Bring real failure back

Somebody said that success has many fathers while failure is an orphan. Great observation. In the twenty first century, we have realized that orphans can actually be adopted... by tax payers worldwide.

Going back to our topic, failure hurts. We don't like it except for the fact that exposure to failure is the only way to possibly succeed. Out of all the possible paths of action, reckless risk taking is the recipe for enormous success or total and enormous failure.  That's the type of risk you'd take if there was no PERSONAL risk to you. Go to the casino with your friend's $1,000 dollars and bet it all on 14 red. Sweet if you win, you keep all the profits.  If you lose, your friend is out $1,000 and you just shrug. Oh, well.  Better luck next time.

By the way, there will be a next time.

As a society we can choose to write regulations that are so comprehensive that encompass every possible scenario of reckless risk taking, or we can let the sheer painfulness of the experience of personal failure to be the reason why people evaluate carefully potential outcomes before committing to a course of action.

Freedom only works if we allow people to experience both the benefit and the pain associated with their choices. That is the concept of tough love, the core of good parenting worldwide. Tough love makes strong children and is the basis for good economies. All our attempts to manage our economy in fine, clever ways are an exercise in futility, as reality is more nuanced than what we could possibly foresee.

During the last financial crisis, we kept hearing the line "too big to fail" on the news.  A pretty interesting concept. Some companies are such a large part of the overall system that their failure could destroy the whole system. A scary prospect and a reason to prop up these companies and not let them fail. By doing this we have allowed success to be a private affair, where the managers that took all the inappropriate risks can have all the rewards associated with betting big and winning, while if failure is the outcome, the public takes the loss. Sweet, how do I join? There are two nice casinos right here in CT.

As they say, fool me once, shame on you, fool me twice.

If a company is too big to fail, should it be allowed to exist? What is different today in the landscape of financial firms and what have we learned? Bank of America is larger today than before the crisis, so is Citibank.  We can create books full of regulations, but if we had the same problem again, another crisis, they would still be too big to fail and we will be compelled to do the same thing again.

We need to make sure that both success and failure are private affairs, or we are setting ourselves up for a replay of the last crisis. Remember Einstein's definition of insanity: to do the same thing over and over but to expect different results next time.