No Company Should Be Too Big to Fail

According to Treasury Secretary Hank Paulson, the biggest Wall Street banks now getting money from the government are just "too big to fail." Fed Chairman Ben Bernanke uses a different euphemism: he calls them "systemically critical." The point is that if any of them goes down, it could take the whole financial system with it. So we taxpayers have to keep them up.

We're hearing the same argument elsewhere in Washington for saving General Motors. It's just "too big to fail." So members of Congress are considering a bailout that would keep GM afloat and sweeten a merger between GM and Chrysler.

Pardon me for asking, but if a company is too big to fail, maybe just maybe it's too big, period.

We used to have public policies to prevent companies from getting too big. Does anyone remember antitrust laws? They were used on behemoths like the Standard Oil Trust at the start of the last century, and subsequently AT&T. They broke up giant concentrations of economic and political power.

But somewhere along the line antitrust laws started to narrow. Policymakers decided that antitrust would only be used where there was evidence a company had so much market power it could keep prices higher than otherwise.

We seem to have forgotten that the original purpose of antitrust was also to prevent companies from becoming too powerful -- not just in the narrow sense of keeping consumer prices too high, but too powerful in a larger sense. Too powerful in that so many other companies depended on them, so many jobs turned on them, and so many consumers or investors or depositors needed them that the economy as a whole would be endangered if they failed. Too powerful in that they could wield inordinate political influence of a sort that might gain them extra favors from Washington.

Maybe the biggest irony today is that Washington policymakers who are funneling taxpayer dollars to these too-big-to-fail companies are simultaneously pushing them to consolidate into even bigger companies. They've prodded Bank of America to take over Merrill-Lynch and Countrywide. They've pushed JP Morgan to acquire Washington Mutual and Bear Stearns. And now they're quietly urging General Motors to absorb

Chrysler.

Policymakers assume that these moves will make the consolidated companies less susceptible to economic stresses. They don't seem to see the consolidated companies will become even more powerful.

We're ending up with even bigger giants, with even more power over the economy and politics. They're already subsidized by taxpayers, and they'll continue to get taxpayer help whenever they get into trouble. In short, they're guaranteed never to fail because they're just ... too big!