Nathan R. Jessup

Too Big To Bail

In Congress, Corruption, Finance, Government Lies, Obama, US Senate, World News on February 15, 2010 at 4:19 am

I remember not long ago, the Government’s warning of financial meltdown if certain banks deemed too big to fail, were not bailed out. The warning contradicted everything I thought I knew about the free market.  Did I misunderstand capitalism? Perhaps naïvely, I regard Capitalism like nature in that; every financial institution will naturally find its place on the ever-shifting financial food chain. Even a child understands that nature, while exceedingly magnificent, has a darker side. With today’s breathtaking high-definition coverage, a lion devouring a freshly killed gazelle after a grueling chase is stunning. While nature, like capitalism, is sometimes unfair it remains just and balanced.

President Obama has taken it upon himself to intervene on matters best left alone. When the proverbial lions, AIG, CitiGroup and Lehman Brothers face almost certain death, Barack Obama makes the determination that nearly $1 trillion of taxpayer dollars should be used to “save” the behemoths. Naturally, if such banking giants were to collapse, the effect on the global economy would be devastating; wouldn’t it?

(Source: dailyfinance.com) Too big to fail? This isn’t a designation that the Obama administration wants to exist any more. New regulations proposed by President Obama would result in “leaner and simpler institutions that don’t carry the weight of the system,” according to the Associated Press.

It was believed that the collapse of any of these companies could result in the collapse of the entire American financial system — which is why they were bailed out. But the bailouts did little good other than cost billions and billions of taxpayers’ money. In order to prevent this from happening again, President Obama wants a group of interconnected companies to “pay a heavy price for the systemwide risk they pose.”

Using the earlier analogy, Obama makes every attempt to prevent the defenseless gazelle from suffering a gruesome and [senseless] death. In the wild natural life cycles like predator eating prey can never truly be stopped.

When I read comments like, “pay a heavy price for the system-wide risk they pose” I can’t help but think that just maybe the leader of the free world fails to understand free enterprise. Perhaps the greatest dynamic of Capitalism is its unique affinity for self-correction. As simple as it sounds, principles are meaningless without true adherence by those who claim to follow them. Capitalism either works or it does not, there’s no middle ground. In fact, it is only when everything is at risk that principles are needed most.

Ironically, the Obama administration sees a great threat when private companies’ gain unbalanced power in our economy; the super-powers must be regulated. Oddly, the same administration advocates the unlimited reach of government control. The public sector’s appetite for power has become unquenchable, so why the regulation of private enterprise and not public? Unchecked lawmakers. Along with great power comes great responsibility.

The masterful blueprint drafted by America’s Founding Fathers stressed the need for government regulation and required internal balance of power, for good reason. Free-market, unlike government, is subject to the harsh and sometimes cruel laws of capitalism. I would imagine by now I have many readers thinking how wide-eyed and childish I must be to suggest such a most uncomplicated explanation to an undecipherable problem. As the problems facing America become more complex the principles needed for correction remain as simple and pure as a dog’s love for its master.

When Styrofoam is used to build a mansion, all the expensive paint in the world won’t avert destruction from an unrelenting storm. I find it morbidly amusing that various companies are recognized as “too big to fail” by a government with less than 11% of its members claiming private sector experience. Perhaps government missed other opportunities to open taxpayer’s wallets in the name of preservation?

Was Bernie Madoff too big to fail? Perhaps Tiger Woods was too big. Enron? How about the dotcom bust? Watergate, Tyco, Global Crossing? How about the communications giant, WorldCom in the late 90’s? WorldCom’s influence included:

·  Providing mission-critical communications services for tens of thousands of businesses around the world

·  Carried more international voice traffic than any other company

·  Carried a significant amount of the world’s Internet traffic

·  Owned and operated a global IP (Internet Protocol) backbone that provided connectivity in more than 2,600 cities and in more than 100 countries

·  Owned and operated 75 data centers on five continents. [Data centers provide hosting and allocation services to businesses for their mission-critical business computer applications.]10

If Obama were President, WorldCom might have survived a year or two longer by way of generous taxpayer “loans”. You see, even the mighty Titanic was no match for an immovable iceberg in its path. While the Obama bail out continues to have little or to no effect on the economy, our children burden the load. As giant banks begin to fall and government grows, one thing remains certain: the only thing that is too big to fail is still the American people.

UPDATE: ritholz.com agrees

UPDATE: Reuters UK address the issue across the pond

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