist Lawrence Summers has referred to Friedman as a “devil” figure? This is the same Summers who along with Christine Roemer and Tim Geithner set policies for Obama that empowered government, spent insanely and failed massively by any objective analysis. Roemer and Summers have moved on, replaced by new big government proponents. Tiny Tim and his new helpers are still digging. Put the big government shovels down, morons.

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texasgalt
Texas native. Conservative small businessman with 31 years experience. Government should roll back the nanny state. No country can tax its way to prosperity. The question isn't who will let me but who will stop me?

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E Pluribus Unum
Admin
August 30, 2011 9:45 am

The left loves to meddle incessantly and regulate the crap out of business matters they have no knowledge of. Then when it goes off the rails, they stand back, as if they had nothing to do with it, and cry “Look! See? The free market doesn’t work, we have to step in and fix this mess!”

Rogue
August 30, 2011 7:50 pm

Well Done TG.
Even AT&T while a somewhat natural monopoly grew under the protective wing of government. Right-of-ways and other things were given to the ONE the government had chosen. Regulations favored them.
In the end breaking them up seemed an insurmountable challenge until it was done. Imagine going back to $0.25 per minute with scratchy noise talking to Aunt Martha in the next state!!
My Dad worked for them after the breakup as a systems analyst. Helping to make them efficient.
Government ALWAYS screws it up.