The drama-style documentary is about how the US government saved the economy by intervention. From the documentary, it can be inferred that if the US government did not intervene, the global economy would collapse, and we would now be in a depression greater than the Great Depression.
To be more specific, the cruicial point was the rescuing of A.I.G. If it was not saved, it would bring down the entire US economy and the global economy. Even non-financial companies like General Motor would collapse if A.I.G collapse, totally killing the US economy.
So the point is, is government intervention in this particular case, actually very helpful?
Libertarianism aside, competent public policy requires that no company be allowed to know it can do whatever it wants because it will never be punished and never allowed to fail, at the public’s expense, no matter what it does.
Now we’ve entered the period of “too big to jail”. Read Matt Taibbi’s latest article in Rolling Stone about HSBC. It sickens me.
Nothing is really too big to fail, we’re just cowards and the wall street lobbyists have too much influence. The world would not have fallen apart if we let these firms fail. Likewise, the sky won’t fall if we punish them for laundering money for drug cartels, Iran, North Korea, Al Queda, etc.
I once had a client who ran a small money transmittance business which was required to file suspicious activity reports and currency transaction reports. He failed to file a few of them in regards to one specific individual, and got 10 years in federal prison (he refused all legal advice, but the point is the gov’t went after him with zeal). HSBC intentionally failed to file something like 17,000+ of these, while knowing they were laundering money for actual criminals and terrorists and enemy nations… and nothing happens other than a small fine. Not one person gets indicted. HSBC doesn’t lose its charter. Too big to fail, too big to jail, it can do whatever it wants. And it will continue to do whatever it wants. It would be irrational for such a company not to continue breaking the law.
I’m not a Libertarian and haven’t watched the documentary, but there surely would have been severe financial turmoil if institutions like AIG had been allowed to fail with no government intervention. I don’t know the details of the bailouts, and think more of the players should have gotten “haircuts”, but “rescuing AIG” didn’t really mean “rescuing AIG stockholders.” The stockholders lost about 95% of their value (?? – I’m not sure); would it have made much difference if they’d lost %100 instead.
The environment that led behemoths like AIG to flourish was wrong; the lack of regulation was absurdly mistaken; and more punishments should have been meted out. It would be good to have learned from the credit crisis of 2007-2008, and is pathetic (and amazing) that Washington has allowed Wall St. to waltz on merrily making the same mistakes.
But to let AIG simply fail (cut the nose to spite the face?) would have been absurdly stupid. That would just have ensured that Main St. suffered more for Wall St.'s abuses.
The “Too Big To Fail” syndrome has caused me to seriously re-examine my views on antitrust regulation. For years, I held that mere size was not a valid reason for regulation. Now, I kind of think that any business – or for that matter, any non-profit, union, school system, or government agency – that has become too large to be allowed to fail, should be broken up.
Antitrust regulation used to be about monopolies and unfair, uncapitalistic business practices. Now we need it for a new reason. It’s beyond that… hell most of these companies have bought themselves exemptions to the antitrust laws. When their size, and thus their existence, threatens the entire world economy, they must be broken up. For the sake of the damn world economy! It seems so obvious.
On a similar theme to this, what’s the Libertarian point of view toward the FDIC?
I don’t have any idea what the effects would have been if AIG, Citiback or any of the other large institutions were allowed to fail. The financial system appears so incestuous to me that it seems possible that a major bank collapse could cause my hometown bank to lose their investments and methods of generating cash.
In that case, I’d be reassured that my money was protected. I know that the Libertarian is dedicated to small government and personal responsibility, but the FDIC seems like a good thing for everyone. The bank president is never going to pay us back after betting my money in the housing market. But at the same time, I am angry that these corporations were able to play fast and loose because they knew their size guaranteed their continued existence. In addition to the bailout, there should have been several 50 year prison terms for theft and improper diligence.
Keep in mind that it doesn’t necessarily make sense to apply Libertarian principles to a system that is not run along Libertarian lines. I don’t want to start a debate, but most Libertarians would say that A.I.G. would not have gotten as big as it was, taking the risks that it did, if the concept of “too big to fail” did not exist in the first place. We can argue about whether that is true or not, but I hope we can agree that plucking one Libertarian policy out of the air and saying it would be a disaster to apply it in a non-Libertarian system doesn’t really tell us much of anything.
I’m a libertarian, and I endorse the following in all particulars:
The OP of this thread is similar to taking a boxer, throwing him in the middle of the trenches of World War I wearing boxing gloves, whereupon he is killed post-haste, and then saying “See, I told you that boxing is not a viable method of defending oneself.”
Rightly or wrongly, Libertarians imagine themselves to be rational. There is only one rational answer to the question.
That was a point I was trying to make, although I see that (as usual :smack: ) I didn’t “show my work,” “connecting the dots” which seemed obvious to me.
To those who answer, “Yes, let it fail!” I wonder how AIG’s policyholders would have been serviced. By default on a first-come-first-served basis? This kind of turmoil is somewhat similar to what happened at the fall of the Soviet Union when Russia and other countries were quickly “privatised” in scenarios orchestrated by Chicago-style thinkers.
This is a good point at the moment that a merger is creating a monstrous airline; let alone an economy that covers banks, insurance companies, accounting firms, Wlamarts, media giants, etc. The current thought seems to be bigger is better - but as AIG demonstrated, sometimes there is too big.
The problems are obvious - at a certain point, the economies of scale stop being significant. A company with 25% of the US market versus a company with 60% of the US market? How much more efficient can that extra market share be? The only advantage I could see for, let’s say, Walmart buying out Target is to close about half the stores that are duplicates (thus screwing the workers) while reducing the choices available to the buying public, and allowing the new giant to apply even more prssure to extort its supply chain.
Mergers are just a way to take earnings and leverage them to produce significant earnings growth when the classic method - earning market share with customer focus, coming up with innovative products, etc. - is too much like work.
Say what you like about the interference, breaking up Bell in the long run was one of the best things to happen to the USA (except the destruction of Bell Labs). A cushy, complacent and seriously top-heavy corporation shed a huge amount of redundant middle management. Much of the resultant problems came from an entrenched management that could not figure out the best way to become a lean nimble business. MBA stupidity substituted for practical business smarts. The car companies never got pushed out of that hidebound stupidity. Fortunately this recession came along to upset the applecart.
We are well on our way to building the next generation of TBTF dinosaurs.
We also have to ask ourselves how to stop the “next time” when confidence fails to the point where every bank is scared to extend credit to any other bank, let alone consumers.
Maybe more breakups are in order, since the competition regulators have failed to stop the monoplistic growth.
I’m a little puzzled by the OP’s question at all. The underlying point of the movie Too Big To Fail (as I interpret it) is that government policies created banks that were too big. When too-bigness became a problem, the government “solution” was to make them bigger. If that’s not already a libertarian criticism of government intervention, I’m not sure what is.
The fact that government intervention (bailing out AIG) partially mitigated a problem created by government intervention … well, only the most rabid libertarians would try to insist that every government move is always and immediately negative.
Most libertarians focus the argument on the overall long-term growth trend (not to mention freedoms). For example, if you make $100 and lose $50 of it in a crash, you’re still better off than someone who relies on Big Brother, avoids a crash, and yet only receives $30.
Does it matter that AIG has paid back the government with interest?
What is the value in letting a company of 57000 people fail? I know all about “moral hazard”, but it’s a different story when you are talking about real jobs and real economic damage.
I’d have a tough time saying there’s a “value” in letting a large company fail; that sounds needlessly ruthless. I think it’s just that the alternative - bailout - more often than not, is worse. I’m pretty sure that we’ve lost lots of money on the Chrysler bailout and that without all sorts of creative accounting it will never be paid back.
The reason to let companies fail is so that more efficient managers can move in and take over. Even though it sucks to lose your job, it’s only temporary in the big picture. If 57,000 people lose their jobs at AIG then Chubb and Ace and Travelers will have to hire 57,000 people to provide those services.
If I own a dry cleaning store and run it like an idiot then it’s probably best for the country for me to go broke and close up shop. Then someone who is good at this can have a shot at it. But let’s say I’m 21 years old and doing my best to screw up the dry cleaning. Do you want to pay taxes for the next 50 years to keep me in business?
I heard a commentator on a BBC broadcast the other day, saying that insurance systems such as the FDIC actually contributed to the problem. The reasoning was that people would not have invested with these reckless banks if their money had really been at risk.
I don’t agree with that assessment, but it sounded to me like a pretty Libertarian point of view.
I’m not really a libertarian, but closer to it than either liberal or conservative.
I would prefer that the TBTF institutions never were created. When I voiced this opinion in the past, conservatives were invariably critical of it.
Now that the institutions exist, I can see the case for bailing them out, to prevent the damage to the economy.
But after the last few years, I think it’s worth considering breaking them up. They were created with the complicity of government, so breaking them up isn’t the introduction of government to the situation. (Admittedly, busting up an institution that was created *without *government involvement conflicts more with libertarian principles).
I believe that the savings departments of these banks were not the folks that were causing the problems. I don’t think that most consider the mortgage/brokerage portions of a bank when they decide where to put their savings. In my experience, it’s all down to who has the closest branch/ATM.
The FDIC does not pay off if you lose your investments.
I sense that some here are saying that the government intentionally created a financial system that was TBTF. They did, but it wasn’t their idea.
They had legislation in place to prevent this, put in place because of the Great Depression. Lobbyists from the big banks wore down those rules by making large contributions to politician’s pockets in return for them nullifying the existing legislation.
My impression of the Libertarian agenda is that they want fewer regulations so that they can do the types of things that caused this collapse. They rake in the money while it’s good, hide it overseas thanks to less oversight, then file for bankruptcy when it goes down the tubes. Thousands of small investors lose their shirts and they get a year in a white-collar prison and walk away with millions.
There are many things that I like about the Libertarian platform but some of it seems to the right of the Tea party.