Too big to fail, but so is the pack


The 13 Bankers article really struck me because I haven’t heard of so much proposed government intervention in the business sector before. Breaking down companies into smaller, more manageable pieces so that they won’t hurt the economy, seems to be an aggressive step on the government’s part. Having said that, I understand where Johnson and Kwak are coming from. From reading the AIG case study, I can see where the company was just taking large amounts of risk, that the company should definitely have known was far exceeding their ability to pay off their liabilities. Though I’m against so much government intervention as to break down companies because they are too big to fail, that’s not my main issue. My issue with their solution is that if you don’t change the current thinking climate, breaking up companies isn’t going to work.

Say we did break up some investment banking companies up into a company for each market sector they invest in. My question is, what’s the difference between having one large company fail or have 10 smaller companies fail? If we don’t fix the way upper management thinks and their propensity to view investments in the short-run, companies are going to continue to get slammed whenever the economy takes a hit. Once that happens, these companies could quite easily fail. When this happens, the economy is going to have a number of smaller companies that together have the same impact on the economy as one large company such as AIG. If Johnson and Kwak wants the government to keep close tabs on companies, breaking them up is not the way to go about it. They should allow for closer regulations of the business decisions being made by the companies.

Advertisements
This entry was posted in Uncategorized. Bookmark the permalink.

What do you think?

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

WordPress.com Logo

You are commenting using your WordPress.com 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 )

Google+ photo

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

Connecting to %s