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Too Big To Fail * What's Up With That?

By Edited Nov 13, 2013 1 0

Most of us non-economic experts don't understand the complexities that make up the business world, but we're of course able to speculate and form opinions. We hear phrases like "too big to fail", and don't know (nor want to know) what creates these situations and what resulting problems there would be if they were allowed to falter. We know if we have a small business that doesn't succeed, we have cut our losses and come up with a new plan, as would our employees.

Wikipedia states:

"Too Big to Fail is a phrase referring to the idea that in economic regulation, the largest and most interconnected businesses are so large that a government cannot allow them to declare bankruptcy because said failure would have a disastrous effect on the overall economy."

There doesn't seem to be a political stance that can prevent this from happening. Conservatives want less regulation of industry that in turn would negate control over mergers and acquisitions, which allow these monstrous companies to swell uncontrollably; liberals would ideally stifle big business and prevent thriving to the point they're incapable of employing the thousands of workers in many cases.

Moral hazard is when a company doesn't accept the consequences of risk-taking that goes wrong. Most agree that it shouldn't be the responsibility of the public in these circumstances. It seems the monitoring of financial institutions after a successful bailout will be a matter of opinion by any watchdog, as they'll have the task of saying what is or what is not too risky. Loan by loan is obviously impossible. Drawing the line between probable future failing transactions and deals that will be successful would be a crapshoot at best. The chance of governmental officials outwitting some of these financial geniuses is not in our favor, as these regulators would probably be working for far better wages in the private sector if they were comparatively that capable.

Anti trust litigation and lawsuits between companies are nonstop these days. These cases are complex and not understood at all by us mere mortals and probably by most judges if the truth be known.

If I had solutions to these issues I might be spouting them like the politicians do at the drop of a hat. At least I know I don't know and don't claim understanding concepts that are beyond me. We might be better served if many of our Congressmen, many of which have spent their entire careers being politicians, would admit they don't have the wisdom to provide the absolute solutions that they claim are a slam-dunk.



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