It makes sense to me that if we are going to declare that a company is too big to fail, then if we are going to introduce new regulations, the first regulation we introduce would be that companies cannot become “too big to fail”.
I think it is safe to assume that when they say “too big”, they don’t mean market capitalization. If they did, then Google went from not existing to too big to fail in record time. I doubt they mean profit as these financial firms results can swing wildly year to year (AIG had $18.5 billion in losses the last three quarters, so their profits were clearly not being protected). If they meant customers then McDonalds or Starbucks would be too big to fail and I think we can all agree that no one bails out Starbucks. So we must mean revenue, right?
Let’s look at the companies we need to break up if AIG is “too big to fail”. (Although obviously most of these companies promptly relocate to Switzerland, so that would have to be figured out.) AIG had $110 billion in revenue, making it a top 20 company on a revenue basis, so the list is actually fairly short – and the fact that this is true maybe implies that if it is possible to be too big to fail than maybe AIG is! Maybe the legislation would draw a clean line at $100 billion in revenue?
- Wal-mart – hard to figure out what breaking up Wal-mart looks like.
- Exxon Mobil
- General Motors
- Conoco Phillips
- General Electic – easy to break up
- Ford Motor
- Bank of America – hmmm
- AT&T – breaking up AT&T would be funny, right?
- Berkshire Hathaway – easy to break up
- JP Morgan
After that, HP and IBM both appear on the list with ~$100b in revenue. Once again, break-ups that would trouble no one.
Frankly, Wal-mart is the only company on this list that I think it would be strange or bother me some if they were broken up.