Center for Ethics and Leadership

Wednesday, September 17, 2008

Financial Messes and Corporate Welfare

I'm going to rant a little on this one. How do these billionaire high-fliers get bailed out by my government? Even if the Treasury covers the losses with more bonds, that increases interest rates as the U.S. government borrows the available money. Free market economist Milton Friedman argued 20 years ago that there are "hidden" forms of taxation, namely, government deficits and the corresponding higher cost of money and inflation. And what will inflation be as these debts are settled? One hopes that we are not headed for the sort of banking panics that tortured the U.S. economy in the late 19th and early 20th centuries. Except that now the threatened economy is global. This last will make it tougher on poorer countries who are more financially fragile. Ironically, my doctoral students and I are currently reading Robert Greenleaf's work on servant leadership. There's none of that in this mess.

And on to corporate welfare. When mortgagees first began to default, I heard a little too much of "Well they made that choice; they have to bear the consequences, even if it means losing their homes." That good, old-fashioned American ethic of personal responsibility. So here's another old-fashioned idea: swindling. Anyone can be sold a bill of goods, especially for a purchase highly valued by society such as a home. And the big financial houses were working the other end by bundling these high-risk loans into larger packages and reselling them. So here we are. And if the government doesn't act, who knows how far Wall Street will fall? And London. And Tokyo. And Hong Kong.

We have had 20 years of this financial profligacy. Start with Michael Milken and Ivan Boesky. A couple of financial houses went down with them. (Does anyone remember Drexel, Burnham, Lambert?) Then the savings and loan scandal. Then the dot.com bust, Enron, and Worldcomm in rapid succession. Now this. And the answer? "Let's make them take an ethics course!" Lipstick on a pig.

Next time a you see a homeless person begging: think about the bigger picture.

2 Comments:

  • I'd like to address the two issues raised in this posting separately:
    First, corporate welfare - I am astounded that the firms that fail first are blessed with corporate bailouts while those that flounder later are left to suffer their fate. Perhaps the share values should be either a) reduced to zero or be b) turned over to the federal government, before loan guarantees are offered to publicly held corporations - and by the way, how about some constraints on the use of funds, like a reduction in managerial pay, restrictions on acquisitions and spin offs and the like. I fail to see how the public interest is being protected, but I certainly see a clear intent to benefit a few elites – guess it depends on one’s definition of “the public”.
    On the second issue of reconsidering the plight of the homeless - the structural and institutional biases that are involved in perpetuating homelessness probably deserve a separate and distinct discussion - I am not sure that the public benefits being granted the "haves" should color our views of some of the issues associated with the "have-nots".

    By Blogger kobe2, At September 20, 2008 11:50 AM  

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