Businesses, banks, stockbrokers, insurance companies, car manufacturers have all failed this year but been bailed out by the federal government. These businesses are so big and so important that they were judged “too big to fail” since their failure would so damage the U. S. economy as to be irreparable. Not true.
Failure is not pleasant for those who failed but failure should not be condoned or encouraged. Goldman Sachs just reported record profits after receiving billions from the federal government. Having depleted their own assets, Goldman turned to the federal government and received billions for the sale of its worthless stock. Now Goldman wants to buy it back its worthless stock so it can pay out billions in bonuses to the same architects who created their failed business model.
When a large company is not bailed out or a bank is not too big to fail, it is liquidated. The shareholders, the ones who should have been watching the books and weren’t, take their hit. Masking those losses or hiding them through bailouts is not good for our economy.
Failed business models should not be emulated or repeated. Trustbusters should be breaking up big companies into smaller, more competitive companies that will not repeat these errors. Shareholders will be more vigilant and manage their companies more effectively and more profitably. Bad management is instead rewarded, compliments of the U. S. government.
Banks, who refuse to participate in the economy or lend to consumers and businesses but instead simply hoard their capital, should go out of business. How many times do we have to beg the banks to lend the billions we have given them?
Big banks have shut down SBA loans. Small business always has been and always will be the means of economic recovery. But, bankers who are taking care of bankers, not their clients, are starving small business. If a bank received billions from the Fed and refuses to loan to small businesses under their guaranteed programs, remove their charter to receive insured deposits.
A first year economics student knows that you cannot spend your way to prosperity. The U. S. government needs to relearn that lesson. Congress continues to pile up billions and trillions in our combined federal debt. Federal spending may delay the inevitable but cannot stop economic reality. No government can stimulate an economy to success. Only consumers can do that and consumers today have, with justification, lost faith in the federal government and in big banks and businesses.
It is time to go back to basics. If a big bank fails, other lenders that are more efficient will step up. Investment seeks a fair return and selling money is no different. Big banks undercut the small community banks today with political clout (bought with our money) just get to cover their losses. Big banking is not better and this philosophy of “too big to fail” simply masks failure of a business model that wiped out generations of bank investors. For real change, it is time to change the business model.
Bankers, in secret, with unlimited federal treasury’s funding, regulate banks. That is too much power in the hands of the same folks who created this economic catastrophe. The Federal Reserve System is a revolving door for the rich and powerful to take care of the rich and powerful. The Fed does not take out bad bankers. The Fed does not go after CPA’s who lie about the banks’ balance sheets. The Fed today advocates and uses that same failed business model and defends it with an explanation that the favored bank is “too big to fail”. The Fed wastes billions of citizens’ funds.
Bankers have proven their lack of good faith, their inability to be trusted. Rewarding thieves grows more thieves. Financing new cars, knowing that the car they are financing is underwater by 20%, 30% is participation in bank fraud. Bernie Madoff would be proud. The innocent consumer borrows more than the car is worth at higher rates to fund the cash back that puts each car loan in bankrupt status.
Congress refused to protect Americans from pirates in the legislation to “reform credit cards”. The real problems in credit card debt are usury laws preempted by federal government. Put usury back under each state’s jurisdiction and you instantly make it unprofitable for big banks to rip off more credit card consumers. Preempting usury laws allows the federal government to continue empowering thieves in silk ties.
Fannie Mae and Freddie Mac must be sold to the highest bidder. They failed. Real housing economics would be our reward. Those with capital at risk will protect it. FHA and VA would go up in use. The housing economy will work better without “too big to fail” lenders with out of date economic models and government bailouts.
Recently, a client was declined for an 80% conforming Fannie Mae multifamily mortgage. The loan’s debt service coverage exceeded their requirements; loan to value was below their requirement, in fact all the written terms of the Fannie Mae multifamily guide were met.
Why was the loan declined? The president of one the largest, national multifamily lenders told me that Fannie Mae has an unwritten rule that the net worth of the borrower has to exceed the loan amount. Unwritten rule for a government funded lender? That is insane. Have they learned nothing?
Think about the economics of that rule. If no borrower can borrow from Fannie Mae more money than they already have, would any loans be made? Well, yes, but only to “too big to fail” companies with government money. Can the housing economy survive this economic foolishness?
No wonder housing is in trouble. One silly Fannie Mae rule can stop millions from buying new apartments or enlarging their portfolios. Kill the arbitrary and dumb economics of a failed giant and distribute the parts to lenders who want to lend. Then we will get a housing recovery.
Many “too big to fail” institutions outgrew their integrity and capacity to operate in their shareholders’ interest or the public’s interest. These companies are captive of management that benefits in the millions regardless of performance. Let’s return to simpler times when big was not better but instead handled by trust busters who broke up big companies that abused their economic power.
Does America want economic change? Then let us stop claiming that companies are “too big to fail” and instead accelerate the liquidation of the ineffective and uneconomic. Then our economy can return to a true economy, not masked by lies on balance sheets and sweetheart deals for Wall Street insiders and their governmental pets.
Our economy is bankrupt with inefficient banks, ineffective auto manufacturers, and unprofitable insurance giants. Change the system and take out those failures who have not earned the right to be American businesses competing in a thriving economy.
Consumers are smart. They smelled this scam a mile away. So, wise up Washington. Our economy will be better off without these leeches. There is no company that is too big to fail.