A few thoughts on “too big to fail”

A recent New York Times article poses the question: If it’s too big to fail, is it too big to exist? The article poses some good points which I’ll summarize as best I can:

  • We have moved past the era of many small banks, and will probably not return to it any time soon if at all.
  • Sheila C. Bair of the Federal Deposit Insurance Corporation (if you don’t know who they are, look for the FDIC sticker next time you go to a bank) argues for fees imposed on larger banks after they have been bailed out by the government.
  • The other people in the story tend to agree that allowing the taxpayers to foot the bill for large bank blunders is unsustainable long-term.

I agree that we can’t let the largest of the banks fail more than once. We must focus on prevention of future bank failures. At the same time, the possibility of a bank the size of Washington Mutual just up and failing is frightening, and would have had dire consequences for everyone, even those that do not have a bank account and deal only in cash or prepaid debit cards.

The consequences of any of GM, Chrysler, and AIG failing completely would also be rather dire. As it stands, I find the demise of GM’s Pontiac marque rather saddening given I own one of the vehicles. (As if that was not enough, my previous vehicle was a Plymouth.) Without going into specifics, we did not get through the Great Depression of the 1930s without a great deal of government intervention, and the leadership of a truly great president, Franklin Delano Roosevelt. I find it unrealistic to think that in our greatest economic crisis since that the best policy is “hands off and let the market do its thing.”

I do think that the best strategy looking forward is to keep a closer eye on the size of companies; there is a reason we have antitrust regulations, and it is entirely possible they do not always go far enough.

A truly embarrassing truth for wireless phone companies

A recent story in the New York Times (which I learned about by way of an entry in Techblog) exposes quite a bit about how wireless carriers transmit text messages (SMS). These articles (the NYT article in particular) are good reads for the terminally curious. I’ll summarize the main points for those readers who lack the time, however:

  • Text messages ride the control channel, space normally used to control operation of the network (hence its name).
  • Thus, text messages cost very little, in fact almost nothing, for the wireless carriers to pass along.
  • The 160-character limit comes from the length of a call set-up message.

Now, combine these points (particularly the first two) with the fact that all wireless carriers which charge separately for text messages, have doubled the rate for casual use messages over the past three years ($0.20 now versus $0.10 before). If anything, this rate should have gone down with time, due to advances in technology, not up.

I have always smelled a very faint odor of bovine excrement even during the dime-a-message era. Something told me it can’t possibly cost the wireless carriers this much per message, even with an allowance for a reasonable profit margin. Turns out I had a pretty good hunch. Unfortunately it took the greed of the wireless carriers to turn the right heads (Senator Kohl) and trigger a closer look.

The profit margin today is anything but reasonable. This makes the long-distance rates of the AT&T monopoly era (often a full order of magnitude what they were after the deregulation of telephone long distance) look like the convenience store clerk keeping the penny when you’re owed change of $0.71 on a soda. If the phone companies were selling gasoline, we’d probably be up to $8/gallon, with station owners scrambling to prepare for an inevitable $10/gallon (most current signage only goes up to $9.999).

Am I going to cancel my text messaging plan? Of course not. I will, however, follow this closely and hope we at least get reform, if not some of the money back.

(All currency amounts are US dollars.)