Help the Auto Industry… but fix “To Big to Fail” problem


May I insert an opinion here guys??  First, I agree with both of you but more strongly I would like to suggest that somehow we need term limits for all our representatives in Washington.  I realize how difficult this would be to accomplish, getting representatives to eliminate their jobs.  However, all or most of our great problems seen to emanate from bad or faulty legislation by representatives who are representing the highest bidder and not the electorate.  Opinions??
Chuck Mason

Karl Quick wrote:
Attached find "Too Large to Succeed"… a suggestion that the "Too Big to Fail" argument is cancerous to our future.
I’ve listened closely to C-SPAN’s live broadcast of the Senate committee review of the "bail-out" request by the "Big 3" auto industry.  I’ve come around to believing that Congress will, probably justifiably, offer multi-billion dollar loans, with serious oversight, to the Big 3.
This is hard for me to swallow given my frustration with the distortion of free markets by the "Too Big to Fail" argument.
But the presentation of GAO officer on his recommendation to loan the money ONLY under the oversight of a "loan management board" to insure the protection of the citizens.  I consider this board a minimum requirement. But I would like to see ANOTHER requirement:
We MUST avoid getting ourselves into this "too big to fail" entanglement, or indeed we will see more and more instances of "too big to succeed" in out future.  There IS a cost of growing too large that defeats the advantages of "scale" and increases societal "risk" leading to failure of the free market.
We should require a condition on organizations that are "bailed-out" to subdivide into smaller entities to reduce the risk to society.
For example, Freddy Mac and Fanny May should be divided into "regional" corporations.  They can retain their quasi-government standing, but we must not put "all our eggs in one basket".  The individual boards governing the subdivided entities should compete to provide the best service with minimum risk to the nation’s economy.
Please consider this and suggest to your representative and senators that they start addressing the risk that "too big to fail" turns into "too big to succeed" by inserting "size limits" in all "bail-out" plans.  I know I will.
Thanks for your support if you agree, and suggestions if you do not.

Subject: Too Large to Succeed
Date: Thu, 23 Oct 2008 13:12:34 -0500
I’m sick of hearing arguments that company X was ‘too large to [allow to] fail’.
Fact is that being ‘too large to fail’ actually means being so large as to hide reality until all hell breaks loose, and then intimidate us into allowing the guilty to get away with bad behavior.
What is most alarming is the failure of our leaders to recognize that the Founding Fathers, well aware of the limitations of humankind, predicted precisely this problem and worked hard to subdivide government and institute checks and balances, Federal, State and Local, to prevent any one interest from reaching the point of intimidation: the point of being so large to prevent the rest of us from defending ourselves against their massive influence.
There is no greater failure of our collective legislatures than the failure to recognize the ‘bubble’ growing in MANY of our institutions:
   – businesses, corporations, and conglomerates
   – markets and market regulators
   – media, entertainment, news
   – political parties (!)
   – governments   (!!!)
All are growing in size, influence and power at an alarming rate… virtually insuring that they are too large to properly represent our individual needs, too large to understand the whole set of problems they face, too large to respond quickly to change…
  …and in fact, ‘Too Large to Succeed’.
Both Democrats and Republicans are making the same, ancient mistake:
‘If only we had more power, money, and knowledge, WE could have avoided this!’
Facts and history show, humans NEVER can have enough… and the more power we amass, the bigger the mistakes we ultimate commit.  There is an ‘economy of scale’ benefit that works to a degree.  But all of us who have worked in bureaucracies know, as systems grow larger, there is also increasing ‘hidden waste’ and ‘entrenched group-think’.  At some point, the lines cross:  the economy advantages of scale are defeated by the unmanageable complexity and price of failure.
What we need is a system that automatically corrects mistakes before they get ‘Too Large’!
Here’s MY idea:   …there should be a LAW against ‘Too Large’…
A) when a cooperation, etc. gets larger than X, by law, it must split and create two new and independent organizations, competing equally in all areas where the original organization competed.
B) above rule should apply to political parties, markets, regulators, governments, ‘political action committees’, or whatever…. with the split point (X) defined appropriately in each case to allow enough growth to allow improved productivity and reward performance, but remain small enough to reduce the risk to society when any of those individual institutions FAIL.
Failure is NOT bad.  Failure is a LEARNING mechanism.  The CHANGE we need is toward LESS centralization and greater experimentation at local levels.
Too many of us are sitting on the side lines, waiting for ‘the experts’ to come to our rescue.  Listen to the news and you will learn that the so called ‘experts’ could often do as well by flipping a coin.
The change in philosophy that we need does not mean there won’t be both honest mistakes as well as criminal behavior.  But it limits the damage done and empowers the vast majority to find niches within the structures (businesses, civic groups, colleges, parties, governments and legislatures) in which they can constructively contribute.
We are ALL ‘experts’ in our PERSONAL worlds.  Lets quit blaming ‘business’, ‘government’, ‘the other party’, ‘that other religion’, etc. and waiting for THEM to fix the broken systems.
Tear down the systems that are ‘too large to succeed’ and replace them with a lot smaller systems, transparent to each of us because they are organized at a manageable scale, and certainly small enough to localize the impact of mistakes and crimes.
Local and state governments have been minimized as power has flowed to the center, but much worse, our citizens have been distracted from taking personal responsibility for their own lives and their neighbors lives.  Everyone is waiting for ‘Washington’ to fix the problem, but in many, many cases…    ‘Washington is TOO LARGE to Succeed!’
And before you write me off as naive, realize that our politicians are running around blaming others for ‘not seeing the bubble growing’ are ignoring the Bubble of all Bubbles: our Federal commitments to Social Security and Medicare.  If you think it was dumb to have ignored the Security, Internet, Housing, Oil and Credit bubbles, just look at what we’re doing and watch out for what is coming.
– Chuck Flink – Diamondhead, MS

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