An interesting article in the Beyond Bailouts website mentions a proposal to make it easier for banks that are deemed “too big to fail” to actually fail. The proposal would add a new chapter into the bankruptcy code, making it easier to allow these companies to go bankrupt. While we usually cringe at the thought of adding ever more chapters to a plethora of government regulation, we like the general idea behind this. Here the government allows the market to get rid of companies that do not deserve to stay in business, while their only intervention is to ease the change for employees and customers. The ultimate goal, though, is liquidation, as well it should be.

As always, however, the devil is in the details. These details already exist, and many more are sure to be added and changed if it passes. The problem is that the very companies that are too big to fail have an active interest in not allowing bills such as this one to pass, so it remains to be seen whether this ever makes it into law. This also raises the question: is there really need to add legislation to let banks that are failing go ahead and fail? It seems like taking out specific legislation that’s already in place might achieve the same ends and make everyone’s life more simple. Then again, simple has never been the politician’s way.

An interesting attempt, nonetheless.

A copy of the proposal can be found here.