Keeping It Simple

In Johnson and Kwak’s “13 Bankers” they talk about breaking up banks that are “too big to fail,” and  they also mention that the best way to do this is through a solution that is “economically simple, so it can be effectively enforced”. This is an interesting concept but one I agree with. What is being suggested is that if determining if a bank is too big is too complicated than it is not going to be enforced. When a bank gets to be the size where it should be broken up, it is going to do everything in its power to stop that from happening, and it will have a lot of power.

This leads into another interesting point, that in situations like this it is hard to trust the regulators. Why should rules even be created when we can’t even trust the people enforcing those rules? Except we can trust them, as long as it’s not a judgment call. When you put a hard number into play, like what Johnson and Kwak are suggesting, then it is more likely to be enforced, the regulators can’t get away with any funny business, and businesses will be less tempted to try and bend the situation to get around the rule.

This lesson can be learned by all lawmakers. Although in today’s day and age it is tough to make simple laws to govern complex situations, when laws start to get too complicated they become harder to enforce. When we allow the enforcers of the law to make judgment calls we invite in the opportunity for corruption.

I’m am also not suggesting that all businesses are bad and are just looking to bend laws to make more profit, but giving them the opportunity to do so, isn’t helping. Most of us wouldn’t go out of our way to steal money but if we found a wad of cash in an alley we would definitely be tempted to keep it. Now I know that is an extreme example but the idea still applies. In the end, when laws are simple, they are easily enforced, and everyone plays by the rules.

This entry was posted in Business, Cases (Real World), Government, Uncategorized and tagged , , , . Bookmark the permalink.

5 Responses to Keeping It Simple

  1. eeewald says:

    I agree with you about big banks being bad for the economy and that there should be a clear definition of what constitutes an organization being too big. The only problem is what to do to the companies that are deemed too big. To my knowledge no one has come up with an effective way to reduce the size of big businesses that doesn’t adversely affect the economy.

    • RickE says:

      Companies will not be allowed to get to the point where they are too big (e.g. they can not be bigger than 4% of the US GDP), and the companies that are already too big, will have to find a way to split themselves up. I would think that when a company gets to a size like that they will be offering multiple different services, so they can divide up the company based on those. Its not going to be perfect process but I think it can work.

  2. tpm011 says:

    I agree that the simpler the rule the easier it is to follow. It is black and white and its easy to see when it isn’t being followed. I just don’t know how the government can go around and break up a company solely because they are big.

  3. csmb12 says:

    I agree. I think breaking up a company that isn’t a monopoly definitely has some legal hurdles. I would also ask what’s stopping a smaller company from still cutting corners in the business world? Just because they are no longer too big to fail doesn’t mean they might not try some sneaky investing practices.

  4. JWitty says:

    I likewise agree with the idea of putting some sort of extended regulation on larger banks. I imagine the larger banks would be adamantly opposed to this concept, as they believe its their primary duty to make profits and grow grow grow! While asking (read: forcing) any company to monitor its level of profits seems wrong on a corporate level, it makes sense on a social one. Forgive me for saying this, but I believe the state of the country is more important than the state of a bank. As an American, I don’t care how big you want your bank to be, I just want our economy to stand a chance

What do you think?

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s