We haven't found anyone yet who likes the fact that the US taxpayer had to bail out so many Wall Street firms and financial institutions a few years ago. Unfortunately, those institutions fell into the category of "too big to fail", meaning that if they did fail, they would bring the rest of the economy down with them. And if that had happened, we'd all be scrambling to stay afloat. So, regrettably, leaders of both political parties had to hold their noses and go forward with the bailouts.

But has anything really changed since 2008? The Dodd-Frank bill has added some necessary oversight, but if any large financial firm invests too heavily in unregulated derivatives that go bad (which caused the 2008 recession in the first place), aren't we still in the same boat?

It seems to us that if a firm is too big to fail, then it's too big to exist. So how do we change things? The current Congressional GOP leadership is in bed with Wall Street, so we can't look to them to do anything. But there's an approach that Progressive Republican Teddy Roosevelt used back in the early 1900's to bring competition and fairness back to the marketplace. Remember the Sherman Anti-Trust Act? Isn't it time for the Justice Department to dust off our anti-trust laws and start breaking up some of these Wall Street behemoths?

(image from reuters.com)

There are two clear benefits to using the anti-trust laws in this fashion. The first is what we were just talking about: if poor management or lack of effective controls at a firm is going to cause that firm to fail, then that firm should be allowed to fail. If you blow your life savings at the casino, can't pay your bills, and have to go into bankruptcy, do you think the federal government is going to bail you out? No way. But taxpayers will have to continue bailing out the big financial industry failures if the result of those failures puts the economy at risk. And the only way those big boys can't crash the economy is if they are smaller than they are today.

The second benefit of using the anti-trust laws is over a hundred years of conventional economic wisdom: more firms mean more competition, more competition leads to more efficient operations, and more efficient operations leads to lower prices for the consumer. So the taxpayer benefits in two ways: a) your tax dollars won't have to be used to bail out inept business people, and b) increased competition will force these firms to be more efficient and to provide their goods and services at a lower cost.

Even the business press is starting to consider whether our financial institutions are too big. A few quarters ago when JP Morgan lost a couple billion dollars on bad trading practices, there were many articles questioning whether an operation of that size really could be managed and controlled properly. Many argued that those firms were so large, upper management no longer could keep track of what was happening.

The folks in upper management at those firms should applaud this strategy as well. After all, if one firm is broken into three, for example, there would be a need for three Chief Executive Officers, three Chief Financial Officers, etc. More job opportunities for a lot of qualified executives, who will get their shot at running departments or whole businesses, rather than having to settle for positions that are below their capabilities.

To sum it up, then, let's start the discussion on breaking up any firm that is too big to fail. The government and the U.S. taxpayer shouldn't have to be in the business of saving companies from themselves. Let a larger number of smaller firms compete with each other and we'll all be better off.

Home About Us Contact Us