Alice in Wonderland expanded like a telescope after devouring cake marked "Eat Me," growing to such a size that her head bumped against the ceiling and she could no longer fit through the door.
A number of iconic businesses have seemingly found a similar magical elixir causing them to expand to such a size that they can no longer fit through the doorway of bankruptcy.
"Too big to fail."
How many times have we heard that lately?
- Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) had to be taken over by the government (after years of telling us the government had no hooks in them) because the reverberations of failure would shake the very foundations of our financial system.
- American International Group (NYSE:AIG) had become so hopelessly entangled because of its investments in complex financial instruments, that unless the government bailed it out -- three times! -- the building blocks of Western civilization were at risk.
- We're letting Goldman Sachs (NYSE:GS) and American Express (NYSE:AXP) change their business models solely for the purpose of grabbing fistfuls of taxpayer cash.
- General Motors (NYSE:GM) traipsed up Capitol Hill to plead its case that if it is allowed to fail the ripple effects would be cataclysmic throughout the economy.
In each instance, wrack and ruin were predicted. It seems the only solution was for taxpayers to pony up billions, perhaps trillions, to keep them all afloat. After all, they're too big to fail. We can debate the finer points of how we got into this situation later on, the apologists will say, but right now we've got to do something.
Now Citigroup (NYSE:C) is stumbling toward oblivion. With half of its value wiped out in just three days of trading and 53,000 jobs on the chopping block, the whispers were loud enough that the bank "had" to receive another $20 billion from the healing hands of the taxpayers while also being shielded from losses on its bad loans.
It could be that those wanting a bigger role for the government are right, but if we're going to buy into their argument that using taxpayer money is the only way to save these companies, then perhaps we need some mechanisms instituted to prevent them from getting so large in the first place.
Perhaps we could make our economy look like a Brezhnev-era Soviet Union.
Maybe executives need strict salary and compensation caps to stop them from taking excessive risks to secure their excessive pay packages. Maybe we ought to limit the business a company can transact to prevent it from becoming so entwined in the economy that we are unable to extricate it without taxpayer assistance. Perchance executives and boards of directors need to be held personally liable for the damage they allow their companies to inflict.
But, really, we shouldn't want to impede how successful someone can become. And if we can't stop a company from growing "too big," then we can't pretend that a company is too big to fail, either.
There's no bottle labeled "Drink Me" that companies can take a swig from to shrink in size. They need the guidance offered by the risk of failure to rein in their excesses and that means we need to acknowledge that no company is too big to fail.
