More change you can believe in.

[markw]

First, two of the largest auto makers in the world. Now this.

"The Obama administration will soon make public a new approach to dealing with so-called 'too big to fail' financial firms that would make it easier for the government to seize control of them and make major changes, an administration official said on Monday."


Granted, something needs to be done, but is this it?

How about just limiting profits and bonus' and regulating risky trading?

 

[JerryLove]

It seems like they are trying to create a structure and laws to deal with the situation that already came up.

That is to say: if another "too big to fail" company is about to fail and the fed is going to step in, as it did last year, there would be policies, rules, and laws in place to facilitate that.

Is there a particular element that concerns you?

I've argued before that it would have been better to let the companies go bankrupt and salvage them from bankruptcy than what was done because it would allow a voiding of contracts and restructuring of debts (such as the high-bonus contracts with the executive who bankrupted it). This looks, from what I see, to be an attempt to create a process that allows those changes without first requiring a bankruptcy; clearing up the legal limbo the current take-overs are in.

 

[markw]

Yes.

That is to say: if another "too big to fail" company is about to fail and the fed is going to step in, as it did last year, there would be policies, rules, and laws in place to facilitate that.

Is there a particular element that concerns you?

Who, or what, winds up owning, or in control of, the facilites they have just "faciliated?

Look at GM and Chrysler.

 

[rnatalli]

This is a scare tactic in my eyes.

Too many companies are "too big to fail" types. Perhaps this will encourage businesses to split up and come down in size which is a good thing in my eyes. Or, it could be a government takeover of the country

 

[Matt34]

Why is it this administration's MO to go to extremes on every decison it makes. Why can't they regulate these industries instead of completely taking over. The huge number of power grabs, in multiple industires, is disconcerning...especially in such a short amount of time.

 

[JerryLove]

Who, or what, winds up owning, or in control of, the facilites they have just "faciliated?

So I take it that you oppose, on principal, the government's intervention over the past year in GM, Chrysler, AIG, etc and dislike this proposal because it indicates a willingness to repeat that choice? Is that about correct?

 

[JerryLove]

Why is it this administration's MO to go to extremes on every decison it makes. Why can't they regulate these industries instead of completely taking over.

How do you regulate a company that is in bankruptcy?

The huge number of power grabs, in multiple industires, is disconcerning...especially in such a short amount of time.

I don't believe the government took stake in a single solvent company without the company first asking.

You can disagree with their choice to be involved at all: but under the circumstance, it was neither a "grab", nor something that was still fixable by regulation. It was either "bail them out" or "let them die"... and I can see arguments for both.

 

[tcarcio]

But this is what socialists do. I am not surprised at all. I don't like it, but I'm not surprised......

 

[markw]

You're pretty good at putting words in people's mouths.

So I take it that you oppose, on principal, the government's intervention over the past year in GM, Chrysler, AIG, etc and dislike this proposal because it indicates a willingness to repeat that choice? Is that about correct?

It looks to me like a power grab using their problems as a tool they use to nationalize as much as possible in the shortest period of time.

Are you saying that doesn't concern you?

You don't think they can apply controls to troubled entities without taking ownership?

They should not wrest control of an entity and transfer it's ownership to others, period, end of discussion. Again, look at their GM and Chrysler solutions. The only losers were the investors who had "secured" bonds. Only the governments of the US and Canada and the UAW came out ahead.

They should have let GM and Chrysler stew in their own juices. They are going down the tubes anyway. Maybe Obama succeeded in stalling that until he's out of office but that's about it.

 

[Matt34]

How do you regulate a company that is in bankruptcy?

I don't believe the government took stake in a single solvent company without the company first asking.

You can disagree with their choice to be involved at all: but under the circumstance, it was neither a "grab", nor something that was still fixable by regulation. It was either "bail them out" or "let them die"... and I can see arguments for both.

I'm on my blackberry so can't provide links but there are personal from BOA that have stated that they were strong-armed into accepting fed money and purchasing a bankrupt company. Now because they were forced to accept this deal, the "pay czar" has seen fit to tell them how much CEO's are allowed in compensation and forgoing annual salary...and it's not the only case I'm aware of.

 

[Schupo]

But this is what socialists do. I am not surprised at all. I don't like it, but I'm not surprised......

Obama likes dogs. You know who else likes dogs?

 

[Matt34]

Now, now. Socialists might be heathen baby eating pederasts but that would be real dumb. Why would they take over failed companies as a power grab? Oh right, they could take over all bankrupt companies and rule the world!

1) Governments are run by politicians, not businessmen. Politicians can only make political decisions, not economic ones. They are, after all, first and foremost in the re-election business. Because of the need to be re-elected, politicians are always likely to have a short-term bias. What looks good right now is more important to politicians than long-term consequences even when those consequences can be easily foreseen. The gathering disaster of Social Security has been obvious for years, but politics has prevented needed reforms.

And politicians tend to favor parochial interests over sound economic sense. Consider a thought experiment. There is a national widget crisis and Sen. Wiley Snoot is chairman of the Senate Widget Committee. There are two technologies that are possible solutions to the problem, with Technology A widely thought to be the more promising of the two. But the company that has been developing Technology B is headquartered in Sen. Snoot's state and employs 40,000 workers there. Which technology is Sen. Snoot going to use his vast legislative influence to push?

2) Politicians need headlines. And this means they have a deep need to do something ("Sen. Snoot Moves on Widget Crisis!"), even when doing nothing would be the better option. Markets will always deal efficiently with gluts and shortages, but letting the market work doesn't produce favorable headlines and, indeed, often produces the opposite ("Sen. Snoot Fails to Move on Widget Crisis!").

3) Governments use other people's money. Corporations play with their own money. They are wealth-creating machines in which various people (investors, managers and labor) come together under a defined set of rules in hopes of creating more wealth collectively than they can create separately.

So a labor negotiation in a corporation is a negotiation over how to divide the wealth that is created between stockholders and workers. Each side knows that if they drive too hard a bargain they risk killing the goose that lays golden eggs for both sides. Just ask General Motors and the United Auto Workers.

But when, say, a school board sits down to negotiate with a teachers union or decide how many administrators are needed, the goose is the taxpayer. That's why public-service employees now often have much more generous benefits than their private-sector counterparts. And that's why the New York City public school system had an administrator-to-student ratio 10 times as high as the city's Catholic school system, at least until Mayor Michael Bloomberg (a more than competent businessman before he entered politics) took charge of the system.

4) Government does not tolerate competition. The Obama administration is talking about creating a "public option" that would compete in the health-insurance marketplace with profit-seeking companies. But has a government entity ever competed successfully on a level playing field with private companies? I don't know of one.

5) Government enterprises are almost always monopolies and thus do not face competition at all. But competition is exactly what makes capitalism so successful an economic system. The lack of it has always doomed socialist economies.

When the federal government nationalized the phone system in 1917, justifying it as a wartime measure that would lower costs, it turned it over to the Post Office to run. (The process was called "postalization," a word that should send shivers down the back of any believer in free markets.) But despite the promise of lower prices, practically the first thing the Post Office did when it took over was . . . raise prices.

Cost cutting is alien to the culture of all bureaucracies. Indeed, when cost cutting is inescapable, bureaucracies often make cuts that will produce maximum public inconvenience, generating political pressure to reverse the cuts.

6) Successful corporations are run by benevolent despots. The CEO of a corporation has the power to manage effectively. He decides company policy, organizes the corporate structure, and allocates resources pretty much as he thinks best. The board of directors ordinarily does nothing more than ratify his moves (or, of course, fire him). This allows a company to act quickly when needed.

But American government was designed by the Founding Fathers to be inefficient, and inefficient it most certainly is. The president is the government's CEO, but except for trivial matters he can't do anything without the permission of two separate, very large committees (the House and Senate) whose members have their own political agendas. Government always has many cooks, which is why the government's broth is so often spoiled.

7) Government is regulated by government. When "postalization" of the nation's phone system appeared imminent in 1917, Theodore Vail, the president of AT&T, admitted that his company was, effectively, a monopoly. But he noted that "all monopolies should be regulated. Government ownership would be an unregulated monopoly."

It is government's job to make and enforce the rules that allow a civilized society to flourish. But it has a dismal record of regulating itself. Imagine, for instance, if a corporation, seeking to make its bottom line look better, transferred employee contributions from the company pension fund to its own accounts, replaced the money with general obligation corporate bonds, and called the money it expropriated income. We all know what would happen: The company accountants would refuse to certify the books and management would likely -- and rightly -- end up in jail.

But that is exactly what the federal government (which, unlike corporations, decides how to keep its own books) does with Social Security. In the late 1990s, the government was running what it -- and a largely unquestioning Washington press corps -- called budget "surpluses." But the national debt still increased in every single one of those years because the government was borrowing money to create the "surpluses."

Capitalism isn't perfect. Indeed, to paraphrase Winston Churchill's famous description of democracy, it's the worst economic system except for all the others. But the inescapable fact is that only the profit motive and competition keep enterprises lean, efficient, innovative and customer-oriented.

WSJ said it much better than I ever could.

 

[Davemcc]

I don't believe the government took stake in a single solvent company without the company first asking.

You can disagree with their choice to be involved at all: but under the circumstance, it was neither a "grab", nor something that was still fixable by regulation. It was either "bail them out" or "let them die"... and I can see arguments for both.

Governments around the world gave bailout money to automakers to get past last year's downturn, including Toyota. Only North American gov'ts took ownership and control of the companies. The management of GM and Chrysler were trying to be responsible about the crash of the companies, viv-a-vis the damage that could be done to the entire economy with the loss of tens of thousands of jobs, bankrupting suppliers and destroying share and bond holders. They were asking for loan guarantees or bridge financing to get over the market collapse. I don't think anybody was expecting the gov't to demand ownership of the company in exchange and no other gov't besides Canada demanded that.

Similar to the banks, where the solution there would have been to buy the distressed assets and hold them until maturity to reestablish proper capitalization, taking an equity stake was the worst possible solution for the administration to take. It was a mistake for the banks and auto companies and it will also be a mistake in any other industry.

 

[JerryLove]

But this is what socialists do. I am not surprised at all. I don't like it, but I'm not surprised......

Which socialists are you thinking of?

 

[JerryLove]

You didn't answer the question.

It looks to me like a power grab using their problems as a tool they use to nationalize as much as possible in the shortest period of time.

Are you saying that doesn't concern you?

Of course the bail out is a concern. In fact, I oppose what was actually done. I don't agree that a cross-administration power-grab is the most obvious interpretation of events.

You don't think they can apply controls to troubled entities without taking ownership?

At the late point of collapse? No, not responsably.

They should not wrest control of an entity and transfer it's ownership to others, period, end of discussion. Again, look at their GM and Chrysler solutions. The only losers were the investors who had "secured" bonds. Only the governments of the US and Canada and the UAW came out ahead.

So then Chrystler should have closed up shop instead? Who would have been the loosers in that scenerio?

They should have let GM and Chrysler stew in their own juices. They are going down the tubes anyway. Maybe Obama succeeded in stalling that until he's out of office but that's about it.

A minute ago you were worried about the investors with secured bonds.

There are valid points to be made on both side. I think the sudden collapse of basically the entire financial market is something that warranted drastic action. I think the action chosen was wrong. I believe that the government should have allowed bankruptsy to be declared and then stepped in as a buyer with the intent of either reselling to the private market or a structured shutodwn. That would have meant that there would be no negative impact *caused* by governmenntal intervention while simultaniously allowing the breaking of all contracts.

Further: I believe that the issue in the first place is the result of a financial market that lives in a fictitious economy: one which rewards short-sighted behavior and one which, sadly, the real economy has become dependant upon.

 

[JerryLove]

Governments around the world gave bailout money to automakers to get past last year's downturn, including Toyota. Only North American gov'ts took ownership and control of the companies.

The US had the least existing ownership, and (I believe) gave the most relative to the company's net-worth.

 

[JerryLove]

Governments are run by politicians, not businessmen. Bush spent more time running oil companies than in politics. Forbes might have a bone to pick with that idea as well. Cheney's involvement running large corporations (such as Arthur Anderson and Haliburton) is well known. Exxon used to have a tanker called the "Condelisa". etc. etc.

Politicians need headlines. Actually: they need money, which comes from businesses.

Governments use other people's money. As do CEOs. When the executives at AIG ran it into the ground with bad investments: they personally got huge bonuses. The investors were the ones who suffered.

Government does not tolerate competition You mean like UPS and FedEx and DHL and Airborne are for the USPS, or like all those other banks are for the FRB, or all those private medicare providers that the government actaully pays to compete with them?

Government enterprises are almost always monopolies and thus do not face competition at all. Every example above would be an exception. Of course monopolies are inevitable. The question is: will they have a profit motive to abuse that monopoly or not.

Would we be better with private fire departments putting out the most profitable fires? Were the private detective agencies better than the police are? What about a mercenary millitary?

Successful corporations are run by benevolent despots. Matoff.

Government is regulated by government. Hence the importance of checks-and-balances, and of an impartial and free media, and of elections.

But hey, if you don't like the governemnt, I believe Somalia is still operating on entirely capatalist principles with no governmental interference.

 

[Matt34]

Governments are run by politicians, not businessmen. Bush spent more time running oil companies than in politics. Forbes might have a bone to pick with that idea as well. Cheney's involvement running large corporations (such as Arthur Anderson and Haliburton) is well known. Exxon used to have a tanker called the "Condelisa". etc. etc.

Politicians need headlines. Actually: they need money, which comes from businesses.

Governments use other people's money. As do CEOs. When the executives at AIG ran it into the ground with bad investments: they personally got huge bonuses. The investors were the ones who suffered.

Government does not tolerate competition You mean like UPS and FedEx and DHL and Airborne are for the USPS, or like all those other banks are for the FRB, or all those private medicare providers that the government actaully pays to compete with them?

Government enterprises are almost always monopolies and thus do not face competition at all. Every example above would be an exception. Of course monopolies are inevitable. The question is: will they have a profit motive to abuse that monopoly or not.

Would we be better with private fire departments putting out the most profitable fires? Were the private detective agencies better than the police are? What about a mercenary millitary?

Successful corporations are run by benevolent despots. Matoff.

Government is regulated by government. Hence the importance of checks-and-balances, and of an impartial and free media, and of elections.

But hey, if you don't like the governemnt, I believe Somalia is still operating on entirely capatalist principles with no governmental interference.

You think our government is capable of regulating itself and other private business while maintaining impartiallity? Even when you make this statement?

Politicians need headlines. Actually: they need money, which comes from businesses.

How you can come to the conclusion that I'm for no government is beyond me. I guess my position of small government and regulated, not ownership of private business can be confused with absolute monarchy.

Free media?? BHO is already working on that one.

 

[JerryLove]

You think our government is capable of regulating itself and other private business while maintaining impartiallity? Even when you make this statement?

I think the entire premise is flawed, and the existing implamentation even more so, but the best of a bunch of bad options.

How you can come to the conclusion that I'm for no government is beyond me. I guess my position of small government and regulated,

The fact that your entire post did nothing to scope government, but merely to call it evil while calling CEOs "benovelent".

not ownership of private business can be confused with absolute monarchy.

One would have to be incredibly ignorant firstly to believe that "publicly owned, privately owned business" isn't an oxymoron, and secondly to confuse the government as a voting stockholder/regulator and a system of heridetary rule of a country where loyalty is to the ruler (a monarchy).

Free media?? BHO is already working on that one.

If you say so.

 

[Matt34]

While it is true that the WSJ said it much better than you ever could absolutely none of that has the slightest bearing on what I said.

Nevertheless, reading all that cheerleading for capitalism after the financial meltdown and the car industry disaster I will take most of what is said with a pound of salt.

Just two examples to the contrary are the Canadian healthcare system that costs way less than the private American system and gives Canadians a greater life expectancy. Example two is the Quebec electric monopoly known as Hydro Quebec. Hydro Quebec was created in 1963 when the electric companies were nationalized. And the company is doing fine , providing good jobs and remitting big $$$ to the Quebec government and we have some of the lowest prices on electricity in North America.

And here is a many pointed quote back at you:
"Arguments for nationalization
* In the case of an essential service - particularly one on which lives may depend - nationalisation may ensure the continuation of this service regardless of commercial or environmental pressure. Although a governmental monopoly is nonetheless still a monopoly, it is answerable to the electorate rather than a small group of shareholders.
* Nationalisation can help remove extreme imbalances of wealth.
-Because being sucessful is somehow bad?
* Nationalisation and the threat of same reduces the ability of non-governmental organisations to challenge or influence a democratically-electedgovernment's power.
-monopoly, you may like it but it's not what this country was based on.
* By creating a publicly accountable monopoly, nationalisation eliminates wasteful competition and transaction costs (e.g. instead of three companies producing the same thing resulting in duplication and inefficiency, one nationally-owned company can make the same product).
-Anyone that has worked for the government knows it's anything but efficient.
* A profitable nationalised industry contributes with its profits directly to the common wealth of the whole country, rather than to the wealth of a subset of its population.
-Again, wealth distrubition, why is it so bad to be sucessful?
* More accountability to voters - e.g. if the telephone service is nationalised, voters can bring pressure onto the government to provide better services, and parliament may have the power to sack anyone responsible for a reduction in the quality of service.
-If I don't like my telephone service I cancel and find another one.
* Nationalised industries are guaranteed against bankruptcy and so can borrow money at lower interest rates to reflect the lower risk to the lender.
-Guaranteed by your taxes, your damn straight.
* Employees may be more inclined to view their work positively if it is directed by a management appointed by a government that they have a say in electing, rather than a management representing a shareholding minority. "
-LOL, I guess the USPS employees going "postal" didn't get the memo.

BTW as my original post was basking in the irony of a gov't power grab of bankrupt companies I have no idea as to why you even addressed my post with your long quote.

Because I'm against the federal government taking over every aspect of our lives. You tell me why I would want my tax dollars going into a failed business?

Look at how well all their investments have worked out. GM and Chrysler went into bankruptcy....bailing out banks weather they need it or not....Unemployment is still rising. Now they are going after health care, and this is where we taxpayers need to stand up and tell them no.

When did the president become an expert in strategic corporate management? The federal government is famous for its mismanagement, yet this administration continues to demonstrate its certainty that Washington always knows best. The government is there to set up a framework for the individual to prosper, succeed and create wealth not the other way around.