This recession has been characterized by the presence of companies that are so vast and influential that their failure actually endangers the American economy. The names of these companies, GM, Chrysler, AIG, Citibank, Bank of America, and so on, are all too familiar to us from their prominent place in news stories about economic disaster. In order to prevent systemic economic collapse, America has resorted to bailouts and political bankruptcy, essentially changing the “rules of the game” in order not to have these failing companies take our economy down with them. What is clear is that the benefits reaped by the economy in allowing the existence of these financial giants is nothing as compared to the damage caused by their collapse. Companies that are too big to fail should simply not be allowed to exist.
We should remember that capitalism is based on free market principles in which companies compete with each other. If one fails, other and presumably better companies take its place. Thus, the market evolves so as to better meet consumer demands. Companies fail in a free market economy because they are unable to compete with stronger business models. Moreover, they should be allowed to fail in these circumstances so that better business models can take their market share.