Thursday, February 12, 2009

Trustbusters?

How big is "too big to fail?" One of the reasons the bailouts make folks so angry is that bailouts don't play by the normal rules. If you can't run your business, your business goes under and you get to go work for someone else. That's the American way.

But there was one thing all the CEO's were really good at: buying up other businesses. While this manipulated their own stock options and were generally considerred a good thing by the stock market, mergers decreased the diversity of our nation's finacial portfolio. Like a conspiracy where the left hand doesn't need to know what the right hand is doing, the high-risk parts of a company made bets with the low-risk parts of a company's money. Give 'em an inch, they took a mile.

Now that the hands are caught in the cookie jar, it becomes apparent to many folks that if organizations like this were to fail, it would bring down far, far more than just that organization alone. There was plenty of talk on the left for years about how mergers were only creating oligarchies, and monopolies. There wasn't enough talk on the right about how such mergers stifle competition. Now we see the awful result.

The essential part of "free-market capitalism" has to do with competition. Take that away, and the results ain't pretty.

So, should we carry Roosevelt's big stick and start busting up some of these trusts? Some folks think so:
"Yes, finance marches on. We're not going back to 1933. But some things about human nature never change. Now that we understand the fallacy of the "dispersion of risk" idea—which Wall Street, with a big assist from Alan Greenspan, sold us on before the crash—we should arrive at about the same place as Glass, Steagall and Teddy Roosevelt did. We can't have a free-market economy dominated by institutions so huge that they don't have to play by free-market rules. And yet we still do."


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3 comments:

DADvocate said...

So, should we carry Roosevelt's big stick and start busting up some of these trusts?

Absolutely.

Dante said...

Couldn't we save ourselves a lot of trouble and just let them fail to begin with? They won't just disappear. The viable pieces of the business will get shopped up and sold off the their creditors. That would've done a nice job of breaking the trusts for us AND it would've gotten rid of the lousy execs every like to complain about. I believe Pat would call that a two'fer? But instead we've made a mess, we intend to make more messes, and then we're going to complain about how messy things are.

Cousin Pat from Georgia said...

Couldn't we save ourselves a lot of trouble and just let them fail to begin with?

Oh how I wish. Because you're exactly. right. Two'fer, indeed. Letting the market work so the government doesn't need to get involved. If it were only so simple.

But that's the whole underlying problem to this whole thing, and why no one can agree on any of the options presented to us. Remember, the bailout "need" has led to the "stimulus" debate which has led to so much politicking nationwide, that my dream priority - education and infrastructure - are now suspect and on the chopping block. I'm so mad I could spit.

Though it is cathartic to say "let them fail" at this point, there is such a fearful undercurrent in our society right now that, should these giants fail, they will take everything down with them. It would be one thing to know that, for six to eight months, we could all take our medicine (some more than others) at a big market-based realignment, and then everything's OK. But we've been burned so much in the past, our collective memory recoils at that prospect.

I mean, it looks great in theory to just let them crash and burn (I mean, my gut reaction is all torches and pitchforks at worst, kick them on the way down in the middle, and to say "we don't need no water let the MF burn" at best), but what happens if it doesn't turn out the way I think it will?

Doubt & fear take over. I don't want to have to crash on my parent's couch with them reminding me every morning - "let the MF burn, hunh? How's that workin' out for ya' today?"