To big to bailout. A new way is needed.
At the time of writing this there are record bailouts happening all over the world in support of business. In some ways this is a very strange thing, many business profits have skyrocketed since the 2008 financial crisis. According to Goldman Sachs business has had the best decade in 140 years and yet within a month or two governments all over the world are having to save the economy again. And each bailout is getting bigger. To borrow a list from Pro Publica,
|Industry/Corporation||Year||Size in 2008 U.S. Dollars|
|Penn Central Railroad||1970||$3.2 billion|
|Franklin National Bank||1974||$7.8 billion|
|New York City||1975||$9.4 billion|
|Continental Illinois National Bank and Trust Company||1984||$9.5 billion|
|Savings & Loan||1989||$293.3 billion|
|Airline Industry||2001||$18.6 billion|
|Bear Stearns||2008||$30 billion|
|Fannie Mae / Freddie Mac||2008||$400 billion|
|American International Group (A.I.G.)||2008||$180 billion|
|Auto Industry||2008||$25 billion|
|Troubled Asset Relief Program||2008||$700 billion|
|Bank of America||2009||$142.2 billion|
2020's bailout in the U.S. is currently sitting at over $2 trillion and if Congress gets their bill passed by the Senate and not vetoed by the President then it will add another $3 trillion to that total making it four times more money than the 2008 financial crisis.
Clearly the current situation doesn't work. Every decade there seems to be a situation where governments have to step in and support business. In many cases these situations are caused by governments themselves. The 2008 crisis was caused, at least partly, by the relaxation of government regulations. Coronavirus should probably be considered more a natural catastrophe than a failure of government regulation although it is clearly a failure of government as well, at least in America.
That isn't to mean that business should be considered blame free as well. Many of the regulation changes leading to the 2008 crisis were the result of corporate lobbying with over $230 million in donations to the Republican and Democratic parties. This paved the way for Citigroup to finalise its merger. In 2008 Citgroup was bailed out with $280 billion and the regulatory situation still hasn't been fixed. As of September 2019 Citibank (owned by Citigroup) has exposure to $1.7 trillion in Credit Default Swaps. To quote Wall Street on Parade,
And at a time of national crisis when our federal leaders should be focusing on providing help to families and businesses that are being devastated by the coronavirus, the Federal Reserve is instead engaged in a new, multi-trillion dollar bailout of Wall Street banks, whose crisis began on September 17, 2019 — five months before the first case of coronavirus was diagnosed in the U.S.
In the end though it doesn't really matter why it happens, it just needs to be prepared for because the next crisis and following bailout is roughly 10 to 15 years away if we continue at the current rate. So what can we do?
It seems to me that neither the government nor business can be trusted to take care of themselves. In the case of government, they tend to get swayed by campaign financing, lobby groups and just by being surrounded by people in the upper echelons of society they seem to lose track of reality. If the government was to tax business to pay for the next bailout it would be a catastrophe.
On the other hand if business had to pay for it's next bailout through a scheme like compulsory business insurance then you would have just as large a problem. To take another crisis as an example, after the Christchurch Earthquake the New Zealand government was forced to step in and bailout one of the country's largest insurers as, even though they had accepted money from people for years to cover an earthquake, they announced they would collapse if they had to pay the claims. Eventually this proved true . So business can't be trusted to insure themselves. Eventually you would just end up more more and more specialised insurance packages from companies that promptly fold when the time comes to pay.
Let's remember that it isn't actually the job of the government to bail out companies who have failed to adequately prepare for the risks of business and where you have a so called force majeure crisis like Coronavirus the only reason government should be stepping in is to provide a better outcome for the most amount of people. Unfortunately, because of the emergence of to big to fail corporations the governments are in a position where if they remove the problem to any large extent then the economy fails leaving the most amount of people worse off.
A solution to this could be requiring businesses that would need a government bailout if their market changed dramatically for any reason are required to hold portion of their revenue in Trust at 1% per annum until they had met the threshold of 10%. They would be unable to touch this Trust unless in need of a bailout or in the cases of going into receivership, collapse, etc... Additionally, failure to meet this requirement would pierce the corporate veil and hold its officers, directors, and shareholders or members personally liable for its debts.
We live in a world where giant national and multinational corporations hold far to much power over the economies of countries, often just by their sheer size. To not do something to regain control of the economy and the risk posed by the collapse of these companies not only is a failure to fix the problem. It is wholesale admitting that the democracies of the world are beholden to them and in effect democracy does not exist. It is merely a facade for the Corporatocracy above.
What do you think?
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