Too Big to Fail - is this an official government policy and where can it be found in writing?

Answer 1

It is not official policy. It refers to the idea that should a large corporation or entity cease to exist, the fallout from its collapse would cause disastrous consequences for the economy as a whole. For instance, should GM cease to exist, thousands of workers would be without jobs.

A Different perspective: "Too big to fail" has been a "semi-official" policy with in governmental agencies, especially that of the Federal Reserve, that has deemed large financial institutions and large corporations too "interconnected" to the market place to fail. However, this semi-official policy, which is to say not really a policy but an unwritten rule tolerated by the people, is not a procedure by which any administrative agency steps in on behalf of large financial institutions or corporations and stops them from failing but rather watches silently as they fail and then bails them out financially with tax dollars. This unwritten policy creates perverse incentives for these institutions that are "too interconnected" to accept any unnecessary risks they otherwise would not take on. What risk is there when failure only means the hard earned money of individuals payed towards taxes is used to finance the failures of these unnecessary risks?

If we as the United States are to maintain "free market" principles and adhere to, at the very least, a modicum of capitalist principles then "too big to fail" is just too big to tolerate! There are, in the United States, antitrust laws in place, presumably to prevent institutions from becoming to big to begin with. The antitrust laws were created to foster competition which benefits both buyers and sellers by ensuring lower prices and a better quality of product. There are three major antitrust laws that stand today as official policy as they are the law. The first is the Sherman Act which outlaws all contracts, conspiracies and and any other combination thereof that would impede or unreasonably restrain interstate trade. The second is the Clayton Act which prohibits mergers or acquisitions that are apt to diminish competition and the third antitrust law is Federal Trade Commission Act that prohibits unfair methods of competition in interstate commerce.

There are three primary ways in which these antitrust laws are supposed to be enforced. The first is by criminal and civil enforcement brought about by the antitrust division of the Department of Justice, the second is by civil enforcement actions brought by the Federal Trade Commission and the third, being most reliable form of government, lawsuits brought forth by private individuals. That these antitrust laws stand as law only demonstrates the problem we the people face when a government official ignores those laws in favor of a "semi-official" policy of "too big to fail". There is also the matter of equal protection under the law and if there are institutions too big to fail then necessarily there must be businesses too small to fail which would mean every one that fails would be entitled to tax dollars to pay for their failures which would then place that corporation known as the United States of America as the only true institution that is "too big to fail".