That sounds good to me. Should they be split up on a case by case basis, or should every corporation that’s too large be split up?

Can we make a rule that applies everywhere or should some industries be allowed to have bigger corporations than other industries?

Should they be limited by number of employees? By cash flow? I’d be inclined to limit the number of employees. Make them split ibto smaller corporations that have contractual relations, renegotiated frequently.

That would help a variety of things, but would it help the current problem? I see it as gambler’s ruin. Lots of individual managers saw the chance to make good profits by taking small risks of giant losses. Any given year the risk paid off and they made their profits. Anybody who didn’t participate fell behind. Then there was a big shock and the risk hit everybody at once. What can help with that? If it had been hundreds of thousands of tiny companies taking the risks, they’d have still done it.

Unless you can quantify the risks, how can you say they’re a bad thing? Would it help to forbid any financial instruments that are hard to understand?

I seem to recall Boeing as being a relatively well armed entity that more true Patriots would call ‘too big to fail’ than them money pushers on wall st. Could we really survive going forward without ABL’s? Pfizer, well one could bottle waste water and get their wares free for a while then do the mail order to Canada end run. Conoco Phillips, Hugo would buy them up in a heartbeat, though would face some stiff bidding from Ali al-Nuaimi. I guess what I’m getting at is some Hydra’s cut up easier; and taste better too! Maybe the AIG bail/buyout is the first step in the R’s secret plan to offer socialized life insurance. Think about it. After all those welfare payments they deserve to get something back when we pass.

IMHO this also should mean that mergers are heavily scrutinized, with the bar for ‘too big’ being set at a very small percentage of any financially significant market (e.g., if a merger would produce a company which would be ‘too big’ in a single state, that merger should be blocked).

And with all do respect, don’t hang out here and wait for the election to be over. Obama may suck but he’s all we have.

Trickle down at work. Something not really widely discussed yet is the increase in burden on the other governments, the state and local ones that bought in to these ‘innovative investments’ with dubious diligence based on a hyped marketing and with yawns from the regulators and ratings folk. The burden will be much greater than what those who have the option of printing money have bought US.

just that they received convertible warrants for 80% of the company in exchange for the $85B loan.

It’s also unclear exactly what priority they would take in relation to other existing and future creditors.

The devil is truely in the details.

It wasn’t clear how the deal was structured from the NYT article—just that they received convertible warrants for 80% of the company in exchange for the $85B loan. So, yeah, now that I think about it more, if the warrants are priced at today’s stock market price and they have anti-dilution provisions, then: Feds did, in fact, give the AIG shareholders the saddlebags treatment (while also overpaying for the deal and preserving, potentially, 20% of the existing value for current shareholders).

Stuart: The Fed didn’t buy a stake in AIG, they were given a stake in AIG. The details aren’t completely clear, but the Fed now has a 79.9% ownership stake.

Joel: You have it backwards. If everything goes well for AIG, the Fed gets the loan paid back, plus 80% of any gains in the stock price from the bailout.

the Feds haven’t bought AIG at all, they have extended it a line of credit.

It’s a stealth bankruptcy. The FED loaned AIG money to stay in business long enough to liquefy it’s assets. The FED gets whatever is left. Next up—Washington Mutual.

But I am kinda wondering: where does the money come from?

The same place that all magical ponies come from.

Our examination of the longer historical record … finds stunning qualitative and quantitative parallels across a number of standard financial crisis indicators. To name a few, the run-up in U.S. equity and housing prices, [one of] the best leading indicators of crisis in countries experiencing large capital inflows, closely tracks the average of the previous eighteen post World War II banking crises in industrial countries. So, too, does the inverted v-shape of real growth in the years prior to the crisis. Despite widespread concern about the effects on national debt of the early 2000s tax cuts, the run-up in U.S. public debt is actually somewhat below the average of other
crisis episodes. In contrast, the pattern of United States current account deficits is markedly worse. …the refrain that “this time is different” has been repeated many times.

The link doesn’t work – it leads right back to a nonexistant CT post.

John Quiggin:
” The constituency is not just Wall Street. The rest of the business sector has never exactly loved the finance guys and aren’t at all happy seeing them being bailed out while manufacturing has been left to the mercies of the market. And, while it’s mostly safe to ignore the voters, ignoring the low-probability high consequence case of a backlash is exactly the kind of thinking that got Wall Street into this mess.”

To add on to what others have said – the reason that the financial community has gotten such good treatment (for the past 20-30 years, and now) is that they have serious political clout, clout which the manufacturing companies don’t seem to have since the 1970’s. Perhaps because the manufacturing companies’ clout works well in parallel with strong union voters in the middle and working classes, the people who’ve gotten f*cked for the past 30 years. With the eager help of those same manufacturing companies.

Meanwhile Wall Street corporate interests are nicely aligned with the interests of people pulling down $200K – $100M/year.

We might see real change, but any real change would be a very radical thing indeed, bucking the trend of a quarter century. I expect merely potemkin changes, with the only real change being that the Fed guarantee to Wall St firms is now explicit – but only if the firm is big enough to pull a Samson is now explicit.

I wonder about the incentive effects on firm mergers in the next decade – size is valuable, but mega-size carries that extra value of a Fed bailout backing you.