Lots of (most) people think we live in a market economy. I beg to differ. Plan economy better describes it. If it was a market economy, how come the market doesn’t set the interest rate? And how come, when the financial systems melt down because of sub optimizing in the sea of regulations, the answer is always more regulations? If Obama and his followers around the world gets it their way financial business, and even business that goes “To Big To Fail” (an arbitrary label put on any business that the governments can’t keep their fingers off of), will have to carry even larger legions of bureaucrats and politicians on their back in order to have permission to operate. The result will of course be even more volatility for the markets and higher prices paired with lower quality of service for us citizens. But do the Obamas of the world care? No, what they care about is taking this wonderful opportunity to meddle with peoples affairs, just like they did when those terrorists managed to kill so many innocents back in September 11 2001, just like they always do at the time of any crisis.
The problem is a bit like a super Kinder Egg. Four (unpleasant) presents in one package; Bailouts, Fake interest rates, government regulations and “Stimulus”. Unlike real presents though, we are paying for them ourselves. This blog post addresses the Bailouts. If I find some more time to write I’ll deal with the other Kinder Egg content in coming posts.
If this is a market economy why is it that banks and insurers that suck at doing business are propped up and bailed out by the governments? In the U.S. the bailout costs so far are approaching $10 trillion. Now, that’s a lot of money!. Check this article out to get an idea on how fast these bailout trillions are burning. In a market economy failing businesses fail and resources are reallocated to good business. Jim Rogers, chairman of Singapore-based Rogers Holdings has understood this and says:
The U.S. is taking assets from competent people and giving them to incompetent people. That’s bad economics.
(From Bloomberg article U.S. Bailouts Add to Risk of Depression.)
Contrast that with what the mainstream opinion holds true:
Banks that fail hurt the society.
(Freely translated from this editorial in Sweden’s largest news paper.)
In our phony economy banks don’t need to care about the long term. In the booms bank managements can reap as much as possible from the speed-blindness of the market, stuff their own pockets full with those insane bonuses and pretend it is a reward for business success. In the busts their business will stand completely unprepared, naked and vulnerable, but these nigh-criminals can just shrug their shoulders and rest assured that our tax money will step in and save their asses.
What this system does is to perpetuate the bad leadership in these institutions. It’s not setup for learning anything good. And, as you may or may not know, I’m crazy about learning. In a market economy the business these lousy managers run would fail. These people would have big ugly FAILs in their CV:s and they would have to find jobs better suited for them (something involving minimum responsibilities of any kind). As it is now they can continue their careers like if they actually knew what they are doing.
There’s also no incentive for these businesses to start competing using arguments like “with us your money is safer than with them”. Remember, in our messed up economy, money we put in the bank is just as safe regardless of what bank we choose. The governments think they own our tax money. They will use it to prop these banks and insurers up and even bail them out if it comes to that. Then they will act surprised and exasperated when the bank managers try to use the tax money to enrich themselves even more. In reality we have these criminals as bank managers because we deserve it.
Some say we should nationalize these bad banks. Like they would be run better by politicians. Like that wouldn’t be an even surer way to burn up our tax money. In Sweden, Bailout nation #1, politicians are trained to find some middle ground. What they try to do is to give the tax money to the banks if the banks sign a contract about how the money can be used. For some reason politicians seem to think of themselves as good business people. They don’t see that all they are doing is playing Monopoly with our tax money. (Or maybe they see that and laugh at the joke.) The really sad part of this story is that lots of the Obamas in the world are impressed with what’s called The Swedish Bailout Model. Sweden is successfully exporting it! The world must of course move in the opposite direction. Away from plan economy and towards market economy.