Friday, December 05, 2008

Too Big To Fail???

I think one of the biggest problems facing us in this current economic crisis is the idea that companies have become to big to fail, and therefore must be bailed out by the government. I am not saying that there are no companies that are too big or too important to fail, I am saying that we should not allow companies to merge thier way into an entity that is "too big to fail". Most of the big financials that are too big to fail have merged and acquired thier way into this situation with the blessing of government. This needs to stop immediately. We need to consider how big a company will become, and if they will be considered too big to fail before approving any mergers or acquisitions going forward.

Companies love to do mergers and acquisitions not so much for the additional profitability through savings, but for the ability to cook up there financial books up front when announcing the merger, and on the backend if they ever wind it down. All these acquisition related charges and charge offs kill transparency, and are part of the problem. If letting financial companies grow into a massive size is so effective at improving profitability, why did the biggies just about go bankrupt without a massive bailout? Where were all these additional profits to cover the bad times? Sorry, but I am not convinced that there is any advantage to letting financials get has big as they have, and it is most likely a huge disadvantage. Not only do we need to stop letting financials and other key companies merge there way into massiveness, I think we are going to need to force the break-up of many of them into smaller sizes with the ability to individually fail.

What has happened so far as a result of government actions is to grow these financials even bigger than they were before. We have WaMu, Wachovia, Merril, Countrywide, and numerous other companies merged into bigger stronger companies at fire sale prices to keep them from failing. While this may have been one of our only choices short term, it has actually made us more vulnerable to a repeat of what is happening. We now have even bigger financials than before the crisis that are actually way too big to fail. When the economy turns around, we must break up all of the large financial service companies into much smaller chunks. Smaller sized companies that can be allowed to fail. If we don't, sit back and watch a repeat of what is happening, except next time it will be much worse.



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