Too Big To Fail Break It Up - Road to the Middle Class

NOBEL PRIZE-WINNING economist Joseph Stiglitz usually produces left-wing screeds hungrily devoured by the Angry Left. But now he’s produced a sensible idea, as Maya Jackson Randall reports.

If financial firms are too big to fail, them maybe we should break them up into firms that aren’t too big to fail.

"We have little to lose, and much to gain, by breaking up these behemoths, which are not just too big to fail, but also too big to save and too big to manage," said 2001 Nobel Prize recipient and Columbia University Prof. Joseph Stiglitz

That’s what Stiglitz told Congress.

A principle like that would certainly be better than the century old anti-trust laws that can never quite decide how big is too big or too uncompetitive.

But we can’t leave the government out of this admirable plan. After all, a big reason for the recent meltdown was the government’s clumsy efforts to gun the credit system, as in:

Fannie and Freddie spraying cheap credit around to create “affordable” housing
Alan Greenspan (and now Ben Bernanke) spraying money around at the Fed

So let’s break up the government. It is certainly “too big to fail, but also too big to save and too big to manage.” To coin a phrase.

There hasn’t been enough thought about this. Governments are always getting bigger trying to gun the economy out of a recession, or spray some subsidy around, and the result is to create an unsustainable boom and systemic risk.

But don’t expect Joseph Stiglitz to suggest that maybe the government should scale down and get out of the credit business and leave it to the bankers, who understand it.

Let’s not forget that J.P. Morgan solved the 1907 crash without gales of government cash and without shredding the dollar.

Maybe he knew something that all these government and university experts don’t

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Christopher Chantrill blogs at www.roadtothemiddleclass.com. His Road to the Middle Class is forthcoming.

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