Solutions To "Too Big To Fail"

2278 words - 9 pages

The term “too big to fail” refers to the corporations which will be bailed out by the federal government if they are at risk of going under. These corporations are too big and too interconnected with the world economy that in the case of bankruptcy, their collapse would cause widespread economic and societal turmoil. Though many agree these companies are important to ensuring economic stability, some argue that if a company is “too big to fail”, they shouldn’t exist at all. Alan Greenspan, former Federal Reserve Chairman, was quoted saying “if they’re too big to fail, they’re too big” . Systemic risk relates back to the issue of corporations being “too big to fail”. Systemic risk is the risk of an entire financial system (or entire market) collapsing, opposed to just one segment (or entity) of the market. Companies within a market become so connected that if one were to fail, the entire market would be likely to deteriorate.
Like Alan Greenspan, I think that corporations should never get too big that the federal government must bail them out. I believe that companies, whether they are financial or non-financial, should be held accountable for their actions. If their actions lead them to bankruptcy, these companies should face the consequences of either liquidating their assets or reorganizing their company under Chapter 11 of the Bankruptcy Code. Also, I understand that it is difficult for the federal government to stand by while a company goes under when it is known that the entire economic system will be harmed. Knowing this, I still have confidence that the economy is built to fix itself and overall the economy would be healthier without the threat that these companies create. During an interview with CNN, William D. Cohan, the former Wall Street senior banker, disclosed that he believes that “‘too big to fail’ is a very bad concept for capitalism” . Like Cohan, I think that the government should take a laissez faire approach to regulating economics.
There are many ethical issues raised by “too big to fail”. First, companies who are “too big to fail” lack the incentives to act ethically. Their corporate governance standards may waiver and they have little fear of filing bankruptcy. These companies are well aware of their presence in the national economy. Additionally, the idea of “too big to fail” is a type of crony capitalism. The government takes a capitalistic approach when they allow the corporation to become as big as it is, yet the government interferes when the corporation poses a threat to economic balance. In crony capitalism, the corporation and the government form a bond which benefits both parties. Crony capitalism is unethical because these bonds give advantages to specific companies while others are treated differently. In most cases, crony capitalism occurs between businesses such as those “too big to fail” and governments who bail them out.
The many criticisms and ethical issues of “too big to...

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