Taming forces inhibiting your success
Should government be the counterpoise to corp. excess?

The seemingly disparate BP oil disaster in the Gulf, 2008 collapse of Lehman Brothers and Wal-Mart price “roll backs” all have a common thread. They have risen or fallen in response to actions of the federal government. What is or should be the role of government in the lives of both businesses and residents of Main Street?

BP’s liability for the oil disaster in the Gulf of Mexico is officially capped at $75 million because of a ceiling Congress imposed in 1990. Critics say the cap is the result of big oil’s lobbying power in Washington and amounts to a bailout at the expense of U.S. taxpayers. Others oppose changing the cap retroactively saying, among other things, the U.S. Constitution prohibits the passage of ex post facto — or after the fact — laws. Besides they argue, pension funds in both the U.S. and Great Britain are dependent on BP’s survival. Meanwhile, collateral damage to tourism, fishing and other industries worsens by the hour.

The conundrum here is balancing the philosophical arguments supporting free markets and government as counterpoise to the occasional ill-effects of capitalism. Some want it both ways.

Free markets, ‘too big to fail’ and moral hazard

In truly free markets, businesses are rewarded for success and penalized for failure. Either way, effects are passed down to investors, including “innocent” individuals and retirement plans. Many financial collapse victims who usually advocate for free markets lately have been asking for, and receiving, government bailouts. Contrary to free market philosophy, they argue their entities are “too big to fail.” In other words, the impact of their failures would be catastrophic on the national or world economy. Fannie Mae, Freddie Mac, General Motors, American International Group (AIG), Bank of America and others recently benefitted from various forms of government bailouts.

The concept of moral hazard comes into play when an entity takes risks it might have otherwise avoided because it is protected by a third party — often insurance or contemporary government bailouts. In the sub-prime crisis, those writing the loans often faced little risk since they sold sour mortgages to others. Giant Lehman Brothers was allowed to fail, in part, as a means of reminding investors they must accept losses as well as gains.

Stemming corporate pyramid schemes

Every business strives to become larger. If they are investor-owned, there is continuing pressure to share ever larger gains with stockholders. In fact, these companies have a legal obligation to do so. To appear as delivering, some companies go so far as to “cook the books.” Lehman, for example, hid billions in losses by lending toxic assets to other firms at the end each quarter to take them off its balance sheet. The practice continues at other firms.

At a certain point there is not enough money to fuel corporate growth. Globalization was a short term solution for companies who could no longer sell enough at home. Now, the world’s corporate water trough is emptying. Unless buyers are found on nearby planets, collapse is inevitable just like any other pyramid scheme.

Trickle down or drought on Main Street

It’s a marketing problem. There are half as many banks now as there were 20 years ago and who knows how many local department stores, hardware stores and bakeries have been wiped out by Wal-Mart, Home Depot and Dunkin Donuts. Deregulation has also left us with fewer, but larger utilities. The local impact is dramatic and frightful.

Small businesses, community banks and even the media now have fewer customers and prospects as it is inherently more difficult to pitch and win business from the large conglomerates. And, since the biggest companies need to continually find economies to support investors, local jobs are sacrificed. Is it really a mystery why the nation’s unemployment rate hovers at 10 percent?

Asking consumers to buy local or “made in USA” products and services is not a solution. Cash-strapped consumers now rely on the ostensibly lower prices of the major conglomerates even though their fiscal woes are directly related to the excesses of these same companies.

Even foreign policy is being twisted by events. The “special relationship” between the United States and Great Britain is being threatened by the BP oil crisis, for example.

Logical solutions are elusive since there are few unbiased voices today. Political leaders, bankrolled by special interests, create daily distractions with their vitriol. Economic pressure on the media results in meaningless sound bites and opinion disguised as news. Americans are often left ignorantly lobbying against their own best interests — whether the issue is healthcare, taxes or social concerns — because they have been directed to choose sides without comprehending the ramifications of these positions.

Ultimately saner minds must prevail. Government’s role — to reign in corporate extremism, foster truly free markets or devise a rational compromise — must be defined. Who will step up to the plate?

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