For once (and maybe only this once) I agree with the spirit of some social Darwinists—here is where we should let natural selection operate and weed out the dinosaurs. Nimble, warm blooded banks and businesses will fill the abandoned niche space of the cold blooded behemoths. I’ve argued since the beginning of this “crisis” that leaner better lenders will emerge from this debacle if we DON’T bail out the big guys. It’s not as though people whose livelihoods depend on lending (or building cars or whatever) will simply stop because they have no confidence in risky debtors. They will rather stop taking stupid risks. And those who do thrive on risk will still take them to make a buck. That’s how I see it. And you are right, we can no decentralize the production of goods and the pooling of capital. Proudhon would be proud!
Too Big To Fail, Too Powerful to Regulate
Written on 12/06 at 01:49 PM by Andy Posner
2 comments
Filed under: Business environment
The Big Three Dama
I’ve been watching the Big Three bailout drama with increasing dismay. First, the executives from GM, Ford and Chrysler flew in private jets to Washington for a hearing, and then proceeded to beg for $25 billion--without offering a plan as to how the money would help them get out of their present mess. Congress told them to come back with a plan, and suggested that next time they find a more plebeian mode of transportation. So back the executives came this week, humbly carpooling in the poorly made cars their companies produce, with more detailed plans for restructuring. The CEOs magnanimously offered to work for $1 a year if they received the bailout money (nevermind that the bulk of their salary comes from stock options and bonuses, not salary). They presented a plan for laying off workers, closing plants, focusing on core brands, and lowering health care and other costs. Congress wasn’t exactly impressed, and polls show Americans are not in favor of yet another bailout for yet another mismanaged corporation.
But here’s the problem: the Big Three are just too big to fail. They directly employ roughly 100,000 people in the United States, but their suppliers across the country employ hundreds of thousands more, and the ripple effect would send our already reeling economy into a tailspin. It now looks like the auto companies will get their money, albeit only half of what they were originally seeking. The same “too big to fail” logic was used to justify the bailout of AIG and several other financial institutions. And, like it or not, in a “centralized” economy, the logic is quite sound. What concerns me is that “too big to fail” usually means “too powerful to regulate.”
Thanks for this. I got the link from a comment you left at another site and found it to be a great compilation of the story thus far. Here’s praying for the integrity of the tradefinancial modeling software
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