from OurFuture.org:
If It's "Too Big to Fail," Then It's Too Big to Be PrivateBy David Sirota
March 3rd, 2009 - 12:57pm ET
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I appeared yesterday at the top of Neil Cavuto's Fox News show to discuss the potential for financial industry nationalization.
You can watch the clip here. I tried to use the opportunity to float a fairly simple - and old-fashioned - concept: If something is "too big to fail," then it's too big to be in private hands.
The term "too big to fail" is a euphemism for any institution that is so important to the entire nation's most basic well being, that society cannot let that institution fail. This is why one of the foundational principles of civilized society has always been nationalization - i.e. government control - of the institutions that are "too big to fail": institutions like the military, whose failure would mean a basic loss of national security; law enforcement, whose failure would mean a basic loss of civil order; and infrastructure construction, whose failure would mean the crumbling of commerce. The government, as the most powerful representative of society as a whole, runs these institutions/services because they are too important to be allowed to fail.
Unfortunately, the hard-right and center-right ideologues who ran the government for the lat 30 years gutted the basic laws and enforcement mechanisms (financial regulations, anti-trust prosecutions, etc.) that prevented a myriad of financial institutions from becoming "too big to fail."
The American Insurance Group is the best example of this - a company that, as the New York Times notes, essentially based its business on a risky scheme to sell insurance to other corporations against colossal housing market failure. This allowed huge banks and investment houses to effectively offload their own absurdly risky housing investments by "insuring" those investments against loss with AIG - a shuffling of paper and deep-frying of books that let those banks leverage themselves even more, sans regulation. When the housing bubble burst and the banks called in their insurance, AIG was asked to pay up, and it couldn't, because it never expected to have to back up its insurance policies. But because AIG was so big - because it had so singularly cornered the market on such insurance and had essentially become the insurer of last resort - it couldn't eventually pay up, its failure would result in a cataclysmic ripple effect of defaults. ......(more)
The complete piece is at:
http://www.ourfuture.org/blog-entry/2009031003/if-its-too-big-fail-then-its-too-big-be-private