Two suggestions for fixing the “too big to fail” problem

Sure, I’d like to see Congress and the President “deal with the “too big to fail” problem, but I can’t help but be amused at the irony of the care keepers of the too-big and always failing federal government tackling this problem.

I don’t give the Congress and the President much luck, but I’ll skip the reasons why because I realize not everyone is interested in history or tax policy or how those companies got too big to fail in the first place or how, if you really want to deal with things too big to fail, you’d come to the conclusion that Walmart needs to be broken up into regional Baby-Walmarts.

But if they are serious about fixing the problem, I’ve suggested not one, but TWO solutions to the “too big to fail problem” on this blog.

In March, I wrote this about my lost faith in things too big to fail:

“Personally and professionally, I am and have always been, a small business person. I have identified with and favored small and independently run businesses and institutions of all types: small towns, small schools, small restaurants. However, I’m also a pragmatic realist and understand the benefits to the nation and world of large, synergistic, productive and efficient institutions of finance and commerce. However, the whole “bigger is always better” thing has now been exposed as a nice theory, but a failed reality. Why? Because all the algorithms and information technology and most brilliant programming in the world can’t overcome the bugs of greed, hubris and randomness that can best be summed up in the vernacular, “sh*t happens.” How did we get to this place where massive corporations that have enriched the investment bankers, lawyers, investors and executives who profited through merger after merger now must be rescued by taxpayers because they are “too big to fail”? If they are too big to fail, I suggest we demand back the legal and banking fees and executive bonuses, etc., that were doled out to those who made the companies “too big” in the first place. Alas, that won’t happen. So the only thing we can do is refuse to believe the investment bankers and executives who, no doubt, will continue their mantra that bigger is better, even when it’s not. For the rest of my life, I will believe that a company is too large when its CEO can’t explain every way it makes money, including any exotic financial instruments on which it might slap a label like ‘derivatives.'”


Suggestion #1: The CEO Too-Big-To-Fail Exam. Require CEOs to pass a test (make, say, at least a 70) in which they are quizzed on how their company makes money. If they flunk, the company is deemed to be too big to fail and it must be broken up. My favorite part of this test will be when CEOs are asked how much a gallon of milk costs or what the closing fees are on a small business loan.

About a year ago, I suggested the idea of a “Too Big to Fail List”:

“I think there should be a “National Commission on Companies too Big to Fail.” If we are going to live in a land that claims to have free markets except for when — for whatever reason (that is someone else’s fault) — there are companies that need to play the “we’re too big to fail” card in order seek loans or other bailouts from the government, then we need to go ahead and set up a “pre-commission” on the topic. I think if this commission determines a company is too big to fail — say, hypothetically, Walmart is determined to be too big to fail because it employs 2 million Americans — then such a company should be required to choose whether or not to opt into the “we’re too big to fail” category of companies. If the company opts in, it would be required to hold certain cash reserves and be subjected to a higher degree of fiscal transparency than most publicly traded companies. During good times, these too big to fail companies would also be required to pay into the Too Big to Fail Trust Fund. When bad times happen, only companies who have opted in can apply for a Too Big to Fail government bailout. If you’re too big to fail and haven’t paid into the Too Big to Fail Trust Fund, too bad.”


Suggestion #2: The Too-Big-Too-Fail Trust Fund. And just think of all the fun tricks Congress and the White House could play to use that “lock-box” to make the federal deficit look balanced-ey.