Topic: Government Regulation
How Do Major Company Collapses Hurt The Economy? Treasury Secretary Timothy Geithner's plan to reshape regulation of the economy once again raises the ugly spector of horrible things happening when big companies fail.by Walt Thiessen
(libertarian)
Tuesday, March 24, 2009
Now that the U.S. government is talking about adopting an ongoing policy for nationalizing the financial industry, we hear the same old argument being made, that there are certain companies whose failure could traumatize the economy into complete failure. The problem with this argument is that no evidence or specifics of this theory exist.
The argument gets trotted out whenever some financial institution or major company gets in financial trouble, not just in the current crisis but also going back decades. Ever since the Feds got into the business of bailing out companies in the early 1970s this argument served as justification for all manner of bailouts.
But when we ask those who make the argument how they know, we get a defeaning silence in return. Pointedly, the powers that be do not answer the question. The media, politicians, economists, financial industry leaders, etc. routinely make the argument, but none ever back it with evidence.
This raises the question: why should we believe them? Why should we even take the argument seriously?
The "too big to fail" argument serves to inspire fear in the masses, the real intention of those who make the argument. They propose to sway the emotions rather than to address the intellect or get specific about the facts. And why not? No one of consequence ever challenges their wild claim, so keep using it!
Of course, the "too big to fail" argument also misses out on a crucial point: every major company about to go down the tubes has competitors who await the opportunity to grab the newly available market share. Even in the current crisis, this point remains true. So why exactly should we fear the failure of a major company?
I suppose some fearmongers argue that the employees at these falling dinosaurs lose their jobs. True enough. On the other hand, unless the entire market goes away, it means that competitors need to hire the ones who have good performance records and do not insist on being overpaid compared to the market in order to meet the needs of the competitor's newly expanded market share.
One company's failure is another company's opportunity. Instead, of trying to scare the masses to death, perhaps our leaders should try to remind them of the basics of market operation.
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You pointed out that the first "too big to fail" policy took place in the seventies. This is also roughly the beginning of the US world dominance in the finance sector [also, coincides with the abolition of the gold standard which acted as somewhat of a financial governor]. Since then, they have morphed the Fed and New York based capital markets financial system from its simple task of letting Capital go where it needs to go to a calculated predetermined system that continually grows [in the real world or on paper] and empowers itself. The entire world system is intertwined and "dependent" on US debt creation.
I think it is this "empire" they are afraid of losing or diminishing, not the actual economy. This transfer of wealth from the real economy [all of us] to their fabricated system is due to its inherent unsustainability and constant, evergrowing need to be recapitalized.
First, when a giant company fails, the entire economy in a particular city or region may be affected, causing additional companies to fail. A domino effect.
Second, as more and more large companies fail, the remaining ones get larger and fewer.....until in extreme cases we have a monopoly.
And monopolies under capitalism are no better than Communism. The only sure way for "lassez faire" capitalism to work is if there are NO giant corporations and thus no way for wealth and economic power to become too concentrated in too few hands.
No company is, literally speaking, too big to fail. But companies should be considered too big to EXIST if their eventual failure does too much damage to an economy. Sure, the Roman Empire fell and a half dozen or so barbarian kingdoms quickly replaced it, but it was still a horrible disaster for all of Europe. Why do you think we called that period the DARK ages?!
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