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Richard Stallman's Solution To 'Too Big To Fail'
lcam writes "A Richard Stallman opinion piece appears at Reuters addressing the 'Too big to fail' view that has recently caused large corporations to be bailed out by taxpayer dollars. His solution is elegant: 'We tax a company’s gross income, with a tax rate that increases as the company gets bigger. Companies would be able to reduce their tax rates by splitting themselves up.' However, it could use some refining. For example, his measure would create a required minimum 'Return on Investment' scale that corporations need to follow to be viable, and these types of metrics are very industry specific. Another issue is that many large corporations stay in business because they don't take unnecessary risk. Companies like Intel, Lockheed, Walmart are very large and have a very low chance of failure, yet Stallman would have them split up as a result of the excessive risks that banks and insurance companies were seen to have taken. It also has the potential to cause problems with the global market; some multinationals may find it better to simply 'move out' to a country that doesn't compromise their business models. How can this idea be made better?"
How about we just don't bail them out?
Noted software license defiler and communist Richard Stallman urges heavy taxation and breakup of country's largest corporations!
Simply clever.
aaaaaaa
But forgive me if I take his public policy suggestions with a gigantic grain of salt. He's known to be... extreme.
It's better to vote for what you want and not get it than to vote for what you don't want and get it.
- E. Debs
Ugh, this read like a computer law proposal from an old senator-- This, is completely out of his areas of understanding.
Give stockholders the power to execute executives who they find to be committing control fraud, along with those responsible for oversight who aid and abet them (government regulators, board of directors, contracted accounting oversight, etc).
I am Seven of Nine, Tertiary Adjunct of Unimatrix Zero-One.
Or one can simply use the current Sherman Act (in US) as it is currently written. The tools for trust busting are already there, there's simply no will to use them.
The greatest enemy to capitalism are the capitalists and the tendency for consolidation. If you want to keep capitalism healthy simply make sure there are plenty of capitalists.
In order to truly address "to big to fail" corporations is to let them fail. No business is "to big to fail". If it makes poor decisions and ends up facing bankruptcy, let them go bankrupt. That is part of the healing process. That results in businesses that grew to big to be broken up. No need to mandate such breaking up, they will do it themselves once they realize that the government isn't going to bail them out.
The banks should have been broken up as part of the bailouts. No need for any complicated new tax codes.
...at the top. Those executives certainly earned their big million dollar bonuses when the bailout was needed.
Problem solved, any money they hold on too would be useless, so it's becoming a better choice to reinvest again.
Would require a president with guts, and might do something about that pesky debt the us has, too..
How do we make the idea better? Throw it out.
Let the businesses that mis-manage their risk fail. This will send a very loud and clear message to the rest of the market that we won't pick up after those that should fail. And consequently, those in the market will begin to manage their risk better..
If a company would rather cease all business in my country than make some decisions that benefit their customers, I dont really want them doing business in my country.
Then it's also too big to exist.
When the British banks were bailed out the UK government took substantial control of them. The bail-out money was effectively buying shares in the businesses they were bailing out. This allowed them to then make decisions that those companies may not have made on their own (such as RBS not paying out dividends to shareholders).
Might not work as well in countries where the government is largely corrupt (as large corporations could easily influence the government anyway).
Don't bail them out. Don't let them fail and have the knock on effects take down half the economy with them.
Instead if they get to the point that they need a bail out they are nationalized. The share holders get *nothing*. The bond holders get *nothing*. The board and C?Os get a grand jury/under oath senate hearing/SEC/whatever investigation and the book thrown as them. The government does the splitting up and selling off over time (so no fire sale) to divest.
Sure that sucks for people who have pensions/401ks/IRAs/etc invested in those entities (directly or indirectly). But if it's the predetermined outcome upon "failure" then everyone involved knows this going in and should be factoring that risk into the price they're willing to pay and allocation size they are willing to make.
And yes the government is still effectively bailing out the next level down (that's how the knock on effects are being avoided).
How about the government just takes over the company that failed? There's reason to destroy the company, but it surely doesn't keep existing under normal capitalistic conditions.
1) Bail out.
2) Take over.
3) Make the money back with less risky business.
4) Sell company ten years later.
5) Profit.
Just don't bail out any "too big to fail" corporations. Use the same funds to bail out the people (with minimum income policies; there are actually some quite realistic implementations of the idea, such as Friedman's negative income tax proposal, or the Pirate Party's uncoditional minimum income policy). This way you let the economy and employment restructure itself, without causing suffering to the actual population that make up the economy.
So, basically how is that different from what we currently have? Companies are supposed to pay corporate taxes, employment taxes, and whatnot other taxes, which are generally expressed as % of revenue, which so happens that usually scales with size.
How about instead of this, IRS stops giving them waivers to export IP outside of US so they can avoid the taxes we already have in place? The problem is not in the lack of taxes - it's in the legal holes in the tax law big enough to drive a Godzilla through.
The theory sounds great, but this won't work in practice. Why? Simple.
Corporations pay ZERO taxes. Period. If you disagree with this, you don't fully understand the system. While there is in fact a corporate tax rate/code, it doesn't matter. Every corp either 1) hides their revenues offshore, usually through Ireland and other European subsidiaries or the Caymens, or 2) PASSES THE TAX ON TO THEIR CUSTOMERS in the form of higher prices.
So either you pay via prices going up... or you lose because that money is now held overseas. Oh, and both of these systems are insanely regressive/repressive vs. small corporations & startups; they don't have the national presence to hide, nor do they have millions to pay crack tax teams to squeeze through loopholes. Option #1 out the window. Option #2 is problematic; they can raise their prices but then customers often flock to a lower priced competitor exercising option #1. This is how many, many startups die; they produce excellent product at reasonable prices but are eviscerated by regulations and tax codes bought and paid for by their multinational brethren, for the sole purpose of ensuring no upstart gets off the ground and actually competes.
We can argue about how things SHOULD be, but the above is a stark and accurate assessment of how things ARE, and we have to live and work in the real world. Stallman either does not realize this or chooses to ignore it and operate in a utopa.
You want a real solution? Eliminate the corporate tax code entirely. Then the money stays at home, and you implement the Fair Tax. That's a national sales tax which replaces ALL forms of federal taxation in favor of a tax on consumption. It's made non-regressive via a pre-bate.
If this gets implemented, all of the sudden we will find out that all of these mega banks are making peanuts in net income, just as we found out that Apple pays 1% tax rate and Romney pays a mystery very low tax rate that we are not privy to know exactly.
Regardless, when we are dealing with multi-national corporations, do we want to punish them or do we want to help them? A lot of people want to punish them without realizing that they are punishing themselves in the end.
Do we want NYC and our country to be the center of big banking - providing tons and tons of high income banking jobs - or do we want to give that up to London and Hong Kong because they offer a better working environment to these MNCs?
witold.org
First of, the economy isn't a machine, it's organic, and this engineering approach generally fails. Companies react to regulation, and regulation itself is the result of government, another organic entity. When this type of laws are enacted, the first thing that happens is that concentrated business interest will make sure they actually benefit from the regulation. It can take many forms. Maybe some corporations will be grandfathered in and therefore manage to keep at bay competitors who can't reach a competitive size, maybe the law will have exemptions that only politically connected firms can obtain. It's misguided to push for a law without taking into account the way it will be distorted by the political process. Contrast this to the viral - hence organic - approach the GPL took.
Second, too big to fail is about the systemic risk that some financial firms exhibited. Walmart is big, Google is big, but they're not too big to fail in the sense that their failure wouldn't particularly cause havoc. If Walmart fails, many different sellers can buy the stores and keep supplying them with goods. In the case of financial companies, the argument went as follow: if a bank fails, many other financial companies may be in trouble if they hold financial instruments whose collateral ultimately is guaranteed by that bank. Unfortunately, it can take a long time to sort out who is really it, and during that time, it becomes very risky to lend to anyone, for fear that they might be exposed to the failing institution. This in turns cause more financial companies to fail in a domino effect. That's the theory at least. I don't know if I buy it, but at any rate, it makes the case that the banks were too heavily interconnected to fail, not too big. Columbia professor Rama Cont has suggested that the solution to this problem is to emphasize clearing houses to bring in transparency in who holds what.
\u262D = \u5350
Just stick to being a smelly unkempt hippy and STFU about shit you know nothing about. Kthx!
RMS's idea predates the latest bank bailout era with many many years. his idea was not inspired by 'too big to fail' at all. his idea is simple a mechanism to make sure there are fewer big companies - and only in cases where a larger size is indeed increasingly profitable, so that it's still worth to have the larger organization which has to pay more taxes because of its size.
RMS's experience is simply that 'large entities' don't behave in a 'good' manner, and thus there is a clear advantage to society of having fewer of them.
However, businesses can’t pass the entire amount along to customers if they pay different tax rates. If a large company pays 5 percent and a competing small company pays 1 percent, they could both pass along 1 percent but no more. The owners of the large company would have to pay the other 4 percent – which is exactly what might convince them that splitting up is desirable.
Most Linux distributions don't pay anything for developers. Most people running Linux pay nothing for it. There are exceptions - RedHat, SuSE - but by and large, if you want Linux, it's free. As in beer.
Meanwhile, Microsoft pays tens of millions of dollars, if not more, in salary to its developers to produce Windows. Windows isn't free as in beer. People buy Windows. People buy Windows a lot. Less since Windows 8 was released, but people are still even paying decent sums of money that flaming wreck.
If companies with different costs - even different tax costs - weren't able to pass those costs along to consumers, Windows would be free as in beer. So would OS X. So would Solaris. So would every operating system, by virtue of Linux being free as in beer.
Of course, that isn't the case, because you can't make a ridiculous assumption and reduce the complexities of markets down to an incorrect assessment of customer-facing prices.
Companies will always pass their costs along to the consumer, whether those costs are salary, R&D, or taxes.
He acknowledges that splitting up a company will take a lawsuit and that will be costly E.G. Microsoft, but then at the same time says the solution is to tax them heavily... Which will still require changes in law and will still be blocked by the banking lobby and we're back to square one again. The problem will still be that banks are currently too big period.
Every apex predator of the past that ever ruled at the top of the food chain was brought down by something other than an overwhelming number of pray animals. For the dinosaurs, it was drastic change in the environment (climate and/or meteorite, take your pick), for the European jaguar it was more than likely climate change and for sabre tooth tigers it was probably humans. The bottom line is that something other than within the system must influence the status quo to make "too big to fail" no longer hold true.
Stallman's proposal is still within the system, that being congress and law, and the system is setup to prop up the current apex predators (banks, MPAA/RIAA, Big Pharma etc...)
For banks, I can see a sudden dumping of embarrassing records or a chain of whistleblowing that will make avoiding criminal prosecution Enron style, impossible to avoid. I don't know if there's already an investigation going on (I doubt it), but since all the Occupy protests didn't so much cause the feds to blink, I doubt that's an avenue with results.
If computers were people, I'd be a misanthrope.
What he is proposing is returning to a 18th century style economy....except we have robots...
The advantage that big companies have is that they can leverage scale to gain efficiency. Cheap products are produced that are used by smaller companies to create greater wealth in a way that was impossible before. (think computer industry, and think automotive industry) Forcing companies to break up once they making some profit is asinine, because it could prevent the next economy from being born.
I think that we just need to embrace creative destruction let companies fail and make it easy for new ones to take their place, work towards a more educated/flexible workforce.
I want the USA to remain on top for my own selfish reasons, and I am not convinced that splitting up of multinational mega corps would help us out, because for many industries they provide the low cost backbone that makes the rest of the economy run.
RMS is a brilliant software engineer. That does not make him brilliant---or even competent---in economics.
Obligatory SMBC: SMBC #1776
It's like the fable of the mice who decided that making the cat wear a collar with a bell elegantly solved the problem of random predatory forays.
Yes the idea was truly elegant... and worthless.
You can say what you will about the War on Drugs. If I decide to parley some jars of loose change into the highly lucrative cocaine distribution market, I stand to make a market-torching return on my initial investment. The reason I pass on this incredible business opportunity is because in the event I become indicted, there's a very real chance the unborn grandchildren will be grown & gone before I come up for release. As long as white collar mega-crime is punishable by a maximum 50 lashes from a wet noodle, there is no negative incentive to modify their collective behavior.
Happiness in intelligent people is the rarest thing I know.
Ernest Hemingway
RMS' idea sounds kind of neat, but it suffers from a fatal problem: All that happens when you force crazy high taxes onto big companies is that they leave the US. This is exactly what's happening in France right now, with their recent tax reforms.
The correct solution, as others have already pointed out, is to simply let these companies fail. Funnily, the "experts" who said "if we let Citibank/MorganStanley/etc fail society will turn into a Mad Maxian nightmare where we'll all be forced into cannibalism" are the exact same people who would have lost a lot of money without a bailout.
The companies most responsible for imperiling the financial system have relatively low revenues (but large, highly-leveraged assets.) Large companies whose collapse wouldn't endanger a damn thing like commodity businesses would be punished. (If, say, Exxon, were to go bankrupt, they have plenty of "hard-dollar" assets that would be eagerly scooped up by somebody else with little to no disruption to production.)
We called it the monopolies commission. The term monopoly apparently doesn't mean a lack of competition anymore.
This tax idea would just get redefined over time too.
Break the link between business and government. That should hold them off for a while.
The problem with taxing a company's gross income is that it just causes the company to raise prices so that, after taxes, it makes a profit. It would be more rational to tax the profits, the difference between earnings and expenses. This is the money that mostly/normally gets distributed as dividends to stockholders. One could now argue that the company would just raise prices so that the amount of dividends paid would still be the same as before such a tax was put in place. The implication is that perhaps companies shouldn't be taxed at all in order to keep prices down --only their stockholders should be taxed, per individual income taxes. And if that last thing isn't being done fairly enough, well, then, perhaps that is the thing to fix!
How is Stallman even qualified to make an economics suggestion like this? I'd have thought he would advocate decentralized electronic money.
He had a brilliant solution to the problem of overly restrictive software - something with no head to cut off, with no need for new laws. Let's run with that, instead of what will inevitably degenerate into a half-assed feel good gesture, neutered by deductions and exemptions.
RMS wants software to be free, but is happy for people to be enslaved by the state. That's a massive contradiction. I would have thought his philosophy on software is very much aligned with libertarianism, yet his political discussions suggest otherwise.
How can you want software to be free and not people?
Financial institutions can get too big to fail. And this seems like a potential resolution for financial institutions.
These companies are very leveraged, and just one of these can bring down many others, and eventually the whole economy.
And IMO taxes should always be taken out to alleviate the problem they are trying to address. So the taxes should go to something like the Federal Reserve for handling contingencies.
But other large companies I think should be handled on a case-by-case basis. Any single company that would go bankrupt, would hardly effect the unemployment rate. But a financial catastrophe could send it soaring.
Pass a failed law: Go to Jail. Politicians need to have fear of jail. Obamacare would have never ever passed.
What is missed is that "when you are to big to fail", you got that way by hiring ex-politicians, using lobbyists and donating huge sums to politicians in return for writing favorable laws.
In return politicians want "a return", so they put rules on things like the banks in order to satisfy their political party or favorite group.
The Community Reinvestment Act was obviously at the root of the MMM (mortgage meltdown mess), but we don't see any laws making politicians go to jail for having voted for that law and then failing to eliminate or restructure it when it was known it was going out of control.
since the biggest problem is that large corps will migrate out of the US, we must incorporate this policy globally, and enlist a force of "tax collecting" mercenaries to make sure we gets our dough.
In our current downturn, we are familiar with the failure of a few large banks. However, in the Great Depression, what they experienced was the failure of a large number of smaller banks (more than 10,000 banks went out of business between 1929 and 1933, according to http://www.econreview.com/events/banks1929b.htm, contributing to the depression). Merely breaking up banks does not guarantee that they will succeed, particularly during a widespread economic failure. Instead of "too big to fail", you have "too many and small to fail", but it's really no great improvement. It actually makes it harder to assist the individual banks, even if you intend to do so.
First of all, just quit bailing them out, period. End of story, really.
However, this would create a huge loophole that would incentivize something that already happens... if they decide to split up, the execs will create a smaller version of the company with all of the "good stuff" that is sexy and profitable and spin off unprofitable segments into other companies.
In other words, Stallman is off his rocker and needs to quit trying to be a philosopher can focus on coding kernel stuff or retire.
The two big problems with the idea strike me as being:
1. Companies will either find loopholes to hide their size or move overseas, much like big companies already do in order to avoid higher tax rates.
2. Taxing gross income instead of profit means companies are punished for reinvesting in themselves and their workers. This plan basically encourages companies to try to keep has much of their income in the bank as possible rather than re-investing in infrastructure, employee benefits, etc. Responsible companies would be punished and have a harder time paying their taxes while greedy companies would have a (relatively) lower tax cost compared with their profits.
Gross receipts tax is idea for running a country. There are several embedded things is does:
(1) It penalizes those who add little or no value in the supply chain
(1a) and those who filter through shell corporations to hide money or sheild liability
(2) It rewards local suppliers and short supply chains
(3) It levies cost based on volume of goods and services, not on profit
(4) If you can keep your God damned hands out of the "exclusions" pot, everybody pays and its much harder to hide the money
Almost nobody in business bases their fee on fee percentage on your profit, which should the defense of your assets (both through law and military) be based on it? It should be a cost of doing business, not some penalty for being efficient. And unlike a tax on profits, which starts out with a whole laundry list of exemptions for "allowable expenses," there's no need to put exclusions in the tax law.
Having a sliding scale would be okay, but it should be no more than a factor of two top to bottom imho.
Is it just my observation, or are there way too many stupid people in the world?
'We tax a company’s gross income,...
Revenues: 1, 0000, 0000
COGS: 1,000, 0000
Gross Income: 0
That's not too hard following GAAP.
Good with taxing zero.
remove medical coverage from jobs
I think this would need some tweaks at the international trade treaty level, so it was seen a competition-neutral, but I like the idea in principal.
Big dominant companies are inefficient from a theoretical point of view since they can make their whole market smaller because it is less efficient (even if the one dominant company could gobbles up most of that market safely). This should eliminate a lot of systematic risk or at least potentially collect revenue to offset the risk. There is still the problem that government is not a bank. It can't really 'save' money for a rainy day. This is why some might want to run up the debt _while_ cutting. Its a double threat. Cut taxes too much and that increases debt this makes more cuts more likely later. The government needs to be able to go deeper into debt when times are bad. It can't keep money out of the economy for a rainy day.
It might be possible to get a trade treaty focused on tax collection signed like this. Lots of governments lose a lot of money through tax off-shoring-income-games. This be seen as converting lack of taxes paid to tariffs in the name of the greater good of financial stability.
However, it is possible lots of small players would also still have a lot of systematic risk because they took roughly the same bets. I think one part of the solution might be to require fixed compensation for all financial analysts. Perhaps make it like working at the post office. Take a test, be placed, get paid according to seniority. Perhaps, one could approximate that by taxing funds relative to the amount they paid an average employee (total compensation including all bonuses) or the amount of transaction fees or annual fees required.... Essentially rewarding on short term performance is real problem. No matter what, obviously its an international problem one can't just impose a law in the US.
Easy. Socialist Revolution. String the bastards up and stop industrialism before it completely kills the planet.
Shoes for Industry. Shoes for the Dead.
Breaking up companies isn't just a solution to "too big to fail" syndrome (though it could help with that too). It's also a good check on monopoly power, such as the way it worked on AT&T. Imagine if Microsoft in the 1990s were multiple companies: an OS developer, an office-suite developer, a development-tools developer, etc. Or if modern Apple were a phone maker, a computer maker, and a media distributor. Look at today's consolidating media conglomerates for more examples. And the banks.
Part of what taxes -- and especially taxes on businesses -- pays for is their participation in a Rule of Law society.
This means you have access to an independent court of law for adjudication of claims against you and claims you may make (especially important when you rely on intellectual property), a civil and military security force to protect your physical assets and employees from harm, and a transparent law-making regime you may lobby to see your interests are represented.
I'm just fine with companies moving, but I'm just as fine with not allowing them to participate in the benefits provided by a Rule of Law society. Feel free to relocate to the third world and feel just as free to see how well the Cayman Islands or Lichtenstein or some of these other tax-dodge nations can protect your global shipments or your factories or your intellectual property.
There's only a small handful of countries able to provide a Rule of Law society and they should band together via treaty to inhibit transnational games and tax dodges.
France, specifically where most of the large companies and industries are owned in part or in whole by the French government? Seems like you're putting a statist barrier in place to lead the way for mass nationalization of everything. And we've already seen where the CCCP wound up.
It's called the Sherman Antitrust Act.
Ok, it doesn't cover every situation, but it's better than Stallman's solution.
If it is too big to fail i.e. will cause disruption well outside it's physical and logical corporate bounds, and the government is obligated to insure the institution financially (especially FDIC and stretching the concept unemployment and various social services) it seems reasonable for the government to just nationalize the entity since it will have to foot the bill in the end any way. One then could keep the components of the institution that provide a service to the community and part out and sale the components that do not fit in as a social service. The sale of the assets then could be used to pay for the bailout and units that have been turned into non-profit services.
"Companies like Intel, Lockheed, Walmart are very large and have a very low chance of failure, yet Stallman would have them split up ..."
There is nothing at all wrong with splitting them up just because they have a low chance of failure. Very large means that they are causing damage elsewhere. Very large companies is capitalism's problem number one.
It seems to have worked well for almost 60 years, during which time the global economy did pretty well.
This idea has no chance of being implemented and, as the submitter points out, fails dramatically outside of a few specific industries. Those industries, insurance and finance, have their own insurance funds (e.g. FDIC). Why not just make the rate you are required to pay the corresponding insurance fund go up as the firm gets larger. i.e. if your firm makes has 1 % market share the nominal rate is 1% of profit but if you 10% market share the nominal rate would be 25% or something like that were the maximum percentage is like 85% and is imposed when a firm reaches some critical fraction of the marketshare.
As a brilliant and educated man that has done great work, but makes his living as a speaker and academic (as opposed to someone who actually has to make a living writing software), RMS' views always have that fresh, clean, "Ivory Tower" scent.
"For every complex problem there is an answer that is clear, simple, and wrong."
-H. L. Mencken
Intel takes quite big risks whenever it builds a new facility to use new smaller scale technology.
Airplane companies pretty much risk their entire business every time they design and launch a new model.
Slashdot social media options: AIM, ICQ, Yahoo, Jabber and Mobile Text. Why no MySpace?
Holly crap. You people scare me... Not only here but all over the internet are idiots that think that somehow they are entitled to tell private businesses what to do with their money and assets. This entire discussion should not even be had. If you don't like Apple to get big, stop buying their shit. Don't like Google collecting your data? Stop using Google. Do you want your local retailer to do better, buy there and pay twice the price of Walmart. But the moment you discuss what business owners should do with their property you are nothing more then a collectivist leach.
"Socialist revolutions, hang / jail the guys that destabilize the economy" You idiots. It is you with your insatiable hunger for stuff digging deeper into debt. It is you wanting ever more handouts that are destabilizing the economy. You demand your "gifts" from politicians in exchange for your votes and they gladly oblige by regulating those "gifts" out of private hands.
Why would anyone risk their capital to build a business when there is a risk of being jailed for being successful "destabilizing" the economy. You people deserve what you are now getting... No jobs, no wealth and eventually the lights go out. There is no such thing as a free lunch.
Sjeesh!!! Grrrrrr.
A VAT tax might be an OK idea, but this idea is pure bad. Different businesses have different profit margins and need to be different sizes. How on earth could the government bureaucracy figure out what the right rate was? This assumes WAY more knowledge about the correct economy than we actually have!
IHMO the right thing to do is nationalize failed businesses, clean house at the top and sell off under controlled circumstances for a small profit, or at least a minimal loss.
Simplest solution: reinstate Glass-Steagal, and stick to that shit this time.
Next simplest solution: make "Bail-out" == Nationalization. if we taxpayers are footing the bill, we have every right to own that motherfucker.
Yea, it really is that easy.
An enigma, wrapped in a riddle, shrouded in bacon and cheese
If you are a sizable player in certain industries, you will be required to:
* Notify the public and specifically your shareholders and major creditors.
* Defer almost all executive compensation beyond a few hundred thousand dollars for several years.
* Keep this deferred compensation in a custodial account for the benefit of the executive, with the executive directing the investment, much like a 401(k) does, BUT with a prohibition againt investing in securities of this company or the industry or industries in which is considered "too big to fail." After the several-year holding period the money would belong to the executive without conditions. In the meantime, the executive would have "0% vested" in the funds, meaning they would be subject to disappearing in a bankruptcy.
If a "too big to fail" company gets a bailout:
* All deferred executive pay that is still in the holding period would be subject to immediate seizure to reduce the size of the bailout.
* Creditors won't get paid until the taxpayers are reimbursed, unless the feds okay the payment.
* The taxpayers will have a lein on all company assets, and this lein will be higher priority than any other lein, save perhaps leins in effect before the company got "too big to fail."
The practical effects:
* Companies would have an incentive to not be large players in critical industries.
* The cost of credit for "too big to fail" companies would go up some, as creditors would see a higher risk.
* Executives would have to get used to the idea that their spedable income is a few hundred grand from their current job plus the not-yet-collected part of the job they had a few years ago.
* Executives would have to accept that their successors' screw-ups would hurt them in the pocketbook.
* Executives hired to turn around a weak but solvent company would know that if the company went bankrupt, they would never see most of their promised compensation.
The Finance sector has grown too big for its britches in terms of its share of GDP and no doubt in other respects, and that's half the problem right there. I say reenact Glass-Steagal and deploy your idea-- but targeted mostly at financial institutions. Other types of corporate business could be taxed at a fraction of the rate for financial services, though I would consider adding an exception of some sort for businesses that are identified as engendering natural monopolies such as cable telecom.
The burden/threat to society that TBTF carries will vary from industry to industry, but Finance is special in that it becomes an embodiment of the trust we have in society to operate smoothly and fairly. When they become too big and then fail, all of the trust we have for doing business with just about anyone else evaporates.
while it sounds like a fantastic idea, there is a basic flaw.
Large companies don't pay any tax. (or such a miserable amount it is like zero).
This is due to something called transfer pricing, where one division in another country/tax division loans money to another, and transfers the profits over to it.
so while you may increase the rate for larger companies, zero of a large number is still zero.
I do like the idea of splitting up a large corporation, and forcing them to do arms-length transactions, but all you are suggesting by changing tax law is giving a whole truckload of money to tax-lawyers and accountants. it isn't going to go anywhere else
but loopholes and offshore havens fuck the system up
Companies like Wal-Mart are big enough that they should split. The distribution arm is large enough to be a company itself. Wal-Mart doesn't want to split it off because then Sears/K-Mart or Target could take advantage of the efficiencies of the distribution. Wal-Mart started off as a retailer, and now, could close its retail arm tomorrow and still show an increase in profit by the end of the year. Splitting up such large companies is best for the consumer, country, and investor. The only person it doesn't benefit is the management team of the "I ran fucking Wal-Mart" fame. Often the child becomes larger. Southwestern Bell grew up to buy AT&T. Union 76 split off its drilling arm, who later grew up and owned the rig in the Gulf that caused the spill, while Union 76 merged and got bought until nobody even remembers it.
Learn to love Alaska
Your answer is too simplistic, but I understand your frustration. If we follow Stallman's suggestion of breaking up Large Corp into smaller pieces, THEN it's more likely to just let these risky sub-companies fail without taking everyone else down with them.
A lot of businesses in America (particularly) runs on credit. Whether you think that's good or bad, it's another topic of discussion. If a credit lender goes down, all the companies dependent on them won't be able to pay their employees and vendors. Case in point, if General Motors went down, this tire company I freelance I worked with wouldn't get paid for their tires (which was paid on credit), and in turn they wouldn't pay me for the graphic design work I've done.
Don't get me started with media and magazine companies. They're even worse at paying 60-90 days out.
To put it into simple terms.
RMS and I actually agree on something? I guess the Mayans were a few weeks off.
As exampled by Walmart and the Wall family having more wealth that what is it 40% of the rest of the country. Maybe we should broaden the anti-trust laws or modify them so that companies that try and take over hardware stores, grocery stores, clothing stores, sporting stores, appliance stores, building supply stores, automotive supply stores, nurseries .... are trying to monopolize the retail space at the expense of hundreds of thousand mom and pop stores and hundreds of thousand US jobs. The too big problem also is a problem for companies that succeed. Thats why we had anti-trust legistlation. It needs to be updated.
In nature, a diverse complement of plants and animals is more resilient to disease and environmental stress than a monoculture vulnerable to a single disease, or drought. Business ecology is little different. Anything that encourages a variety of smaller corporate entities in the same business, but using different survival strategies will be more robust.
Please do not read this sig. Thank you.
We can PRINT FOR FREE:
The Trillion Dollar Coin: What You Really Need to Know
The founders of the United States banned a state religion in the First Amendment ("Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof") because they realized churches were competing power structures.
Nowadays, we have the new church, corporations and specifically corporations of the financial sector.
You really want to know who runs this country? Here are four data points from which you can draw your own conclusions:
1) The head of Goldman Sachs goes before Congress and admits he was selling bad products to clients, products which he was betting against. A classic swindle. Nothing ever came of it. Or any of the other revelations.
2) There was a PBS show called "The Untouchables" which chronicled why Wall Street executives were never prosecuted for fraud.
3) However, someone you'd think was powerful and connected, a former Michigan state Supreme Court justice is facing jail time for lying to a bank which she was working with in order to get a short sale completed for a house she owned. Her crime? She tried to hide another asset, a paid off house, from the bank.
4) Another person you'd think is powerful and connected, the chairman of the Washington DC City Council, Kwame Brown, was removed from office and convicted of a felony for lying about his income on a pair of loan applications, totaling around 200,000 dollars. Absolute small potatoes. Also a very common practice in the mid-to-late 2000s, on home loans.
Noticing a trend? If you're a financial sector executive, you run the show. It doesn't matter that you've swindled billions of dollars from the country, nothing is going to happen to you.
However, If you cross the financial sector, even over relatively trivial matters and sums, it won't matter if you're the elected head of the city council or a justice on the state supreme court, you will be removed from office and suffer significant consequences.
The financial sector runs this country.
I didn't remember who said it, but it is an excellent piece of wisdom:
All the simple solutions have been found.
If someone comes up with a solution to a current-world problem that can be explained in a few sentences, I tend to become very, very sceptical. The world largely isn't that simple anymore, and we have entire professions whose jobs basically is to find loopholes.
Assorted stuff I do sometimes: Lemuria.org
For every complex problem, there is a solution that is simple, plausible, elegant, and wrong.
(Attributed to many people).
Rather than bailing the banks out, they should buy whatever number of shares instead. The Bank still has liquid assets to continue trading, and the goverment can sell those shares in the future. While the goverment have shares special rules apply, all management bonuses for the last 10 years need to be repayed within 12 months, no management bonuses while the goverment has shares. No manager to receive more than a given wage referance point, possibly a politicians wage at whatever level. The federal manager cannot receive more than the prime minister, a state manager cannot receive more than a state political leader, a branch manager cannot receive more than a council politician. Jail time sounds good, but remember these people are above the law, so it will never happen.
So, you are proposing that mistakes should now be a crime, if committed by legislators? If you think we have a bunch of power-hungry clowns in office NOW, imagine the crazies we'd attract (or, rather, the smart people that would be driven off), if the penalty for a "failed" law was jail.
(And, what, precisely, is a "failed" law anyway? I would think it would be one found to be unconstitutional, but that doesn't apply to either of your examples.)
It penalizes those in low-margin business, such as commodities, while rewarding those in high-margin, highly-leveraged, businesses. To what end? The bankruptcy of Exxon (with lots of easily-liquidated assets) would harm the economy a lot less than the failure of, say, Goldman Sachs. It doesn't make any sense to distinguish between the two in effective tax rates.
No one thing is too big to fail. Everyone and everything can be replaced or recycled. A company that goes bankrupt would be parted out and sold off. Making the corporate landscape much greener in the end.
I have always thought that putting too much wealth in the hands of a small group of entities was a bad idea. Anything greater than $1B to $3B should be broken up. This will create many smaller entities that individually have less influence to economy and politics. Competition will be more fierce as you don't have mega-corporations crushing your nuts.
What else would one expect from RMS?
No bailout at all. Let them fail. Let the investors lose everything, and then if negligence is found, The Board and all executives are Personally Liable for all losses and debts of the company. Corporate protection of personal finances is revoked in that instance, and all personal assets of the board members and executive staff are immediately seized and distributed to debtors starting with the lowest amounts first.
When that is all done, Executive staff serves jail time.
That pretty much will stop all the BS that causes this to happen in the first place. A CEO being rear reamed by a man named bubba that murdered people will get he message across to corporate executives overnight.
Do not look at laser with remaining good eye.
Everyone should be taxed exponentially.
Something like y=(1/10)x^1.07 + 10000 , where x is income. Booyah tax problem solved forever! Next problem!
It's the same solution as always: simply enforce the laws we have. Enforce anti-trust law, enforce truth in advertising law, enforce laws against anti-competitive behavior by monopoly and near--monopoly sized corporations. If the SEC had enforced its regs fully against Goldman Sachs, et al, that were on one hand recommending to their customers to buy mortgage-backed securities, and on the other hand having a prohibition against them for in-house investing and NOT telling their customers about this, they would not have been able to dump as many of these junk securities on other banks or the government.
Only apply the tax to companies that have already been bailed out.
Like the banks and auto companies.
Auto companies, oops, never mind.
So these mega banks used your deposits to leverage themselves up when they were doing their own investing. That's the fundamental issue. Your deposits draw nearly no interest, 0.5% maybe, something pegged off of treasuries.. The investments that they were making were paying like 30% for the first part of this decade. They were making bank (pun intended) while your deposits effectively lost money, due to inflation.
2 options, reinstall Glass-Steagall or regulate banks to pay interest proportional to their profits. If I was pulling down 10% or more on my savings between 2000 and 2008, then when they had a liquidity crisis, having the government bail them out would be a whole lot easier to swallow. When they charge so many fees just to access your own money and pay shit interest on it, is just socializing the risk and privatizing the profit. No tricky tax shit for mega companies and if they were paying big interest rates, they might have been capitalized such that they didn't need as much leverage. These is also the other side that it could have just been that much bigger; I tend to dismiss bank greed a little if they're paying somebody else, they won't do nearly as much for you and I as they will for themselves...
Companies like Intel, Lockheed, Walmart are very large and have a very low chance of failure
These are all companies which I think would benefit us if they split up into smaller corporations. I like the idea.
in girum imus nocte et consumimur igni
The government is bought and paid for. It's purpose is now to serve lobbyists, not citizens. It will not voluntarily bite the hand that feeds it by limiting corporations.
Since when did the big companies even pay taxes? Just move your headquarters to a tax-haven and you're done with it. Everyone does it. Only to little people without the necessary capital to setup the scheme will pay.
He assumes that the the government is an independent entity. That regulators are impartial.
Not the case. Politicians are backed by business, they are corrupt, regulators are made up from and migrate back to the industries they regulate. The very reason government has not limited the size of TBTF banks is the banks don't wish it. Government serves it's pay master; business.
Many are so big that they can block the laws needed to stop them from destroying the economy or the environment.
The method is simple: a progressive tax on businesses. We tax a company’s gross income, with a tax rate that increases as the company gets bigger. Companies would be able to reduce their tax rates by splitting themselves up.
I really like Richard Stallman, and I am even intrigued by this idea, but I see a few obvious issues with it.
1. They will block any laws like this. If they can't, block the laws due to public outrage,etc, then we could have just simply passed the first hypothetical law stopping them from destroying the economy.
2. Whats to stop them from circumventing such a law by splitting up into smaller companies but still being controlled by a small group of owners. A rich person or group of people can hold a majority stock in many large companies and do everything they could do when the companies were one. Is being a powerful shareholder for 10 different HP division spinoff companies be different than being a powerful shareholder of monolithic HP stock?
I feel like the simplest and best answer to "too big to fail" is not artificially keeping companies small, but rather letting big companies fail. Yes letting companies fail in an irresponsible way can have devastating consequences. But bailouts are not the only alternative to catastrophe. This is the same false dichotomy thrown out whenever another bailout happens. It is possible to do a controlled failure. We can fire all the top executives, ensure that all other employees get paid, and have the shareholders of the company lose their shirts rather than the tax payer. Meanwhile we can have the government keep the company running until the assets are liquidated or the whole company sold to the highest bidder.
In order for the free market to work, bad decisions need to be punished. Perverse incentives are what screws everything up. If a company can be big and not fail, then great. But we have to let them fail if they are failing. We can do it gently like putting a big company on hospice or something, but it needs to happen. Otherwise we have the same incompetent people running even larger companies and shareholders who are incapable of losing money so there is no incentive to make good decisions.
There should be no such thing as too big to fail. IF we currently can;t manage big failures, then that's the thing that needs to be fixed.
It just gets bigger. It's now carried by the government.
Now, the risk is such that entire currencies, entire nations, not just a bank or two are on the verge of collapse.
Spain, Italy, Japan, the UK. Just watch what is happening now the nations have taken on the debts of failed companies. With the reserve currency, the US will be the last to fall but it will be by far the biggest.
People need to realize that we need less government involvement not more.
- No to government/politicians and financial sectors enriching each other.
- No to government bailouts.
- No to government pressuring banks to take on risk
All of you anti-capitalists blame these problems on capitalism but we don't have capitalism anymore, we have cronyism. Capitalists wouldn't have gotten us in this mess in the first place. We need to reduce the power in Washington and dry up the influence that these high rollers can buy.
"How can this idea be made better?"
It can't. It's a crap idea.
"Big organizations are evil! If we went back to having small, personal, friendly organizations, everything would be better!" is a popular meme these days but it just isn't realistic, if you look at it dispassionately. We have big organizations because there are more of us, and we're doing very complex and advanced things. You only really need five people at Bob's Bakery Inc. to supply your town with bread, okay, but you can't have five people at Bob's Car Factory Inc. supply your town with cars, and fifty thousand people at Bob's Multinational Food Corp can, without question, supply your town with bread more efficiently than Bob's Bakery Inc. Sorry. It doesn't fit in with our romantic notions of How Things Ought To Be, but it's how they are.
I wish people would get over this vaguely sepia-tinted bourgeois fantasy where somehow we manage to supply several billion people with their expected quality of living via some sort of utopian version of the late Victorian economy, and start coming up with answers to the much more practical - but less zeitgeisty and much more _difficult_ - problem of 'how do we make large organizations more responsive to the concerns of the individual, where that's practical and desirable?'. That's a question worth asking and trying to answer.
I think this would need some tweaks at the international trade treaty level, so it was seen a competition-neutral, but I like the idea in principal.
FFS, principle not principal. Principal has a very specific financial meaning, and it's not what you mean here. If you bloody English speakers can't even be bothered to learn your first language properly, it's not surprising you're so crap at picking up others.
no taxation without representation!
As I see it, the bigger problem is that once you get over a certain size, you have enough money to set up all of the string of businesses in Ireland, the Netherlands and the Cayman Islands to do your necessary tax dodging.
So if you said that companies over a certain size had a second fomula without all of the same deductions allowed, and they had to pay the greater of the two, then you've got something similar to our current AMT.
Just for starters ... lobbying should not be tax-exempt. Sure, it's typically a cost to the company and so counts against profits, but if you spend $50M/year on lobbying Congress to give you even more tax breaks, that should be taxed. Maybe add advertising, too. Or only allow deductions for direct salaries up to some amount (eg, 5x or 10x minimum wage)
Then, take all of the other loopholes that are being abused by companies to reduce their tax liability, and cap 'em so that you can only use them to take out something like 50% of your tax liability.
I don't know all of the numbers, so I can't give more specifics, but this would either show the absurdity of AMT on so many people, or raise some money from the corporations who don't like paying their fair share of taxes.
Build it, and they will come^Hplain.
We had a solution to "too big to fail" for banks. There was the Glass-Steagall Act, which forced a complete separation between brokerage and banking. Worked fine from the 1930s to 1999. Then it was repealed because the big banks wanted to get bigger. "Today, Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century. This historic legislation will better enable American companies to compete in the new economy.", said the Treasury secretary in 1999.
Right there is how we got into this mess.
Basically, revenue from the sale of goods and services work the way they do today with only profits being taxed. Interest income, dividend income, trading gains, etc... get taxed for businesses just like everyone else on a revenue basis.
I think its very simple. The bank must hold enough physical cash to pay out everyone who has an account. It's only since we stopped doing this that there is any chance of this sort of crap mattering in the first place.
Google paid fuck all in taxes to Australia last year - $75,000 on $1b in revenue.
If you are going to tinker with tax rates, you need to also address the issue of companies exploiting tax loopholes and moving profits offshore - and that's not something one government can address, as long as there are others out there willing to shelter your money for lower rates.
Why not this instead of a "too large" limit. Corporations have life spans like people do.
After 100 years (or so) the corporation "dies", it's assets are used to pay off it's debts and the remainder is distributed according to it's will, and they pay the estate taxes and person would pay.
and it's nothing that people haven't mentioned before. Even if you increase the tax rate accordingly with size, companies will distribute into groups that still depend on each other and could still cause chaos if any one of them were to fail.
Too big to fail is too big to fail. He's right that it's an oxymoron to begin with. Japans, the US, the US dollar - all too big to fail, yet it appears that they won't be propped up forever.
Nobody asked the powers to be to make the US dollar the reserve oil currency - thus artificially inflating the states and pushing them towards too big to fail. That's not the peoples fault.It should have been a basket case of currencies to begin with. The US of A is the thing that's ultimately too big to fail.
It has been contrived to be that way from the beginning.
Dell's CFO nearly destroyed the company single handedly back in 1993 through excessive currency speculation. He managed to double down correctly on a billion dollar + trade to get out of the hole he created. But if he had bet wrong again, the history of Dell would have been drastically different. Why not just call it insurance like FDIC and make it optional? The government would set rates of each company based on the perceived risk. In the long run protected stocks will be viewed favorably by the market.
.dummy!!
Keep drinkin' the kool aid bud!
Amateur night economics
Rather typical of a pointy-headed academic elitist with no skin in the game.
I wish we could pierce the corporate vale and take back the ill gotten wealth of the executives and upper management. There should be a a couple trillion dollars obtainable that way. Instead we let the bankers pay themselves big fat bonuses and party it up at fancy resorts. It seems almost unbelievable the banks can borrow from the Fed at 0.25 percent or less and then buy US treasuries at 3%. Our government seems hell bent on taking money from the people and giving it to banking executives.
And pitchforks. You forgot pitchforks.
Tax rent seeking revenue progressively, tax profit for sales of goods and services like today.
Rent seeking - Interest, dividends, trading profits, licensing fees (RMS would like that one), political contributions, ...
Allow for a certain amount of rent seeking revenue can be treated as regular revenue and subject to expense deduction. Becoming TBTF is actually a rent seeking behavior, so setting making the rate progressive is an act of taxing rent seeking.
Of note, Adam Smith proposed that taxes on rents are desirable.
By this logic the government of the United States should be broken up.
You are seriously misinformed if you believe this argument. It's merely a premise for favoritism.
Wikipedia Moral Hazard.
So if having these huge banks fail is not the most feasible solution, give them a freaking haircut, not a blank check. I'm taking signed resignations along with forfeiture of benefits, golden parachutes, stock options etc. of every senior executive including the board members. I'm also talking not giving them all they need either, so they take a huge financial hit, stock prices dip and piss investors off.
But we have obviously learned nothing from the S&L crisis in the 80s, including a President who appoints a Bank crony in Lanny Breuer as DOJ Criminal Chief, who is famous for saying he is “losing sleep at night over worrying about what a lawsuit might result in at a large financial institution.” The same one who gave HSBC a slap on the wrist fine for laundering drug money. Yes, what "outrage", Mr. President.
Hm, how many businesses has RS run? I'm talking real businesses, with 100+ employees, not just incorporated DBAs for the collection of patent money or consultant paychecks.
In that case, he should STFU.
The root cause of the TBTF issue was...the rating agencies. How, you say? The rating agencies were given the imprimatur of a government agency in legislation in the early 20th century - they were credited IN LAW as being 'the official' agencies worth using. This naturally meant that people treated them like government agencies, when in fact they were commercial businesses with all the tendencies toward greed and (when handed a government monopoly) indolence.
Eliminate them, and suddenly the market HAS to revert to actual capitalist economics: there IS no 'golden', unsullied source of ratings, and investors have to evaluate their investments or use someone they actually trust. Ultimately, the amounts risked are much more carefully invested (or, if not, lost WITHOUT recourse to government - ie taxpayer - assets).
-Styopa
Second, if you're a /. editor you might pay attention to the fact that the original post's assertion:
doesn't stand up to even cursory arithmetic. To wit:
The liquid value of an company can be considered the cash value invested in it since, as the liquid value, it can be exchanged for cash. The decision not to exchange it for cash is an act of investment or re-investment depending on one's perspective. The liquid value of a company is calculated by taking its projected future profit stream, adjusting it for risk (which gets larger as you go into the future so the risk-adjusted profit stream trends toward zero with time) and then asking how bit of a loan you could pay off with that risk-adjusted profit stream at what modern portfolio theory calls the "risk free interest rate" which is basically the long term average of the return on short term government treasuries, like 3-month T-Notes.
So now we have a basis from which to talk about "return on investment" because we have defined exactly what we mean by "investment".
On this, mathematically correct, definition of "investment", as the liquid value of the company, we can see that Stallman's plan taxes only the return, regardless of the investment. Moreover, in this mathematically correct definition of investment, its clear you should tax only the risk free return on "investment" aka "liquid value" -- as that is what keeps network effect monopolies from getting huge profit streams that get bigger just because they are the biggest. For example Bill Gates had a network effect monopoly bootstrapped when IBM distributed MS-DOS on its PC's and made everyone dependent on paying Gates money or else they wouldn't be able to run most of the software on the market -- and software developers had to write software for MS-DOS because that was where the market was.
Seastead this.
How about we break it up into 3 separate branches of government?
Say! We can go further than that! Lets make it more responsive to the people by breaking it up into 50 regional mini governments!
We could go even further and have smaller subdivisions around population centers! Lets call them... grandchild governments? that is shitty... it needs a new word... ah... how about "city" ?
Now some areas of the country are stupid or crazy and so we have to split the powers up with the subdivisions so we don't have wars going on between the divisions... ;-)
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Banks and organizations like them carry depositor insurance, as do stock brokerages for the cash portion of accounts.
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Someone of his intelligence should know that the pregnant-bellied man look is indicative of a hormone imbalance brought on by continued exposure to glycosis.
End all income taxes on corporations. End all income taxes on people. Operate government on this simple principle: you get what you pay for, and you pay for what you get. Productive industry will flock to the US and prosper, and the number and severity of failures will drop dramatically. The whip wielders in government have nothing positive to offer humanity.
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The main problem is the banks. The solution is simple:
- If you are a bank that offers "essential" services, such as bank accounts, home loans, etc, you are not allowed to also participate in "risky" financial speculation practices (derivatives, shares, etc).
Forcing the separation of essential banking services from speculative practices is simple, and is not really that far from existing or previous legislation in various countries. It prevents the ridiculous situation where a government says they will underwrite the speculation of a private company, which is essentially the same thing as the government saying "Sure, have a great time at the casino. If you win you can keep the money, if you lose, we've got you covered."
Even better: start a government-owned organisation for essential banking services. The postal service is halfway there anyway, and goodness knows they could use the extra revenue.
some multinationals may find it better to simply 'move out' to a country that doesn't compromise their business models.
This is an usual counterargument to any regulation: if you do X, then multinationals will go away. We should not get impressed. Let them go away and never come back: other actors will grab the market they leave behind.
Stallman is being quite wise in applying the benefits of computer science to similar problems outside computers.
The bigger picture: too big to fail has a flip side issue that was and is also a HUGE problem today: undue influence of government. Too much power concentrated becomes a threat to democracy, freedom etc. Ultimately that is the issue that causes the troubles in markets and governments. The main reason they can't fail is they are too powerful to allow themselves to fail!
Separation of powers was a realistic approach to government design in order to limit the always occurring errors in all human social systems. The problem is that we don't apply this risk mitigation technique outside of government! As Ben Franklin said, all such systems of government fall into despotism - or in CS: Eventually the error correction algorithm itself fails because it is inherently flaws and the system crashes. His thinking can be extended onto billionaires if we don't fix the election system and media.
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Stallman has nailed this one big time. I see no reason why the 60 Walmart family members should earn what tens of millions of the bottom Americans earn. I would even go local with this one. That if in your region there is only one grocery store chain then it should pay much higher taxes than a new smaller chain looking to offer competition. The same with telcos. The big ones would be nailed and the new smaller hungry ones would have some breathing room.
This is not just about some commie redistribution of wealth but often smaller businesses are able to provide a more human type of business but if they are pressured into economies of scale then they are encouraged to not grow for growth's sake.
But I have a second suggestion. Salary / corporate income taxes should also be proportionate to how the employees are all paid. Pay low wages and the company along with the top executives pay a much higher tax rate. This even nails the small businessman driving around in a $100,000 car while his employees might have trouble feeding their kids properly. So the executive acting out of pure greed pays the employees more.
The reason Stallman's idea doesn't work(aside from the fact that he's a loony) is that he's solving the wrong problem. Well he's not really solving the wrong problem as he would love to see companies like Microsoft and Intel broken up, but that's solving his problem, not the problem he's associating the fix to.
There's no such thing as "too big to fail", the issue is "too important to fail" and is an awful lot harder to solve.
Companies like Intel, Microsoft and/or Apple pretty much can't become too important to fail because, barring some sort of extraordinary act of corporate stupidity they only really go out of business because no one wants their product and if no one wants their product there's no real impact to the loss of said company. Even if they do make such a massive mistake, if the underlying business is sound someone will inevitably buy them up and keep going essentially as you go.
The companies that can become too important to fail are essentially companies which provide an essential service. Utilities, Banks, Hospitals, Transport etc. The loss of these kinds of companies, even when the companies in question are small has a significant impact on their customers, and the loss of a sufficiently large percentage of the service provision(either through one large entity or many small ones) failing is in essence catastrophic. This is difficult to legislate because as previously mentioned, having smaller companies doesn't necessarily solve the problem. Having your bank close down is a serious impact, even if everyone else's stays up. In addition, industry standards or lack thereof being what they are, gross misconduct of the kind which caused the GFC tends to be endemic in an entire industry. In essence, if you'd had 1000 smaller wall street banks, the likelihood would be that at least 80% of them would have been just as crooked and you'd still have needed to bail them out since losing 80% of the financial services sector is catastrophic no matter how many companies make that up.
The most common solution to this problem, even in the US, is to socialize these kinds of institutions. Even in the US, with the notable exception of banks, most companies which would fall under "too important to fail" are either fully publicly run or heavily regulated and subsidized. The idea here being that without the profit motive a lot of the asinine behavior dissipates.
For those who find the idea of fully socializing critical infrastructure too terrifying, there's something along the lines of the UK model where you bail the banks out when they fail, but instead of letting the people who caused them to fail or profiited by their failure to walk away into the sunset with loads of cash they get prosecuted and their assets seized(the UK didn't quite do this, but they came closer to this than the US did). This means that while the idiocy of a few people doesn't destroy the economy, the executives who caused the crash get heavily punished and the stock holders in these companies take heavy losses(as a shareholder, even a minor shareholder you are culpable, at least insofar as the value of your investment for the actions of the company). This provides a sort of compromise wherein taking stupid risks or allowing a company you hold shares in to take a stupid risk still causes you to pay a heavy price, but the rest of us who did not have a say in how that company was run don't.
Then of course you have the US model where you do something like buy up 90% of AIG without putting any government representatives on the board, allow the people who caused the mess in the first place to retain their jobs and profits and see shareholders walk away with a good ROI even though the company they invested in was criminally negligent. In essence you have the model wherein the idiots who took gigantic risks walk away handsomely rewarded while John Q Public takes it up the backside and millions of people who aren't rich enough to have their own lobbyists or friends in the administration lose their jobs and livelihoods and ge
By the way, I have seen GNU software in HPUX and Solaris. We don't call them GNU/HPUX or GNU/Solaris. Linux is a Kernel. Ask anyone developing embedded systems. No GNU there, but it is still Linux. He gave his software away. Now he wants everyone to bow down because we used it. What happened to the HURD Kernel? Get over it.
Yeah I know. Call me a troll. It is a subject I am passionate about. Sorry if I offend, but I have a right to my opinion.
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What about industries that require bigness to be cost effective? How about a dotcom company like Facebook with a few dozen employees and multimillion revenues? Will the staunch leftists be able to swallow seeing them pay no taxes since they're 'small'?
This preposterous idea by a man who has absolutely no knowledge how a market economy functions is what Hayek meant by 'the pretense of knowledge' or 'the fatal conceit'.
> Lets make it more responsive to the people by breaking
> it up into 50 regional mini governments!
I agree. That would be a good idea.
If you disagree with me on social issues, then it's pretty clear that you are a narrow-minded bigot.
I think companies split up too readily as it is, in the UK at least. Like the railways, once responsible for everything within their fences, are now the supreme buck-passing artists. Train late? The train staff blame the signalling (different company), who blame the track maintenance teams (different company) who blame a sub-contractor (different company) who say they are only an administrating agency who blame their self-employed workers who blame thier suppliers who blame a delay on the railway ... and so on and so on.
:-
Same with the electicity supply, water, road maintenance, builders, and, in my professional job, even "well known", "large" engineering companies which are actually conglomerates of sub-companies. It is often impossible with these these to find out just who you are dealing with, they are administrative mazes, deliberately so. Even the people "fronting" a company often genuinely do not know who is behind them, there are so many layers of buck-passing though mini-companies of pure middle-men, all taking a commission, that the buck stops nowhere.
This love affair with small companies in the UK was boosted by Mrs Thatcher, who's attitudes were rooted in her father's small-town grocer's shop. The fallacy of applying this attitude to the economy as a whole is described here
www.nuke.demon.co.uk/grantham_grocer
Smaller companies are better. Can't you see that? It is completely like modular programming.
"You want to float us a loan for about 25% of your company's net worth? fine, hand us 25% of your company",
or with banks "want us to lend you 25% of your net worth? fine, hand us 25% of your company and if you fail to pay us back on the due date that part of you will be auctioned off to your competitors".
Here "too big to fail" means "if your screw up your company will be taken over - at a resonable price - by the state and your shareholders will take a pretty hefty hit and the first thing that will happen is that the management will be replaced"
(and before you all cry foul, this is only until such time that the company can be sold with a net profit for the state - have a set rule that the company should be sold of as soon as reasonable. (yes, this allows for a controlled "bankruptcy" and yet punishing whoever screwed up))
A] Too big to fail only applies to companies heavily connected to the financial world and with systemic risks of failure : financial institutions, banks, insurances.
B] The reason the Banks were bailed out is NOT because they were too big, it is because their operations were not compartmented correctly.
All the major financial institutions were using deposit money from their clients to "insure" their investment on the market. This is a fraud and a theft (did they pay you for this insurance ?) that was made possible by 30 years of stupid senseless deregulation that they paid your elected representative to put in place.
You want to fight too big to fail ? Separate banking and gambling. The real scandal in too big to fail is that the financial institutions that were bailed out didn't PAY what they should have, because the government didn't have the balls and integrity to make them.
...bloated for the sake of a next version to sale the more it cost the end user....
It's already done in Europe on beer producers:
https://en.wikipedia.org/wiki/Progressive_Beer_Duty
It works very well in the UK.
RMS's experience is simply that 'large entities' don't behave in a 'good' manner, and thus there is a clear advantage to society of having fewer of them.
Excellent comment, but I'd like to clarify and detail a bit: most companies at any particular point in time don't naturally behave in a good manner -- large or small. Small companies that don't behave fail. (There are competitors waiting to take their business.) All companies that are good in nature eventually become bad in nature. It may take a few years or a few decades, but it will happen. Because of this, it is better to have all companies be smaller so that no 'large entity' exists. Small entities don't take everything else with them when they go down. Going down is not a matter of if, but when.
I won't say I totally support this plan but it is viable solution. Basically the more money you make as a corp the more you are a health risk to the economy if you die. So we use treat your tax rate like insurance. Although I still say that letting companies fail and then selling their assets to bidding companies is what I believe we should do instead of bailing out.
I would suggest that Walmart will fail. The reason why is very simple. All department store chains have always failed. Grocery store chains are about the same. Today's bright and shinning store is like a young pretty girl. Come back in 90 years or so and forget young, forget pretty, and forget being alive. As businesses age they accumulate problems just as humans accumulate diseases. Law suits ad up. Pensions come due. The competition has watched for years and has always tried to get a leg up on you. Eventually a competitor gets the advantage.
I think McDonalds is poised to be the next big failure. They can not contain the cost of product and will lose sales accordingly. It is no longer an inexpensive fast food joint so now they will have to compete with real restaurants.
Gee, who could oppose that?
Stallman obviously knows nothing about the current political environment in his country.
`Perche non reggi tu, o sacra fame de l'oro,l'appetito de' mortali?'
1) Actually prosecute someone if they're breaking the law. 2) Hold all C-level officers responsible. Make them put all salary and stock in a "bailout pool" as part of the bailout agreement; all proceeds are used to support unemployment benefits for the little guys that are losing their jobs.
http://www.lietaer.com/2010/03/the-worgl-experiment/
Casteism
Nobody expects the Spanish Inquisition!
We (the administration) also forced banks and institutions who were healyhy and didn't need the help to also take the money
I think we have this all wrong. we have a tax code that is so out of control. What we need is a flat tax for individuals and corporations. No thousands of pages of exceptions, deductions, get arounds. If you make very little you pay very little, if you make a lot you pay a lot period. (This is like the widow's mite) One of the problems I see is we have many who are not supporting the government. If you live in this country you should be required to contribute to the support of the government. Now I realize that we have an out of control and bloated government - that is another problem that needs to be addressed. We do need laws or rules to keep greedy corporations from figuring out ways to take profits out of the US, but again that is because of all the loop holes and wiggle room in our current system.
Too many of these ideas are tossed out by people who don't really understand the issues, and it shows.
But hey, since when did that ever stop anyone, me included?
My thought on the subject: The government doesn't get to decide that a company is "too big to fail" and step in -- until it does fail. At that point, part of the rules of the bailout are: (1) the company gets split up into parts that are not too big to fail, (2) none of the current officers of the company are permitted to have any position as an officer or board member of any of the pieces, and (3) none of the pieces are permitted to merge with or aquire each other for (x) years.
I would check out this guys take on this subject. http://www.amazon.com/Too-Fall-Late-Stop-ebook/dp/B006HKT86Y/ref=ntt_at_ep_dpt_4 He seems to have a better take on it
This is an orderly process to deal with financial institutions that have to be bailed out. They are put into receivership. As the lender of last resort, the government makes good on a company's debt, but puts the company into receivership. The company's assets are sold to pay down the debt. Effectively, the company can be broken up and its pieces sold. Trading of the company's stock is frozen and the stock becomes effectively worthless (provided the amount of the bailout exceeded company's assets).
This is how the dissolution of Washing Mutual was handled. Unfortunately, all of the company's assets were sold to JP Morgan Chase, another to-big-to-fail institution. IMHO, Washington Mutual should have been broken into pieces, and the pieces sold to community and regional banks.
http://en.wikipedia.org/wiki/Receivership
I think Icam has a point about stable companies such as Intel. Yes, each industry has its own quirks. However, we can begin by applying this to the banking industry first and go from there.
I don't think Icam has a point about multinationals. We are the world's biggest economy. If they move out, they won't be multinationals any more.
Education is always the key because knowledge is power. 95% of the US lives within driving distance of a credit union, yet many still put their money in banks, despite the fact that banks exist to screw the people stupid enough to put money into them, to pay the people who own them. Credit unions are non-profit organizations who exist to serve their members, not screw them over. If they knew, they'd move their money to credit unions, dump their banks, and the banks would shrivel up and die like they deserve.
Banks are run by... people appointed by the owners to screw the saps who have money on deposit with them. Credit unions are run by boards elected by the people who have money on deposit with the credit union. Why do banks even exist anymore? Many credit unions participate in Shared Branch (Credit Union Service Center... look for the "CU Swirl" logo,) which allows you to use ANY other Shared Branch Credit Union to make deposits and withdrawals that are effective instantly, (for cash, see www.cuservicecenter.com for locations). So banks don't even have that advantage anymore, the one that for a long time kept people there, namely a national network of branches.
As for any other business all people have to do is make sure to do as much of their business as possible locally, helping to retard the growth of uber-businesses slowing them down or preventing them altogether. How do you get people to make better, more informed decisions and choices in the market? EDUCATE THEM.
The reason I started out on a kick about banks versus credit unions, is the notion of Too Big To Fail is mainly financial institutions. The car companies weren't seen by the government as too BIG to fail, they were seen as TOO IMPORTANT as employers to be allowed to fail. If they went under, it would not only have put all their employees on unemployment, but also all their suppliers. Most of them depend exclusively or almost exclusively on the automakers for their products' sales. Without them, they'd fold under their own weight. Possible further consequences could be that once America became 100% dependent on imports for its automobiles, prices would likely skyrocket. Without domestic competition, America would be at their mercy. Prices would rise, sales would slump as cars became harder to afford, especially with the national economy in the toilet, meaning volume would fall, and the lack of economies of scale would also start to apply further upward pressure to prices. Ask any economist who knows what he's talking about, letting the big three die would have been an absolute catastrophe for the United States. Even letting it go down to the big TWO, would probably have done enough damage, but Ford could not have gone it alone without GM and Chrysler to pretend to compete against. Too many people would buy a foreign car before buying a (or another) Ford, and the problems that bedeviled the other two would have landed on Ford eventually, since the parts manufacturers would still have had trouble even if Ford survived because they wouldn't be able to replace the demand GM and Chrysler generated for parts. They still would have folded, likely, leaving Ford wanting for certain (if not many) parts. Many of these companies are interdependent in obscure ways, having one or two fail would still spell trouble if not doom for the third.
So Stallman's ideas of supplanting the need for an educated consumer populace with taxation is silly, and only punishes successful businesses for being successful. I might be able to get on board with the idea of the government making mergers and acquisitions harder, but just making size unprofitable makes benefiting from the economies of scale unprofitable. Also, any such law enacted would not have any impact on non-US companies, which simply would give them even more of an advantage. Unless this idea would go hand-in-hand with import restrictions, tariffs, etc., it's a stupid idea, that just shows Robert M. Stalin is not seeing the big picture, and it's a good thing he's not running anything. Pardon me... Stallman.