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What’s wrong with “Too Big To Fail”                                                                                    

Posted at: Feb/12/2009 : Posted by: mel

Related Category: Economics,

There are a lot of good places to point fingers at while we stare at the disaster that used to be our American Economy. I believe strongly in capitalism. In capitalism if you are successful, you succeed and grow, if you make bad choices, you lose and potentially become a vague memory in business history. Yet our financial industry spent decades gobbling each other up until we were left with a few mega banks and financial institutions. It is a credit to their successes in the past that they could grow on that scale. Becoming big apparently does not exempt you from foolish decisions and now many of these banks want bailout money. I see the importance of keeping these banks afloat, but I am bothered by the notion that we are now in a position were we have to do just that. When a bank or other business becomes “Too Big to Fail” we have a recipe for disaster. That business no longer has to make smart decisions to survive. If they make a good decision they make more profit, if they make a bad decision they get to stand at the front of the bailout line. If you are a parent, you know that a major part of what you teach your child is the responsibility and consequences for their actions, good or bad. We now have a situation where institutions with the label "Too Big to Fail" don't have to suffer the full downside consequences for thier decisions and actions and this is fundamentally wrong to me. Since bank mergers all warrant federal oversight and approval, it would appear as though this concern might need to be part of that oversight decision.

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