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Richard Stallman's Solution To 'Too Big To Fail'

Posted by Soulskill on from the tax-each-line-of-unreleased-code dept.

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?"

21 of 649 comments (clear)

  1. I have a better idea... by aaronfaby · · Score: 5, Insightful

    How about we just don't bail them out?

    1. Re:I have a better idea... by Anonymous Coward · · Score: 5, Informative

      On behalf of all anonymous contributors, I award you all of our mod points.

    2. Re:I have a better idea... by sumdumass · · Score: 5, Insightful

      How about propping up depressions to only appear as recessions doesn't make it not one to those in the lower half of the economy. If the current system is failing, propping it up to save grace for the wealthy doesn't appear to be a smart idea.

    3. Re:I have a better idea... by Anonymous Coward · · Score: 5, Insightful

      It's called evolution. Those that can and need to live on evolve. Those that can't die off. Just like life.

      We can't keep supporting old economies and old industries that need to change into something else. Yeah, it's hurts like hell and a generation pays the price for awhile, but at least we grow and move into the future instead of supporting the past.

    4. Re:I have a better idea... by Hatta · · Score: 5, Insightful

      Bail them out, save the economy, but jail the executives responsible. If your firm destabilizes the economy you go directly to jail.

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    5. Re:I have a better idea... by tlhIngan · · Score: 5, Insightful

      Corporations that are poorly managed need to go bankrupt and the burden should not be placed on the tax payers. Yes, some people will lose their jobs. That's called life, sometimes it happens

      You missed another important market - some people lose their life savings. Now, the US does not have a particularly strong social security net, so a lot of people rely on investment funded savings and investment funded retirement plans.

      The problem is that these people now have to choose between food, utilities (heat/electricity/water), or a roof over their heads.

      Plus, a lot of people would suddenly be in a lot more difficult positions. So you've saved the requisite amount of money to live on for 6 months in case you get laid off. So let's say you get laid off. No problem, you have a cushion of money to live on. But no, you got laid off AND your bank failed (WaMu, anyone?). Now you have no income and no money. If you were dilligent, you may have socked away money elsewhere but now you only have half the money and the real risk that they could fold too.

      Yes, companies should fail. However, when you're "too big to fail" it means vital corners of the economy are interdependent. When a small business fails - OK, some people left without jobs. When a large presumably infallible company fails, it ripples throughout the economy.

      If Apple failed - you'd have maybe half a million people out of work, and many more who have lost a significant chunk of their savings and pensions.

      Ditto Microsoft.

      But say Google failed - now you'll have ripples through the entire online economy - practically overnight there would be no more advertising (Google and all Google-owned companies like DoubleClick), and sites that relied on it would be in trouble. We saw a ripple of it a few years ago when online ad rates tanked and paywalls cropped up.

      In an ideal world, businesses failing would be a neat, clean, simple affair. These days, most companies are horrendously intertwined with many other companies (two competitors may have a very incestuous relationship, for example - think beyond love/hate Apple/Google), so it becomes a very messy affair.

    6. Re:I have a better idea... by Archangel+Michael · · Score: 5, Insightful

      False. These banks took unnecessary risks and should fail, and the shareholders would be on the hook for the "non-payments". Too big to fail means too many hands in too many pies that we can't extracate who did what and to whom.

      Fuck-em. Let them fail. bail out the deposits, make sure you get what you can from the loans outstanding and fail the bank and fuck the shareholders. I guarantee you that those people running FAILED banks will never work again(except at McDonalds), and those propsing the same kind of "banking" will never get promoted again.

      And we should be able to raid the trust funds of all ill-got gains of the criminals who run and ruin these firms, including all the Operating Officers and Board of Directors.

      --
      Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
    7. Re:I have a better idea... by jimmy_dean · · Score: 5, Insightful

      That's what they wanted you to think, but really, can you prove that? That's a huge conjecture. And even if it was true, I don't like the current state of the economy nor all of the power the government has usurped from productive citizens. All the government did was to make the hangover temporarily go away by drinking more alcohol. You don't cure a hangover that way. You endure the pain, and you don't get wasted in the future.

      --
      -> Sometimes, you just gotta break free from the shackles of proprietary code.
    8. Re:I have a better idea... by Hatta · · Score: 5, Insightful

      What you've done is create a new type of criminal. One who's educated, who's proven to have few moral concerns, and now has nothing to lose.

      We already have that kind of criminal, they're called bankers, and they control our economy. They will do less damage in jail than they will wielding hundreds of billions of dollars.

      If you want to recommend excessive and inhumane punishments for what basically amounts to negligence and fraud

      Bullshit. The 2008 financial crisis destroyed 100X more wealth than was stolen in all the property crime that year. Let me say that again. The total sum of all property crime in 2008 was less than 1% of the losses in the financial crisis. And these financial losses have real human costs as well. When you destroy a mans livelihood you are responsible for the pain that causes. When your negligance and fraud are excessive and inhumane, you should expect excessive and inhumane punishments. Execution would be just fine by me.

      --
      Give me Classic Slashdot or give me death!
    9. Re:I have a better idea... by Petron · · Score: 5, Insightful

      Can you cite a case where a business went under and their competitors did as well... Unless the competitors were also doing poorly.

      If GM went under, Ford and Chrysler would be higher in demand as they pick up the slack. If Johnson Controls (makers of car batteries) lost money due to GM going under, they will also have higher demand from GM and Chrysler... Plus they still provide batteries for existing cars. (in other words, the company should diversify, not provide products for only one business).

      I use to support the "Safety Net" idea, but now... I don't. Safety Nets remove risk. Risk helps us avoid bad decisions. If a bank is told to make loans to people who are high-risk, The bank will protest. They know it's a bad idea. But if the government adds a safety net, say a promise to bail out bad loans... Why wouldn't the bank make the loan? If the loan works out: they get paid. If the loan fails: they get paid. Win-Win for the bank. Housing demand goes up, Home prices go up. Bank loans go up. You want to talk about making the economy suffer... it was just a matter of time before the bubble burst. And anybody who warned about the loans and tried to stop the bubble bursting was dismissed as "Hating the poor" or "Playing chicken little politics". *sigh*

      --
      if (it != oneThing) it = another;
    10. Re:I have a better idea... by YoungHack · · Score: 5, Insightful

      Bank deposits are not guaranteed by the government. Bank deposits up to a limit are guaranteed. My deposits are guaranteed. So are yours probably. But my employer is big. The amount of money required to make single payroll is more than is guaranteed under the limits.

      So my money is secure and your money is secure. But at the end of the month, suddenly my employer can't make payroll because a bank failed. Perhaps yours can't either. That's a big deal.

    11. Re:I have a better idea... by bondsbw · · Score: 5, Informative

      Exactly. This is what the FDIC was implemented for.

      The bank fails, the FDIC gives me my money, and I go to another bank. Meanwhile, the government cracks down on FDIC-insured banks so that the taxpayer isn't likely to get stuck with that bill again.

      --
      All my liberal friends think I'm a conservative, all my conservative friends think I'm a liberal.
    12. Re:I have a better idea... by AmiMoJo · · Score: 5, Informative

      False. These banks took unnecessary risks and should fail, and the shareholders would be on the hook for the "non-payments".

      I don't think you have any idea how little capital the banks actually had to secure all their debts. We are talking well under 10%, sometimes in the 2-3% range. So if they failed everyone who had an account with them would be scrambling for their cut of 2% of the amount needed to pay everyone back. The shareholders don't owe them anything because the bank actually owes the shareholders money.

      All the loans the banks made to businesses, loans they need just to operate day to day, would be called in immediately. Almost all of those businesses would instantly fail because they would owe large proportions of their net work, perhaps more than their net worth, and would be unable to get any more credit because all the other banks know it wouldn't be used to make money, only to pay off debts to the now failed bank.

      I don't know how you guys did it but in the UK we bought the banks. We own them now. When we sell them off we will get back what we paid for them, perhaps even a bit of profit. The bailout wasn't free money, we expect a return. Of course we still had to borrow that cash so it is costing us in interest payments, but the idea that we just gave away hundreds of billions is nonsense. As an added bonus we could lean on those banks to reduce bonus payments and act responsibly. The previous administration made a start but unfortunately the current government won't carry on the policy.

      --
      const int one = 65536; (Silvermoon, Texture.cs)
      SJW, n: "Someone I don't like, and by the way I'm a fuckwit" - AC
    13. Re:I have a better idea... by maccodemonkey · · Score: 5, Informative

      Exactly. This is what the FDIC was implemented for.

      The bank fails, the FDIC gives me my money, and I go to another bank. Meanwhile, the government cracks down on FDIC-insured banks so that the taxpayer isn't likely to get stuck with that bill again.

      And the government decided it was cheaper to bail out the banks than pay that money.

      Government waste or a stand on principal: Take your pick.

    14. Re:I have a better idea... by BoberFett · · Score: 5, Interesting

      Considering that the banks are making higher profits than ever while the economy continues to slump along tells me that we made the wrong choice.

    15. Re:I have a better idea... by Dahamma · · Score: 5, Interesting

      No, considering the government has pretty much made back all of the money it put in (plus a profit in some cases) I think that was exactly the right choice.

      Would it really have been better to take on another trillion dollars in debt covering all of the losses with no way to make it back? And in situations that weren't insured by the government (like universal life insurance) just tell millions of people they are fucked? At least this way the banks PAID their loans back - and then of course went back to making money hand over fist as usual, but that's really an entirely different argument that definitely needs to be addressed.

      And of course, this claim that the economy is continuing to slump along today really seems to be as much a fabrication of the media as anything else. Or at least it's highly dependent on the industry. The market is on fire, tech is going great, and as you said finance/banking is back in the black. Yes, there are a lot of people who were in manufacturing who are out of work, but honestly that is not recession, that is a fundamental shift and those jobs are not coming back any time soon. But certainly letting all of the largest banks and insurance companies fail and potentially doubling the unemployment rate wouldn't have helped that no matter what you think of the economy...

  2. Re:Stallman's a Brilliant Engineer by Anonymous Coward · · Score: 5, Funny

    Your grain of salt is too large, it must first be split into smaller grains first.

  3. Scrape the idea by Arthur+B. · · Score: 5, Interesting

    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
  4. Or The Punishment Could Fit the Crime by rmdingler · · Score: 5, Insightful

    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

  5. Simplest Solution by CanHasDIY · · Score: 5, Insightful

    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
  6. The financial sector rivals the government by Beeftopia · · Score: 5, Interesting

    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.