Too big to fail, the failure of “free markets” 4

Over the past year, we’ve seen a string of banks declared as “too big to fail.” As a result they got hundreds of billions of dollars in essentially no-strings attached bailouts. In return we’ve seen them payout $20 billion in bonuses to executives that helped lead these banks to the verge of collapse. Why has this happened? Precisely because the policies of deregulation happy Republicans allowed them to.

These same “conservatives” like to cite Adam Smith and the idea of laissez faire economics. That is the idea of taking a hands off approach and letting the market find its own way. The problem is that to have a free market as envisioned by Smith, there needs to be enough players on both the supply and demand sides of the market equation to prevent manipulation by individuals. This is where Smith’s ideas have fallen apart in the modern world. Over the course of the twentieth century, corporations have grown progressively larger while the numbers of companies in many business segments has shriveled.

As that has happened, those huge businesses have taken control of the market and made it exceedingly difficult to new players to come in. Without someone to call bullshit, huge financial companies have also created a bogus economy that was built on a web of lies. By largely abandoning anti-trust enforcement over the last several decades we have allowed unprecedented consolidation to occur. The result is that institutions with far too much influence on the overall economy have developed. The combination of these over sized players and excess unchecked greed leads to stupid developments. Ultimately this is unsustainable and we have the situation we see today.

If there is one lesson that we must learn from the events of the past year it is that these huge companies should be broken up and never allowed to consolidate to this degree again. There is no reason why companies should be too large to fail. Some anti-trust regulation is a good thing regardless of what Republicans say. Will we learn this lesson? Unfortunately, probably not.

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4 thoughts on “Too big to fail, the failure of “free markets”

  • cheap hotel melbourne

    There just seems to be an overwhelming sense of confusion and helplessness from consumers all the way up to politicians. This bailout feels more like a runaway train and everyone is just resigned to the idea that politicians will somehow sort out all this mess. But if each of us would just stop and take a breather, what can be realized is that over-lobbied politicians have actually contributed to this mess.

    I’ve actually started wondering and thinking of what will happen to this runaway bailout train and how it will affect us. I would feel much better listening to a forum of economists than bankers and politicians.

  • Don

    Check out:

    On the media and America Today

    Have you ever seen yourself in a mirror that distorts the image?

    Your face is long, your eyes are huge, and your legs are really short.

    Don’t be like the mirror.

    It is better to be like the still water on the mountain lake.

    We often do not reflect things clearly, and we suffer because of our
    wrong perceptions…

    Touching Peace By Thich Nhat Hanh, Arnold Kotler, Mayumi Oda

  • Bathrooms

    A market failure is a situation wherein the allocation of production or use of goods and services by the free market is not efficient. Market failures can be viewed as scenarios where individuals’ pursuit of pure self-interest leads to results that can be improved upon from the societal point-of-view.