Saturday, September 20, 2008

Too Big to Fail

In a generous $85 billion gesture of corporate socialism, our federal government has decided to bail out AIG, the failing insurance industry giant. The government, which was already in pretty deep financial trouble, will finance the transaction by passing the cost on to the U.S. taxpayers, essentially forcing us to buy billions of dollars worth of bad debt.

The stated reason for the bail-out is that AIG is too big to fail. Apparently, if AIG were to collapse, it would have devastating worldwide consequences. Maybe it would -- I can't say, since I don't really know anything about finance or economics -- but I do have a question, and that question is, how can one corporation get that big? Or more to the point, should a corporation be allowed to get that big?

Advocates of unregulated free trade will enthusiastically say yes, but I have my doubts. You could take half of Western Europe, blow it off the face of the Earth, and it probably wouldn't have the same disastrous worldwide economic consequences that failing to bail out AIG would have. And I'm not convinced that a single corporation should have more of a global economic impact than half a continent.

But the truth is, if you got rid of Spain, Portugal, Switzerland, Italy, Austria, and Belgium, the rest of the world probably wouldn't suffer much financially. As a matter of fact, you could throw in all of Scandinavia and it still probably wouldn't matter that much from an economic standpoint.

But before you get the wrong idea, I'm not advocating that we blow up any part of Europe or Scandinavia. Even though the financial consequences might be minimal, those countries are rich in culture and history, and the loss of all that would be something that no amount of money could ever compensate for.

But the real issue here is not the financial clout of AIG or Europe or Scandinavia. The real issue is that I wish I were too big to fail. If the government were willing to bail me out anytime I made a series of stupid mistakes, I'd be a very wealthy man. And I wouldn't need $85 billion either. As a matter of fact, I wouldn't even need $85 million. I'd be very happy with $8.5 million, but the truth is, I'd be quite content with $850 thousand. And even though I don't want to sell myself short, if you talked me down to $85 thousand, I'd still feel very fortunate.