Too big to fail? Why do we allow that?

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Wed Mar 11 11:53:08 2009: Subject:   BrettLegree
http://6weeks.ca

As soon as I read this, I thought of my own industry (nuclear) and the not so proud history of stifling innovation.

The reactor designs most people know about are technological dinosaurs from the 50's and 60's. Many small upstarts have designed innovative, inherently safe designs that could be installed in a modular fashion near the factories or towns.

Instead, the large, stagnating industry clings to the ideas of yesteryear with multi-megawatt billion-dollar centralized plants, that tend to go years past expected delivery date and far beyond projected budgets.

We see that in the computer industry, and the auto industry as well.

Time for change, I hope.



Wed Mar 11 11:56:07 2009: Subject:   NickBarron


I see your thinking on this, and while I agree in part on somethings. Regulation is the key... how can you actually regulate this effectively and fairly.

I also imagine that this is more of an issue in the US given its size compared to the UK



Wed Mar 11 16:19:44 2009: Subject:   jtimberman


Not only should no company be too big to fail, the average American shouldn't even *care* if the company fails.

If the flower shop down the street goes out of business, do you care? No, you go to another flower shop. If the gas station on the corner closes, do you care? No, there's one on the opposite corner of the intersection.

If GM fails, should I care? Not at all. There's many other car manufacturers to choose from.



Wed Mar 11 16:55:15 2009: Subject:   BrettLegree
http://6weeks.ca

I don't know about you, but I do care a bit when businesses start failing. We can always say "another one will take its place" but how do we know? And remember, the people who work at those businesses might actually be buying whatever it is that you have to sell.

So I do care a bit when businesses start failing - it reminds me of that poem by Martin Niem ller.

First they came for the Jews
and I did not speak out because I was not a Jew.
Then they came for the Communists
and I did not speak out because I was not a Communist.
Then they came for the trade unionists
and I did not speak out because I was not a trade unionist.
Then they came for me
and there was no one left to speak out for me.



Wed Mar 11 17:15:56 2009: Subject:   BrettLegree
http://6weeks.ca

(bloody cut & paste, that's Niemoller... teach me to paste and not look!)



Wed Mar 11 17:20:28 2009: Subject:   jtimberman


If Government is going to stop a business from failing via bailing them out, why do they pick certain businesses? Are they going to bail out the gas station? The flower shop?

Where do you draw the line? Why should anyone listen to *your opinion* on where that line is drawn? How do we know that the statistical model you used to formulate your opinion wasn't flawed, or didn't take into account particular data? Or did it take into account irrelevant data?





Wed Mar 11 17:46:00 2009: Subject:   BrettLegree
http://6weeks.ca

Not sure if jtimberman was talking to me in particular, but in any case, I do not support bail outs.

I don't know all of the ins and outs of how the government chooses who gets the bail out and who doesn't. It is not a simple question and there is no simple answer.

This does not mean that I don't care that businesses are closing, however. I'd prefer not to have to mail order my groceries, for instance, or in a less extreme case, I don't want to see the local butcher shop close so that the only place I can buy meat is the megamart (I like to know where the meat came from, thank you very much!)

Wed Mar 11 18:00:00 2009: Subject:   jtimberman


I don't necessarily want businesses to close, but if they're closing because their business model sucks, or they didn't adapt to new technologies, new markets or simply aren't delivering what customers wanted, I don't want them to be in business anymore. It doesn't do the local economy any good if the only options to choose from are crappy businesses. That's true of any size company, market or economy, actually.




Wed Mar 11 18:05:18 2009: Subject:   BrettLegree
http://6weeks.ca

I agree with you 100 percent on that (which is why I question the bail outs - that money could be used elsewhere, like rebuilding infrastructure or whatever).



Thu Mar 12 21:19:15 2009: Subject: the whole thing just pisses me off.   drag


> I see your thinking on this, and while I agree in part on somethings. Regulation is the key... how can you actually regulate this effectively and fairly.

I don't think it's possible to regulate it effectively and fairly. I haven't seen anybody done it well yet and people have been trying different approaches for neigh on 2000 years now.


The deal is that businesses get large and inefficient then they fail. Businesses make bad decisions and then they fail. Once a business gets established fail because they did a bad job, had bad judgement, or simply are not a good fit for the changing world in which they operate.

Keeping these businesses around isn't helping anybody. Trying to regulate these companies into solvency isn't going to help the economy one wit. What it's doing is forcing inefficiencies and keeping people with bad judgement in power. How the hell does that help anybody?

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For example take the big lending insitutions that are being 'bailed out'. Lots of them are very big and in the past have contributed heavily to the success of the economy. However they got greedy and tried to work around the rules that have been in place since the 1920's that are designed to limit runaway economies, aka bubbles.

For example one of the big things they did was finding ways to work around regulations that limit the amount of money they are allowed to lend. I don't know the exact numbers, but people are are generally allowed to lend out credit in a 8:1 ratio, more or less.

That is if I am a bank and I have 100 dollar deposit from somebody then I could probably get away with lending out 800 dollars worth of credit. Of course I have to be very careful about the sorts of people that I lend out to and I need to make sure that I get enough in interest to cover the debts of people that fail to pay me back.

However instead of sticking to these rules they decided they could bundle up debt and then sell that debt away to other companies. So they figured if they lend out 800 dollars on the basis of having 100 dollars in deposits and then they sell off 600 dollars of that debt to other companies then they could go ahead and lend out another 600 dollars to people and get richer!

Then on top of that the government is forcing banks to lend money to people who are notoriously unreliable in paying back debts. Namely people of low income living in urban areas, and placing virtual quotas and biases based on race instead of actual income or credit rating. In exchange for this the government had promised to cover a lot of those debts if they went bad and thus reduce the risk.


So many of these major lending institutions took advantage of these situations and started handing out credit like crazy.

Which, again, combined with local state, city, and county regulations in certain areas in the USA prevented people to build new housing development meet population demands. Generally these badly regulated areas exist in places in California, Florida, and along the East Coast. So it was very expensive and difficult to build new houses....

So combined with unreasonably easy credit and increasing demands for housing led to a price spiral that eventually went out of control, bubbled, then crashed.

This in turn caused a huge amount of bad debt and then these banks that were convinently finding ways to stuff the books and lend out more money then they should have now found themselves up shit's creek without a paddle.

HOWEVER.... This is the real kicker:

Not all banks acted like that. Not all lending institutions let themselves get screwed over and hung themselves out to dry. They played it safe and are in a good condition financially.

Those people that shown good judgement ARE BEING SCREWED OVER RIGHT NOW.

You see, the deal is that these people should be sitting pretty. They should now be in in a position to make huge amounts of money and take over the markets and remnants of all those badly ran lending corporations.

But they are not allowed to. Because the government is stepping in and taking over the market. Instead of letting the winners win, they are preventing the losers from losing.

So those people that behaved themselves are getting shafted twice. Once because they missed out on the huge amounts of easy cash and short term profits. And once again because they are not going to get any of the government bailout money because unlike the other institutions they are not in danger of going out of business.

That is double penalty for good behaivor.

---------------------

And then I am getting screwed over also. Because I was careful, I saved up my money, I got a house that I could afford to pay off even if I ran into problems with my job.

But now I am required to pay for the mortgages of people that didn't. I am also required to pay off the corporate salaries of those asshats in those big failing lending institutes that got their companies in trouble in the first place.

This is essentially a conspiracy, whether intentional or not, to reward corruption and bad judgement.



Thu Mar 12 21:48:53 2009: Subject: still irritating   drag


Oh.

And here is another thing that pisses me off.

Ok. So say you screwed up, or got deceived and didn't understand how much money you will actually need to spend to cover your mortgage. Now you can't afford it and are undergoing foreclosure.

We have all done stupid things, done greedy things and have made bad judgements. It's not nesseccarily our fault or whatever.

Well the kicker here is that banks can't afford to have people foreclose and lose their mortgage. A empty house depreciates rapidly and in a failing housing market. So a empty house is nearly worthless right now.

So if pressed and if people are not paying off their mortgages properly on a large scale then these lending institutions will be forced, through normal economic pressures, to do everything in their power to keep those people in those houses.

The idea that mortgage holders are going to force out huge numbers of people is just a misrepresentation. If they force out these people they won't be able to sell these houses immediately, the houses will lose value rapidly, and nobody is giving them money for anything.

Were as if they do something like cut the mortgage payments by 50% at least they are getting that 50% and are getting people to maintain and keep up the value of those houses. Losing money in a slow rate is much much better then losing money in a fast rate.

Then when the economy gets back on track then there will be a economic push for those people paying 50% of the mortgage to begin to pay back more of it so that eventually can get out from under the debt and start paying the principal off, otherwise they will end up paying the mortgage forever.

The way the government is handling things right now just completely nuts.



Sat Oct 3 19:09:52 2009: Subject:   TonyLawrence


I was talking with my wife about this, and she said "We shouldn't put all our eggs in one basket".

Exactly. Sheesh, we tell our kids that, we preach it in Business 101, but then we let big corps gather up all the eggs and when they eventually fall down, splat, no eggs.

We have to wake up and start limiting corporate growth!

Un-American? Anti-capitalist? Are effective monopolies American or shining icons of capitalism? Are economic crashes, massive unemployment?

Wake up.

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