Why Some Companies are Too Big To Fail

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DETROIT - NOVEMBER 18: Signs stand in front of the General Motors world headquarters complex November 18, 2010 in Detroit, Michigan. GM returned to selling its newly issued stock to the public today as they resumed trading on the NYSE. The stock sales are expected to generate approximately $23 billion for General Motors. (Photo by Bill Pugliano/Getty Images)

Every country has a set of great companies and trusted brands. But among those companies, there are always an elite few that not only stand head and shoulders above the competition, but have become part of the country’s history. Think of the great American car manufacturers such as Ford and General Motors, investment banking titans such as JP Morgan, and nostalgic retail brands like Coca Cola. These companies are inseparable from America’s national identity, and have a place in every patriotic American’s heart.

In addition to preserving historically significant brands, another compelling argument for protecting a nation’s best companies is the maintenance of financial stability. When the question of whether to bail out key financial institutions such as AIG and Fannie Mae came up during the financial crisis of 07-08, the argument that these companies are the bedrock of America’s financial system prevailed over conservative opposition. Since then, many of the world’s financial institutions have been classified as Systemically Important Financial Institutions, or SIFIS, indicating that their failure is likely to trigger a financial crisis, and that they should therefore be protected.

Yet another strong case for protecting established companies is the preservation of jobs. In 2009, our government made a strategic investment in GM, in order to prevent the bankruptcy of one of America’s most treasured companies, and this rescue package is estimated to have saved 1.2 million jobs. Again, the argument prevailed that losing this company would be a tragedy for both America and the company’s employees and shareholders.

Die-hard conservatives argue that no company should be immune to failure, but this does little to address the concerns of millions of Americans about what would happen if we were to lose our most valued and instrumental companies. Americans want to know that their bank deposits are safe, and that their jobs are protected. They want to know that great American brands such as Kelogg’s and Apple and American Express will continue to serve their children and  grandchildren, just as they have served us. Average Americans are consoled by the knowledge that although some failures are allowed, our most cherished companies and brands have been immortalized, and will continue to live and thrive for decades and centuries into the future.

1 COMMENT

  1. Agree…but it’s even deeper. Some may call this fascism or corporatism or crony capitalism or communism…a merger of business and government, but they miss the boat.

    For EVERYONE’s good, government SHOULD merge with business…we get the benevolent oversight of government and its responsiveness to the people along with tasty products and unique opportunities for merchandise. Remember, a patriot CONSUMES…our economy and national health are built upon consumption. Those who are saving are really just terrorists attempting to bring down America.

    Real Americans borrow and spend and support the economy. And if the whole system threatens to go tits up, government is there like a big brother, always strong and steady, and at the ready to borrow if you can’t or don’t want to.

    Corporations provide us with an executive class to look up to. And, after time, when one generation of executives retires, their children are there to continue the brand lineage. This is what is good for America and the middle class, continuity and stability of brands.

    It’s too much work to find a good restaurant, so Americans seek out chains with predictable menus. This limits risk and risk is risky. It takes all the hard thinking out of choosing what to consume. Thinking is known to be dangerous, especially with the rise of alternative media and dangerous information.

    • Yes. There is room in America for some small businesses, but the majority of customers should be serviced by a handful of vetted, trusted brands that have been serving Americans for decades. This way, we get predictable, high quality service and do not have to choose from thousands of companies for a single service or product. A little bit of freedom is ok in economics, but too much freedom just causes chaos.

      And yes, consumers build economies, not ‘entrepreneurs’. Where do conservatives think businesses get their profits from – that’s right, consumers! Consumers and spending are the life blood of the American economy. Outsourcing has taken care of manufacturing, so we can focus on building a service economy, which we are much better at. We have a consumer economy now, and saving is just counterproductive.

  2. To regain our economic competitiveness, however, we must face up to a hard truth: capitalism is a failure. Therefore, if we are to build a fair and just society, we must have the courage to seek new solutions. And a promising solution is at hand: public-private partnerships.

    By combining government efficiencies and funding with private-sector oversight, we can stimulate wages; we can improve social services; and we can ensure fairness and equality. By infusing billions of tax dollars into business and infrastructure, public-private partnerships would put millions of Americans back to work!

    Only through political involvement can we ensure the same thorough standards as public agencies — including strict labor and environmental standards. The moment for business by and for the people is now!
    #PPPWayForward

    • Totally agree Arch. Capitalism has failed repeatedly, most notably in the crisis of 07-08, which was due to lack of regulation. Without government involvement in business, wages fall to starvation levels and work hours increase exponentially. Companies also feel no responsibility to hire people, and many of our young people cannot even find jobs relating to their college degrees. How is that fair? Think about it – you study hard, take out a student loan and graudate with a college degree, only to find that society doesn’t value your qualifications? It’s just not right, and our government needs to force companies to employ these graduates.

  3. Big business is good for America and the world. For instance, General Motors. during WWII, it’s interests were split up by the combating powers during the war such that the American, Canadian and British parts of the corporation served the Allied war effort and Adam Opel AG served the Axis war effort. IBM is another example of such noble diversity. We are a global village after all. Small business is simply incapable of such visionary actions. The PERSONS who guide big business are obviously superior, and therefore too big to fail.

    • Very good points Bayer. It is rare for a small business to do anything of national significance – only large companies have a track record of involvement in philanthropy and state programs to promote the greater good. Another example is JP Morgan’s involvement in the food stamps program, which feeds millions of poor Americans.

      • People often overlook the influence that JP Morgan has had upon this country. They are one of the pillars of American soceity, and were key in helping to establish our finicial system we have today. They even more important today then in the past, just look at how much the banking industry adds to our GDP, and JP Morgan is a linchpin to the system. Even the CEO, Janie Dimon, of this really important company takes time away to occasionally come Congress to help advise them in handling really important money things. I am for grateful for them and all they do for myself and my country. Imagine with out them we would lose even more then just food for the poor, we would also not have someone to let us borrow money when we want to buy stuff. Don’t get me wrong though their are many other great companies that have massive influence today, MDB just happen point out a swell one and wanted say that they are really important. That is also why should do our best to protect them as community.

  4. This was a great article, many thanks to the talented team of researchers and academics who compiled this seminal report.

    I wonder if they have any thoughts on the newly forming theory of Systemically Important Individuals? Individuals like Bill Gates, or Hillary Clinton, who are so crucial to our way of life and the sustainability of our civilisation that we would all benefit from appointing them special powers and facilities?

    Looking forward to their thoughts!

    • Fortunately, Hillary at least will shortly enjoy 24/7/365 *full-spectrum* protection from the Department of the Treasury’s *very finest*…

      😉

  5. Take Deutsche Bank, for example: – the proverbial turtle, bearing the whole ‘world’ of the EU & Eurozone economies on it’s broad, noble back.

    It is simply *inconcievable* that such a systemically *vital* giant should be allowed to fall if, for example, *anything* were to happen to, say, it’s $47Tn derivatives book.

    • Their total derivatives involvement is actually some where around $51 Tn, which actually is proof in the level of trust and confidence placed in there systematically important institution. Over the last few years they have been a key player in helping stabilize the countries of Portugal, Italy, Greece and Spain. They are also supported and backed by one of the economic powerhouses of the EU, Germany and their respective citizens. Clearly, as the largest bank within the EU and the vast assests untrusted in their hands, it displays the well deserved faith placed upon them. The Germans should be proud of their ability to create such a influential institution, and they clearly display it by backing it with their hard earned incomes in the form of deposits.

  6. I love the truly educated,thoughtful and erudite comments.I agree that the economy is angry and we should spend to calm it down, saving is never a good thing.