Too Big to Fail

Leaders throughout society indulge in the criminal hubris of considering their institutions too big to fail in great measure because society indulges them by failing to hold them responsible for their socially pernicious behavior. It's not just Wall Street billionaires.

The current, endless recession—perhaps not a “recession” at all but in fact a retrenchment to Third World Status for the world’s last superpower—may eventually come to be recognized as a blessing in disguise…if society draws the appropriate lessons. Already enough is understood about the human complicity in provoking this needless disaster to make studying the causes of the recession (if that is all it turns out to be) essential reading for anyone interested in the future course of American and, indeed, global capitalist society. The greed soaked in the belief that failure was impossible is a moral tale that applies to foreign policy, health care management, and the way we treat our poisoned environment as much as it does to economics.

Can the recession earn its keep by teaching us to do a more socially responsible job of managing all major social institutions and policy structures?

No lesson is more important than the idiocy of “too big to fail.” While Bush’s Treasury Secretary Hank Paulson (the Goldman Sachs fox guarding the nation’s financial henhouse) may appear, as the result of his bailout of billionaire buddies, the prime example of everything that is wrong with how the revolving door Wall Street-Washington elite runs the country for its private benefit, even he had evidently realized, before the bailouts back at least as far as June 2008 that “too big to fail” was a dangerous mirage. Indeed, he reportedly stated in a speech in Russia that:

we must improve the tools at our disposal for facilitating the orderly failure of a large, complex financial institution [Andrew Ross Sorkin, Too Big to Fail (New York: Penguin Books, 2009), 178.]

One could debate whether or not he took his own words seriously when the crunch came, shortly thereafter or whether American society is yet remotely close to digesting the import of those words, but the recession is a textbook case for the importance of doing so.

The recession is not, of course, by any means the only such case, as any good Reaganite or member of al Qua’ida would no doubt be quick to point out: both groups take credit for bringing down the Soviet superpower, an empire of both sufficiently colossal size and imperfections to match AIG or Bear Sterns or Merrill Lynch any day. Too big to fail in the glazed over eyes of Brezhnev, Chernenko, and Andropov, the sudden, pathetic collapse of the communist empire looks all too much like those of the above-mentioned capitalist empires. Historians can argue over the degree to which Reagan’s wild spending on Star Wars, bin Laden’s Afghan crusade, or internal rot deserves the credit for destroying the USSR. The bottom line is the hubris that leads to the belief that one is “too big to fail,” which brings us back to the future of a certain society that is characterized by $100 million golden parachutes for CEO’s judged to have failed; global-scale environmental catastrophes resulting in great measure from intentional avoidance of known preventive measures; health care designed as a lucrative business for the primary purpose of personal profit; and four-trillion-dollar wars to build political empires (to distinguish them from the previously cited hydrocarbon and health care empires).

If big is good—and to both the US and the old USSR it was so defined, then bigger is better. To that must be added just one little wrinkle that may differentiate the modern world from old empire-building projects (Imperial Russia, Rome, Spain’s colonization of South America, etc.). Today, on top of hubris, one has moral hazard. “Too big to fail” amounts to the bosses evading responsibility. Presidents who declare war on false pretenses, oil executives who despoil huge chunks of the earth after cost-cutting on blow-out preventers, financial magnates who gamble with other people’s money leveraged to the max, or heath care executives who refuse to give coverage to poor people precisely because they are sick may occasionally lose their jobs but do so without paying. Indeed, they walk away sneering and rich.

“Too big to fail” now means “too big to be held accountable,” and that is the Achilles’ heel of Western civilization.

Paulson was right on target with his 2008 comment, except that really he should have omitted the word “financial.” All of society needs tools to facilitate the orderly failure of institutions deemed fatally ill. Consider BP…or Libya. As for the world’s last superpower, perhaps the process of developing rules for its failure (something of course totally impossible) would educate American society, provoking us all to figure out ways to deleverage our overstretch and strengthen our social collateral before the bills come due.