Posts Tagged ‘Too Big To Fail’

A Depressing Analysis of the “Too Big To Fail” Phenomenon

June 25, 2009

Typing ‘too big to fail’ into Wikipedia gets this:

The Too Big to Fail policy is the idea that in economic regulation the largest and most interconnected businesses are “too big to [let] fail.”

The justification of Too Big To Fail (Henceforth abbreviated as TBTF) is essentially that a company can get so big that if it gets run incompetently, it will take down the entire economy, including all of us, and that this is really bad. My definition does not involve this justification. In fact, I think that justification is just an excuse, a distraction away from the real TBTF problem.

We didn’t get the bank bailout, after all, because politicians were concerned for the welfare of the people. We got the bank bailout because the banks asked for one. Politicians made little to no choice in the matter, except to get talked into it by lobbying organizations representing banks (and offering sweet reelection cash).

Which leads us to my definition of TBTF: An organization or group of organizations becomes Too Big To Fail when it gains the leverage to be able to purchase its’ continued existence from a third party even when it’s being run so badly that it should collapse.

The large banks, who essentially bribed the government into saving their asses, qualify for this definition. GM, in combination with their union, the UAW, accomplished the same, making them TBTF. In fact, all my TBTF businesses are also the government’s TBTF businesses.

But there is a difference – my analysis is predictive, because it comes with a theory.

Namely, that once a business is able to purchase TBTF power, that business can only collapse once the third party it’s purchasing TBTF power from collapses.

That is to say, I am predicting that the banks bailed out, and GM, will only be able to collapse once the government is bankrupt and no longer able to save them*.

So we’re looking at a number of supercorporations run by greedy, incompetent people, who can essentially keep getting rewarded for screwing up over and over, each time putting the government in that much more danger until finally the government collapses under corporate dead weight.

I told you in the title it’d be depressing!

Now, you may be wondering, “Well, so, are we all just doomed? What do we do about this?” Well, we might indeed all be just doomed. But the solution would be to cut down the power of any company big enough to effectively lobby the government by itself (like those banks), and to demolish any organizations coordinated enough to do the same (like, for instance, the RIAA).

Can that happen? Probably not. We’re living in a nation so utterly in the thrall of corporatism that the thought of actually controlling the entities that essentially run all our lives has become absurd.

So, yeah. Depressing.

*-It may be possible that this prediction could be wrong and yet the fundamental theory still correct, due to pricing modifications of TBTF power once invoked. In this event, verification of the theory would require much more in-depth examination of political corruption and campaign finance bribery. I hope this is the case, because this scenario offers a way for TBTF corporations to collapse possibly before the government goes with it.