David Sirota: If It's "Too Big to Fail," Then It's Too Big to Be Private

[marmar]

from OurFuture.org:



If It's "Too Big to Fail," Then It's Too Big to Be Private
By David Sirota

March 3rd, 2009 - 12:57pm ET


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I appeared yesterday at the top of Neil Cavuto's Fox News show to discuss the potential for financial industry nationalization. You can watch the clip here. I tried to use the opportunity to float a fairly simple - and old-fashioned - concept: If something is "too big to fail," then it's too big to be in private hands.

The term "too big to fail" is a euphemism for any institution that is so important to the entire nation's most basic well being, that society cannot let that institution fail. This is why one of the foundational principles of civilized society has always been nationalization - i.e. government control - of the institutions that are "too big to fail": institutions like the military, whose failure would mean a basic loss of national security; law enforcement, whose failure would mean a basic loss of civil order; and infrastructure construction, whose failure would mean the crumbling of commerce. The government, as the most powerful representative of society as a whole, runs these institutions/services because they are too important to be allowed to fail.

Unfortunately, the hard-right and center-right ideologues who ran the government for the lat 30 years gutted the basic laws and enforcement mechanisms (financial regulations, anti-trust prosecutions, etc.) that prevented a myriad of financial institutions from becoming "too big to fail."

The American Insurance Group is the best example of this - a company that, as the New York Times notes, essentially based its business on a risky scheme to sell insurance to other corporations against colossal housing market failure. This allowed huge banks and investment houses to effectively offload their own absurdly risky housing investments by "insuring" those investments against loss with AIG - a shuffling of paper and deep-frying of books that let those banks leverage themselves even more, sans regulation. When the housing bubble burst and the banks called in their insurance, AIG was asked to pay up, and it couldn't, because it never expected to have to back up its insurance policies. But because AIG was so big - because it had so singularly cornered the market on such insurance and had essentially become the insurer of last resort - it couldn't eventually pay up, its failure would result in a cataclysmic ripple effect of defaults. ......(more)

The complete piece is at: http://www.ourfuture.org/blog-entry/2009031003/if-its-too-big-fail-then-its-too-big-be-private

[pnutbutr]

1. with proper

oversight and regulation I would disagree.

[Silent3]

6. One of the things "proper oversight and regulation" would do...

however, is prevent any of these private financial institutions from becoming so large and individually important that their individual failure would have such huge consequences. Regulation has to be about more than just setting the rules for individual transactions, regulation also has to be a check against excessive consolidation of power.

[izquierdista]

11. Antitrust is the word you are looking for

I don't think you can be faulted for not using it, as there has only been one feeble attempt at it in the last 30 years (vs. Microsoft). I'm old enough to remember a time when there was actually an anti-trust division in the Justice department and corporate mergers had to pass muster with them. However with the Repubs running rampant as they had been, that division must have made the Maytag repairman look busy.

[Silent3]

13. Antitrust!

Yes, thank you. Had to brush the cobwebs off that one. Time for that word to come out retirement.

[RUMMYisFROSTED]

21. AT&T, 1984.

Just sayin'.

[JerseygirlCT]

16. Yup. Isn't that why monopolies are supposedly a bad thing?

And yet, all this deregulation has allowed companies to merge and merge until you get an AIG.

[The2ndWheel]

19. The only way to stop a monopoly is with a monopoly

You won't be able to stop corporations from merging if not for a centralized government.

[Cant trust em]

2. nationalize or break up

We should never be put in this position again.

[TBF]

3. Agreed. They are robbing us blind. n/t

[anonymous171]

14. Totally agree. nt

[margotb822]

4. K&R

Love David (yes, we're on a first name basis, haha).

[Nicholas D Wolfwood]

5. That is actually a great point.

If it is that vital to the public's interest, it should be a public body.

[leftstreet]

7. K&R

[WillyT]

8. Exactly !!! - K & R !!!

:kick:

[99th_Monkey]

9. That's an AWESOME sound-bite: "Too big to fail? Too big to be private!!" .. i'm lovin' it. ~nt~

[truedelphi]

10. Same here. n/t

[Uncle Joe]

12. I agree.

Kicked and recommended.

Thanks for the thread, marmar.

[Faryn Balyncd]

15. The #1 corporations that are "too big to fail" : HEALTH INSURERS

[KharmaTrain]

17. Hindsight Is 20/20

For 30 years we were told how we'd all be golden if the regulations on this industry or that one would be loosened. "Deregulate" the airlines and we'd get more flights at cheaper prices. Deregulate the airwaves and we'd have more programming choices and better quality. Deregulate the banking industry and money will flow to all. If it wasn't deregulate, then it was privitize...let the market lead the way to the promised land.

It didn't take long for that marketplace to show its true colors...green. The AT&T monoploy was broken up in the 70's only to return with a vengence in the late 90's, big corporate saw big profit on the market by expanding and expanding...always showing some kind of growth (even if it meant taking on huge debts) that projected greater earnings (the debt is never figured in) and rose the stock price. Bigger was better as the bubble lifted many boats. Soon we got industries that became too big to fail.

Be it automotive, airlines, broadcasting, steel...virtually every industry, we have a top heavy system with huge corporations determining the marketplace, not the other way around. Their failures have become ours. They eliminated the small and medium markets that could have been a fallback...and now if they fail, so goes economies on a national and worldwide scale.

It's not just AIG or Citicorp or Merill Lynch. They're high profile. Underneath the radar there are many failing businesses and industries tied to a few hands that leveraged and cooked the books to eliminate competition and enrich their stockholders.

FDR put in place a lot of regulations because he saw how the bigger is better failed in the 20's. Hopefully President Obama will follow the same model. After the economy stabilizes, rebuild it on the same grassroots level that lifted him to the Presidency.

[The2ndWheel]

18. Then at this point nothing can be private

Civilized society is increasingly becoming more and more linked around the globe. Everything we do is too big to fail.

[Urban Prairie]

20. Great idea, too big to fail, too big to be private...

But this is tied to the thought that the US won't have corrupt, criminal and/or incompetent leadership in the WH ever again.

That cannot be guaranteed, and think of the power and control that a Palin-esque fundie freak as POTUS would have over everything, especially if there was a clear GOP majority in Congress...Yikes!! It would be bad enough that she would be CIC of our military alone.

We need to restore anti-trust government regulations and break up these monopolistic Wal*Mart-like global corporate pseudo-capitalist entities that are killing small and medium sized businesses, and outsourcing/offshoring our jobs en-masse. There could be a temporary period where the government is completely in control over failing or failed corporations, but IMO, they should be returned to the private sector after being chopped up into much smaller pieces.

I like more and stricter government regulations over more and bigger permanent government control.