Sometimes I imagine being “too big to fail.”
Perhaps I’d buy a Lexus, put a nice stereo in it, drive it to a luxury hotel, order lobster from room service and just put it on the tab.
Of course, that would be your tab.
You, the taxpayer. You got my back. I’m “too big to fail,” remember? If I go down, you go down, too. Why should I worry?
People have expressed resentment for years about a welfare mentality among some poor folks. But if you truly believe in personal responsibility and not living off the government dime, then you must now recognize that we have entered a strange new age of government welfare. And our greatest expense isn’t coming on the low end. No, it’s the caviar crowd that’s raking in hundreds of billions of our tax dollars because of their reckless actions.
The age of big-time mergers brought us enormous companies that seemingly couldn’t fail. Why step in the way? Who needs anti-trust laws anyway? If the market dictates that bigger is better, then let companies join forces and do as they please. We’ll all benefit in the long run. That’s been a fundamental doctrine of deregulation.
But business is best when there’s competition. And while a “hands off” government attitude is appealing in many ways, the down side of this merger-happy generation is that when companies quit competing and join together, then our competitive climate is hurt and our ability to absorb failure is lessened.
Unfortunately, some of these Titanic companies got so big that when they steered into an iceberg they put us all out in a rubber dingy. Now, we, the taxpayers, have essentially become their insurance policy, their life raft.
“Give us your money, we’re drowning, and we’re going to pull you down with us.” Well, that’s hard to stomach for people on the left and the right. If we bail out companies, why should they act responsibly in the future? And if we bail them out and don’t set real guidelines on how executives use taxpayer money, what’s to keep them from pocketing our cash or spending bailout money in an equally irresponsible manner? Have we given up on the belief that there are consequences for poor decision making?
Apparently, if you’ve achieved the lofty status of “too big to fail,” then the rules don’t apply to you.
While we witnessed merger after merger in recent years, we also saw the rise of a complex speculative trading system that lacked adequate rules to protect the American public from risky credit wagers. Essentially, credit risk hasn’t been adequately balanced with real collateral. We had these folks gambling, making real money off high-risk credit arrangements, but unable to back up their bets when the chips didn’t fall right, hurting many others in the process.
I can’t get a good handle on “derivatives,” or “credit default swaps” or “hedge funds.” For me, this kind of talk leads to a quick case of brain freeze.
But as I understand it, derivatives are, in essence, “highly speculative bets that are not secured by anything tangible.”
So, I do feel nervous when I hear Warren Buffett, one of the world’s richest men, who is pretty well-respected for having real business smarts, refer to derivatives as financial “weapons of mass destruction.” It’s quite disturbing to then learn that the Bank of International Settlements has estimated the derivative market at $516 trillion, up from $100 trillion five years ago. What is this backed by, Monopoly money? The United States’ annual gross domestic product is about $15 trillion. Hearing all this, I can’t help but fear that the type of high-dollar futures trading we’ve seen in recent years is similar to the “anything goes” market bubble of the 1920s, where values were artificially inflated by a few who raked in the cash, while the fall was so hard on so many others. Just as in those days, we’ve allowed some seriously risky trading to go on without regulating — or even seemingly understanding — what we’re allowing in a broad sense.
Now, it burns me up to think that any company will get my tax money for acting irresponsibly. But we’ve been in a real panic and seem to believe that bailing out our biggest businesses is the only way out of this bind.
I don’t know. Perhaps this is the only short-term solution. Perhaps we will indeed tank without that cash infusion. But we need long-term philosophical changes in this country. Markets need to be free, but that doesn’t mean they need to lack basic structure. We need rules to live by. And government has a responsibility to set standards of fair play.
We should value profits, but they need to be honest profits, not riches off ponzi-schemes, sleight of hand trading and the elimination of competitive markets through repeated mergers. This era of “too big to fail” needs to end.
Unfortunately, the referees have been off the playing field for far too long.
And in this game, we’ve all been played.
Zach Mitcham is editor of The Madison County Journal.
