There’s no question that our economy faced a financial meltdown in 2009. As we begin a new decade there’s also no denying that we are still feeling the consequences of that dire situation. Today we are still in desperate need of real oversight and regulation on American businesses that have become “too big to fail.”
To better understand what is needed to fix the problem at this point we need to take a hard look at the lessons learned and actions taken when our country was faced with our financial crises in the past.
In the late 19th Century America was faced with a new and menacing challenge to the country’s financial well being. At that time, we needed new laws that would prevent a single company from owning or controlling all, or nearly all, of the market for a particular product or service. The aim? To stop monopolies from being created.
In 1890, federal anti-trust laws were created when the Sherman Antitrust Act became law. The Sherman Act was enacted in large part because Standard Oil of Ohio sought to control an industry by buying up stock and gaining control of competing companies to create a virtual monopoly over the oil industry.
During his 1901-09 tenure in office President Theodore Roosevelt became known as the “trust-buster.” Roosevelt knew how dangerous monopolies were to the nation’s economy, and he worked hard to bust them up before the damage could be done.
Today, we face a new and more dangerous threat to our national financial security through the hybrid of the monopoly, something I like to call the “octopoly.”
What’s that, you say? Here’s how I define it:
“An octopoly is a super-successful core-competent business that grows, (like the tentacles of an octopus), non-core competent businesses from it. Eventually that business becomes so indispensable to the healthy operation of a nation’s free market economy that their risk of failure threatens its very survival.”
Where a monopoly seeks to control a specific product or service the octopoly, through its sheer size and marketplace power, controls or influences a nation’s entire economy.
The economic crisis we are facing today is a due in large part as a result of an octopoly.
AIG, (American International Group), our nation’s most infamous octopoly, started out in 1919 (in Shanghai, China of all places!) selling personal insurance. It grew quickly over the years and had great successes as an international insurance company branching out on multiple continents.
In 1962, management of AIG’s U.S. holdings was given to New York businessman Hank Greenberg. Mr. Greenberg grew the company away from personal insurance and took it in the direction of more high-margin corporate insurance.
Mr. Greenberg took AIG public in1969. AIG later grew into the world’s largest insurance company.
Over the years, AIG grew tentacles of non-core competent businesses from its successful insurance company parent and formed the following: AIG Retirement Services; AIG Asset Management; AIG Financial Services which includes its mortgage capital business, equities, private equities, fixed incomes, and hedge funds. AIG’s Financial Services division alone is one of the world’s biggest with a reported $678 billion in assets under management before receiving a bailout from the federal government.
AIG was allowed to become so big and so “diversified” that when the company risked total collapse, many of our nation’s political leaders -- from presidents to Congressional lawmakers to Fed Chair Ben Bernanke declared “AIG was too big to fail” and that if it were to fail, it would mean financial disaster to our national economy the likes of which had not been seen since the Great Depression.
Something has gone terribly wrong. Just like the situation America experienced in 1890, we find our country in need of sweeping legislation and regulation to prevent any one company from growing into an octopoly and thereby threatening the collapse of our financial markets and our national economy. Only through new anti-trust legislation, congressional oversight and independent agency regulation and review, can we prevent the AIGs of the world from achieving octopoly status.
We cannot allow those who are responsible for bringing our entire economy to the brink of collapse to escape accountability.
We should not allow their newfound “profitability” to allow the sins of these companies to be forgiven. We must not allow their repayment of government loans with interest, excuse their prior bad acts and poor judgment.
Not only must President Obama deal with the current financial crisis, he must also work to prevent the root causes of it. The American people deserve to know that, if their tax dollars are being used to bail businesses out of their mess that at least their government is doing something to affirmatively to prevent it from happening again.
As you can see by the example I mentioned above with AIG, it is NOT just our nation’s banks that need our attention. It is our entire financial services sectors that must be closely monitored and held accountable.
There is no more important issue facing our nation than our economic well-being. Economic oversight and reform cries out for bipartisanship.
Protecting and preserving the integrity and confidence of our economy is critical to our economic recovery and our future.
Bradley A. Blakeman served in the administration of President George W. Bush from 2001-4. He currently teaches public policy at Georgetown University and is a frequent contributor to the Fox Forum.