One of the terms that I want to never hear again after this crisis is over is "too big to fail". If there is one thing that I want the American economy to never again face is any company that is viewed as "too big to fail". Our country has created all sorts of entities that are now too big to fail. Both Fannie/Freddie were created by the government, and it was the government that allowed them to dominate mortgage securitization and thus became too big to fail. Banking deregulation allowed financial institutions to be able to sell a major variety of financial products. It also lead to a period of consolidation and mergers. As such, we created a series of financial institutions, and with it a whole financial system, that was too big to fail. Finally, the auto industry it self is to vital to fail and so, with only three American players, all its players are too big to fail.
In the future, the country must do everything that it can to prevent ever again being held hostage to any company that can demand a handout by proclaiming that they are too big to fail. Never again should the country be held hostage to the corruption and incompetence of AIG and Citigroup. From now on, our economy must rid itself forever of any company that is too big to fail. I am not only a capitalist at heart but a true believer in free markets. Nothing is less capitalistic or free market than a company that is too big to fail. Such companies enjoy advantages that other companies don't. Furthermore, they have an inherent moral hazard as each of these companies expect to be bailed out if they fail because they are too big to fail.
In my opinion, the Sherman Anti Trust Act is one of the most important laws in the history of our nation. It is one of the greatest protectors of the free market. That's because it keeps companies from getting so big that they stifle competition. Some companies that fell under the discretion of Sherman include Standard Oil and AT&T.
Yet, the Sherman Act also put a lot of power and discretion into the hands of the government. In its idealistic it protects competition, but in reality it is open to abuse by any out of control government. So, Sherman could be updated to include any company that is too big to fail, but that update would also be open to abuse.
Such a law would be in many ways the anti thesis of everything I believe in. To update Sherman to include companies that are too big to fail would consolidate an obscene amount of new power in the hands of the government. As such, a new law would have to be narrowly defined to determine just how it would be determined that a company is truly to big too fail.
In fact, Sherman wouldn't even necessarily need to even be updated. Regulators already have to give green lights to mergers, however, these regulators allowed companies like Citigroup to grow so big that they became to big too fail. I believe there is room here for constructive legislation that can also be crafted so that power doesn't spin out of control. I do know for sure that to big too fail must be a thing of the past. Whether that is through new legislation or through a more refined regulatory attitude, our government must be committed to ending such companies.
Please check out my new books, "Prosecutors Gone Wild: The Inside Story of the Trial of Chuck Panici, John Gliottoni, and Louise Marshall" and also, "The Definitive Dossier of PTSD in Whistleblowers"