A Political History of “Too Big to Fail”

When people talk about the concept known as “too big to fail” or “TBTF,” they generally are referring to the idea that the government is bailing out a private bank and its shareholders. The $10 per share paid to the Bear, Stearns equity holders is a case in point. The big banks, so the saying goes, privatize the profits and socialize the losses. But if you really focus on that phrase, it reflects a deeper truth about the nature of financial markets and politics in the United States that is often missed.

If you think of the end of WWI as the death of capitalism in America, what comes after is a hybrid model, part public, part private. If the years before Woodrow Wilson and WWI was the age of utopian reform, the years which followed were a time of anger and bitter betrayal for old fashioned progressives and conservatives alike. Before WWI we had private monopolies controlled by Robber Barons, but since WWII all of the monopolies have been controlled by bureaucrats in Washington.

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