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    excon's Avatar
    excon Posts: 21,482, Reputation: 2992
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    #1

    Apr 18, 2010, 07:37 AM
    Too big to fail
    Hello:

    Now, I don't know what that means to YOU. But, to ME, it means that IF we let corporations get that big, and they fail, WE the TAXPAYERS get hurt. Seems to me that if we stopped them just short of getting too big to fail, and they fail, it's THEIR stockholders that get hurt - NOT us. That seems right to me.

    Therefore, financial reform should include downsizing corporations that are too big to fail, to just the RIGHT size where it doesn't hurt us if they do fail. And, we need to prevent ANY corporation from ever getting that big again.

    Is that wrong?

    excon
    twinkiedooter's Avatar
    twinkiedooter Posts: 12,172, Reputation: 1054
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    #2

    Apr 18, 2010, 08:00 AM

    Ah, just which particular companies are you theorizing about Exie? So many small businesses have already gone belly up in the last few years it's scary.

    I can see clearing away some dead wood in the companies that are too big and also cutting back or totally eliminating a lot of the perks they get such as bonuses for just being the CEO, etc. I never saw that kind of yearly pat yourself on the back anyway. Why give Mr. Big the bonus and totally skip over the people who actually DO the work for the company? Why not just pay the people who actually work (and not just sit in an office pushing paper around all day for a few hours like Mr. Big does) the money they deserve for doing a good job.
    excon's Avatar
    excon Posts: 21,482, Reputation: 2992
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    #3

    Apr 18, 2010, 08:09 AM
    Quote Originally Posted by twinkiedooter View Post
    Ah, just which particular companies are you theorizing about Exie? So many small businesses have already gone belly up in the last few years it's scary.
    G'morning, twink:

    Well, I was just going to include banks, but AIG isn't a bank. So, the criteria I'm using is just "too big to fail", rather than what they, particularly, do. GM, for example, was deemed by some as too big to fail. Or, maybe we should just give up on the notion of "too big to fail" and just let ANY of 'em drop dead. But, I don't think THAT'S a good idea either.

    I'm not talking about destroying them - just breaking 'em up. We broke the Standard Oil Trust up into about 37 companies, and they ALL did quite well.

    excon
    tomder55's Avatar
    tomder55 Posts: 1,742, Reputation: 342
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    #4

    Apr 18, 2010, 09:14 AM

    We already have antitrust laws on the book. They are enforcable .So I don't see a need for further law in that regard.

    If the zombies were allowed to fail then we would not have been hurt any worse than we were when the GS exec embedded in the government decided it was a good idea to scare Congress into bailing the zombies out .

    Sen. Dudd's new legislation would institutionalize too big to fail and all it's related moral hazards . Not only that ;but the bill allows the government to designate companies as too big to fail whether they are or not.What they will succeed in doing is creating the equivalent of Fannie and Freddie in every sector of the economy.

    It will be a self fulfilling prophesy . Who would invest in a private company not backed by the gvt. When a much safer bet is investing in the gvt backed company ? And what would prevent these gvt backed companies from taking on recklessly risky positions when the gvt is backing them ? In fact;the gvt. Mandated Fannie and Freddie to take on risky business and that contributed directly to the whole financial system crisis.

    What is needed instead is distressed institutions that are sinking to become consumed by private enterprise. That is why there are bankruptcy laws and courts.

    We know it works because in a moment of rare sanity Lehman Brothers was allowed to collapse during the bailout craze.. its businesses and assets were all sold off to four different buyers within weeks of the filing of its petition for bankruptcy .Life goes on .
    excon's Avatar
    excon Posts: 21,482, Reputation: 2992
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    #5

    Apr 18, 2010, 09:23 AM

    Hello again, tom:

    I wasn't asking about the bill, because I don't think bill calls for what I'm calling for. I just asked your opinion on MY proposition. MY proposition has nothing to do the government owning or backing anything.

    excon
    tomder55's Avatar
    tomder55 Posts: 1,742, Reputation: 342
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    #6

    Apr 18, 2010, 09:52 AM

    Companies usually become too big because interconnectiveness creates monopolies .And as I said in my response anti-trust laws are already in place to deal with that .

    I don't believe in too big to fail so I would not put artificial restraints on the size of companies based on some legislator's criteria of what is too big to fail.

    The market will weed them out quite well on it's own . I think the real hazards are in not letting them fail . Failing businesses are just as vital to a free market as successful businesses are . The failures creates new opportunities.
    That is naturally occurring and doesn't need central planners in Washington to decide which businesses succeed and which fail ;or which are too big for their own good.
    Instead of thinking failure is not an option we should think in terms of failure being necessary component of the market.
    excon's Avatar
    excon Posts: 21,482, Reputation: 2992
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    #7

    Apr 18, 2010, 09:58 AM
    Quote Originally Posted by tomder55 View Post
    I don't believe in too big to fail
    Hello tom:

    That's the key. I do.

    excon
    tomder55's Avatar
    tomder55 Posts: 1,742, Reputation: 342
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    #8

    Apr 18, 2010, 10:34 AM

    Lehmans failed even as the government desperately tried to save it because they thought it was too big to fail... you the taxpayer wasn't hurt. Zombies got bailed out (and in the case of Chase got government money even when they told them they didn't want it),and the taxpayer got hurt.

    So it's only when there is a perception that something is too big to fail when there is the panic response in Washington .

    The only people we should give a damn about is people who made bank deposits in investment banks . The solution then is to protect them through FDIC which the investment banks should be happy to fund ,and to hell with the rest of the investors (except GS investors who were apparently defrauded according to recent news ) .
    excon's Avatar
    excon Posts: 21,482, Reputation: 2992
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    #9

    Apr 18, 2010, 11:07 AM
    Quote Originally Posted by tomder55 View Post
    Lehmans failed even as the government desperately tried to save it because they thought it was too big to fail .....
    Hello tom:

    That isn't what happened at all. They LET Lehman fail because they believed like you do, it won't hurt, But, immediately after Lehman failed, the credit markets LOCKED up threatening to take down the entire economy. It SCARED Paulson and Bush, and all of a sudden they became BELIEVERS in too big to fail, and bailed 'em out.

    Now my libertarian self agrees with you except for one regard. We, at one time, had regulations in place that would have prevented banks, and ultimately the insurance companies, from getting as big as they got. They only way they GOT too big to fail, is through LOBBYING congress for repeal of those laws instead of competing in the marketplace for market share. That ISN'T the free market at work. That' MONEY at work and the corruption it buys. Therefore, I'm all for regulations that will break up any company that is too big to fail, and prevent it from ever happening again.

    excon
    tomder55's Avatar
    tomder55 Posts: 1,742, Reputation: 342
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    #10

    Apr 18, 2010, 01:55 PM

    Sorry the credit market did not freeze because of Lehman. Letting Lehman go was the best thing that happened in 2008 .
    It was incoherent government reaction that brought on the crisis.

    Libor was down for a total of 24 hours before it rebounded after the Lehman announcement .

    But after Paulson went nuts and drafted the 2 1/2 page draft of TARP ,which gave him total power on what to do with bailout money ,then the credit markets froze. It was his chicken little act that convinced everyone that the banks were in worse shape then they were. Subsequent events have proven this narrative the correct one as miracle upon miracle ;banks are capitalized up the kazoo and are not lending much of it because working with the government is a much better deal .They are given gvt debt for nothing and invest it in safe gvt bonds. I wish someone would offer me that deal!!
    inthebox's Avatar
    inthebox Posts: 787, Reputation: 179
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    #11

    Apr 18, 2010, 09:04 PM
    Quote Originally Posted by excon View Post
    Hello:

    Now, I dunno what that means to YOU. But, to ME, it means that IF we let corporations get that big, and they fail, WE the TAXPAYERS get hurt. Seems to me that if we stopped them just short of getting too big to fail, and they fail, it's THEIR stockholders that get hurt - NOT us. That seems right to me.

    Therefore, financial reform should include downsizing corporations that are too big to fail, to just the RIGHT size where it doesn't hurt us if they do fail. And, we need to prevent ANY corporation from ever getting that big again.

    Is that wrong?
    EX

    The taxpayors only get hurt when the government backs a company - like fannie and freddie - as Tom pointed out.

    Take a look at the companies on the Dow Jones:

    Walmart, Exxon, At and T, Mcdonalds, Microsoft : all huge companies. But if a Walmart fails, and is not backed by the government via taxpayors, then its competitors like Target will fill the void and other small businesses will fill the void. If Microsoft fails, Apple and dozens of other companies would step in. Etc.

    It is when the government backs certain companies that those companies become to big to fail. GM could fail but Honda, Toyota, Ford, Hyundai, VW etc would fill the void.




    G&P
    Kitkat22's Avatar
    Kitkat22 Posts: 6,302, Reputation: 1191
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    #12

    Apr 18, 2010, 09:12 PM

    Exy.. I don't understand a lot about this.. but I think your right!
    tomder55's Avatar
    tomder55 Posts: 1,742, Reputation: 342
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    #13

    Apr 19, 2010, 03:27 AM

    Ex does not like corporations . He thinks America should be all mom and pop businesses that have no possibility to compete globally. He claims that big corporations stifle competition which is not true. Look at the banks . There were a handful of them that the government deemed too big to fail . But do these large banks really stifle competition ? No of course not ,there are thousands of smaller banks and investment companies serving all types of clients and communities. Inthebox points out major retailers that are huge . If they fail would people stop buying ? No... established and new business would take their place and people laid off from the failed business get hired by their competitor.

    Yes ,if it is demonstated that a company holds a monopoly in the business then it is not a good situation. But there are already anti-trust laws to handle that ;and if Congress wanted to do something useful they would revisit those laws and see if they need tweeking ;instead of finding tax money ,or printing money we don't have ,to ensure that executives that ran their companies into trouble get rewarded .
    excon's Avatar
    excon Posts: 21,482, Reputation: 2992
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    #14

    Apr 19, 2010, 03:32 AM
    Quote Originally Posted by tomder55 View Post
    Ex does not like corporations . He thinks America should be all mom and pop businesses
    Hello:

    Tom likes corporations that are too big to fail. I don't know why. He has a short memory.

    excon
    Catsmine's Avatar
    Catsmine Posts: 3,827, Reputation: 739
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    #15

    Apr 19, 2010, 04:14 AM
    This discussion keeps reminding me of the anti-trust breakup of Ma Bell. It took a decade or more to sort out which companies were viable, but AT&T is back up there in the top companies again.

    Consumers did pay for it, however. Rates went way up but options exploded and the concept of customer service bloomed.

    On the phrase "too big to fail," I think the government is sticking its nose in where it doesn't belong, again.
    NeedKarma's Avatar
    NeedKarma Posts: 10,635, Reputation: 1706
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    #16

    Apr 19, 2010, 04:26 AM
    Quote Originally Posted by Catsmine View Post
    Consumers did pay for it, however. Rates went way up but options exploded
    Basic service rates went up for a while until competition set in but long distance rates went down almost immediately and have stayed that way.
    tomder55's Avatar
    tomder55 Posts: 1,742, Reputation: 342
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    #17

    Apr 19, 2010, 04:35 AM

    But ATT again is a premier phone service making among other things exclusive deals with Apple Iphone etc. However ;if Apple were smart ,they would allow iPhone service on any available phone company . In this case exclusivity stifles business.
    NeedKarma's Avatar
    NeedKarma Posts: 10,635, Reputation: 1706
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    #18

    Apr 19, 2010, 04:58 AM
    Totally agree tom. The iPhone users there and in Canada feel the same way. Then there's Apple locking people in to the App Store, the iPad locking-in is even worse.
    speechlesstx's Avatar
    speechlesstx Posts: 1,111, Reputation: 284
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    #19

    Apr 19, 2010, 06:55 AM

    Along that line, Apple has apparently declared war on Adobe, locking you in even more. I'm one of those guys that Apple won't get a as customer because of their exclusivity.
    Catsmine's Avatar
    Catsmine Posts: 3,827, Reputation: 739
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    #20

    Apr 19, 2010, 12:15 PM
    Quote Originally Posted by speechlesstx View Post
    Along that line, Apple has apparently declared war on Adobe, locking you in even more. I'm one of those guys that Apple won't get a as customer because of their exclusivity.
    That's 2 of us. The Mac OS is much better than Windows, but Jobs & Co.'s business plan is so anti-consumer that "I'm a PC."

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