Thursday, September 18, 2008


Too big to fail

As the "capitalists" in the GOP proceed with the largest nationalization in US history, it seems a good time to talk about market dominance.

In the past six months a half dozen financial firms have been effectively nationalized. In order to disguise this a variety of means have been used, such as lending money to the acquiring public firm, or as yesterday with AIG taking an ownership position via warrants.

In the UK, which has a tradition of nationalizing (and then re-privatizing) a takeover is done straightforwardly. That's what happened with the Northern Rock Bank. But in the US we have to maintain the fiction that private enterprise does everything better than government and, therefore, subsidies and bailouts have to be called something else.

The reason given for these actions is that these firms are "too big to fail". I claim that any firm that is too big to fail is just too big, period.

Since Reagan there has not been any semblance of anti-trust legislation and firms have been allowed to merge and buy each other up, willy-nilly. For awhile firms used to justify their actions by claiming that this would lead to improved efficiency, but the stock market usually sells off the stock of the acquiring firm. Investors know that the results will lead to lower profits. So why do they do it? I claim that the CEO's do it as a way to keep score (as they do with their salaries). "I'm running a $XXX billion firm" is oneupmanship for the parasite class these days.

If a firm is too big to fail, then it is too big to exist.

There are two simple reforms (well, simple to state). First, firms cannot own other firms. The parents are just conglomerates and provide no added benefits. In fact top management can't even follow the details of all their subsidiaries.

Second, when a firm gets over a certain size it has to be split up. Look at the benefits from breaking up AT&T. It's true it was a monopoly, but once it was split new businesses emerged and we got everything from WiFi to cell phones. Now that the telecom business has been allowed to reconsolidate the US has fallen behind in this area.

Not only are big firms inefficient, they wield too much political power and they control too big a segment of the economic pie.

The nationalization of failing firms has just made explicit what has been the reality for several decades now. The US is not a capitalist economy, it is a corporatist-syndicalist one similar to what Mussolini tried to set up. The parallels with the rise of an internal secret police function should give us pause as well.

Walmart may not have a traditional monopoly position in the retail market, but its size allows it to set the pace and distorts the entire consumer space. It's not just that they force ethical firms to compete with an unethical one, its that they accustom everyone to the idea that unethical business practices are acceptable and a way to financial success.

This is the "Christian" lesson that the Walton's are teaching the good people of middle America. We have become a nation of cynics as a result. Shame on them.
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