Are we Bailing CEOs?

In light of the recent credit crunch resulting from sub-prime mortgages, the federal government has agreed on a $700 billion bailout plan for these financing institutions. The idea was that when there is a credit freeze in the market, banks stop lending, businesses quit borrowing, and the economy does not grow. The fed hopes that by pumping more than $700 billion in liquidity into lending institutions the banks will ease their lending requirements and begin lending funds again.

Banks are notorious for their generous annual bonuses paid out to their CEOs and other top advisers. This bonus is thousands of times larger than the average annual American income and is on top of their overly bloated salary.

Why do CEOs of failing banks continue to be hoisted to their relaxed and cushioned seats at a steep cost to the taxpayer? Should we reward these obese fat cats of failing businesses for running their corporation into the ground?

There are easily thousands of state and local banks that are not begging for a bailout. Why not direct investors, employers, and businessmen to these smaller more stable banks? Banks screwed up big time. Why are we not demanding that they be held responsible for their inept lending practices by letting them fall helplessly to their knees and experience first hand the damage to the global economy that they have done. Instead we let them roll by in their Mercedes and BMWs while we try and put bumpers back on the Junker cars that they so generously give us.

Restraining the Beast

Basic capitalism economics state that government regulation can at times improve market outcomes. What about the rest of the time? Does government intervention really help the economy? John Stossel is an Emmy award winning author and journalist who writes mainly on consumer issues. In this editorial concerning the Federal Trade Commission (FTC) and their attempted stonewalling of the merger between Whole Foods and Wild Oats both organic supermarkets.

The FTC claims that the merger will create an unnecessary monopoly that will mean quote “higher prices, reduced quality and fewer choices for consumers.” Trade happens in a capitalistic system when two or more parties meet to exchange goods or services that will result in a mutual benefit. Why would a merger be any different?

Even a single producer in a system cannot charge what ever he wishes, he is limited by the demand of the consumers that decreases as price increases. If price is raised high enough, eventually a new producer will enter the market because of the enticing profit to be made. Once he enters, prices drop and quality goes up.

How many tens of millions of dollars taxpayer and consumer alike have been squandered away fighting the merger? Could that money not be used to increase workforce, product quality or be used to lower taxes and funnel more money into the economy? Why is the federal government wasting everyone’s money fighting a merger that would, in all likelihood, benefit the market?

Outside the FTC building is a heroic masculine male figure (government) restraining a wild mustang that as the statue describes would wreck havoc and destruction if not regulated. As far as I am concerned, government regulation and limitation to the free-market only hinder its growth and expansion. Government cannot guarantee competition and growth but it can guarantee a market that stalls and shrinks if regulations and rules choke it too tightly.