by Mike Masnick

Filed Under:
bailout, too big to fail

Why Aren't We Trying To Solve The Too Big To Fail Problem?

from the getting-it-wrong dept

Last year, with all the talk of companies being "too big to fail" and governments bailing out such companies left and right, we had what seemed like a simple suggestion. Recognizing that it is possible for a company to be "too big to fail," in an intertwined economy, because the fallout would create even more problems, we suggested that a requirement for taking government money would be to become small enough to fail. That could mean spinning off parts, selling off parts, shutting down parts, exiting businesses, shrinking businesses -- whatever. There just needed to be some sort of guarantee that within a certain time frame, the company wouldn't be so tied up that if it failed it would bring down the rest of the economy. And, if a company didn't want to deal with those restrictions, then fine, it didn't need to take gov't bailout money.

The idea didn't get much traction (not surprisingly), and now some are pointing out that the opposite seems to be happening. Our solution to dealing with companies that are too big to fail has been to make them bigger and bigger, and pass off the question of "too big to fail" to other politicians in the future -- at which point the problems will likely be even bigger and harder to deal with. Propping up companies that are too big to fail, without a clear path towards making them small enough to fail, is a recipe for a future disaster.

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  1. identicon
    Anonymous Coward, 13 Mar 2009 @ 7:33pm

    Re: Re: How big is too big?

    And the next question is whether socialism can actually save it. The free market died when capitalist organizations begged the government for funds.

    But the problem with large businesses (and IP monopolies) is that they are best at eliminating any market, much less a free one. The irony is the best business in a free market is quickly rewarded by becoming the only business. Then they are too big to fail.

    Is there an economic system that doesn't depend on greed or power?

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