Too Big to Fail, or Biting the Hand that Feeds You

I'm reading a book, Too Big to Fail, about the financial crisis on Wall Street in September 2008. The firms that were "too big to fail" (Bear Stearns, Lehman, AIG, Merrill Lynch) did, indeed, fail.

But their complete failure was not allowed by the US Federal government and by other huge Wall Street firms such as Goldman Sachs and Morgan Stanley.

Why? Because all the firms were so inextricably intertwined through deals, counterdeals, insurance, counterinsurance, derivatives, toxic assets, subprime mortgages and all kinds of arcane financial strategies, that for one to fail would bring all of them down.

The US far-right political view of these partial rescues was that Wall Street was bailed out by the Federal government in an unfair and illegal way. "Main Street" (solid, working-and-middle-class Americans) was contrasted to "Wall Street" (greedy, thieving financial barons); the Bush and Obama administrations were villified for helping to avert or at least mitigate a world-wide financial melt-down.

This is an example of "biting the hand that feeds you." Capitalism is built on the principle that you spread risk by investing your money (your capital) in a variety of businesses, thus avoiding losing it all if one business fails. The beauty of capitalism is that this investment principle makes money available to many businesses that would otherwise not be able to operate--start-ups, small businesses with only a bit of capital, and thriving businesses that need an injection of cash to continue to grow.

Capitalism's prime virtue is that ts spread risk by spreading money--in other words, it's based on "income redistribution"! Those hateful words that sound like Socialism, the far-right's most hated policy!

But think about it--if all the rich people simply held on to their money, how could the economy grow? There must be a ready supply of capital--money--to pay for economic expansion. Spreading the money around is like spreading fertilizer around--it's good for growth!

So those far-right complainers are not capitalists at heart. They are not "real" Americans at all! And they are biting the hand that feeds them as most of them have jobs that depend on their employers being able to access capital when needed. Their employers go to--GASP!!--banks, those "evil" institutions, to get money for their businesses, so that they can pay their workers.

In short--we are all in this together, economically speaking.

The capitalist way of running an economy has produced countries with the most equally-distributed wealth known to history, especially the USA. Pharoahs, sultans and kings may have been fabulously wealthy, but their people didn't share that wealth; they lived in poverty and sickness.

For American citizens to protest the economic principles of capitalism is truly biting the hand that feeds them.

And by the way--if these far-right types are neither capitalists nor socialists, then what are they? People who put their money in a sock under their mattress? What kind of economy would that produce? A kind of Wild-West uncivilized world where everyone has to be armed and willing to shoot to protect their possessions, as there's no money to pay the police/sheriff. I don't want to live in that world!


Popular Posts