Big to Fail the Phrase "Too Big

¶ … Big to Fail The phrase "too big to fail" is a term used to describe certain institutions that are so large, interconnected and significant to the American economy that their failure would be disastrous. Because of this perception American public policy has evolved into government support for these institutions when their frequently poor management, greed, and risk-taking behaviors put them in jeopardy.

A partial list includes: Fannie Mae, Freddie Mac, AIG, General Motors, Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, GMAC, Chrysler, Goldman Sachs, Morgan Stanley, Bank of America subsidiaries (Countrywide), U.S. Bancorp, Capital One, Regions and SunTrust. The issue of taxpayer funded bailouts for institutions deemed too big to fail is one of the most controversial subjects that can be brought up. Bailouts for U.S. automakers like GM and Chrysler can at least be credited with saving jobs of U.S. employees.

By preventing massive layoffs, bailing out these too big to fail companies kept additional people from being unemployed and further crippling the U.S. economy. Unlike the financial institution bailouts, bailing out the automakers not only saved jobs but resulted in restructuring that makes future bailouts less likely. Many people believe that companies should never be allowed to grow so large to begin with that their demise threatens to collapse the entire U.S. financial system.

Just as we expect the government to protect us from external enemies who threaten our national security, we also have the right to expect that our government will stop financial institutions from blowing up our economy.

Given that our elected officials don't have the spine to pass legislation to break up companies that are too big to fail or to stop them from ever growing to that point, at the very least, they have an obligation when passing out our tax dollars for bailouts to set conditions for companies to receive bailout funds. Any company applying for corporate welfare should be willing to be held accountable for how they spend our tax dollars.

To their everlasting shame, the Bush administration gave billions to banks, but never considered demanding that bonuses be curtailed for Wall Street executives and traders who trashed the economy. Even worse, there was no requirement that the money be used to assist homeowners with underwater mortgages. The hypocrisy of arguing that defaulting homeowners should not receive government assistance, but banks should, is stunning. Neither position necessarily makes for good economic policy, but at least there should be a certain level of consistency and hypocrisy-free logic that applies to bailouts.

Or how about requiring that bailed out firms pay their tax bills? Bailout firms were required to sign contracts stating that they had no unpaid taxes, and yet investigations have shown at least 2 companies owed more than $100 million dollars each, with 11 others owing lesser amounts.

If their executives obtained bailout funds under fraudulent conditions, as apparently they did, why have we not heard about these people being sent to jail? For anyone who argues that the best way to manage too big to fail institutions is to regulate them more closely, those folks have yet to propose a system where that regulation works as it is intended to. Not only can financial institutions afford to hire the best and brightest talent to find ways around any proposed legislation, those.