Too big to fail: A problem we have to fix

American corporate capitalism is undergoing a test this year, and it's ironic that the nation that perpetually rails against "big government" is now grappling with the issue of big business -- in other words, businesses that are "too big too fail."

Some economists have detected a flaw in the American capitalist system (it's not the first nor the only one): namely, that if you grow you're business big enough, to the point that failure would create systemic risk, you may be reducing your career risk or opportunity risk as an executive. A truly big business may also create a condition -- others call it distorted incentives -- that encourage you to run the riskiest business model possible. The incentives encourage executives to go for the largest gain (or largest personal gain), because the downside is minor. If the risky model succeeds, you hit the jackpot! If the business edges toward failure, no worry: the federal government will come in and save you, to prevent unacceptable damage to the U.S. economy or the financial system.