A Political History of “Too Big to Fail”

rcwhalen's picture

For Barry Ritholtz


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.

Fred Siegel, in his excellent 2013 book about the modern roots of American liberalism, “The Revolt Against the Masses: How Liberalism has Undermined the Middle Class,” notes:

[L]iberalism began as a fervent reaction to wartime Wilsonian Progressivism, and it took its current cultural shape in the 1920s well before the Great Depression came crashing down on the country.  It was the seminal 1920s that the strong strain of snobbery, so pervasive among today’s gentry liberals, first defined the then nascent ideology of liberalism.

The liberalism which evolved after the Great Depression and WWII was anti-business and anti-democratic.  It despises the small town business ethic which drove to much of American life.  In its place was a heroic model populated by elite experts, writers and social scientists who fundamentally distrust the public and place great confidence in the “leading role” of the state, to borrow the Marxist term.  The scorn and fear generated among liberals by the Tea Party movement illustrates the basic contempt that liberals hold for the common man and the American middle class in general.

The economic model that emerged from WWII was decidedly European in nature, with a central function assigned to state sponsored entities and nominally private corporations.  Siegel notes that while the mobilization for WWI did provide “the administrative model for the early years of the New Deal, culturally, socially and politically, liberalism represented a sharp break from Progressivism.”  The economic model for modern day liberalism was elitist and antithetical to the private sector and also the rights of the individual.

The notion of free-market capitalism driving the growth of the US economy and the American dream after WWII was a convenient fiction.  Behind this facade, generations of liberal political operatives worked to realize the dreams of a society led by an enlightened elite with heroic overtones that bear close resemblance to the fascist era of 1920s Europe. Men like Herbert Crowley, editor and co-founder of The New Republic, advanced the ideal of a secular priesthood that would Europeanize America.  He envisioned an elite vanguard of intellectuals, writers and scientists who would not be swayed by outmoded ideas of popular democracy and individual freedom.  And the mechanism for advancing the new liberal agenda was government.

From the late 1940s through into the 1970s, government control over the financial markets, banks and much of the rest of the US economy enforced a certain stability that many observers find remarkable.  But by the 1970s, the popular demand for jobs and opportunity began to force change and with it deregulation of the markets.  Yet the basic model of banks as government sponsored entities or “GSEs” remained.  With it came a partnership that assumed the state would control access to credit and the financial markets.  

Seen in the political context of modern American liberalism, the idea of TBTF is not so much about bailing out purely private corporations and their shareholders as it is about a partnership between various GSEs.  The housing agencies created since the Great Depression, including Fannie Mae, Freddie Mac and the Federal Housing Agency are partners with the biggest TBTF banks.  Together they monopolize the highest quality portion of the housing markets, leaving the “subprime” dregs for the smaller private sector firms.  But no private company can compete with a GSE, bank or otherwise.

For a brief period from 1992 until 1998, the private sector was actually able to compete with the big bank/GSE monopoly and produced some of the best years of economic growth that the US economy had seen in decades.  General Motors avoided bankruptcy in 1992 because it was able to circumvent the commercial banks and issue its own paper directly in the bond markets.  By 1998, however, following several financial crises, the liberal political class in Washington closed ranks and handed the TBTF banks and GSEs the housing and asset backed securities markets on a silver platter.  

Non-bank financial and commercial firms were no longer allowed to place assets with money market funds, a change that essentially gave the banks a monopoly on funding all aspects of the US economy.  Home builders and mortgage companies could not compete with the federal housing agencies in the bond market, again reinforcing the de facto monopoly of the TBTF banks and housing agencies.  As the 2000s began, the combination of the TBTF banks and the GSEs was firmly in control over the housing market and followed the policy prescriptions of the liberal tendency in Washington when it came to promoting “affordable housing.” 

Seen in this political context, the period of financial deregulation in the 1980s was not so much about the private sector throwing off the shackles of government regulation as the public-private monopolies comprised of the TBTF banks and the GSEs misbehaving.  There was never any end to the public/private partnership between the top banks and the federal housing agencies.  To spend time arguing whether Wall Street or Washington caused the 2008 subprime crisis is absurd, yet it is precisely that fictitious duality that still defines public perceptions about the crisis. 

The new ethos of America in the 21st Century is about liberals creating opportunities for their friends and political supporters, while preserving the social and economic problems for which liberalism presents itself as the solution.  In their book Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armagedon, Gretchen Morgenson and Joshua Rosner describe how skillful exploitation of the public/private monopoly between the largest banks and housing agencies such as Fannie Mae fueled the housing crisis.  They highlight Jim Johnson, the former head of Fannie Mae and the longtime chairman of the compensation committee at Goldman Sachs.  Johnson typifies the modern day liberal who skilfully exploits opportunities to gain from “public/private partnerships” that are unavailable to the average American.  

In 2007 and 2008, when the private investment community realized that the TBTF banks and the GSEs had created tens of trillions of dollars’ worth of toxic waste, the global economy started to melt down.  Many smaller private financial institutions were either acquired or failed, including Washington Mutual, Countrywide Financial, Bear, Stearns & Co., Wachovia and Lehman Brothers.  But the TBTF banks that are the monopoly partners of the GSEs were saved.  This fact caused great anger and consternation among the American electorate, but largely due to the fact that the public thinks that these banks were and are today private corporations.

To understand the concept of TBTF, you must first appreciate that the notion that unsuccessful companies and individuals should fail is an anachronism that only applies to smaller entities.  The larger banks which are essential to advancing the agenda of the liberal elite must be preserved.  In the case of Citigroup, the bank was bailed out by successive loans from the US Treasury championed by Timothy Geithner, who ran interference for Citi first as President of the Federal Reserve Bank of New York and later as Treasury Secretary.  

While then FDIC Chairman Sheila Bair wanted to shut down Citigroup, Geithner and his allies circled to wagons to protect Citi and former Goldman Sachs CEO Robert Rubin.  As Chairman of Citigroup, Rubin presided over the bank’s issuance of tens of billions of dollars’ worth of Structured Investment Vehicles or “SIVs”.  These SIVs were issued based on subprime toxic waste and were fraudulently structured as “sales,” but were in fact secured borrowings sponsored by the bank.  Geithner and other members of the Rubin political tendency argued that saving Citigroup was necessary to protect the US economy, but in fact the real recipients of the Citigroup bailout were Rubin and the bank’s other officers and directors.       

To really appreciate “too big to fail,” you must first and foremost understand that it is a political concept that springs from a sense of liberal privilege and entitlement. Conservatives generally oppose TBTF and advocate market based outcomes for banks, large and small.  But most politicians of either political party support the model of public/private monopoly that is typified by the relationship between the largest banks and the various GSEs in Washington.  Big banks are not really important to preserving American competitiveness, as the banking industry likes to suggest, but the TBTF banks are very important to preserving the political and economic privilege of a select few Americans.  That, at the end of the day, is what “too big to fail” is all about.

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Radical Marijuana's picture

That article touches upon the actualizing

Ouroboros of Incorporated Robbery!


The following were not well-made, entertaining videos, however, the concepts revealed are important! "Collective government" through more than a hundred thousand different institutions that were mandated by governments, and thus had the power of government behind them, have bought up the vast majority of all publicly traded corporations. The TBTF banks are effectively owned by government mandated entities, while run by a herd of professional money managers. (The ruling classes that originally made and maintained these systems have created a monster which they no longer own.)

From Walter Burien, Clint Richardson and Jerry Day:


Ending Taxation - The Only Game in Town - 2011


The Corporation Nation Master (2010)


Corporation Nation 2

Another, shorter, talking head video about the CAFR:


Introduction to the CAFR - Why You Can’t Get Ahead


While it takes a relatively boring long time to assimilate what the CAFRs are telling us, the obvious and undeniable conclusions that follow from taking enough time to do that are that government mandated entities now collectively own the vast majority of all publicly traded corporations, including the biggest banks.

I feel that this article above about the Political History of “Too Big to Fail” was relatively old-fashioned in its use of words such as "liberals" and "conservatives," which no longer have much useful meaning. Trying to understand such hypercomplex systems as the Ouroboros of Incorporated Robbery can not be done with old-fashioned false fundamental dichotomies, rather it takes unitary mechanisms. The social pyramid systems were always really toroidal vortices, and that is more obvious than ever after one sees that the "collective government" now owns practically the whole economy.

I do not actually expect that there could be any good resolutions to these situations, because that would take a series of political miracles. But nevertheless, theoretically we should recognize that civilization has more and more taken on the shape of a toroidal vortex. It continues to be too limiting and old-fashioned to perceive it as a social pyramid. Other than that running through its own madness towards self-destruction, the only possible better solutions could come form facing the facts that there is already an Ouroboros of Incorporated Robbery!



midtowng's picture

Give me a break. TBTF was never about liberal politics. It was always and forever about big money.


Pee Wee's picture

Said another way, monetized and monopolized the rule of law.

Madcow's picture

detlation is the cure for "too big to fail."  no more net new money creation = never-ending parade of default and debt repudiation. they can keep "bailing out" the banks but they can't stop the underlying economy from imploding. 

"too many ticks on a dog eventually kills the dog"

Ghordius's picture

"The liberalism which evolved after the Great Depression and WWII was anti-business and anti-democratic..."

and there goes another political label which still has the old sense in Europe yet seems to shift like a chameleon in the US. Is the above correct, btw? Can't judge

so who are the liberals in the old/european sense in the US? both US Dems and US Reps? none? yet Uncle Sam in aggregate is still very much pro-business, particularly when BIG and listed on a stock exchange, at least seen from here. which ties in with the last paragraph of the article

Ghordius's picture

very interesting article

"The economic model that emerged from WWII was decidedly European in nature, with a central function assigned to state sponsored entities and nominally private corporations."

imho a cartoonish view of what the "european model" was, at that time

then european state monopolies were common, at that time, yet handled differently, and openly national, and so openly political

and this applies also to all the firms with heavy state involvement, for example the various national airlines

compare, for example, the continental european notion that banks create public credit, and are so tolerated, on sufferance of good behaviour, and the banker bonus cap that recently was legislated by the EU Council and Parliament, and see how proud some British banks currently are about how they found "ways around" this regulation

evernewecon's picture



Perfect Ease Of Entry/Perfect

Equality Of Information Exist

Only In Fantasy Land, And If

They Were In Effect, No One

Could Make A Profit.

The Opposite's Monopoly.

People Have Confused 

Monopoly With State Control.

The Former Exists Where 

One Controls The State, The

Exact Opposite Of What 

People Think Is Happening.



In A Nutshell, The Placing Of

Words In Adam Smith's Mouth

By Unscrupulous Demagogues.




Gangster-Like Sounding

"Leaders" Can Dance On





Puppet's Strings While

Appealing To That Ordinary

Voter Named Mr. Hubris

Ready And Willing For The 




In So Doing Mr. Hubris

Against His Own Interest

Won't Be The Independent

Protector Of His Family.

Instead He'll Be The Father

Of Kids Whose Future Is

Sold Out.



It's Not Only Feudal Economic

Architecture Involved.

It's The Flim-Flam In Risk,

A Basic Issue Of Right And

Wrong, And Economics Based

On Democracy/Not Democracy

For Hundreds Of Years (Ever

Since Such Issues Were 

First Understood, Emerging

From Monarchy.)



What's Funny:

Mr. Privatizer Is 

Mr. Self-Important.



Mr. Hubris Is

Mr. Self-Important.



Doing The Right Thing

Does Not Involve "Statism."

It Simply Loses The



Trickle Down, Coined By

Hubert Humphrey, Was

Probably A Euphemism

For What's Left After


Where's The Beef, Coined

By Walter Mondale, Was 

Probably A Euphemism For

The GOP Offering Less 

After Privatization Than

Is Offered By The Democrats

(After Privatization.)  

However, It Seems It Was 

Somewhere Between Gen's

X/Y That Privatization As A

Deliberate Re-Ordering Of The

U.S. Economy Went Into Full






orangedrinkandchips's picture

$10 bucks for Bear Stern?

I thought it was the infamous $2??


"i want my two dollars! (i didnt ask for a dime)"

Emergency Ward's picture

Wasn't it $10 per share bailout to the insiders that bought the shares for $2?  You ain't an insider.

ebworthen's picture

Well, I think you have half the coin.

Diverging into "liberalism" detracts from the information and perspective on TBTF.

Certainly "liberals" are needed, but so are "conservatives" who voted to pass the bailouts.

In the bigger picture, these two poles of a magnet are needed to move the iron shavings around (voters).

It doesn't matter where you move them, just keep them busy so people who care nothing about politics - and only about money - can steal from both.

over45's picture

I grew up living next door to one of the people who was instumental in defining the liberalist movement from the 30's and beyond.  I had no idea who he was or what he did, he was just our nice next door neighbor who let us use his tennis court when we wanted.  Turns out one of his best friends was a former head of the NY Fed.

After reading about him and learning more - I've come to the conclusion that all roads are paved with good intentions, until the govt. and crony captializim sets it hooks in and games the system.  This quote could not be more dead on:

"The new ethos of America in the 21st Century is about liberals creating opportunities for their friends and political supporters, while preserving the social and economic problems for which liberalism presents itself as the solution."

I keep thinking someone with influence will do the right thing for the good of the country - but they are more concerned about their own good and paycheck.  We need more high-dives from 30 story buildings - in NY and DC.

Seasmoke's picture

"I like Jamie Dimon" - Chris Whalen to Max Keiser

elwind45's picture

And what happens the next time a TBTF bank tells his insurance carrier he cant come up with this month premium because he is really W.E. COYOTEand cant come to the phone? Stop giving the cattle salt

elwind45's picture

After Lehman went everyone started on about what innings the crisis was in and not what the fuck you bankers doing destroying each other over night and of course The Pennsylvanian represtative swore someone (SOROS) withdraw 500 billion from the MM and that's gone too moment or once upon a time nobody had a WEBSTER and didn't have a ready def. For the word CONTAINED??

Emergency Ward's picture

I can't quite figure what you are saying but since your comment contains "fuck you bankers" and "$OROS and that 500 billion is gone" it must be a good rant.

madbraz's picture

Any TBTF article that does not draw a direct link between Obama and Robert Rubin, since at least 2005 when he was still a senator, a presidential project, is incomplete.

They were buddies since 2005 at least, probably much earlier - see minute 6 of this video from 2006:

waterhorse's picture

any article that does not talk about ALL of the Rubinites, vampire squid tentacles and intentional control fraud is not complete.

elwind45's picture

The best thing about the TBTF -era is all those business degrees are rendered useless?

New American Revolution's picture

Barry, once you cross the Rubicon of Nixon Shock, you don't know what you're talking about.   Wall Street has been trying to kill the GSE's ever since they started tranching Freddie's in the 1970's in order to survive the inflationary expansion of interest rates.   The real problem was government spending that caused the GSE's to begin to fail.  Then through the 1980's and 90's, the 2B2Fails took full advantage of deregulation, started in the Reagan administration, to begin weakening GSE's in order to squeeze them out.  Reagan was too busy winning Cold War I while fighting the Neo-Con Feddies, who then took over under Bush "H", Clinton, "W", and now Obama; but this is another story.  The point is, the rascals who have been working to dismantle GSE's for their own profit have a natural bed mate in Rockefellers University of Chicago's Friedman/Neo-Con Nazi movement of American Hegonomy of the World, and there they sit in charge of the FED, the State Dept, Treasury, and White House, and the FED is just a symbiotic relationship between the 2B2Fails and the FED.  They are just two different division of the same corporation.

Back to GSE's:   There is no problem with GSE's; the problem is government spending that causes inflation that is under reported with the excess being applied as a + to the bottom line of GDP.  This is aggravated by the deregulation of Wall Street that made Financialization possible and has resulted in a hollowed out America and enough clipped money to bleed the country white, while the excess is used to buy a Congress, Presidents (note plural), Subpreme Court, and any number of governmental agencies.   This is compounded by an over 850,000 person private intelligence force beyond the control of government that has blended into this government/multii-national corporate mix to create America's very own "Deep State".   And now the line between it and government has become so blurred that we are now Amerika, home of the Banana Republic.  

I believe Barry, you have taken your eye off of the Big Picture this one time, and as a friend, I am calling you back.  


waterhorse's picture

Ok, I'm confused.  Did Barry Ritholz write the article or Chris Whalen?

disabledvet's picture

These are clowns who couldn't run a lemonade stand...let alone finance one...running the biggest financial institutions in the world.

and of course "running the into the ground."
I laugh at the pathetic political classes who have bought into this B.S.
"they have their low rates...but now they have no taxpayers."
This situation is so unstable...well, the irony is the ship could be made "right"

But it will be made wrong instead.

Emergency Ward's picture

They couldn't run a lemonade stand but they would stage a SWAT raid on any 10-year-old child that tries to set one up on the sidewalk.......

elwind45's picture

Enslaved taxpayers and none against their wills it seems? Give them the empression of hidden inflation and watch them buy like there is no tomorrow? Get them to buy than raise the price again until they stop buying and THAN lay everyone off and appear before Congress as a once proud beggar

elwind45's picture

You cant for a moment convince me LEHMAN wasn't personal

elwind45's picture

Lets all travel back to the beginning of the 20 th century to hunt for blame? You only need to go back to a Goldman Treasury sec. And a blank sheet of paper! PAULSON AND THE 750BILLION on a night when Banks were done and troops were on standby the amazing Sec. Pulled the ALEXANDER And its gone(I.e. freedom)I am in charge now make Goldman whole!

Skin666's picture

Fantastic read

waterhorse's picture

Meh, I prefer Professor Bill Black's narrations.

kellycriterion's picture

Defining the Fed and cartel banks as "private" is absurd on its face. The Feds activities are more "governing" and part of the "commons" than the majority of things that the "official government" engages in.

Then of course we have the overt partnership in facilitating and marketing government debt. And of course accelerating their "leverage" along the way. I put the word leverage in quotes because it has become obsolete.

Derivatives, CB puts, government borrowing that isn't borrowing represent infinite leverage. Which of course is just confiscation. And at this point all income producing assets are pledged, committed, mortgaged several times over.

The behind the scenes perspective of this article has merit, but I don't know if it will make an impression on the oblivious ZeroHeroes. They'll ignore the parts that don't fit the bankster meme.

X_mloclaM's picture

The rest of the ZHers then understand Chris know they're literally private, as they're owned publicly.

But do bank shares pay divs? Are all holders of all shares known?

Furthermore, do 'bankster haters' really mean those who retain originary and outsize ownership shares from the inception of the Federal Reserve Act structured to sap 6.5% per annum from those who would be subject by legal tender law or military dominance to accept the silent taxation transfered to the Fed. Whether over the life of the Fed it's transmitted a net surplust to the Treasury is irrelevant.

X_mloclaM's picture

personally hate seeing these financial suicide articles and the U.S. military stats on it.

elwind45's picture

They became TBTF because they failed? This is nothing more than control switch? Used to be the banks control the government now the FED controls both or is both? BEAR sold for 2 dollars not 10 dollars a share! Two dollars! All this save the bad by merging good with bad came from a arm twisting meeting on a Friday night against the banks wishes? In fact Banks have been forced into TBTF by a FED who lives in fear of fractional banking and now wants banks to hold Treasuries as only tier one capital and stop its shadow banking operations? Killing them softly with our love? The situation is contained to sub prime TOUT EST CALME

luckylongshot's picture

What I dont get about TBTF is why it does not mean public ownership if there's a problem POITAP

dogismycopilot's picture

I started Freebasing Alex Jones/Info Wars about 12 months ago. As such, I think this article is not too far from the truth. Just check out the works of "Antony Sutton". 

I had never heard of Antony Sutton or the New York Based Red Cross delegation that sent 2 doctors and 20 bankers to Russia in 1917.

My MBA professors would treat me like a meth-head if they knew I was here in ZH; my military history professors would execute me if I told them WWI US soldiers defended assets of NY bankers in WWI by shooting White Soldiers at the direction of the Reds.

Pass me that spoon would you.

ILLILLILLI's picture

"Paging Mr. Phillip Dru, Administrator. Mr. Phillip Dru, please pick up a white courtesy telephone..."



new game's picture

100 year demise, same a the value of a dollar...