Too Big to Fail - Addendum

A comment to my last post reflected a view that at first blush seems like plain common sense: When a company accepts money voluntarily from the government, it is henceforth beholden to that government. In effect, the company is no longer private, and thus it ought to accept the government’s decrees as the price of having been helped with public money.

As reasonable as this may seem on the surface, I think it is profoundly mistaken. In fact, it is precisely this logic that the government uses to ratchet its hold on private citizens. My view is that though this state of affairs may be sensible for voluntary transactions between free, civilized individuals, it does not pertain to parties that initiate force – of which governments are the most dangerous examples.

For one thing, the money that the government uses to bail out businesses is not theirs, the government’s, to give away; they have seized it by force from citizens who earned it (including the very businesses they are bailing out). Thus, the government can no more justly claim that it is “owed” something in return than could a gangster who demands money in return for “protection.” Some may object here that even if the government is not owed concessions in exchange for a bailout, the public who footed the bill is. But there is no collective “public” that pays for bailouts; it is productive individuals who suffer the loss in uncountable ways. There is simply no practical way to equitably restore the wealth that was taken. The only way to solve the problem is to remove the government from the economy, not to increase its role with further rules.

Another consideration is indicated by a word I used in the first paragraph, which I deliberately preserved from the original comment: voluntarily. How are we to know if a company accepted money voluntarily? What does that even mean when the government holds all the cards - which is to say, holds all legal use of force? This is the equivalent of saying that the victims of a holdup, faced with the “choice” of “your money or your life,” handed over their valuables “voluntarily.” I submit that the adverb “voluntarily” cannot apply to the charade of government handouts. The distortions introduced by government interference in the economy apply force in so many direct and indirect ways, it is impossible to untangle the layers of complicity or resistance.[Note 1.]

Sure, there exist immoral businessmen that overtly cozy up to the government, lobbying for favors, actively seeking to use the government to block out competitors (e.g. via anti-trust laws), or urging regulations that will open up a new “market” for them (e.g. the “cap-and-trade” vultures). The executives at such companies deserve to burn in hell, if I may borrow the religious image to emphasize my point. Nevertheless, I still cannot consent to that hell being delivered to them via ever-increasing government controls. The businessmen that sought government favors surely deserve to be destroyed by the monster they nurtured . . . but the rest of us don’t!

Nearly every company - especially those in the heavily regulated industries such as automobile manufacturing, finance, energy, and medical - can quite plausibly argue that they would not have taken a government handout if they had not been hampered by the government in the first place. The one detail I remember from Lee Iacocca’s autobiography, which I read some twenty-five years ago, is his claim that all things being equal, he would not have sought the government bailout of Chrysler, but did so only because the government-imposed burdens (such as environmental regulations and union support) had rendered Chrysler unable to keep up with Japanese competitors.

The bottom line is that the logic of quid pro quo, when applied to compulsory transactions, is a blank check to increase government control by degrees until freedom is extinguished. We must never sanction increased government controls, even when there is a superficial “logic” to it.

To see this process at work, let us look at the TARP handouts. These funds were foisted upon the nine major American banks, whether they wanted them or not, and when several banks wanted to hand the TARP money right back, they had to get special permission to do so.[Note 2.] This TARP money was used as the excuse for the government to limit the wages of executives at financial companies that received TARP funds. Going forward, this restriction will obviously cause a “brain drain,” a flight of talented executives from companies saddled with a salary cap to companies that are still free in that respect. So what is the next “logical” step? Seeing that the free companies have an “unfair advantage” over financial companies that have a salary cap, the government will then impose the salary cap on all financial companies, whether or not they ever received government funds. This will cause executives to flee to other industries, which will invite further controls to fix the problems caused by previous controls, and on and on.

Ayn Rand encapsulated this self-perpetuating power-grabbing technique, writing, “One of the methods used by statists to destroy capitalism, consists in establishing controls that tie a given industry hand and foot, making it unable to solve its problems, then declaring that freedom has failed and stronger controls are necessary.”[Note 3.] Let us not compound the failures and injustices of intrusive governments by ascribing logic and common sense to their actions as they pull the noose tighter around our necks.

NOTES

1. A case in point is Treasury Secretary Paulson’s forcing of banks to accept TARP funds in the October 13, 2008, meeting behind closed doors in Washington. True, Secretary Paulson (probably) did not literally brandish a baseball bat as he walked around the conference table, as did Robert De Niro’s Al Capone in The Untouchables, but his “talking points” amounted to an implicit threat. Here was an agent of the federal government (in this case, the Bush Administration) presenting private citizens with an offer they could not refuse – literally not letting them out of the room until they complied. Quoting from the document obtained by Judicial Watch under the Freedom of Information Act, Paulson's threat was subtly veiled: “’We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed. If a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance,’ the document said, citing Paulson talking points.” (Source: “Paulson Forced Banks to Take TARP Money: Documents,” CNBC, 14 May 2009.)

2. One of the banks was BB&T, and as an aside, I strongly recommend listening to the wonderful lecture by the retired BB&T CEO John Allison, available here at the Ayn Rand Center for Individual Rights.

3. “The Lessons of Vietnam – Part II,” The Ayn Rand Letter, Vol. III, No. 25, 9 September 1974.

Too Big to Fail?

The federal government’s blitz on private property continues with the latest move out of the Obama playbook. The headline: “U.S. Considers Reigning In ‘Too Big to Fail’ Institutions.”

Congress and the Obama administration are about to take up one of the most fundamental issues stemming from the near collapse of the financial system last year – how to deal with institutions that are so big that the government has no choice but to rescue them when they get into trouble.[Note 1, emphasis mine.]

Notice that the Times article did not state that the government believes it has no choice; it states as if it were a matter of fact that the government has no choice. Such is the mentality of the left; it cannot even conceive of a civilization in which people stand on their own feet.

Even the term “too big to fail,” which has become all too common in this bailout era, is deliberately deceptive. The concept really means “too big to allow to fail.” Discounting the very idea that failure could be allowed makes it seem like government intervention is a necessity, a metaphysical fact of nature, as opposed to a set of choices (and bad ones at that) made by politicians. “Too big to fail” bypasses the necessity to think; there is no question of whether a company should be left to reap the consequences of its own actions or be artificially propped up with taxpayer money. The modern politician does not pause to consider his self-appointed role as meddler. Ham-handed interference comes so naturally, it would not occur to him to think about the rights he tramples and the destruction he wreaks.

We have already seen the Bush-Obama federal government shower taxpayer money upon private companies as an alleged “rescue” from a crisis the government itself created, in some cases forcing the companies to accept the loot against their wishes. This “gift” was used as a means of exerting pressure on them days or weeks later. Now, the Obama administration claims the prerogative not only to decide which companies are “too big to fail” and what constitutes “being in trouble,” but seizes the power to “throw out management, wipe out the shareholders and change the terms of existing loans held by the institution.”

This power-grabbing strategy is simple in the extreme, and is as ancient and common as gullibility, fear, and hatred itself. The government exerts force upon its citizens, which invariably creates a problem; this problem is blamed on a resented group (foreigners, Jews, corporate executives), which is used by the government as the pretext to grab more power, creating more problems, etc. This vicious cycle is precisely the means by which the protection of individual rights has been whittled away in the United States for more than a century. It is not hard to see that the technique is self-perpetuating, if the public is willing – or forced – to fall in line.

This trend must be checked and reversed now, before it is too late. We are not yet in the thrall of dictatorship; we are not yet at the point of being fully silenced by force. True, there are ominous threats to free speech (to name just a couple, the White House snitch line and the FTC threat against bloggers), but I can still publish this blog post without fear of direct punishment by the government. The time to hide typewriters and printing presses under the floorboards has not yet come. Nevertheless, the acceleration of the federal government’s grasp of power under George Bush and Barack Obama is frightening. Mr. Obama’s “shock and awe” campaign against American citizens is intended to numb and inure us to complete government control.

The federal government (with the nearly full cooperation of the mainstream media) obtains the consent of the public by obscuring the nature of their increasing grip on us. Private businesses are demonized as predatory and compulsory, while government activities are characterized as “offering more choices” and “protecting the consumer.” Politicians and journalists count on Americans either not understanding what freedom is, or simply going along with the pretense that this is just business as usual. For instance, in the Times article I quoted, assistant Treasury secretary Michael S. Barr characterized the takeover as “market discipline”; the difference between private citizens judging how to handle their own affairs voluntarily and the government forcing citizens to act against their own judgment is supposed to be disregarded by the public as a superficial technicality.

Americans must not let the government pull this legerdemain without naming its nature. Government actions are not “market mechanisms,” but are anathema to free markets. Governments are institutions not of free trade but of force, and as such, must be strictly limited to their only appropriate role: safeguarding the rights of its citizens to deal with each other peaceably and voluntarily as each sees fit. Contrary to his own opinion, President Obama is not in charge of every company in America; in fact, he should have far less say in the operations of businesses than any floor-sweeper or hamburger-flipper. Not only should the president not preside in board rooms, but he ought to be respectfully thrown out. Capitalism requires the complete separation of the economy and the state.

The fact that the president and his team of czars think they can fire executives, defy shareholder contracts, and set wages to what they deem fit, is shocking and outrageous. It is not merely un-American but anti-American. Mr. Obama has demonstrated conduct befitting South American dictators and Chicago gangsters, not the President of the United States - and it deserves every bit of indignant protest from the Americans who are still alert enough to cry foul amid the masses dazzled under the president’s spell.

Despite the endless insistence by the media and politicians, it is plainly not true that any company is “too big to fail,” or that “the government has no choice but to rescue them.” In fact, when any company, big or small, goes out of business in a free market, it constitutes justice; it indicates that the company judged something wrong and the failure sends accurate signals to the rest of the market. People who did not make mistakes are not forced to pay for those who did.

It is only the unfree market - government meddling, such as we have under Bush and Obama - that causes distortions that destroy wealth and trample upon justice.

NOTES

1. “U.S. Considers Reining In ‘Too Big to Fail’ Institutions,” The New York Times, 25 Oct 2009.