Too big to fail? Nonsense. Let them fail.

Why do I get this creeping feeling Treasury Secretary Tim Geithner wants to save the entire financial world? He spends lots of time finding new ways to prevent people and companies from failing.

Funny, I thought the right to "fail" was part of our social and economic fabric. But we're consumed with some new myth that we must save the likes of AIG and General Motors and Citigroup because they are "Too Big To Fail."

I don't buy that for an instant.

We've somehow rallied around this TBTF mantra as if big bailouts, taxpayer rescues and grotesque deficits are the best way to revive our economy. Quite the opposite. We make it more likely to populate our economy with giant, zombielike corporations bloated with federal taxpayer ownership and hounded by cranky congressional second-guessing.

AIG's financial tentacles could have been unwound in a carefully controlled, prepackaged bankruptcy — without committing $182 billion in U.S. taxpayer funds to prop up the insurance giant.

General Motors could land in a controlled bankruptcy — one that mandates some financial haircut from everyone tied to the company — and even emerge stronger than it will ever be carpooling in subjugation to Capitol Hill every few months seeking another rescue loan from taxpayers.

Citigroup is not too big to fail. More likely, the government (and world financial system) is too overwhelmed to let it fail. It's easier to infuse companies and industries with taxpayer funds — in effect delaying the possible days of reckoning — than to bite the bullet now.

The more government subsidizes losses and bad decisions of poorly run companies, the more better-run businesses are weakened by unfair competition. When Wall Street's Lehman Brothers was allowed to go under last year, it scared the government.

Geithner argues many global institutions are now too big to fail because of "systemic risk" — the idea that a big bank or corporate collapse would cause a domino effect of failures.

But that's what Geithner needs to fix: a financial system unable to handle failure.

So, yes, fix the system. And good grief, let them fail.

The treasury secretary stated it himself in testimony last week before a congressional committee: "Our financial system and the major centralized markets must be strong and resilient enough to withstand very severe shocks and the failure of one or more large institutions."

Here's the rub: If you don't let anything big fail, how do you know the system does not work?

How striking was this past week's decision by Sweden — America's favorite punching bag for westernized socialism — not to support Swedish carmaker Saab in its time of bailout need.

Sweden's answer: "The Swedish state is not prepared to own car factories."

Taking capitalist lessons from Sweden? Gee, you mean we don't have to bail everybody out? I hope we listen.

Robert Trigaux can be reached at trigaux@sptimes.com.

Too big to fail? Nonsense. Let them fail. 03/28/09 [Last modified: Saturday, March 28, 2009 4:30am]

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