The Fruits Of Deregulation: “Too Big To Fail”
By Justin Gardner | Related entries in Economy, History, LawRobert Reich says what other fear to:
According to Treasury Secretary Hank Paulson, the biggest Wall Street banks now getting money from the government are just “too big to fail.†Fed Chairman Ben Bernanke uses a different euphemism – he calls them “systemically critical.†The point is that if any of them goes down, it could take the whole financial system with it. So we taxpayers have to keep them up.We’re hearing the same argument elsewhere in Washington for saving General Motors. It’s just “too big to fail.†So Congress is considering a bailout that would keep GM afloat and sweeten a merger between GM and Chrysler.
Pardon me for asking, but if a company is too big to fail, maybe – just maybe – it’s too big, period.
But Robert…wouldn’t that be…socialism?!?
Well, of course not, and my apologies for the straw man there, but I’ll point you to John Cole for an example of what is and isn’t considered socialism these days.
But back to Robert’s point…maybe, just maybe, the laws we had back before these institutions became “too big to fail” made a whole hell of a lot of sense…
We used to have public policies to prevent companies from getting too big. Does anyone remember antitrust laws? Somewhere along the line policymakers decided that antitrust would only be used where there was evidence a company had so much market power it could keep prices higher than otherwise.We seem to have forgotten that the original purpose of antitrust law was also to prevent companies from becoming too powerful. Too powerful in that so many other companies depended on them, so many jobs turned on them, and so many consumers or investors or depositors needed them – that the economy as a whole would be endangered if they failed. Too powerful in that they could wield inordinate political influence – of a sort that might gain them extra favors from Washington.
My thought? The era of deregulation is over. Time for something different. What that will be I have no idea, but maybe we’re looking at a 21st century New Deal built around more common sense controls of the marketplace.
Maybe.
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October 21st, 2008 at 5:01 pm
Justin,
And the “Too Bigness” as well as the too much influence of these select few companies has been all to apparent during these critical times. The stressful times have also accelerated both of these factors, as shown by Goldman Sachs’ role during the negotiations for the bailout package, the fact that so many important figures involved here were once top officers in G.S. sure makes it apparent how much influence it has on our Govnmt.
If you saw 60 minutes last Sunday, you wouldn’t have missed the CEO of Bank of America telling us that since the economic meltdown the amount of new account holders in his bank have risen, what, 60% is it? He boasted that B.O.A. now holds at least one type of account for nearly one half of the general population – can it be that high? That’s ridiculous and talk about unintended consequences – that’s scary stuff.
October 21st, 2008 at 6:21 pm
The question is, how will they regulate companies from becoming “too big”?
October 21st, 2008 at 7:01 pm
Leap, the government will decide how big is too big. And actually, your strawman holds pretty true, Justin. It is a socialist policy for the US government to nationalize a transportation manufacturer, just like it’s socialist policy to take control of major financial institutions. Folks, we’re already there, and both presidential candidates–who are both heavily influenced by representatives (official and otherwise) of Goldman-Sachs–ate it up with a spoon.
October 21st, 2008 at 7:59 pm
Those government sponsored enterprises buying up all those subprime loans under mandate by the government and then selling the mortgages as securities with fraudulent ratings assigned by the government were too big to fail too.
The government has created this cycle of financial failure for which the government has decided that more government is the answer. This is called the road to serfdom.
October 22nd, 2008 at 11:42 am
You are right about Fannie and Freddie, Jimmy. But if you are honest, you would admit that they are only part of the problem.
You don’t think that Phil Gramm’s bill exempting credit default swaps from regulation had anything to do with this crisis? Warren Buffett (who knows more about economics than most people) disagrees with you.
You don’t think that the SEC’s lack of oversight of investment banks had anything to do with this crisis either? Or the Bush administration’s use of an obscure 1863 law to preempt state action against predatory mortgage lenders?