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Richard Stallman's Solution To 'Too Big To Fail'

Soulskill posted about a year and a half ago | from the tax-each-line-of-unreleased-code dept.

Government 649

lcam writes "A Richard Stallman opinion piece appears at Reuters addressing the 'Too big to fail' view that has recently caused large corporations to be bailed out by taxpayer dollars. His solution is elegant: 'We tax a company’s gross income, with a tax rate that increases as the company gets bigger. Companies would be able to reduce their tax rates by splitting themselves up.' However, it could use some refining. For example, his measure would create a required minimum 'Return on Investment' scale that corporations need to follow to be viable, and these types of metrics are very industry specific. Another issue is that many large corporations stay in business because they don't take unnecessary risk. Companies like Intel, Lockheed, Walmart are very large and have a very low chance of failure, yet Stallman would have them split up as a result of the excessive risks that banks and insurance companies were seen to have taken. It also has the potential to cause problems with the global market; some multinationals may find it better to simply 'move out' to a country that doesn't compromise their business models. How can this idea be made better?"

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649 comments

I have a better idea... (5, Insightful)

aaronfaby (741318) | about a year and a half ago | (#42788793)

How about we just don't bail them out?

Re:I have a better idea... (5, Informative)

Anonymous Coward | about a year and a half ago | (#42788887)

On behalf of all anonymous contributors, I award you all of our mod points.

Re:I have a better idea... (4, Insightful)

YodasEvilTwin (2014446) | about a year and a half ago | (#42788895)

The point is that you need to bail them out, because otherwise a recession becomes a depression or whole sectors of the economy will be destroyed. That's what "too big to fail" means.

Re:I have a better idea... (5, Insightful)

sumdumass (711423) | about a year and a half ago | (#42788943)

How about propping up depressions to only appear as recessions doesn't make it not one to those in the lower half of the economy. If the current system is failing, propping it up to save grace for the wealthy doesn't appear to be a smart idea.

Re:I have a better idea... (5, Insightful)

Anonymous Coward | about a year and a half ago | (#42788955)

It's called evolution. Those that can and need to live on evolve. Those that can't die off. Just like life.

We can't keep supporting old economies and old industries that need to change into something else. Yeah, it's hurts like hell and a generation pays the price for awhile, but at least we grow and move into the future instead of supporting the past.

Re:I have a better idea... (3, Insightful)

aaronfaby (741318) | about a year and a half ago | (#42788995)

No you don't. That's Keynesian nonsense. Corporations that are poorly managed need to go bankrupt and the burden should not be placed on the tax payers. Yes, some people will lose their jobs. That's called life, sometimes it happens. The worst thing you can do is paper over it just to make everyone happy. Another company that is better managed will move in to fill the void, they always do. Now that executives of major corporations know they can rely on Uncle Sam to bail them out for making big mistakes (and they won't even go to jail if they commit massive fraud like the banking scandals of the last decade), there is no incentive for them to not take big gambles and otherwise behave more recklessly than they would if there were actual consequences.

Re:I have a better idea... (3, Insightful)

Cigarra (652458) | about a year and a half ago | (#42789111)

Uhm, no. The point is that if they fail, it will be more than just "some people will lose their jobs", because other companies would be dragged in the fall, and the entire economy would suffer.

Now I'm not even agreeing with the reasoning, but you didn't quite seem to even grasp it.

Re:I have a better idea... (3, Insightful)

Intrepid imaginaut (1970940) | about a year and a half ago | (#42789137)

Except in the case of banks, they have all your money, so if they fail, all your money is gone. Reserves are meant to ensure that a reasonable ratio of funds are kept in case of emergencies, but due to the removal of regulations those dwindled to very little, among other things. Personally I'd target the banks and never mind the rest of the corporations, everything else descends from them. Split up their responsibilities so one single entity isn't shuffling funds from pensions to derivatives, make various kinds of banks rather than just one "bank".

Yes it will reduce the bulk of funds available for any one activity (like mortgages), but that's the price you pay for security; also it might inspire growth due entirely to creative activity rather than hype. There are a lot of other options for growth as well, but if you want to ensure this never happens again, return Glass-Steagall. Simple as that.

Stallman's idea is pretty good but it has a lot of gotchas as he mentions himself, not least of which is finding a definition of 'size' that quicksilver accountancy and shell company structures won't slide around immediately.

Re:I have a better idea... (2)

dimeglio (456244) | about a year and a half ago | (#42789171)

Typically, companies are not bailed out. Kodak for instance. I think we're talking about an entire industry, for example farming. Given the size of farms today, if one farm shuts down, there might be no food on you table tomorrow.

Re:I have a better idea... (5, Insightful)

tlhIngan (30335) | about a year and a half ago | (#42789193)

Corporations that are poorly managed need to go bankrupt and the burden should not be placed on the tax payers. Yes, some people will lose their jobs. That's called life, sometimes it happens

You missed another important market - some people lose their life savings. Now, the US does not have a particularly strong social security net, so a lot of people rely on investment funded savings and investment funded retirement plans.

The problem is that these people now have to choose between food, utilities (heat/electricity/water), or a roof over their heads.

Plus, a lot of people would suddenly be in a lot more difficult positions. So you've saved the requisite amount of money to live on for 6 months in case you get laid off. So let's say you get laid off. No problem, you have a cushion of money to live on. But no, you got laid off AND your bank failed (WaMu, anyone?). Now you have no income and no money. If you were dilligent, you may have socked away money elsewhere but now you only have half the money and the real risk that they could fold too.

Yes, companies should fail. However, when you're "too big to fail" it means vital corners of the economy are interdependent. When a small business fails - OK, some people left without jobs. When a large presumably infallible company fails, it ripples throughout the economy.

If Apple failed - you'd have maybe half a million people out of work, and many more who have lost a significant chunk of their savings and pensions.

Ditto Microsoft.

But say Google failed - now you'll have ripples through the entire online economy - practically overnight there would be no more advertising (Google and all Google-owned companies like DoubleClick), and sites that relied on it would be in trouble. We saw a ripple of it a few years ago when online ad rates tanked and paywalls cropped up.

In an ideal world, businesses failing would be a neat, clean, simple affair. These days, most companies are horrendously intertwined with many other companies (two competitors may have a very incestuous relationship, for example - think beyond love/hate Apple/Google), so it becomes a very messy affair.

Re:I have a better idea... (4, Interesting)

KarlIsNotMyName (1529477) | about a year and a half ago | (#42789055)

Rather than bail them out, you can simply take over their properties when they become worthless. Or make a deal to take them over rather than them becoming worthless, and have ownership, rather than simply give money away. In the process, fire or sue those responsible for the collapse.

Or, bail out the next layer down, ensuring change and that the same exact problem can't happen again.

Re:I have a better idea... (0)

Anonymous Coward | about a year and a half ago | (#42789227)

In the process, fire and sue those responsible for the collapse.

There... FTFY

Re:I have a better idea... (0)

Anonymous Coward | about a year and a half ago | (#42789087)

Have you considered the alternative? Look at what bailing these companies out bought us for our taxpayer dollar. We got to kick the can a bit further down the road. That's it. And in return we vastly increased our deficit in the transaction saddling the youth of today with a debt that will last generations to come for the priviledge. Problem is not solved. Economy is not fixed. GDP has not increased. Investor confidence has not increased. And the companies we bailed out are just as fragile today as they were then. This is an unsustainable model. We really, really, really should have just took the bullet at the time. We'd already be on the way back up by now if we had. But the problem is that it doesn't fit with the often repeated narrative that all you need to do in the this country to succeed is wish for what you want. Hard work and sacrifice are lost concepts in this country and until that changes (a change that depression would most certainly bring) we are not going to see a brighter future. You can't have a country full of non-productive bloat. We all have to be willing to pitch in and sacrifice. We all have to be willing to work hard for reasonable gains. This is as true for the gas station attendent who wants to drive an Italian sports car, as it is for the investors who expect consistent double digit growth, as it for the stay at home mom who thinks having more children is a good concept for personal enrichment.

Re:I have a better idea... (1)

pigphish (1070214) | about a year and a half ago | (#42789133)

You must be full of the Kool-Aid they are serving. If one bank is ok to fail let the other fail as well, even if their buddyies (aka Bernanke and gang) are in the other one.

Re:I have a better idea... (3, Interesting)

Charliemopps (1157495) | about a year and a half ago | (#42789219)

That's what "too big to fail" means.

No... what it actually means is you're being lied to. Most of the banks we're talking about here would still be bankrupt today if the feds hadn't suspended mark-to-market rules in 2008. They did fail, continued to fail, and are still failing today... despite the bailout. The bailout didn't save them. Allowing them to set the value of their own assets to whatever they wanted saved them. If I could claim my house was worth $10 million dollars and refinance it at whim, it'd be pretty hard for me to go bankrupt as well. It's a house of cards the government is allowing banks to build taller and taller. It WILL come down.

Re:I have a better idea... (0)

Anonymous Coward | about a year and a half ago | (#42789235)

Funny. The only people your way of thinking helped out was those at the top. For everyone else involved it was a depression.

Re:I have a better idea... (3, Interesting)

Anonymous Coward | about a year and a half ago | (#42788907)

Bail out the taxpayers, but not corporations.

Re:I have a better idea... (0)

Anonymous Coward | about a year and a half ago | (#42789147)

why? Why bailout anybody? This country started with a bunch of hopefuls who came to a land far from home where there was no welfare, no public assistence, no OJT programs, no government grants, etc. You got here, you worked hard, and if you were smart you made a living. If you were dumb you starved. If you were a real fool, you died. Maybe that's not a bad thing. Our problems are largely due to the evergrowning safty net that makes everyone too important to fail. There's no sense of urgency, no drive, no ambition. Now days even if you're successful the lawyers will just come and take away what the government hasn't already plundered.

Re:I have a better idea... (2, Insightful)

gewalker (57809) | about a year and a half ago | (#42788965)

Brilliant absolutely brilliant. Too bad the guys that wrote the Constitution didn't think of that. Oh wait -- they did. Bailing out corporations (or individuals) was not among the enumerated powers granted to the federal government. Probably half or more of the federal budget is likewise unconstitutional (not that almost anyone in Congress or the Courts care)

Re:I have a better idea... (2, Interesting)

AliasMarlowe (1042386) | about a year and a half ago | (#42788973)

Or, since corporations are "persons", why not tax them in an analogous fashion?

For instance, divide their income by the number of full-time employees they have (averaged over the year, not just on a particular date), and determine their tax rate based on that metric. For this purpose, a full-time employee would be one to whom they pay a salary which exceeds the local minimum and additionally receives full social benefits. Social benefits in the U.S. would mean health insurance and suchlike; in much of Europe, it would mean the extra social taxes which often amount to an additional third to half of the pre-tax salary.

Part-time employees would count as fractions of a full-time employee. The fraction being determined as the lesser of the fraction of hours worked and the fraction of social benefits received. No benefits would mean they are not employees at all.

Re:I have a better idea... (5, Insightful)

Hatta (162192) | about a year and a half ago | (#42788975)

Bail them out, save the economy, but jail the executives responsible. If your firm destabilizes the economy you go directly to jail.

Re:I have a better idea... (4, Interesting)

N0Man74 (1620447) | about a year and a half ago | (#42789129)

I like that idea, but it will never work. Executives will always try to maintain plausible denial, and send an underling down the river instead.

Re:I have a better idea... (1)

Anonymous Coward | about a year and a half ago | (#42788977)

and then 150,000 people lose their jobs overnight, probably their homes and have no medical coverage. Meanwhile the business owners and upper management move on elsewhere and don't even notice the fallout. They've taken their money out long before the "market" finished them off.

Until people like you get it into your head it isn't "companies" breaking the law, it's a tiny number of people within them, we will not address the problem of extreme greed at the cost of everyone else, even destroying an entire country's economy. Follow the money, and put those that caused it in jail. Executives will soon reign in their corruption if they face spending their lives in jail and lose all accumulated wealth.

remove medical coverage from jobs (2)

Joe_Dragon (2206452) | about a year and a half ago | (#42789189)

remove medical coverage from jobs

Re:I have a better idea... (0)

Anonymous Coward | about a year and a half ago | (#42789037)

Bail them out correctly, using existing means... Bankruptcy court
Don't reward incompetence on the part of the management system/policies

Use a VERY quiet, and present it as "Here is how it's going to happen", have the top 10 Assets and top 10 Creditors approve, then as much as practical of the top 10% by share

Then company N that's "Too big to fail" does fail, but without the long, drawn out uncertainty of "What's gonna happen", I'd expect it to take 7 days from the "Oh *, we owe more than we have and/or can raise" to the "N is using expedited bankruptcy provision M"

Re:I have a better idea... (1)

mlts (1038732) | about a year and a half ago | (#42789135)

If we don't bail them out and depositors suddenly have lost their checking/savings accounts, then we will be back to bank runs at a moment's notice, mattresses stuffed with money, and panics. Do we want that? Banks have security issues, but they are far more secure than a pile of gold stashed between two chunks of drywall in a disused bathroom.

Don't forget that the bailouts did return most of the money spent with interest. In fact, in some cases, it was more of a smart investment.

Re:I have a better idea... (0)

Anonymous Coward | about a year and a half ago | (#42789161)

Let Richard keep hi ideas to himself regarding the normal functioning of money making industry. he has demonstrated repeatedly his dislike for money making efforts of others.

Re:I have a better idea... (1)

emorning (2465220) | about a year and a half ago | (#42789229)

Well, 'we' did not bail them out, our 'duly elected' politicians bailed them out.

Politicians...
...that are heavily dependent on campaign contributions from the companies needing the bailing out, and
...that have close personal ties to the executives from said companies, and in some cases used to run said companies

Some rules that remove the responsibility for responsible decision making from our so-called leaders would be a good thing.

Extra! Extra! Read all about it! (2, Funny)

Anonymous Coward | about a year and a half ago | (#42788809)

Noted software license defiler and communist Richard Stallman urges heavy taxation and breakup of country's largest corporations!

Re:Extra! Extra! Read all about it! (0)

Anonymous Coward | about a year and a half ago | (#42789209)

What are you talking about? He's pro free software (as in libre) and helps corporations save tons of money. Plus GNU/Linux gave birth to many profitable companies.

Simply clever (2)

stooo (2202012) | about a year and a half ago | (#42788819)

Simply clever.

Re:Simply clever (1)

Anonymous Coward | about a year and a half ago | (#42788911)

At getting companies to use more tax havens, outsource and/or leave the country outright.

Stallman's a Brilliant Engineer (0, Troll)

TheSpoom (715771) | about a year and a half ago | (#42788831)

But forgive me if I take his public policy suggestions with a gigantic grain of salt. He's known to be... extreme.

Re:Stallman's a Brilliant Engineer (4, Insightful)

YodasEvilTwin (2014446) | about a year and a half ago | (#42788909)

It's a suggestion, not a claim. You don't take a grain of salt with a suggestion, you evaluate it on its merits. What are your problems with this one?

Re: Stallman's a Brilliant Engineer (0, Flamebait)

Anonymous Coward | about a year and a half ago | (#42788941)

The originator of the idea.

Re:Stallman's a Brilliant Engineer (2, Insightful)

Anonymous Coward | about a year and a half ago | (#42788937)

How about judging the idea on its merits, instead of the ad hominem technique?

Re:Stallman's a Brilliant Engineer (1)

Culture20 (968837) | about a year and a half ago | (#42788947)

He's known to be... extreme.

So were the founding fathers. Xtreme to the maX! *air guitar solo*

Re:Stallman's a Brilliant Engineer (0)

Anonymous Coward | about a year and a half ago | (#42788971)

Stallman's a brilliant engineer? Has he produced any significant piece of technology in the last twenty years?

Re:Stallman's a Brilliant Engineer (5, Funny)

Anonymous Coward | about a year and a half ago | (#42788983)

Your grain of salt is too large, it must first be split into smaller grains first.

Re:Stallman's a Brilliant Engineer (0)

Anonymous Coward | about a year and a half ago | (#42788989)

So, instead of providing any rational arguments, you go with ad hominem attack. Clever.

Re:Stallman's a Brilliant Engineer (0)

Anonymous Coward | about a year and a half ago | (#42789063)

There was a time when separating church and state was an extreme idea, too. Now we have a new corrupt power structure to break up.

Re:Stallman's a Brilliant Engineer (0)

Anonymous Coward | about a year and a half ago | (#42789125)

But forgive me if I take his public policy suggestions with a gigantic grain of salt. He's known to be... extreme.

He's not extreme, he's radical.

Re:Stallman's a Brilliant Engineer (0)

Anonymous Coward | about a year and a half ago | (#42789149)

Given the source, the phrase that comes to mind is "no kidding"?

However, the idea of taxing large companies on gross income rather than profit would also solve a lot of problems with respect to companies fooling around with offshore shell companies to ensure they get "zero profit" and pay no taxes at home. As far as I'm concerned, the general idea of taxing gross income would solve both the "too big to fail" and "zero tax if no domestic profit" issues by giving an incentive not to get "too big to fail" in the first place or forcing companies to contribute enough to government revenues that the government has some financial maneuver room to try to fix things. I would, however, set a high threshold for any gross tax on corporate revenue (i.e. maybe $50 or $100 million or something), and I would set the rate relatively low. Think of it as a "minimum tax" -- either you're paying it on gross, or you're paying it on net income. So, go ahead and offshore all your profits, but if you've got $100 million in revenue, yes, you can afford to pay some non-zero percentage in taxes. At least, your business plan better factor that minimum tax into the equation.

Re:Stallman's a Brilliant Engineer (2)

clifyt (11768) | about a year and a half ago | (#42789217)

Of course he is extreme. He is a programmer that somehow thinks he can dictate morality if someone wants to use his programs.

And now he has decided that even without a degree in economics, a basic understanding of capitalism, nor of normal human interaction...that he can fix society.

Even if he were right, he has no credibility in this world and as such, is spouting nothing but the most simplistic jargons and hoping it sticks. We all do that. I talk with my friends about how to fix the economy all the time...however, I'm quite certain if someone were to post my rants to the world, I'd be rightly be given the same criticism as I gave him above.

This is before throwing out personal attacks like Toe Fungus Eater. I'm certain most of us have done something disgusting, but the man has so little understanding of how others work that he does so in public, while on stage, while the cameras and spotlights are on him...again, I'm certain MOST of us have done something equally disgusting, but we know what is not good taste and wouldn't do it in public with tens of GNU fans watching. These sorts of things happen with him time in and time out, and thus his knowledge of how humans interact -- which is all business is -- is suspect. Again, I'm not attacking him for this...we've all done something like this to one extent or another. He just don't know its wrong (or at least decided to be wrong by society).

The man is both extreme and not credible.

please stallman (3, Insightful)

Anonymous Coward | about a year and a half ago | (#42788847)

Ugh, this read like a computer law proposal from an old senator-- This, is completely out of his areas of understanding.

How about this: (1)

Anonymous Coward | about a year and a half ago | (#42788855)

Give stockholders the power to execute executives who they find to be committing control fraud, along with those responsible for oversight who aid and abet them (government regulators, board of directors, contracted accounting oversight, etc).

Re:How about this: (0)

Anonymous Coward | about a year and a half ago | (#42789105)

How likely is that to happen, given that the biggest stockholders are usually pension and hedge funds? They are not likely to want to deal with the financial fallout.

Make every employee a seperate company. (0)

Anonymous Coward | about a year and a half ago | (#42788861)

I am Seven of Nine, Tertiary Adjunct of Unimatrix Zero-One.

Frosty (-1)

Anonymous Coward | about a year and a half ago | (#42788875)

Posty

Sherman Act (4, Insightful)

Anonymous Coward | about a year and a half ago | (#42788877)

Or one can simply use the current Sherman Act (in US) as it is currently written. The tools for trust busting are already there, there's simply no will to use them.

The greatest enemy to capitalism are the capitalists and the tendency for consolidation. If you want to keep capitalism healthy simply make sure there are plenty of capitalists.

How to Address "To Big To Fail" (0)

Anonymous Coward | about a year and a half ago | (#42788883)

In order to truly address "to big to fail" corporations is to let them fail. No business is "to big to fail". If it makes poor decisions and ends up facing bankruptcy, let them go bankrupt. That is part of the healing process. That results in businesses that grew to big to be broken up. No need to mandate such breaking up, they will do it themselves once they realize that the government isn't going to bail them out.

Should have been part of the bailouts (4, Insightful)

h4rr4r (612664) | about a year and a half ago | (#42788889)

The banks should have been broken up as part of the bailouts. No need for any complicated new tax codes.

Re:Should have been part of the bailouts (0)

Anonymous Coward | about a year and a half ago | (#42789145)

The banks should have been broken up as part of the bailouts. No need for any complicated new tax codes.

They had to be consolidated to save them. Yes, that made the situation worse for the future. But, it was either that or a depression.

Re:Should have been part of the bailouts (1)

Mistakill (965922) | about a year and a half ago | (#42789151)

Agreed, break up the banks, though... do bring in a new tax code. It should fit on one or two pieces of paper, and say Companies pay X% tax... the end

Re:Should have been part of the bailouts (1)

jbeaupre (752124) | about a year and a half ago | (#42789215)

Easier would be to require better capital ratios as banks get bigger. This fixes the problem two way. They are less likely to fail. And they are more likely to break themselves up in order to achieve better returns on capital.

Don't forget the little guys... (1)

Anonymous Coward | about a year and a half ago | (#42788917)

...at the top. Those executives certainly earned their big million dollar bonuses when the bailout was needed.

increase inflation (0)

Anonymous Coward | about a year and a half ago | (#42788919)

Problem solved, any money they hold on too would be useless, so it's becoming a better choice to reinvest again.

Would require a president with guts, and might do something about that pesky debt the us has, too..

Re:increase inflation (1)

vlm (69642) | about a year and a half ago | (#42789191)

That would explode the interest rate on loans, absolutely cratering real estate prices.

Even worse unless you simply give up on the debt, as the short term notes come due, you need to refinance at the new 20% interest rate, which means the fedgov implodes once interest payments exceed any theoretically possible revenue. Of course we're already bankrupt right now, so facing that fact isn't the real problem, but with political types all that matters is appearance, so the policy would get the blame, even though its just a shoot the messenger thing. If you mean "do something about the debt" as in repudiate it, yeah we could try that for sure.

Someone with more forex experience would have to speak to that. I think a high interest rate / high inflation situation in the .us would have a pretty strange effect on the .jp economy, probably insta-collapsing it. Which is going to happen inevitably anyway. I'm not sure if its been long enough since WWII to eliminate nationalism from .de and .jp, but we could be fighting WW2 again. This time they'd probably win. Not sure if that's necessarily bad.

Better Idea (1)

Anonymous Coward | about a year and a half ago | (#42788929)

How do we make the idea better? Throw it out.

Let the businesses that mis-manage their risk fail. This will send a very loud and clear message to the rest of the market that we won't pick up after those that should fail. And consequently, those in the market will begin to manage their risk better..

Good! (0)

Anonymous Coward | about a year and a half ago | (#42788933)

If a company would rather cease all business in my country than make some decisions that benefit their customers, I dont really want them doing business in my country.

To big to fail? (0)

Anonymous Coward | about a year and a half ago | (#42788945)

Then it's also too big to exist.

Do what the UK did (0)

Anonymous Coward | about a year and a half ago | (#42788953)

When the British banks were bailed out the UK government took substantial control of them. The bail-out money was effectively buying shares in the businesses they were bailing out. This allowed them to then make decisions that those companies may not have made on their own (such as RBS not paying out dividends to shareholders).

Might not work as well in countries where the government is largely corrupt (as large corporations could easily influence the government anyway).

My simple solution (4, Interesting)

nedlohs (1335013) | about a year and a half ago | (#42788959)

Don't bail them out. Don't let them fail and have the knock on effects take down half the economy with them.

Instead if they get to the point that they need a bail out they are nationalized. The share holders get *nothing*. The bond holders get *nothing*. The board and C?Os get a grand jury/under oath senate hearing/SEC/whatever investigation and the book thrown as them. The government does the splitting up and selling off over time (so no fire sale) to divest.

Sure that sucks for people who have pensions/401ks/IRAs/etc invested in those entities (directly or indirectly). But if it's the predetermined outcome upon "failure" then everyone involved knows this going in and should be factoring that risk into the price they're willing to pay and allocation size they are willing to make.

And yes the government is still effectively bailing out the next level down (that's how the knock on effects are being avoided).

Re:My simple solution (0)

Anonymous Coward | about a year and a half ago | (#42789131)

So you are suggesting bond holders get no priority over share holders and have the same risk with a fraction of the reward?
I guess you hate old and retired people who generally have all their investments in bonds as opposed to stocks. Why do you hate retired people so much, and why should the government get their bonds and money from the sell off of the company instead of the bond holders?
Once it is a crime to run a business badly, as you suggeset, no one in their right mind would EVER open a business in the US.

So you have basically said, no investing in non-public companies, and don't base your company in the US or you will eventually go to jail. I think you may have managed to come up with a worse way to run the economy than the current White House. That is no easy feat, you should be proud!

Re:My simple solution (1)

Ralph Spoilsport (673134) | about a year and a half ago | (#42789231)

Why are you such an idiot? Just convert the bonds to Govt Bonds. Gee that was easy.

take over? (0)

Anonymous Coward | about a year and a half ago | (#42788985)

How about the government just takes over the company that failed? There's reason to destroy the company, but it surely doesn't keep existing under normal capitalistic conditions.
1) Bail out.
2) Take over.
3) Make the money back with less risky business.
4) Sell company ten years later.
5) Profit.

Simple solution (1)

tvelocity (812600) | about a year and a half ago | (#42788999)

Just don't bail out any "too big to fail" corporations. Use the same funds to bail out the people (with minimum income policies; there are actually some quite realistic implementations of the idea, such as Friedman's negative income tax proposal, or the Pirate Party's uncoditional minimum income policy). This way you let the economy and employment restructure itself, without causing suffering to the actual population that make up the economy.

Uhm - what's new? (0)

Anonymous Coward | about a year and a half ago | (#42789001)

So, basically how is that different from what we currently have? Companies are supposed to pay corporate taxes, employment taxes, and whatnot other taxes, which are generally expressed as % of revenue, which so happens that usually scales with size.

How about instead of this, IRS stops giving them waivers to export IP outside of US so they can avoid the taxes we already have in place? The problem is not in the lack of taxes - it's in the legal holes in the tax law big enough to drive a Godzilla through.

Novel solution, but not the right one. (4, Interesting)

Anonymous Coward | about a year and a half ago | (#42789009)

The theory sounds great, but this won't work in practice. Why? Simple.

Corporations pay ZERO taxes. Period. If you disagree with this, you don't fully understand the system. While there is in fact a corporate tax rate/code, it doesn't matter. Every corp either 1) hides their revenues offshore, usually through Ireland and other European subsidiaries or the Caymens, or 2) PASSES THE TAX ON TO THEIR CUSTOMERS in the form of higher prices.

So either you pay via prices going up... or you lose because that money is now held overseas. Oh, and both of these systems are insanely regressive/repressive vs. small corporations & startups; they don't have the national presence to hide, nor do they have millions to pay crack tax teams to squeeze through loopholes. Option #1 out the window. Option #2 is problematic; they can raise their prices but then customers often flock to a lower priced competitor exercising option #1. This is how many, many startups die; they produce excellent product at reasonable prices but are eviscerated by regulations and tax codes bought and paid for by their multinational brethren, for the sole purpose of ensuring no upstart gets off the ground and actually competes.

We can argue about how things SHOULD be, but the above is a stark and accurate assessment of how things ARE, and we have to live and work in the real world. Stallman either does not realize this or chooses to ignore it and operate in a utopa.

You want a real solution? Eliminate the corporate tax code entirely. Then the money stays at home, and you implement the Fair Tax. That's a national sales tax which replaces ALL forms of federal taxation in favor of a tax on consumption. It's made non-regressive via a pre-bate.

tax code issues (1)

Mr. White (22990) | about a year and a half ago | (#42789017)

If this gets implemented, all of the sudden we will find out that all of these mega banks are making peanuts in net income, just as we found out that Apple pays 1% tax rate and Romney pays a mystery very low tax rate that we are not privy to know exactly.

Regardless, when we are dealing with multi-national corporations, do we want to punish them or do we want to help them? A lot of people want to punish them without realizing that they are punishing themselves in the end.

Do we want NYC and our country to be the center of big banking - providing tons and tons of high income banking jobs - or do we want to give that up to London and Hong Kong because they offer a better working environment to these MNCs?

Re:tax code issues (0)

Anonymous Coward | about a year and a half ago | (#42789169)

"providing tons and tons of high income banking jobs"

providing a few high income, tons and tons of minimum wage banking jobs

there, fixed that for you...

banks aren't there for their customers, they are there to rob you blind.

Scrape the idea (5, Interesting)

Arthur B. (806360) | about a year and a half ago | (#42789019)

First of, the economy isn't a machine, it's organic, and this engineering approach generally fails. Companies react to regulation, and regulation itself is the result of government, another organic entity. When this type of laws are enacted, the first thing that happens is that concentrated business interest will make sure they actually benefit from the regulation. It can take many forms. Maybe some corporations will be grandfathered in and therefore manage to keep at bay competitors who can't reach a competitive size, maybe the law will have exemptions that only politically connected firms can obtain. It's misguided to push for a law without taking into account the way it will be distorted by the political process. Contrast this to the viral - hence organic - approach the GPL took.

Second, too big to fail is about the systemic risk that some financial firms exhibited. Walmart is big, Google is big, but they're not too big to fail in the sense that their failure wouldn't particularly cause havoc. If Walmart fails, many different sellers can buy the stores and keep supplying them with goods. In the case of financial companies, the argument went as follow: if a bank fails, many other financial companies may be in trouble if they hold financial instruments whose collateral ultimately is guaranteed by that bank. Unfortunately, it can take a long time to sort out who is really it, and during that time, it becomes very risky to lend to anyone, for fear that they might be exposed to the failing institution. This in turns cause more financial companies to fail in a domino effect. That's the theory at least. I don't know if I buy it, but at any rate, it makes the case that the banks were too heavily interconnected to fail, not too big. Columbia professor Rama Cont has suggested that the solution to this problem is to emphasize clearing houses to bring in transparency in who holds what.

RMS... (0, Troll)

X86BSD (689041) | about a year and a half ago | (#42789023)

Just stick to being a smelly unkempt hippy and STFU about shit you know nothing about. Kthx!

RMS's idea is not about risk mitigation or banks (4, Insightful)

darkeye (199616) | about a year and a half ago | (#42789027)

RMS's idea predates the latest bank bailout era with many many years. his idea was not inspired by 'too big to fail' at all. his idea is simple a mechanism to make sure there are fewer big companies - and only in cases where a larger size is indeed increasingly profitable, so that it's still worth to have the larger organization which has to pay more taxes because of its size.

RMS's experience is simply that 'large entities' don't behave in a 'good' manner, and thus there is a clear advantage to society of having fewer of them.

Erm... (0)

Anonymous Coward | about a year and a half ago | (#42789045)

However, businesses can’t pass the entire amount along to customers if they pay different tax rates. If a large company pays 5 percent and a competing small company pays 1 percent, they could both pass along 1 percent but no more. The owners of the large company would have to pay the other 4 percent – which is exactly what might convince them that splitting up is desirable.

Most Linux distributions don't pay anything for developers. Most people running Linux pay nothing for it. There are exceptions - RedHat, SuSE - but by and large, if you want Linux, it's free. As in beer.

Meanwhile, Microsoft pays tens of millions of dollars, if not more, in salary to its developers to produce Windows. Windows isn't free as in beer. People buy Windows. People buy Windows a lot. Less since Windows 8 was released, but people are still even paying decent sums of money that flaming wreck.

If companies with different costs - even different tax costs - weren't able to pass those costs along to consumers, Windows would be free as in beer. So would OS X. So would Solaris. So would every operating system, by virtue of Linux being free as in beer.

Of course, that isn't the case, because you can't make a ridiculous assumption and reduce the complexities of markets down to an incorrect assessment of customer-facing prices.

Companies will always pass their costs along to the consumer, whether those costs are salary, R&D, or taxes.

Somewhat circular (2)

eksith (2776419) | about a year and a half ago | (#42789049)

He acknowledges that splitting up a company will take a lawsuit and that will be costly E.G. Microsoft, but then at the same time says the solution is to tax them heavily... Which will still require changes in law and will still be blocked by the banking lobby and we're back to square one again. The problem will still be that banks are currently too big period.

Every apex predator of the past that ever ruled at the top of the food chain was brought down by something other than an overwhelming number of pray animals. For the dinosaurs, it was drastic change in the environment (climate and/or meteorite, take your pick), for the European jaguar it was more than likely climate change and for sabre tooth tigers it was probably humans. The bottom line is that something other than within the system must influence the status quo to make "too big to fail" no longer hold true.

Stallman's proposal is still within the system, that being congress and law, and the system is setup to prop up the current apex predators (banks, MPAA/RIAA, Big Pharma etc...)

For banks, I can see a sudden dumping of embarrassing records or a chain of whistleblowing that will make avoiding criminal prosecution Enron style, impossible to avoid. I don't know if there's already an investigation going on (I doubt it), but since all the Occupy protests didn't so much cause the feds to blink, I doubt that's an avenue with results.

So..... Big companies are bad? (0)

Anonymous Coward | about a year and a half ago | (#42789057)

What he is proposing is returning to a 18th century style economy....except we have robots...

The advantage that big companies have is that they can leverage scale to gain efficiency. Cheap products are produced that are used by smaller companies to create greater wealth in a way that was impossible before. (think computer industry, and think automotive industry) Forcing companies to break up once they making some profit is asinine, because it could prevent the next economy from being born.

I think that we just need to embrace creative destruction let companies fail and make it easy for new ones to take their place, work towards a more educated/flexible workforce.

I want the USA to remain on top for my own selfish reasons, and I am not convinced that splitting up of multinational mega corps would help us out, because for many industries they provide the low cost backbone that makes the rest of the economy run.

Best way to improve this idea: forget it (1)

Anonymous Coward | about a year and a half ago | (#42789061)

RMS is a brilliant software engineer. That does not make him brilliant---or even competent---in economics.

Obligatory SMBC: SMBC #1776 [smbc-comics.com]

Belling the cat (0)

Anonymous Coward | about a year and a half ago | (#42789071)

It's like the fable of the mice who decided that making the cat wear a collar with a bell elegantly solved the problem of random predatory forays.

Yes the idea was truly elegant... and worthless.

Or The Punishment Could Fit the Crime (5, Insightful)

rmdingler (1955220) | about a year and a half ago | (#42789077)

You can say what you will about the War on Drugs. If I decide to parley some jars of loose change into the highly lucrative cocaine distribution market, I stand to make a market-torching return on my initial investment. The reason I pass on this incredible business opportunity is because in the event I become indicted, there's a very real chance the unborn grandchildren will be grown & gone before I come up for release. As long as white collar mega-crime is punishable by a maximum 50 lashes from a wet noodle, there is no negative incentive to modify their collective behavior.

This would force big corps to flee the US (3, Insightful)

smug_lisp_weenie (824771) | about a year and a half ago | (#42789079)

RMS' idea sounds kind of neat, but it suffers from a fatal problem: All that happens when you force crazy high taxes onto big companies is that they leave the US. This is exactly what's happening in France right now, with their recent tax reforms.

The correct solution, as others have already pointed out, is to simply let these companies fail. Funnily, the "experts" who said "if we let Citibank/MorganStanley/etc fail society will turn into a Mad Maxian nightmare where we'll all be forced into cannibalism" are the exact same people who would have lost a lot of money without a bailout.

RMS should stick to his day job (1)

sirwired (27582) | about a year and a half ago | (#42789083)

The companies most responsible for imperiling the financial system have relatively low revenues (but large, highly-leveraged assets.) Large companies whose collapse wouldn't endanger a damn thing like commodity businesses would be punished. (If, say, Exxon, were to go bankrupt, they have plenty of "hard-dollar" assets that would be eagerly scooped up by somebody else with little to no disruption to production.)

Already been tried (1)

Anonymous Coward | about a year and a half ago | (#42789091)

We called it the monopolies commission. The term monopoly apparently doesn't mean a lack of competition anymore.

This tax idea would just get redefined over time too.

Break the link between business and government. That should hold them off for a while.

First things first? (1)

Anonymous Coward | about a year and a half ago | (#42789097)

The problem with taxing a company's gross income is that it just causes the company to raise prices so that, after taxes, it makes a profit. It would be more rational to tax the profits, the difference between earnings and expenses. This is the money that mostly/normally gets distributed as dividends to stockholders. One could now argue that the company would just raise prices so that the amount of dividends paid would still be the same as before such a tax was put in place. The implication is that perhaps companies shouldn't be taxed at all in order to keep prices down --only their stockholders should be taxed, per individual income taxes. And if that last thing isn't being done fairly enough [patch.com] , well, then, perhaps that is the thing to fix!

Do what you do best (0)

Anonymous Coward | about a year and a half ago | (#42789101)

How is Stallman even qualified to make an economics suggestion like this? I'd have thought he would advocate decentralized electronic money [wikipedia.org] .

He had a brilliant solution to the problem of overly restrictive software - something with no head to cut off, with no need for new laws. Let's run with that, instead of what will inevitably degenerate into a half-assed feel good gesture, neutered by deductions and exemptions.

RMS is a walking contradiction (0)

agm (467017) | about a year and a half ago | (#42789113)

RMS wants software to be free, but is happy for people to be enslaved by the state. That's a massive contradiction. I would have thought his philosophy on software is very much aligned with libertarianism, yet his political discussions suggest otherwise.

How can you want software to be free and not people?

Might work for Financial Institutions (1)

Anonymous Coward | about a year and a half ago | (#42789115)

Financial institutions can get too big to fail. And this seems like a potential resolution for financial institutions.
These companies are very leveraged, and just one of these can bring down many others, and eventually the whole economy.
And IMO taxes should always be taken out to alleviate the problem they are trying to address. So the taxes should go to something like the Federal Reserve for handling contingencies.

But other large companies I think should be handled on a case-by-case basis. Any single company that would go bankrupt, would hardly effect the unemployment rate. But a financial catastrophe could send it soaring.

Unholly Partnership (0, Flamebait)

BoRegardless (721219) | about a year and a half ago | (#42789123)

Pass a failed law: Go to Jail. Politicians need to have fear of jail. Obamacare would have never ever passed.

What is missed is that "when you are to big to fail", you got that way by hiring ex-politicians, using lobbyists and donating huge sums to politicians in return for writing favorable laws.

In return politicians want "a return", so they put rules on things like the banks in order to satisfy their political party or favorite group.

The Community Reinvestment Act was obviously at the root of the MMM (mortgage meltdown mess), but we don't see any laws making politicians go to jail for having voted for that law and then failing to eliminate or restructure it when it was known it was going out of control.

To make this better.. (0)

Anonymous Coward | about a year and a half ago | (#42789127)

since the biggest problem is that large corps will migrate out of the US, we must incorporate this policy globally, and enlist a force of "tax collecting" mercenaries to make sure we gets our dough.

Too many and small to fail (1)

LaggedOnUser (1856626) | about a year and a half ago | (#42789153)

In our current downturn, we are familiar with the failure of a few large banks. However, in the Great Depression, what they experienced was the failure of a large number of smaller banks (more than 10,000 banks went out of business between 1929 and 1933, according to http://www.econreview.com/events/banks1929b.htm [econreview.com] , contributing to the depression). Merely breaking up banks does not guarantee that they will succeed, particularly during a widespread economic failure. Instead of "too big to fail", you have "too many and small to fail", but it's really no great improvement. It actually makes it harder to assist the individual banks, even if you intend to do so.

Sorry, Stallman must be one the crack (0)

Anonymous Coward | about a year and a half ago | (#42789173)

First of all, just quit bailing them out, period. End of story, really.

However, this would create a huge loophole that would incentivize something that already happens... if they decide to split up, the execs will create a smaller version of the company with all of the "good stuff" that is sexy and profitable and spin off unprofitable segments into other companies.

In other words, Stallman is off his rocker and needs to quit trying to be a philosopher can focus on coding kernel stuff or retire.

Concerning (0)

Anonymous Coward | about a year and a half ago | (#42789179)

The two big problems with the idea strike me as being:
1. Companies will either find loopholes to hide their size or move overseas, much like big companies already do in order to avoid higher tax rates.
2. Taxing gross income instead of profit means companies are punished for reinvesting in themselves and their workers. This plan basically encourages companies to try to keep has much of their income in the bank as possible rather than re-investing in infrastructure, employee benefits, etc. Responsible companies would be punished and have a harder time paying their taxes while greedy companies would have a (relatively) lower tax cost compared with their profits.

Gross receipts tax is a Good Idea (TM) (1)

Overzeetop (214511) | about a year and a half ago | (#42789181)

Gross receipts tax is idea for running a country. There are several embedded things is does:

(1) It penalizes those who add little or no value in the supply chain
(1a) and those who filter through shell corporations to hide money or sheild liability
(2) It rewards local suppliers and short supply chains
(3) It levies cost based on volume of goods and services, not on profit
(4) If you can keep your God damned hands out of the "exclusions" pot, everybody pays and its much harder to hide the money

Almost nobody in business bases their fee on fee percentage on your profit, which should the defense of your assets (both through law and military) be based on it? It should be a cost of doing business, not some penalty for being efficient. And unlike a tax on profits, which starts out with a whole laundry list of exemptions for "allowable expenses," there's no need to put exclusions in the tax law.

Having a sliding scale would be okay, but it should be no more than a factor of two top to bottom imho.

Stallman is wrong. (0)

Anonymous Coward | about a year and a half ago | (#42789185)

'We tax a company’s gross income,...

Revenues: 1, 0000, 0000

COGS: 1,000, 0000

Gross Income: 0

That's not too hard following GAAP.

Good with taxing zero.

Makes some sense ... It would need a trade treaty. (0)

Anonymous Coward | about a year and a half ago | (#42789197)

I think this would need some tweaks at the international trade treaty level, so it was seen a competition-neutral, but I like the idea in principal.

Big dominant companies are inefficient from a theoretical point of view since they can make their whole market smaller because it is less efficient (even if the one dominant company could gobbles up most of that market safely). This should eliminate a lot of systematic risk or at least potentially collect revenue to offset the risk. There is still the problem that government is not a bank. It can't really 'save' money for a rainy day. This is why some might want to run up the debt _while_ cutting. Its a double threat. Cut taxes too much and that increases debt this makes more cuts more likely later. The government needs to be able to go deeper into debt when times are bad. It can't keep money out of the economy for a rainy day.

It might be possible to get a trade treaty focused on tax collection signed like this. Lots of governments lose a lot of money through tax off-shoring-income-games. This be seen as converting lack of taxes paid to tariffs in the name of the greater good of financial stability.

However, it is possible lots of small players would also still have a lot of systematic risk because they took roughly the same bets. I think one part of the solution might be to require fixed compensation for all financial analysts. Perhaps make it like working at the post office. Take a test, be placed, get paid according to seniority. Perhaps, one could approximate that by taxing funds relative to the amount they paid an average employee (total compensation including all bonuses) or the amount of transaction fees or annual fees required.... Essentially rewarding on short term performance is real problem. No matter what, obviously its an international problem one can't just impose a law in the US.

How can this idea be made better? (1)

Ralph Spoilsport (673134) | about a year and a half ago | (#42789201)

Easy. Socialist Revolution. String the bastards up and stop industrialism before it completely kills the planet.

Not just a solution to "too big to fail" (0)

Anonymous Coward | about a year and a half ago | (#42789213)

Breaking up companies isn't just a solution to "too big to fail" syndrome (though it could help with that too). It's also a good check on monopoly power, such as the way it worked on AT&T. Imagine if Microsoft in the 1990s were multiple companies: an OS developer, an office-suite developer, a development-tools developer, etc. Or if modern Apple were a phone maker, a computer maker, and a media distributor. Look at today's consolidating media conglomerates for more examples. And the banks.

The "moving our headquaters" gambit (4, Interesting)

swb (14022) | about a year and a half ago | (#42789225)

Part of what taxes -- and especially taxes on businesses -- pays for is their participation in a Rule of Law society.

This means you have access to an independent court of law for adjudication of claims against you and claims you may make (especially important when you rely on intellectual property), a civil and military security force to protect your physical assets and employees from harm, and a transparent law-making regime you may lobby to see your interests are represented.

I'm just fine with companies moving, but I'm just as fine with not allowing them to participate in the benefits provided by a Rule of Law society. Feel free to relocate to the third world and feel just as free to see how well the Cayman Islands or Lichtenstein or some of these other tax-dodge nations can protect your global shipments or your factories or your intellectual property.

There's only a small handful of countries able to provide a Rule of Law society and they should band together via treaty to inhibit transnational games and tax dodges.

What about Europe (1)

gelfling (6534) | about a year and a half ago | (#42789233)

France, specifically where most of the large companies and industries are owned in part or in whole by the French government? Seems like you're putting a statist barrier in place to lead the way for mass nationalization of everything. And we've already seen where the CCCP wound up.

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