Nov
3
Maybe ‘too big to fail’ is just too big… Doesn’t that seem a little odd that the government bails out banks that are too big to fail to just have them buy up more banks that then makes the company that was in trouble even more dangerous to our economy if they fail? Hmm.
“Maybe ‘too big to fail’ is just too big” by Robert Reich from Marketplace an American Public Media show.
Audio Podcast:
http://download.publicradio.org/podcast/marketplace/pm/2008/10/22/marketplace_cast1_20081022_64.mp3
TEXT OF COMMENTARY:
Kai Ryssdal: Congress is in full oversight mode this week. There are hearings on everything from financial reforms to how this whole thing happened in the first place to what’s going on with the bailout package.
Some banks are thinking about using their share of the bailout money to buy other banks. Bigger’s usually better in the financial world. Except, says commentator Robert Reich, for what that means to the rest of us.
Robert Reich: According to Treasury Secretary Hank Paulson, the biggest Wall Street banks now getting money from the government are just “too big to fail.”
Fed Chairman Ben Bernanke uses a different euphemism — he calls them “systemically critical.” The point is that if any one of them goes down, it could take the whole financial system with it. So we taxpayers have to keep them up.
We’re hearing the same argument elsewhere in Washington for saving General Motors. It’s just “too big to fail.” So Congress is considering a bailout that would keep GM afloat and sweeten a merger between GM and Chrysler.
Pardon me for asking, but if a company is too big to fail, maybe — just maybe — it’s too big, period.
We used to have public policies to prevent companies from getting too big. Does anyone remember antitrust laws? Somewhere along the line policymakers decided that antitrust would only be used where there was evidence a company had so much market power it could keep prices higher than otherwise.
We seem to have forgotten that the original purpose of antitrust law was also to prevent companies from becoming too powerful. Too powerful in that so many other companies depended on them, so many jobs turned on them and so many consumers or investors or depositors needed them, that the economy as a whole would be endangered if they failed. Too powerful in that they could wield inordinate political influence of a sort that might gain them extra favors from Washington.
Maybe the biggest irony today is that Washington policymakers who are funneling taxpayer dollars to these too-big-to-fail companies are simultaneously pushing them to consolidate into even bigger companies. They’ve prodded Bank of America to take over Merrill Lynch and Countrywide. JPMorgan to acquire Washington Mutual and Bear Stearns. And now they’re urging General Motors to absorb Chrysler.
So we’re ending up with even bigger giants, with even more power over the economy and politics, subsidized by taxpayers and guaranteed never to fail because they’re just — too big!
Nov
3
Fiscal conservatism used to mean that you actually worked to reduce the size of the government and reign in government spending. Although the Republican party still claims that they are the party of fiscal conservatism, they actually are just as bad as the democrats, if not worse. When Clinton left office we had a surplus, the last 8 years the US has spent in such huge deficit that it is hard to see our way out of it… but is now the time to reduce spending? I don’t believe so.
“There’s such a thing as a smart deficit” by Thomas Frank from Marketplace an American Public Media show.
Audio Podcast:
Transcript of Thomas Frank: This is one of history’s great paradoxes: Again and again we elect deficit-denouncing conservatives to office, and again and again they proceed to run up gigantic federal deficits.
Why do they do it? Well, for one thing, deficits allow them to reward their constituents; They can cut taxes for the very rich while sluicing money to politically-connected contractors.
For another thing, deficits allow the conservatives who piled them up to demand that social programs be cut, that government operations be outsourced, that Social Security be privatized.
And now we have a conservative Republican running for president who is outraged by the deficits run up by another conservative Republican. That candidate, John McCain, promises — and you guessed it — a balanced budget in his first term in office. After all, his campaign tells us that individual families don’t get to run deficits — they have to pay their bills on time, and therefore so should the federal government. So what we need to do is slam on the brakes.
McCain’s approach would be calamitous. The federal government isn’t a family; it’s allowed to run deficits when they’re called for, and believe me, they’re called for right now when we’re in recession and everything is contracting.
Maybe there’s another way of looking at the problem. Suppose we understand the current deficits that benefited the rich and the well-connected as stupid deficits that didn’t stimulate much more than the market for yachts and lobbyists. Smart deficits, on the other hand, would come from federal spending that gets the economy going again. Spending money on infrastructure, on stabilizing the housing market and on a massive energy independence program — that’s the kind of energetic and intelligent governing we so urgently need today.
Look, the alternative is to deliberately bring on some economic day of judgment. But the right answer to our problem is not to steer for an iceberg while shouting ‘every man for himself!’
Oct
7
Even in my limited years of business experience, I know one thing that holds true about money, it drives behavior. So when my company looks at compensation plans, I always look at what results I want and method I would like them achieved before I put together a compensation plan. For example, if I want my team to give more focus on selling a certain product, I will put in tangible incentives if they achieve a high water mark, and I also put in penalties if they don’t achieve a low water mark. This way there is both a carrot and the stick approach. I also make sure that I set expectations on how they are allowed to achieve the goal, what the exact metrics for success and when their work will be audited so that there is less chance of failure all around. Sometimes I get it wrong, but most of the time this method gets the results I am looking for.
This bailout package defies conventional logic of a free market economy and in my opinion is a sham of global proportions. The “free market” is a carrot and stick model. If you build a business that does well, you earn money, and if you fail, you loose money, thus driving people to succeed. I know this I probably oversimplified but if the government rewards the individuals (note that a corporation is legally seen as its own entity) who have failed, then why would these individuals change their behavior? Why wouldn’t they just find yet another way to engage is high risk, high yield ventures that have short term success? I would gamble all the time if tax payers would just payoff my bad debts. The markets will not correct unless companies who are unsuccessful are allowed to fail. It shows poor judgment on both Obama and McCain for voting for this bailout.
The real crisis that should be addressed is that sound businesses can’t short term loans from each other. This is root of our current crisis. When companies can’t borrow money for a few weeks to cover payroll, then we have a true disaster. This is now in discussions and it should actually help, so why the bailout package?
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