and oh so much more. I just need to vent.
In capitalistic markets, the consequence of poor business decisions are losses, and for catastrophic decisions, bankruptcy. At which point does the government get to redefine the lower range of free markets after allowing its upper excesses? The implication is that markets and business are only supposed to go up in value. And the proper intervention would be to reclaim a portion of pre-disaster profits. I mean the moral hazard here is suffocating.
But since were here, i think given the massive amount of government risk involved in the bail outs of these financial firms with the public's tax money - yes BAIL OUT (last time i checked the federal government wasnt in the junk bond/acquisitions/valuations business), id like the treasury and the fed to specifically define what makes a company "too big to fail". Define "extraordinary circumstances". Why is no one challenging this? Because were all scared? Bear Stearns was too big to fail, but the larger more exposed Lehman wasnt? BS. And now AIG is too big to fail? Are there not sufficient alternatives/competitors to AIGs business? Suddenly everyone's business decisions need be guaranteed now? And let me stretch the question to the brink as a discussion point. What happens if Wal-Mart fails? What happens if Exxon Mobile fails? What makes non financial companies so non essential? Cause most americans are more immediately concerned w/ food and gas than stocks and cause if we're investing in ibanking and insurance with my tax dollars, id like to diversify.
In all seriousness though, with the Fed distracted by calming wall street what happens if one of what it was originally intended to protect fails - a traditional bank, god forbid? When a hurricane comes through if you havent taken the proper measures to secure your roof, there nothing you can do about it. The good news is the foundation will not be blown away. It will cost, but everything else can be rebuilt. These institutions are where the "too big to fail" discussion should be confined to. Its access to the public's private funds that is the cornerstone of this financial system - not derivatives. Point in case JPM and BofAs recycled prominence.
Again, since were here already, clearly it is in the best interest of the average shareholder investing in public companies to know the criteria for "too big to fail". Certainly that information is best in the hands of properly motivated investors who, en masse, can levy the additional scrutiny the fed is applying more effectively than itself. Id like to have a better idea of where to move my money from and what to short, why shouldn't we all?
My bottom line: ultimately, I think that if the government wants to intervene on the behalf of certain companies that it claims pose risk to the financial system, it should act solely and unambiguously as a clearing agent for their orderly deconstruction.
Whoo, I feel a little better. discuss. be constructive.
but where are the opinions? no one, huh? thats fine. posting this served my purpose.
DB
I could not agree more.
Allowing these companies to fail posses a risk; to everyone. If they fail we'd expect other companies to move in and take their place. However, there are too many unknowns. Do we want foreigners penetrating our markets even more? Will new companies even materialize? How long will it take to rebuild after one of these giants falls? The example of the demolitions man that looks at a building and say, "It took 10 years to finish this building. I can destroy it in a matter of minutes." comes to mind.
The fact the many of these companies were run and employed by many of Americas best and brightest doesn't help. The alumni network runs deep. These employees are intelligent and can figure out how to keep their jobs. Of course, who can blame them? It appears Bear Stearns was smarter than others and got out quick, not so with Lehman.
Wall Street professionals donate a lot and have connections and friendships with other people that share their similar backgrounds. The amount of power in these circles is huge. As has been stated millions of times, in finance, networking is king.
As for Wal-Mart and Exxon, how much of a network do these businesses really have? There is no good-old-boys club for them. Wall Street has a long history, Wal-Mart, not so much. When something has been around for awhile it's hard to let it go. Most of here have some background in economics. In a simplistic few we figure if something is dying let it die. This is exactly why economics was referred to as the dismal science. However, there is the human aspect. These people are going to do everything in their power to save themselves, since these institutions are full of very intelligent people, some will do a great job of it, and maybe even survive when they shouldn’t.
Just some thoughts as I sit here, 7000 miles away, watching things burn, and hoping the flames don't jump too far. Good luck all.
Bottom line is these firms have (or should I say had) too much power for an industry that predominantly simply provides services and adds almost no value to the economy.
I think the system has failed, and as predicted we are reverting back to the traditional banking system. This is very similar to the internet bubble, except its been a slow inflation over the years and it will stabilize again, however this time at realistic levels.
You're going to get a lecture from Capt. K about the benefits of corporate socialism and orderly markets.
But it'll probably be over your head, too.
I don't agree with your opinion, I believe AIG was too big to fail. Not including CDS, there are many insurance policies for "normal" people that needed to be saved.
On a side note, you can't post 27 minutes after your first one and think it was good because no one responded. For those of us not in college, some of us still have jobs and can't respond at 12 in the afternoon.
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