Tackling “too big to fail”
Congress and the Obama administration are starting to look at how to deal with the failure of large corporations, the companies that are often referred to as “too big to fail.” There are currently dozens of proposals that are being looked over and a lot of debate on how big the legislation should actually be. Many of the plans seek to decrease the ability to overleverage assets and to combat risky behavior. Some proposals go as far as to allow regulators to actively meddle in markets and even restructure or shut down parts of firms. It has also been suggested that large corporations should be split up by default. All of the proposals of course move us further away from capitalism than we already are and are likely to be conducive to further crony capitalism and corporatism.
The whole debate is of course being stressed in light of the economic failures of the last year and the mishandling of the bailouts by the government. There is one issue that really should be discussed even before any proposal is considered- does “too big to fail” even exist? In capitalism, a failure of any large corporation would simply mean that other firms would pick up the market share if the demand for the product was still there. When there is demand, supply will always follow to meet it. Employment may go down temporarily, but as the market picks up, firms would hire more people as well. Markets are self-adjusting in this way. As for the process of dissolving failed corporations- that already exists. It is called bankruptcy. Any large corporation that fails can go through bankruptcy where other firms would be able to buy any assets that they want to invest in or acquire. Toxic assets that no one is interested in would be the only losses and no matter what the government does, those assets would still be losses under any failure plan.
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