Eric Harrington – Too Big To Fail (the new monopoly..)

Since October of last year, over a trillion dollars has been given to companies deemed to be too big to fail.  The simple explanation of this term is that such companies are so large, so pervasive in the US economy that to let them fail would create more harm to the economy and supporting industries than would be gained by thinning the herd of their uncompetitive deadweight.

So why exactly are companies ALLOWED to get to big to fail?  Mergers are routinely scrutinized under antitrust law to determine if they will create a company too big to compete.  Why not too big to fail?  Why are we continuing to allow companies to merge over and over again until they create the behemoths like GM and Citicorp that are small economies in themselves? The disturbing irony of the recent TARP bailout is that not only did we bail them out, but they used the money to buy up smaller (small enough to fail that is) failing banks making them even bigger and more protected from failure under the current mindset.  And they bought their ex-competitors with our money.

It’s very similar to the motivation of small countries to acquire nuclear weapons.  Their possession makes a country too dangerous to attack.  In America, just get big enough and you become invulnerable to failure.   Frankly, we have more to fear from this mindset than from nukes in the hands of Iran.

If we can currently prevent a merger because it is deemed to be detrimental to competition, why not prevent one that is dangerous to the economy as a whole? If we can break up a company like AT&T to prevent a monopoly, why not B of A or GM,  so that those companies success or failure from cannot be hung around the neck of the populace, like a trigger connected to the heart rate of a suicide bomber. “If our company dies, everyone goes down with us!

Not only is the principle of too big to fail detrimental to our national health, but it is contrary to all the principles the free-market fundamentalists hold dear, and for once they are right.  In part that is..  The market doesn’t work if companies are insulated by the government from their actions.  The only long term solution for the too big to fail syndrom is to stop companies from getting that large and even splitting them up if they already are.  At a minimum,  it should be a required for anyone being bailed out becasue they are too big to fail…

~ by Eric Harrington on September 25, 2009.

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