Free Market Bailouts is an Oxymoron
One of the courses I’m taking this semester in my MBA program is Business Ethics. As you can expect, discussions in today’s class focused somewhat on the recent events in the financial sector. Specifically, the bankruptcy of Lehman Brothers and the government bailout of AIG. Here is my dilemma with some of the opinions I hear floating around my school and in the papers.
The government just bailed out AIG. This approach signifies a move towards a more socialistic economy where the government controls more services that cater to public interests. I don’t necessarily think the government wants to be more socialistic, but by definition, this bailout is a move in that direction. I am basically hearing two different opinions. One, is that this bailout was a bad idea. The free market determines winners and losers and by bailing out losers, we are significantly decreasing the benefits of a free market. The short term pain will be rewarded by long term efficiency. The other opinion is that the government bailout was necessary because the system isn’t perfect. More regulation is necessary to allow the market to evolve without having it go too far and self destruct as we are seeing now. By having government bailouts, we can sustain the status-quo as well as add regulations and put a focus on business ethics so we can avoid a situation like the one we are seeing today.
The problem I have here is that I believe in the free market and yet if I was running the Fed, I’d probably bail out AIG as well. It’s the lesser of two evils. So what is the solution? How can we sustain a free market society without having the effects of company mismanagement hurt the general public too much?
Since I am in internet related businesses, I look towards the model of the internet for many of my solutions. The internet, for the most part, is the closest to a true free market economy that we can achieve. And some of the most successful internet companies are also the most ethical (examples: Google, ebaY, Amazon, etc). What this tells me is that in a true free market (or as close as you can get), the ethical companies are the successful companies. The free market rewards companies that look out for the general public.
With this argument in tow, it would seem that I would be fine with letting AIG, and Bear Sterns for that matter, collapse because the free market will bring along a more efficient service to take their place. The problem is that the world of finance is not a free market. If AIG collapses, we won’t see a new player take its place quickly. The barriers to entry are enormous. The consequences of a large company failure are far-reaching. Consumers and their needs are an afterthought in these companies. Money is what drives decisions. And normally, corporate social responsibility (CSR) would be connected with money-making decisions to ensure the best return. In finance, however, that is not typically the case.
Do I want the government to bail out companies? No. Do I think it’s necessary at times? Possibly. I think the best solution would be a move towards less regulation and allow consumers to be more involved in the industry. By easing up on regulation and empowering consumers, you can level the playing field a bit and create more of a free market in the finance industry. That way, when some companies get greedy and make bad decisions, they’ll collapse, but it will be ok. Other companies will swoop in and take their place without much upheival. What do you think?
Since when did business failure deserve a reward? Let the consequences happen as they may to these big businesses. Give the American investors pause for more prudence in their investment decision making.
Why is it that our nation’s leaders are allocating our tax dollars to a non-governmental entity to bailout a company most of us could care less about? Since when does failure to operate a business properly merit the pity and hard-earned dollars of American citizens? I know of hundreds of business owners who have made mistakes in running their business; and not only does no one come to their aid one iota, but because they are self-employed business owners, even in a crisis they are unable to get access to simple financial benefits such as food stamps or Medicaid (that even illegal immigrants can get) when necessary!
To be honest, I’m not really sure how such a problem can be solved. While I agree that Uncle Sam can’t be bailing out every failed business, I can’t justify allowing AIG customers to suffer b/c of the stooges making the bulk of the decisions.
Wonder what the chances are of having AIG’s management team forfeit all pay for the last 1 to 5 years years would be? Surrender all salary, bonuses, and stock related profits made from the date of the bailout… would that change the boardroom antics?
Bluescreenmarketing, I would agree with you if AIG were just another business, but it is a huge financial institution that holds a vast percentage of people’s insurance policies as well as, I believe, their pensions.
We might think we “could care less about” AIG, but in reality you and people in your life probably depend on them a lot more than you know.
The problem is in our monetary system and having a central bank like the Federal Reserve, which is about as “Federal” as Federal Express.
If the Fed keeps printing money that essentially is backed by nothing, inflation will skyrocket and our US Dollar will be as valuable as a Mexican Peso.
So to answer your question, I would say “fuck it”, let AIG crumble and teach everyone a lesson. Our monetary system is flawed and these Fed bailouts will cause our market to crumble soon regardless.
Maybe a slap in the face may spark some serious reform. The sad part about it is that neither MCCain or Obama are addressing the real problem with the economy.
The only member of Congress that is addressing this issue is Ron Paul. Check him out he just commented on the AIG bailout.
http://www.campaignforliberty.com/blog/?p=548
Here is my opinion, all the way from Denmark:
Where to get 85 billion, well your monetary system gives no other solution than to lend that money from the federal bank…with interest.
Who control the interest…the federal bank.
Who will stop the fed from sending the interest sky rocketing as soon as these money are put into circulation?
What happens when the banks needs to raise the interests because the fed does, well americans starts loosing their houses and companies to the banks who lend them the money…Does the banks own your houses, no they owe the money to the fed. So in effect they own your houses….and collect interests from the bank, meaning your “money in the bank” is worth nothing.
Show me one crisis in America that didn’t start this way and I’ll start wearing a tinfoil hat!
The only thing more expensive than this is war…but you have a few of those going on too, so you’ll be alright.
When the shit really hits the fan, I bet the fed will step in with a nice plan to save you all, this will of course rob you of every last possession you have….. I will event bet it will be before McCain gets the office
and your current federal bank buddy leaves to enjoy his retirement.
Good luck, you have been playing this game for a 100 years now.
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