Government: Too Big To Fail?

27 Mar

middle class too big to fail

No, it’s not. (Photo credit: Vince_Lamb)

The term “too big to fail” was first popularized by Congressman Stewart McKinney in A.D. 1984 during a congressional hearing over whether the FDIC should be allowed in intervene in the Continental Illinois bank problem.  But the term didn’t really enter the American lexicon until A.D. 2008 when a number of American banks and financial institutions were threatened with bankruptcy and the government justified supporting those institutions with billions of taxpayer-dollars because those institutions were deemed “too big to fail”.

According to Wikipedia,

“The ‘too big to fail’ theory asserts that certain financial institutions that are so large and so interconnected that their failure would be disastrous to the economy, and that they therefore must be supported by government when they face difficulty.”

It’s interesting to note that “too big to fail” (“TBTF”) is a theory.  The principle underlying the TBTF label (that some institutions are so important that they must be supported at any cost) is largely untested, unproven and therefore merely theoretical.

When government designates a particular institution (say, JP Morgan Chase; “JPM”) to be “too big to fail,” government is, at best, merely guessing whether the US would suffer severe, long-term damage if JPM were allowed to fall into bankruptcy. In theory, if JPM fails, America might suffer a financial disaster—but no one really knows if that theory is true or false.

Some believe the TBTF label is affixed with less regard for the health of the American economy than regard for political campaign contributions given to congressmen in the past and likely to be given to congressmen in the future.  According to, in A.D. 2012, the financial industry was the #1 political campaign contributor (about $75 million, total) to Congress.  If that’s true, the TBTF label doesn’t signal that a JPM failure would collapse our economy so much as signal that JPM is “connected” and entitled (by virtue of generous political campaign contributions/bribes) to enjoy the full benefits of “crony capitalism”.

Would the US economy suffer some damage if JP Morgan collapsed?  Of course.

The nation would also suffer some damage if my radio show was allowed to collapse.  But would the damage of losing my radio show (no money for me, no advertising outlet for the program’s advertisers, no information for the listeners) be enough to plunge the economy into a collapse?

Probably not.

Similarly, what evidence exists to show that JPM is really “too big to fail”?  What evidence exists to show that if JPM failed, the resulting damage to the US economy would be enormous or even unsustainable?   Virtually none.

The TBTF warnings are all theory.


“Proponents of this theory believe that some institutions are so important that they should become recipients of beneficial financial and economic policies from governments or central banks.

“Opponents believe that one of the problems that arises is moral hazard whereby a company that benefits from these protective policies will seek to profit by it, deliberately taking positions that are high-risk high-return, as they are able to leverage these risks based on the policy preference they receive.”

Proponents of the TBTF theory don’t argue that the sky will absolutely fall if particular financial institutions are allowed to fail—but only warn that it might.

Opponents (such as myself) of TBTF argue:

1) If the TBTF theory is true, why have any institutions been allowed to grow so “big” as to be even capable of threatening the US economy?  Shouldn’t there be laws that protect the economy by preventing any institution from becoming TBTF?  TBTF shouldn’t be a “badge of honor” so much as a mark for destruction.   Instead of subsidizing any private institution labeled with “TBTF,” shouldn’t any TBTF institution be instantly dismantled as a national threat and before it does something sufficiently stupid to destroy the US economy?

2) The TBTF theory has been recently tested in at least one instance and found to be false.   In A.D. 2008, Iceland suffered a financial crisis that ultimately caused the failure of three of Iceland’s major, private banks.  Before those banks failed, the Iceland government tried to impose additional taxes on Icelanders to subsidize those banks because they were “too big to fail”.  Icelanders rejected that “theory,” refused to pay higher taxes, and the three banks failed.  Iceland’s economy suffered serious pain for about two years, recovered, and is now one of the more prosperous economies in the world.

In other words, the adverse effects associated with the TBTF theory have been exaggerated.

Nevertheless, once the TBTF label has been affixed, We The Taxpayers are expected to take responsibility for any debts incurred by these overly-large (and overly “connected”) institutions.  If JPM does something smart and makes a huge profit, JPM gets to keep that profit.  But if JPM does something stupid and suffers a huge, unsustainable loss, the US taxpayer is held liable to pay for that loss.

•  While most people understand how the TBTF label has been affixed to some private financial institutions, not many recognize that the TBTF “badge of honor” has also been affixed to many of our federal agencies.

If the Secretary of the Interior needs a $220,000 personal bathroom, We the Taxpayers must support that payment. Apparently, the Department of Interior is TBTF and can’t function unless its Secretary can defecate in style.

Since federal courts are TBTF, federal court houses need genuine marble walls in their interiors.  Therefore, We the Taxpayers must cough up the cash required to keep our judges in the style to which they’ve become accustomed.

If the IRS loses $5 billion to identity thieves in A.D. 2012 and another $300 billion in uncollected taxes, well, no matter—the remaining taxpayers will make up the losses.

More, when Congress threatened to cut the IRS budget in A.D. 2011, the IRS Commissioner warned that such cuts would cause “significant cuts in the services it provides taxpayers and cost the government $4 billion annually in lost revenue.”  In essence, the IRS Commissioner argued that Congress had to give the IRS more money because the IRS is TBTF.

And then there’s the Department of Defense (DOD).  Now, there’s a sacred cow that’s arguably TBTF.  Therefore if $20 billion in shrink-wrapped $100 bills is shipped to Iraq by the Bush administration and $18 billion disappeared, well, these things just happen in the “fog of war”.  Stories of $600 toilet seats and over-priced fighter jets have been rife for decades, but always justified by the theory that the DOD is TBTF.

And, of course, everyone knows that the federal government does “so much for so many” that it’s only right that federal employees be paid double whatever they could expect to earn using the same skills in the private sector.  More, while private sector works can expect to work until they’re 65 before they receive So-So Security, at least some government workers can collect fat pensions after as little as 20 years of work, and can then retire to live off the public teat for the next 40 years or more of their lives.  All of these excessive payments to federal employees are justified by federal employees being essential to the function of the federal government—and by the belief that the government is, itself, the ultimate TBTF institution.

Think not?

How many of you can even imagine surviving without the feds?  The whole idea of a failed federal government seems too fantastic to be possible.

However, our federal government technically “failed” back in A.D. 1971 when it went off the gold standard and started to “discharge” (not “pay”) its debts with a pure fiat currency.  Unable to actually pay its debts, our government has been in bankruptcy ever since.

But—amazingly—it has not yet “failed”.  Instead, the government grows larger and more imperial.  We start an almost endless series of wars for reasons that aren’t reasonable.  The federal government is praised by some as the “world’s policeman”.  But it’s also regarded as an inveterate meddler in the world’s affairs, and the author of a growing domestic police state.

Why does our government grow and seemingly become more powerful?   Because the entire world believes the US government is “too big to fail”.

Why?  In large measure, because the US dollar remains the “world reserve currency”.

Despite our government’s tendency to military interventions; despite being bankrupt; despite issuing a fiat currency that everyone knows is intrinsically worthless—the US dollar is still accepted as the “world reserve currency”.  Therefore, the world views the US government (the ultimate supplier of fiat dollars) as TBTF—but only because the world’s international commerce couldn’t easily continue if the fiat dollar, and/or the US government, were allowed to fail.

Like JPM, the US government has become TBTF.  Just as JPM can afford to take irrational investment risks knowing that the taxpayers will pay for any losses, the US government can afford to risk invading foreign countries, imposing unsustainable laws such as Obamacare, and even converting this nation into a police state.

Why?  Because the American people and the world have been conditioned to believe that the US government is TBTF.   Therefore, the world and the American people are prepared to “pay” for almost any US government risks that result in military or financial losses.  So long as Americans pay taxes without serious complaint and the world continues to rely on the fiat dollar to conduct global trade, the US government will remain TBTF.

Think not?  Consider China.  I don’t know that China hates the US, but there is certainly a mutual awareness that the two nations are competitors.  China holds over $1 trillion in US debt.  Therefore, many believe that China could badly injure the US economy if China suddenly released its $1 trillion in US debt instruments into the world economy.

But will China ever suddenly release its $1 trillion?

Almost certainly not.

Why?  Because if the US economy collapses, the Chinese economy (still significantly based on exports to the US) would probably also collapse.

Thus, even China deems the US to be TBTF.

Do you suppose that the EU (another major contender for economic dominance) would welcome the collapse of the US economy?

Heck no.

Most of the governments of the world cannot imagine surviving without the US government.   The US government has become TBTF.

•   Some might suppose that having a US government that’s deemed TBTF is a great advantage.  We can be as stupid and reckless as we want and—one way or another—the world will put up our antics and even allow us to proceed without ever really paying our debts.

But there’s a big disadvantage to being citizens under a government that’s TBTF.  We’re “held hostage” by our private and public TBTF institutions. If we don’t do exactly as they say, if we don’t blindly subsidize our TBTF institutions, they threaten suicide.  The TBTF institutions warn that we are so dependent on them, that if they fail, so do we.

But are we really that dependent on the TBTF institutions?  Are we really so helpless that we must simply agree to pay any sum to support those that are deemed “TBTF”?

I don’t think so.

I’m reminded of Iceland.  They had banks that were presumed to be TBTF but Icelanders refused to pay those banks’ debts.  Their “TBTF” banks fell into bankruptcy and (OMG!) failed.

But Iceland survived.  The sky did not fall. The banks that claimed to be TBTF, were lying.  They perished and the world continued to turn.

Iceland went through two difficult years, but then began to prosper.  In the end, Iceland was better off without its TBTF banks than it was with them.

I can’t help wondering if the same could be true for the US.

Would Americans be better off, more prosperous, stronger—if we disposed of or at least divided  our TBTF institutions?

I’m sure the answer is Yes.

If you agree, the first step in dismantling the TBTF institutions is to excise the “theory” planted deep in your mind that you are so incompetent and dependent that you couldn’t possibly survive without the private and public institutions that are currently deemed “TBTF”.

Disowning our TBTF institutions won’t be easy, but we can survive without those parasites.

However, the TBTF institutions—including our government—can’t survive without our mindless support and unending subsidies.

Isn’t it time to stand up like Icelanders—and like men—and refuse to support any TBTF institution?  If we do, there’ll be a price to paid but also a gain to be made.  We’ll suffer a couple of bad years, and then find ourselves more prosperous and more free.

Some institutions only survive because they’ve fooled you, me, the nation or the world that they’re TBTF.  Insofar as we believe that crap, we become slaves to those institutions.

But it’s wrong and even self-destructive to surrender our powers, our rights and our wealth to private and governmental institutions based on the theory that they are TBTF.

We can get along just fine without the TBTF institutions.  But those institutions can’t survive without us.

There’s only one TBTF institution in this country: the People.  It’s time that our institutions serve us rather than demand that we serve them.


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25 responses to “Government: Too Big To Fail?

  1. dasanco

    March 27, 2013 at 1:38 PM

    I think we look at this issue backwards?

    the government, which by today’s reality standard, is the implementing force of the central bank, and is based upon hypothecation, speculation and usury [interest] of the energy of the people of the planet. that principal is an ever-expanding one. that expansion [theoretically] is without any limitation. if that is roughly correct, then we have something that [eventually] MUST BECOME TOO BIG TO SUCCEED, right? … which means it MUST FAIL … eventually.

    • doug

      March 28, 2013 at 5:02 AM

      Spot on, dasanco … too big to succeed … the government has been forced by its growth to collude with the banksters and Wall Street freaks in a vain attempt to take it all for themselves while consolidating a false sense of power … only God is too big to fail.

  2. Gary Russell

    March 27, 2013 at 1:54 PM

    Excellent article Alfred. I have always had the theory that a dead horse is a dead horse. Bury it. No matter how you prop it up, it’s still a dead horse, and that is not going to magically change with ANY kind of “special propping” (QE 1,2,3,,,,?) It is still a dead horse. Bury it.

    iceland is an exellent example of the BS that govcos distribute to keep robbing us, and the people finally say NO! This stupid sequester was more of the same BS. World is still turning!

  3. keith

    March 27, 2013 at 2:19 PM

    We need to be cautious of coffepartyusa. I’m not sure how their organization has developed over the years, but they came out after the Tea Party. At the beginning they were filled with hateful liberals trying to undermined the Tea Party movement.

  4. Anon4fun

    March 27, 2013 at 2:36 PM

    I agree that the “too big to fail” corporations should be allowed to fail, and let the chips fall where they may. The phrase “too big to fail” is a marketing slogan which the people of Iceland saw right through.

    However, the situation with the federal government is not equivalent.

    The federal government was created by the express will of We the People of the United States and therefore exists by force of law, not commercial viability.

  5. bandit

    March 27, 2013 at 2:47 PM

    The resolve to keep respect separate from fear is even more crucial for groups and nations. The politician, small or lofty, who menaces the people with frequent reminders of the possibility of crime, violence, or terrorism, and who then uses their magnified fear to gain allegiance is more likely to be a successful con artist than a legitimate leader. This too has been true throughout human history.

    just one of many sites that deal will bully’s/sociopaths. It is very interesting to find such similarities between the overall global politics and this form of personalty disorder, after all, they have made the status of a corporate entity equivalent to that of a person-hood.

    • doug

      March 28, 2013 at 5:31 AM

      bandit said: after all, they have made the status of a corporate entity equivalent to that of a person-hood.

      My response is that 1st of all we’ve allowed it. Even though the enslavement “scheme” was implemented long before anyone living today, subsequent generations have allowed it to continue.

      Everything detrimental to liberty is truly the result of rejecting God’s law. That being said, and knowing that the U.S. has lost its moral compass, the next viable means of correcting things is to collapse the debt based fiat monetary system. (Should we fail to recognize how this commercial monetary system usurps and supercedes the “CON-sti-stupid” and thereby destroys the liberty intended by the framers.

      The international “depression” “recession” or “bankruptcy” is nothing more than a manipulation utilizing the monetary system to create a “VIRTUAL CATASTROPHE” for the commoners to quiver over while the bankster’s gang of thieves take more control and your freedoms.

      I’ll repeat, their system only operates because the peons have more faith in it (fiat) than they have in the Almighty Creator of the Universes. Big strong American men are afraid to live without the filthy, murdering bankers lucre/credit cards and Socialist Security benefits, which all stem from the FEDERAL RESERVE CENTRAL BANKING SYSTEM, that supports every ounce of corruption.

      My Motto is: God is ALWAYS RIGHT – when I am usually wrong.

      • Jerry Sparks

        March 28, 2013 at 1:45 PM

        @ > My response is that 1st of all we’have allowed it. (Yes indeed)

        @ > Everything detrimental to liberty is truly the result of rejecting God’s law.

        TRUE !!! And it appears this is not going to change.The “rejectors” are not going to quit rejecting & they are the vast majority. There is a “little flock” that will bring on the intelligent solution & the only solution when that time comes,and IF the “intelligent solution” does not intervene then “no flesh will be saved,i.e. stay alive. Sounds like worldwide nuclear war to me which I believe will happen. Satan’s purpose is to destroy everyone anyway. Once again Doug, we are kindred souls.

      • bandit

        March 29, 2013 at 3:59 AM

        “My response is that 1st of all we’ve allowed it.”
        Let the being that is without sin to cast the first stone and everybody walks away. Difficult to distinguish whether we consciously allowed it or that it was created by a manipulation that is but an extension of all the other manipulations that are already in place. The scriptural reference of being cast out of the garden of Eden does not preclude anybody that even believes that they can perceive the truth. The beast must be revealed for what it is before consciousness is returned.

        As the Muslims state “Allah is greatest”

    • Jerry Sparks

      March 29, 2013 at 6:15 PM

      @ > As the Muslims state “Allah is greatest”
      Is Allah the being that created & sustains the universe or is Allah a representative of that being?
      Is Allah the being who said, “Let the being that is without sin to cast the first stone……? I think you have already answered that by saying,Allah is the “greatest.” But, is Allah another name for one of the beings that comprise YHWH?

    • Jerry Sparks

      March 30, 2013 at 11:05 PM

      Good post,bandit

  6. Prissy

    March 27, 2013 at 5:05 PM

    OH Al !!! You & Anon4fun just know so much & about SO MUCH !!!!

  7. chef1776

    March 27, 2013 at 8:06 PM

    Not only are the Corporations too big to fail, the “sub” corporate fiction actors are apparently too big to jail !

    • Jerry Sparks

      March 28, 2013 at 1:59 AM

      No doubt !!
      1776, best number anyone has used yet.

  8. Yartap

    April 2, 2013 at 8:36 PM

    Great insight Al.

    The TBTF theory has gained fuel over the years by the increased size of 5 big banks which have taken the majority of loan business. One must remember that the banks fund FDIC for their customer’s protection to a set amount, so, there is no need to care if the banks fail; and banks have some govco. backed loans for their protection, so, its not full exposure for their failure.

    But think! Who is really exposed? It is the gov-co. bunch! Gov-co. does not have enough money to cover all those checking accounts and saving accounts. Gov-co. would have to get loans from the Federal Reserve to cover all those government backed loans while faced with a debt ceiling coming into play even more faster from all their spending. Now they would have to raise the debt ceiling every other week. Imagine that!

    Al’s right – it is Gov-co that is TooBigToFail!!!

    • Jerry Sparks

      April 6, 2013 at 3:17 PM

      NO PROBLEM !!! Thus saith Alan Greenspan. We can ALWAYS print more paper.

  9. Immigration Lawyers in Ashford

    April 8, 2013 at 2:18 PM

    I almost never drop remarks, however i did some searching and wound up here Government:
    Too Big To Fail? | Adask’s law. And I actually do have a couple of questions for you if it’s allright.

    Is it simply me or does it give the impression like some of these comments appear as if
    they are written by brain dead people? :-P And, if you are writing at additional sites, I’d like to keep up with anything new you have to post. Could you list of every one of all your social sites like your Facebook page, twitter feed, or linkedin profile?

    • Adask

      April 8, 2013 at 2:35 PM

      We all start out as “brain dead”. Most of us resist any impulse to really “think” until we’ve been personally injured. Once injured, we start to think and our thinking is typically clumsy. We might seem “brain dead” but that’s only because we have had much call to use our brains in the past. But, if we stick with it, we eventually rise from our apparent level of “tenderfoot” (seemingly brain dead) thinkers, to more accomplished thinker, to–in some cases–even the level of “intellectual”.

      Lookit me: In A.D. 1983, I was “brain dead” roofer. Then I went through a divorce which caused me to start “thinking”. And here I am, just 30 years later, and intellectually evolved (some say) the level of “crackpot”.

      We each do the best we can with what we’ve got. To some, we may seem to be “brain dead”. But if anyone is merely trying to think, I’m for ’em–even if they are starting out from a fairly modest level of intellect.

      But there’s another point to be recognized. The courts and even our political system are among the most powerful causes for emotional impairment and even mental illness. People go to courts believing in justice but often find that no lawyer or judge gives a damn about justice. That discovery can be traumatic and even destabilizing. Some of the victims of that “legal abuse” migrate to this blog and try, as best they can, to articulate the injustice they’ve experienced. Their “screams” of injustice may, at first, seem clumsy and “brain dead”. They know what they’re talking about, but it may take them several years to learn how to clearly articulate their concerns. Until they learn to articulate, they may seem “brain dead” to some–but they are merely wounded in their hearts.

      I have nothing to do with Faceboo, Twitter or Linkedin. I don’t specifically write for other websites. However, some of my articles may be reprinted on other websites–but I don’t know which articles or which websites.

    • Jerry S

      April 10, 2013 at 12:51 PM

      Immigration Lawyers in Ashford
      Re:brain dead people.
      May I ask what prompted you to want to ask a question to any alleged brain dead people? I admit I’m not too smart but if I read comments from a blog & conclude that there are too many brain dead people commenting, I have enough sense to know better than try & communicate with them. I like your name. Where are you planning on immigrating to next? I see you are in Ashford now. Where were you before that? Inquiring minds want to know.Thanks.
      P.S. I see you did not comment to Alfred’s comment. I think I already know why.You say you almost never drop remarks. You are pretty good at dropping the subject however. Good show.

      • Adask

        April 10, 2013 at 1:11 PM

        I doubt that the “Immigration Lawyers” intended to imply that everyone on this blog was “brain dead”. I stand to be corrected, but I think he merely meant that some of the people associated with this blog appear to be “brain dead”.

        For example, some people who comment on this blog sometimes misspell their words so badly and seem so “ignernt” that it’s almost funny. Such people might seem to be “brain dead” to the casual observer.

  10. chef1776

    April 9, 2013 at 1:15 PM

    Immigration Lawyers in Ashland,

    “Is it simply me or does it give the impression like some of these comments appear as if they are written by brain dead people?”

    I believe that you will find fewer “brain dead” people here than at a majority of more “widely” known sites.

    “5% of the people think, 10% of the people think they think, and 85% of the people would rather die than think”… Thomas A. Edison

    I believe this Blog has a proportionatly high average of the 5%’ers, although I am not amongst their ranks.

    “I am smarter than I look, or you think, or your best testing indicates.” ….Homer Simpson

    As always, I reserve the right to revise and/or extend my remarks.

    Thanks Al for the forum and the opportunity to participate.

    • Jerry S

      April 10, 2013 at 12:56 PM

      Immigration Lawyers in Ashford

      I apologize,but your comment of/on April 9, 2013 at 1:15 PM, was not available,at least for me,when I posted mine on April 10, 2013 at 12:51 PM. Your comment appeared immediately after I posted mine. Blogs do strange things at times. Once again,I apologize.

  11. Jerry S.

    April 11, 2013 at 12:38 AM

    April 10, 2013 at 1:11 PM
    @ > so “ignernt”
    Like me n Huey Campbell? I mean, as Huey & I? Variety is the spice of life. I get a kick out of reading some of the comments that a few “others” might conclude is a brain dead comment. Why? I enjoy a good laugh.This is also why I comment so much too. I enjoy giving others a good laugh. Also some of the serious comments make me laugh too,e.g., ….it’s hard to love the Sobs.
    When I see a comment right below mine, I often make the mistake that it is a response to something I said. I believe this is because I do not understand how blogs work in every way & not because I am vain. It’s because I am “so ignernt.’ a.k.a., brain dead. Laughter is healthy & good for the soul. I think I contribute in this sense, at least I hope so. People don’t think much about Christ having good hearty belly laughs at times, but I do. I mean when he was here on earth in the flesh. People see him mostly as sad “all” the time.The books could not contain all that he did & said,e.g.,

    John 21:25, “Jesus also did many other things. If they were all written down, I suppose the whole world could not contain the books that would be written. … “

    • Adask

      April 11, 2013 at 8:30 AM

      I agree that laughter is a good thing. I’ve heard reports that humor is one of the hallmarks of intelligence.

      I try to use humor on my radio shows and also on this blog. I don’t always succeed, but my jokes are at least always funny to me. But there’s a problem with being satisfied that my humor is at least funny to me. That’s a vain, self-indulgent attitude that disrespects the audience. If you’re fortunate enough to have an audience, it’s never funny to disrespect them.

      Therefore, as a would-be humorist and budding stand-up comic, I generally make it a rule not to use the same joke on the same audience more than three times. My experience suggests that some things that are hilarious the first time you see or hear them, may not be quite so funny when you hear them the third time. This principle is especially true when you hear the same joke for the 20th, 30th or 50th time. Insofar as humor is a hallmark of intelligence, I presume that new jokes, new humor are also signs of intellect.

      Repetitions of the same joke may be viewed by some as evidence of a diminished intellectual capacity (brain death or coma perhaps just “collateral damage” from too many hits on the bong). Such repetitions disrespect the audience and make ’em want to break out the cardiac paddles, shout “CLEAR!” and give the humorist a little jolt.

      • Jerry S

        April 11, 2013 at 10:36 PM

        @ > Repetitions of the same joke may be viewed by some as evidence of a diminished intellectual capacity (brain death or coma perhaps just “collateral damage” from too many hits on the bong).

        I have been hit on the bong several times & this is probably why, when I think something is funny everyone else will. IF people don’t laugh, I say,I’ll never tell that one again. This has always got a good laugh. BUT, I get your point. Just have to remember it. Hope I can. Thanks.


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