Is profit the next entitlement?
As I finally sit down to write this evening, the Senate moments ago passed their version of the $700 billion bailout bill, with the House now slated to vote on Friday. Assuming the House opposition crumbles in the wake of electiontime politics, it soon may be the law of the land that profits are privatized and risk is socialized. Isn’t that known as fascism?
Maybe it doesn’t meet the true definition of the term but this takes a trend of government intervention into other markets like energy and health care and finally seals the fate of our financial companies. No longer will they have to worry about poor investment choices, for Uncle Sam will be right there holding their hand and shoveling whatever amount they need to make it right into their accounts.
But it’s not like we’ve never been here before, as President Carter signed the bailout of Chrysler into law in 1980. In that case, money was simply guaranteed to the company to avoid its collapsing and eventually the loans were paid off. More recently the Big Three came hat in hand to the federal government for another infusion of cash in order to design and build cars to meet the new and tougher CAFE standards. In both cases, rather than allow the market to take its course the taxpayers were tapped for the money. Obviously it worked out all right in the case of Chrysler as the company still exists (albeit with several changes in ownership groups) but only time will tell regarding the latest effort by Washington to prop up Detroit’s (and Toledo’s, and Lordstown’s, and other cities all over the country who depend on the auto industry) sagging fortunes.
In this newest bailout scenario it’s different. Instead of a tangible product which is produced, this infusion of funding courtesy of John Q. Taxpayer (via securities likely to be purchased by China) is propping up an industry that simply exists on paper. It’s those pieces of paper which state that Homeowner X is liable to Bank of Y for repayment on a loan of Z dollars that led to the problem because Bank of Y was told by the federal government to loan Homeowner X the money despite the fact his or her credit wouldn’t necessarily support it. In some respects, this bailout is the price banks are exacting because of ill-considered regulations much like Detroit and its auto industry is remitting its payoff because of other ill-considered regulations.
The larger question to me is the precedent set. There are many on my side who say, yeah, we’re forced to fix this issue now – but it can’t happen again. Well, having lived on this planet for a decent number of years and being somewhat of a student of history I can flat out guarantee you that indeed this will happen again – UNLESS we reassess the situation of how our government functions as a whole.
Last night’s debate was a case in point. We had the Democrat decrying the “greed” of Wall Street, conveniently forgetting that many of the key players there are Democrats – think Jon Corzine as one example, Robert Rubin as another. While the Republican made me cringe when he also mentioned “Wall Street fat cats”, by and large he blamed liberal policy for the mess and that’s much closer to the truth. However, for all the faults of his party, the Libertarian got it right when he said that both parties had been running us into the ground for the past fifty years. I say this because, with some exception for the Reagan Administration and a brief hiatus after the Contract With America, government at all levels has become the source of wealth for more and more Americans at all economic strata.
I state this not just because of the patently obvious handout programs like welfare or Social Security, but in the way regulations are written at the behest of a large corporation or group thereof. Perhaps your little hometown bank was pleased that certain regulations were written in certain ways, but the ones who really cleaned up on the edicts handed down from an alphabet soup of agencies and bureaus were those behemoths who had the large amount of cash necessary to make things go their way and eventually bought out the hometown bank. While it’s a maxim of capitalism that the bigger fish generally have the resources to devour smaller companies sooner or later, I don’t think it’s the place of government to take steps to encourage or discourage market activity. Much as they regulate individual behavior too often via the tax code, the same goes for corporations too.
The large financial entities have slowly but surely shifted the playing field into one where they are simultaneously maximizing profit, swallowing up smaller competitors, and minimizing their risk by unloading their liabilities onto the taxpayer in the name of saving our economy. Coupled with their willingness to help out other large entities like the Big Three, it makes me wonder where the cutoff is for assurance of financial aid if things get tough – do you have to be a Fortune 500 company to qualify? In that case, pity the workers who depend on number 501 for their livelihood because it’s tough toenails for them if the place goes belly-up.
There’s a part of me which fears that this may be the tipping point, a point of no return insofar as American capitalism goes. When one no longer has risk but is assured a good return on investment that Ponzi scheme can’t long be maintained without more investors at the bottom. And when those investors are forced to participate under threat of fines or jail time it creates less of an incentive to excel and a much more difficult situation to extricate one’s self from.
It may be hyperbole to declare this as liberty’s last chance, but as more people see their livelihoods become more dependent on things which occur in the nation’s capital, there’s less hope that any change would come peacefully. As a whole, Americans used to demand better from themselves and their country but far fewer actually want to put in the work to achieve that cause now. More and more, the chains of regulation and taxation bind those who still seek success on their own terms and they’re not going to lay loosely on any of us when the changeover from capitalism to socialism, fascism, or whatever -ism we seem to be headed toward is complete.
Crossposted on monoblogue.