In my last post I outlined in very basic form a plan to decentralize control over private pension and 401k plans. And I’m going to expand upon that here – perhaps in a bit of a roundabout way, but you will understand what I’m talking about by the end of the post, which I hope won’t be too long-winded.

When I first started working for my former employer in 1995, my workplace was located in a semi suburban to rural area on the outskirts of the Greater Rochester Area. It was just at the beginning of the boom, and folks at my technology firm were pretty happy. I was young and full of ambition, and I worked my way up to corporate IT and transferred downtown in 2001 as the boom was ending. When I got downtown, I could tell that the bust had not been kind to the city. Next to the Xerox Square, a 27-story building, the tallest in the city, was the Midtown Plaza Mall, and it was joined via skyway to Xerox Square and the Chase building two-blocks down.

Inside the Plaza, where I used to go almost daily for a salad lunch, there were many shuttered shops. Two of the shuddered shops on the way to the Chase building were former securities trading offices.  On one of these shops, the sign had been removed from the front of the office, but I could still make out the name from the gluey residue left behind on the beautiful black marble facade. Of the many other shuddered shops, some of them had specialized in things executives might want, like leather briefcases and bags, among upscale gift shops, clothing stores, and beauty salons – all done and gone. It was a dreary place to be, full of reminders of better days; leaving room for hope that at least some of it would return when the economy got better. But it never did.

Thinking about the mortgage fiasco that transpired afterward, I mentally chained together these images of bust with too big to fail; and they are, of course, two entirely different beasts. In one boom, we had investing market places springing up everywhere, and in the other boon investing markets were concentrated in big firms, mostly in New York. Gone were the mom and pop and day traders, and in came too big to fail.

I remember hearing that part of the philosophy behind having fewer and larger investment firms was that they can pool enormous amounts of capital that a bunch of smaller firms could never accomplish; and of course, we could supposedly reap the benefits of having the best and brightest allocating capital for the entire county, with salaries that more than matched such competence and skill. I can certainly see theoretical advantages to this kind of arrangement. But for all things that look good on paper, there are many things that go left unseen – the stuff that should be seen before taking such a leap.

Too big to fail is one such problem. But the greater part of the problem created is the very fact that these fewer and larger firms are so tight with the government, they might as well be the government; and that ability to pool very large amounts of capital became public enemy number one with government influencing the direction of it. It’s quite ugly and unhealthy for a market economy.

I don’t know which laws specifically deal with this, perhaps some of it is buried in Sarbanes-Oxley, but they need repealed. And to any extent possible, private actors should avoid these firms as much as possible, for pension plans, 401k plans, or anything else for that matter – handing our money to them is practically the equivalent of handing it to Obama himself.