The continuing dilemma of corporate bailouts has many Americans stuck between our historic belief in the free market and our fear of painful economic collapse. Most of us reluctantly supported federal intervention during the past election, but our patience has been tested in recent weeks as one mega-corporation after another topples at the doorstep of our national treasury. It seems that there is no end to the list of companies that are “too big to fail.”
Unfortunately for American taxpayers, “too big to fail” is not merely a specious claim. The companies that have collapsed, including Bear Stearns and Washington Mutual, truly do fit the description, since they are indeed large enough to inflict economic losses perhaps greater than the cost of bailing them out. That is the real problem.
If these companies were not, in fact, large enough to severely damage our economy, then as taxpayers we could afford to simply let them fall and have the free market clean up the remains. In fact, our congressional representatives initially wanted to do exactly that, as we saw from the failure of the first bailout bill in September.
But by threatening job losses and financial impacts larger than the unaided market can absorb, the largest corporations are in effect blackmailing our entire society, extorting the ransom of large bailouts by holding the world’s economy hostage. Simply by virtue of size, companies like Fannie Mae and Bear Stearns have come to possess a dangerous and tyrannical power over taxpayers everywhere.
So far there is no evidence that any companies have used this power intentionally. However, it is quite understandable for most Americans to feel that they are giving in to economic terrorism, especially when many of the leaders who made the bad decisions have escaped from the wreckage of their crucial businesses with large personal fortunes and severance packages.
But what else can we do?
Obviously, a conscientious government must be obligated to catch the falling debris of these ruined economic powerhouses before their pieces land on and crush the millions of families who once depended on them. But, it is equally necessary, and challenging, to build up our country’s economic defenses against potential future extortion, whether intentional or accidental, by other large firms.
The bailouts currently being considered leave much to be desired in both respects. Instead of giving cash to the companies and allowing the current bailout racketeering through reckless risk-taking to remain a lucrative “business” for future corporate managers, we should spend the same federal funds – or more, if needed – to provide unemployment assistance and job retraining to employees of failing firms, while scrupulously excluding the top executives from undeserved assistance.
A few adjustments to the income and estate tax codes can help to further ensure that taxpayers do not inadvertently pay any net ransoms to the eco-terrorists for their poor management, as well as cover some of the costs of keeping the true victims afloat in our rising sea of red ink.
Once the innocent employees are safe from the messy workings of the free market, no company will ever again be “too big” to fail.
Kenneth can be reached by e-mail at kenneth.lan@asu.edu.
