Discuss: Putting Too Big to Fail..out to Pasture..

The more I learn about the too big to fail mentality in our culture, the more I get confused about what to do. Both arguments for and against this concept can be are summarized below and are both quite compelling. Maybe you readers can help me get a grip.

Many Americans subscribe to down with Too Big to Fail (TBTF) and use a straightforward, populist argument. The free market is designed to weed out companies that are inefficient. They believe that the Obama Administration and the last one went too far in using taxpayer funds to bailout banks, car companies, insurance companies, etc. deemed TBTF by the government.

Then, there are others who take the I know, but… approach with TBTF. Their reasoning? Many of the companies bailed out were so large and had their reach ingrained into the economy so far that to turn a blind eye would affect more than the direct company. Take the US Automakers, for instance. Letting GM and Chrysler fail would not only affect those who work for the company, but your local GM and Chrysler car dealerships would disappear. So would those who supply them. Auto part stores would be severely threatened with the decrease.

A similar fate would affect the troubled banks, but it’s scarier because most people don’t know who is managing their 401(k) plan. Generally, unless you work for a financial-services firm, your company outsources the managing of your 401(k) funds to an external company (which is a good sign too, because it means your company is focusing its resources on what they do best.) Could you imagine turning on the news one day and finding out some obscure financial management company is on the fritz only to find out that they've been gambling with your money that you've dutifully saved paycheck after paycheck, year after year?

I think the best way to eliminate TBTF is to keep companies from getting too big to begin with. I realize the dangers of this though—what’s too big, and who decides? As a believer in market capitalism, I’d like to say we can let the companies police themselves, but let’s be honest—they won’t until they get caught. And in my recent foray into competition (anti-trust) law, companies collude all the time without the government knowing at all until it’s too late. Everybody is against bailouts of course until it’s their future at stake. Then they want to government to “act up(!!)” So breaking up banks and spinning off car companies into smaller units is the idea. And I’ll leave how they do that up to the experts—but what do you guys think?