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Stallman's solution to "Too big to fail"

lcam (848192) writes | about a year and a half ago

Government 1

lcam (848192) writes "Richard Stallman's opinion appears on Reuters.com addressing the "Too big to fail" view that has recently caused large corporations to be bailed out by taxpayer dollars. His solution is elegant however needs some refining, for example his measure would create a required minimum "Return on Investment" scale that corporations need to follow to be viable, these types of metrics are very industry specific. Another issue is that many large corporations don't fail because they don't take unnecessary risk; companies like Intel, Lockhead, Wallmart are very large and have a very low chance of failure and yet Stallman would have them be split up as a result of excessive risks that banks and insurance companies where seen to have taken.

And lastly, in a global market, the United States has the distinct advantage over countries like Brasil because they don't have as much government regulation/meddling that cuts into their competitively. If Stallman's idea should be taken seriously, it should not undermine competitive in the global market, else multinationals may find it better to simply "move out" to a country that doesn't compromise their business models.

How can this genious idea be made better?"

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1 comment

Intervention to coverup up intervention (1)

A nonymous Coward (7548) | about a year and a half ago | (#42789351)

Or we could just let bankruptcy take its source. "Too big to fail" never meant more than "has the politicians' money".

The entire bailout was obviously hypocritial.

Government tells fed banks (Fannie Mae and Freddie Mac) to get more poor peole into owning houses.

Government leans on private banks to loan more to poor people, which they sorta have to do anyway because the fed banks are sucking up the mortgage market.

Housing prices boom due to increased demand, and supply follows suit.

People use all that artificial equity from rising housing prices to accumulate toys and debt.

Poor people fall behind in payments; middle class can't afford the inflated housing prices either; housing market collapses.

Government doesn't want to admit the original program was a fiasco, so they blame it on the banks.

But because it is where their friends work and where they hope to work soon, they can't let the banks fail.

The government needs to bail out sub-prime mortgages. But if they bailed out the mortgage holders directly, it would keep housing prices high, no one oculd afford housing, wages would have to rise to keep pace, and that would be inflation, sooner or later requiring an even worse recession to bring it under control.

They let the mortgage market collapse, which compounds the emergency need to bail out the banks; what a handy dandy excuse!

They bail out the banks for the good of the country.

The hollowness of this whole bailout is easily illustrated by a simple thought experiment: why not bail out the mortgage holders directly? Same mortgages to buy up, same amount of bailout; it would keep the houses occupied and avoid the inefficiency of the banks as middlemen, while the banks would no longer have all those bad mortgages and would not need a direct bailout.

But that would mean helping the people directly, which is a big no-no. Gots to be filtered through the government or its cronies so they can maintain control. Can't have a bunch of ratty poor people getting bailed out for doing what the government wanted them to do in the first place -- buy a house they couldn't afford.

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