So today Obama imposed a salary limit of $500,000 for senior executive pay for financial institutions receiving bailout money. This does not sit well with me. His reasoning is that the American public “gets upset” hearing about these big bonuses and whatnot for executives amid a struggling economy. Fine, I can understand that but that should NOT be the government’s responsibility to delegate. That is a violation of the fundamental principles of Capitalism, damn it! If the citizens of our fine country are that outraged by these huge bonuses there is an easy solution … take your money out of their hands and take it to a bank that is more properly managed in your eyes.
This all comes back to what seems to be an ever-growing problem in the United States - no one wants to take any responsibility for their actions. “Oooh, these executives are getting too much money - government, go make them stop, I don’t like it but I don’t want to do anything about it myself.”
Is anyone looking at the deeper impact that these kind of steps will take. My point of view? Pay caps lead to qualified CEOs and executives resigning for greener pastures outside the finance sector (where they can be paid) which leads to lesser experienced and less knowledgeable executives stepping up to fill the shoes. Now of course the immediate response to that is “but clearly these overpaid executives DO NOT know what they are doing and are not qualified - look how badly these banks are doing?” If that was your initial response, come on … so in recent years past when these very same executives presided over a booming economy and financial sector they pretty clearly knew what was going on, did that change? No, it is a global slip ‘n’ slide. The whole WORLD economy has slipped through various problems.
One might point to the housing crisis and over financing underqualified people. Sure, I accept that the banks should not have financed these people though they did so because other banks were doing so and to not do so would have led to a worse bottom line and gain for their competitors. Some banks did not over-extend their credit, they played conservatively, they are doing just fine - well, better - than the banks that over extended. In a sense this is the tortoise vs. the hare. Conservative banks are plodding along, they don’t get the boon from the economic expansion but on the other side of the coin they are not in dire straights with the economic bellyflop. Other banks raced forward, stocks shot up, investors profited, CEOs and executives get the payoff - the Capitalistic way, but now they are suffering through the collapse.
The huge problem here is: the government is not ALLOWING any big businesses to fail. We bail out the airlines. We bail out big insurance. We bail out big banks. We bail out big automotive. So where does that leave us? Capitalism only succeeds when businesses are allowed to fail because then and only then can the strong hares continue in their way. If there is no penalty for failure what in the incentive to “play it safe?”
We MUST allow businesses to fail.
I am not saying it is right for everyone’s pensions to disappear, nor is it right for these big fund managers to steal and embezzle or anything like that. It strikes me that a far better solution, rather than spending billions and trillions of dollars to bail out these big businesses that have failed, that the money could equally have been spent to directly help out those who lost their pensions/etc. Let these big businesses fail, move the hurt over toward fund and managements in other, more stable banks, and work some re-compensation there.
Small businesses, the keystones of the economy, fail all the time. Employees are out of work frequently and they go get another job. The same would happen if a big business failed. A successful, conservative company would come in, buy up the assets, keep production flowing, and save jobs. As a side question - where are all the bailouts for small business? My small business is in severe debt but we are growing and improving every day in a crappy economy, sure it is a struggle but it is coming along. I would wager that if the government stepped forward to save 50,000 small businesses at the same expense as one of these mismanaged or ill-surviving giants that the economy would flourish much more quickly than saving one business.
And back to the ever-growing problem in the United States … personal responsibility.
You are looking to build a retirement, sure you contribute to your 401k and if you are at the same company for 25 years you probably are limited in your corporate diversification options so that I can somewhat understand if you get really caught in just one big bank failure. How many financial advisories have you ever read saying, basically, don’t put all your eggs in one basket? Seems like an old, fundamental axiom. If you have other funds, personal savings, stock & bonds, and everything else that you personally have put aside over the years you should know better than to have everything placed in the same investments, at the same bank. No one wants to take responsibility that they should have diversified. They should have been looking at their money.
How about the housing and mortgage market? Yes, you should never have been given that loan but somehow you took the initiative and pushed to get your loan approved where it never should have been. I was in the same situation. When I closed on my house I was making $41,600 or $800 pre-tax a week, plus some tips, on paper. I should have been able to qualify for a house with a payment in the neighborhood of the 45% debt-to-income ratio level of about $1400/mo at most. I had external, undocumented income but my bank wouldn’t accept that. I had to work and work hard to push them to finance me for a loan for $335,000 rather than the $200,000 max I should have been allowed. The point to my message is that I HAD to convince them, take worse terms, “work the system” or whatever you want to call it to be allowed to sign my name for these funds.
So, where in this is the personal responsibility? Sure, the banks should not have financed me, but they did and I took on the personal commitment to incur that debt and repay that loan. That was my responsibility. If I violate that my signature and my WORD has become worthless and that is MY failing, not the banks. Blaming the banks for these problems is a cop-out of personal responsibility.
Now sure, people lose their jobs, family or other circumstances force them to move, etc and they are going to have to face foreclosure and bankruptcy as is the usual circumstance, these things happen.
However, if you are in the same circumstances as when you closed your loan and you have only lost housing value on paper you have NO recourse to call foul. You signed for the loan, bad terms or not, under the same circumstances as you currently are in. Just because your on-paper value has fallen does not mean you should get a rebate or free money because “the big mean banks took advantage of me.” No, take responsibility for your actions. Sure you may be in a poor situation where you would rather pay less, or move, or whatever, but unless circumstances dictate this it is your responsibility to maintain the commitment you signed for. No one held a gun to your head and said “you better take this loan, or else.” No, rather you saw some gain in such financing, at the time, for you personally so you took it. Now that the colors are not so bright does not mean you can back out of this situation.
Are the banks criminal? No. They are capitalists. They are playing the game and trying to thrive and beat out their rivals, they compete. Any sports fan can tell you that there is no game without a loser. The Superbowl just played out but who would have watched it if they knew in advance there would be no winner from the competition? Yay, we both win, tie! That is not competition, that is not capitalism, that is not a way to regulate an industry - you must allow for failure. (The same argument applies to innovation, take a chance or you become complacent). Where would our country be if the founding fathers had not stood up against England and the tyrannical King? There was a definite risk of failure for them and look at the nation they developed out of it? Fear and risk are fundamental and necessary.
What is criminal? I think inventing credit on a tremendous scale is criminal. The United States does not have these trillions of bailout dollars, so where are they coming from? We are not on the silver- or gold-standards any longer. There is no physical, actual backing to our dollar or this money we are inventing. It is backed by the “good faith and credit of the United States.” What does that mean? All that really means is we are bigger and have a stronger military so no other nation can come and call in their markers that we have with them. The dollar is based on credit but like my house’s value it is all “value on paper” which is NOT even close to what it is actually worth. My house, for example, in raw goods is worth a couple 10s of thousands, the fact that it is a roof to live under with running water and electricity makes it worth a little more, but I would safely say far less than half of what I bought it for. Back on point, the dollar, through this path of manufactured credit has been devalued.
Of course, granted, every other country’s economy is negatively responding to our slumped economy and soon the status quo will be re-established but by bailing out these big businesses and other entities that should rightfully have failed and been consumed by stronger competitors we are headed down the same path we are currently walking. We are laying the groundwork for our predecessors to struggle and fail to fail in the same way we are currently walking.
To end the novel (read: rant) in summary:
We are a capitalist nation. Let businesses fail. Find better and more constructive ways to save the less fortunate. Most importantly, take responsibility for your actions.