Too big to fail

Or maybe not

The "Too big to fail" theory in banking and finance holds that certain institutions are so large and so interconnected that their failure would be disastrous to the greater economic system, and therefore should be supported by government when they face potential failure. The obvious problem with this theory is that it puts the government in the business of picking winners, and as noted in October, 2009, by Sheila Bair, at that time the Chairperson of the FDIC:

“Too big to fail” has become worse. It's become explicit when it was implicit before. It creates competitive disparities between large and small institutions, because everybody knows small institutions can fail. So it's more expensive for them to raise capital and secure funding.

Research has shown that banking organizations are willing to pay an added premium for mergers that will put them over the asset sizes that are commonly viewed as the thresholds for being too big to fail.

These days, banks are not the only institutions that are inching toward failure. Some corporations, evidently hell-bent on improving their ESG (environmental, social, and corporate governance) score, are embracing woke policies that at the same time are turning off many of their customers.

Likewise, government agencies including the CDC, DOJ, EPA, FBI, and FDA, have let politics run rampant to a point where no honest observer can ignore that their missions and work products have been irreversibly damaged. Sadly, we can also add many public school districts to this list, as concerned parents are finally fighting back against ridiculous curriculum and library policies.

One wonders how bad things would have to get for Anheuser-Busch, Disney, the Dodgers, and Target, before they stop doubling down on Woke. After all, most board members are themselves part of woke institutions. I’m afraid that the stock prices would have to take a disastrous drop before anything changes. And by then, it will probably be too late.

Indeed, the conventional wisdom of taking advantage of the cratering stock price of Disney (as compared to 2021) is being met by realists who argue that the brand may never come back to what it was.

At any rate, it seems very unlikely that the government would prop up any of these organizations, if for no other reason than to avoid setting a horrific precedent. Besides, the government is probably the biggest example of “too big to fail” there is. Countless agencies have failed in their supposed missions yet survive to waste even more money the following year.

Consider, though, that a day of reckoning could be approaching, and it will be judged more prudent to let failing institutions just fail. After all, resources are NOT infinite, and even Job eventually ran out of patience. That day could arrive sooner than you think.