Too Big to Fail

ELLEN GOODMAN

January 22, 1991|By ELLEN GOODMAN

BOSTON. — Not long ago, I came upon a sidewalk economics seminar between a mother and her 4-year-old son. The boy was lobbying for an ice cream cone. The mother said no. The boy asked why? The mother explained, I don't have enough money. The boy asked, plaintively but logically, ''Why don't you get some money from the wall?''

At the time, I chalked this up to Kute Things Kids Say. To an entire generation of children, money doesn't grow on trees. It comes out of walls on the street corner.

You merely walk up to one, stick your card in, punch some buttons, and out comes the dough in crisp $20 bills. Off you go for a scoop of vanilla with chocolate sprinkles.

Lately I'm not so sure that preschool economics is all that different from adult economics. We deposit, withdraw, cash checks, write checks without having to think much about the business minds behind the machines. We are more likely to pick a bank for its location and services than its good sense.

With due apologies to Jimmy Stewart, Americans don't know their bankers any more. They just know their passwords.

I bring this up because the economic flavor of the moment in the Northeast is Rocky Road. The giant Bank of New England, 450 branches strong, collapsed, swooning, into the arms of the government. The feds then pumped $750 million into the bank and promised to make good every penny of every deposit even if it was above the $100,000 insurance cap.

Out of this debacle, we learned a basic rule of economics in the 1990s. In the words of the experts, this bank was ''too big to fail.''

This is what you want to be these days: Too big to fail.

Which depositors are in trouble now? Those who banked at the modest-sized Freedom National Bank in Harlem -- the churches, businesses, charities with more than $100,000 -- are only going to get 50 cents on their uninsured dollars.

Which state is in the deepest banking weeds? Itty-bitty Rhode Island. It closed its banks and is issuing scrip to the citizens.

The advantages of being too big to fail are obvious. Once you get enough people dependent on you, once whole economies hinge on your very existence, you have nothing to worry about. The government has to save you.

The theory is that if the biggies fail so does the economy. So the little guys -- taxpayers -- have to ante up to save the big guys in order to save themselves. Fine. But how do we figure out a way to apply this to social policy?

For a long time the government has also been the purse of last resort for the poor. Its safety net is supposedly the communal catch-all for those who tend to fail small, one by one.

But over the past decade we have become more stringent

toward people who make serious financial misjudgments on their own. People who have become parents, for example, or lost their jobs, gotten sick.

Now, the Bank of New England goes belly-up on some rotten real-estate investments and is nevertheless covered. But the homeless aren't as lucky. The FDIC shores up the economy by shelling out millions to uninsured depositors. But the same idea doesn't apply to the 37 million whose health is uninsured.

The notion that a bank has to be bailed out for the sake of its dependents just doesn't seem to extend to a family in trouble. In ''Rosalie Goes Shopping,'' a mother parlays her family's debt into a secure multinational corporation. That option is available only in the movies.

In real life, it seems at times that Americans have more security as depositors than as citizens. The government has a greater sense of urgency in preventing a bank from failing than a city.

But when 20 percent of our children live in poverty, some cost accounting needs to be done. Some reckoning to show that when the bottom drops out of society, one by one, we eventually all slide down.

So as the feds take over the bank, I am wondering when we get the next economics lesson of the 1990s. The one that transfers the sense of connection from the bank account to the human side of the ledger. When, in short, will we see people as too big to fail?

Ellen Goodman is a syndicated columnist.

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