Too Big to Fail = Big Enough to Regulate

“Too big to fail is the right size to regulate.” That quip from Representative Al Green, D-Texas, pretty much sums up my take on the new financial regulations suggested by Treasury Secretary Tim Geithner.

Not THAT Al Green

A quick, straightforward and successful argument–if banks, megainsurance conglomerates and other entities typically supported by private funds expect to receive (or actually receive, even if they don’t expect or claim to want to receive) public funds when times are tough because allowing them to fail would crash the US and world economy, that’s reason enough to regulate the heck out of them–ensure they’re pursuing long-term stability rather than risky short-term profits.

That argument’s good enough on it’s own. But we might also draw an analogy with theme park liability. If visitors expect to receive (or at least are legally entitled to receive, even if they don’t consciously expect to receive) compensation if they’re injured at Dollywood, it’s OK for Dolly to stipulate and enforce safety requirements inside the park.

Or we might articulate and test a general principle: When A’s behavior threatens not only to harm A, but B as well, B should be able to limit said behavior. Driving recklessly puts not only the driver at risk, but also other drivers, pedestrians, passengers, etc; thus it’s OK to regulate driving. Owning a tactical nuke puts not only the owner at risk, but also his neighbors (indeed, his extended neighbors), and even future generations; thus it’s OK to regulate tactical nuke ownership. Running one of these (apparently) essential financial entities poorly (apparently) not only puts investors at risk, but also THE WORLD economy; thus it’s OK to regulate their greedy corporate butts

So whether by way of Al Green’s argument, the Dollywood analogy, or the general principle, we arrive at the same conclusion: too big to fail = big enough to regulate.