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Government Politics

Richard Stallman's Solution To 'Too Big To Fail' 649

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

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  • by aaronfaby ( 741318 ) on Monday February 04, 2013 @04:37PM (#42788793)
    How about we just don't bail them out?
    • by Anonymous Coward on Monday February 04, 2013 @04:42PM (#42788887)

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

    • by YodasEvilTwin ( 2014446 ) on Monday February 04, 2013 @04:43PM (#42788895) Homepage
      The point is that you need to bail them out, because otherwise a recession becomes a depression or whole sectors of the economy will be destroyed. That's what "too big to fail" means.
      • by sumdumass ( 711423 ) on Monday February 04, 2013 @04:47PM (#42788943) Journal

        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.

        • by Anonymous Coward on Monday February 04, 2013 @05:24PM (#42789383)

          If the current system is failing, propping it up to save grace for the wealthy doesn't appear to be a smart idea.

          If Congress had not acted to bail out the various banking institutions during the crisis, about half of wage earning American's would have suddenly discovered that:
          - they did not get paid
          - they cannot access their bank account
          - they cannot withdraw any money from their bank account
          - they cannot use their debit card
          - they cannot use their charge card

          because the banks that back their various forms of payment, deposit, etc, had gone out of business or been forced to suspend access because of a run on the bank.

          How long can you go without a paycheck, debit card, or credit card?

          • by Archangel Michael ( 180766 ) on Monday February 04, 2013 @05:38PM (#42789611) Journal

            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.

            • by bondsbw ( 888959 ) on Monday February 04, 2013 @06:19PM (#42790291)

              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.

              • by maccodemonkey ( 1438585 ) on Monday February 04, 2013 @06:43PM (#42790601)

                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.

                • by BoberFett ( 127537 ) on Monday February 04, 2013 @07:27PM (#42791217)

                  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.

                  • by Dahamma ( 304068 ) on Monday February 04, 2013 @09:23PM (#42792411)

                    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...

                • by bondsbw ( 888959 ) on Monday February 04, 2013 @07:34PM (#42791315)

                  It was cheaper in the short term. In the long term, the government indicated that it is acceptable for very large companies to continue to make unwise decisions that could create new recessions in the future.

            • by AmiMoJo ( 196126 ) * <mojo@wo[ ] ['rld' in gap]> on Monday February 04, 2013 @06:41PM (#42790587) Homepage Journal

              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.

              • by tlhIngan ( 30335 ) <> on Monday February 04, 2013 @06:52PM (#42790739)

                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.

                Actually, the US did that too - they actually curbed a whole bunch of spending and executive pay and all that. A lot of the more solvent "banks" actually repaid their loans earlier than due because when you're owned by the government, it's not a good thing to a bank executive.

                Thing is, being onthe taxpayer's dole isn't flowers and ponies - all of a sudden the remuneration packages can get reviewed, bonus packages get axed, and even worse, regulators and auditors can come sniffing around the books.

                That's why the banks repaid their loans quickly - last thing they want is government auditors opening books and seeing "what went wrong" and then enacting new rules against the shenanigans they played.

            • by Solandri ( 704621 ) on Monday February 04, 2013 @07:11PM (#42791031)
              Just go back to the old system. Banks cannot be investment brokerages. Investment brokerages cannot be banks. Then the only risk banks can take is in making loans. They shouldn't be trying to make money gambling in the stock market using depositors' money as their nest egg. They should be making money via interest they earn by making smart loans with depositors' money.
              • Re: (Score:3, Insightful)

                here, here.

                I would also add that the government should not be forcing (coercing) banks to make mortgages that are riskier than they would otherwise make.

            • I guarantee you that those people running FAILED banks will never work again(except at McDonalds)

              The "Fuck-em" philosophy certainly feels good, but the results will rarely match the fantasy. Do you really picture some bank executive walking away sobbing and destitute when the bank crumbles? Even without further employment these people will be wealthy their entire lives. Even with the ability to 'raid their trust funds' or other monetary penalties, do you really believe that the wealthy don't know how to hide their money?

              The other thing I think people tend to neglect in these fantasy scenarios is t

            • by Qzukk ( 229616 )

              and those propsing the same kind of "banking" will never get promoted again.

              Also LOL. Property-backed CDOs are on the rebound []. This time will be different!

          • by jimmy_dean ( 463322 ) <<moc.liamg> <ta> <ppadoh.semaj>> on Monday February 04, 2013 @05:38PM (#42789615) Homepage

            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.

            • by Stargoat ( 658863 ) <> on Monday February 04, 2013 @06:16PM (#42790239) Journal

              It wasn't ever about the amount of money in the various accounts. It was about the services these banks performed for other banks. If those large banks failed, then the credit card processing they did for other banks would fail. The check clearing they did for other banks would fail. The funds clearing they did for other banks would fail. The cash transport they did for other banks would fail.

              Basically, it was not the customer business that was the issue. We let the Lehman Brothers and the Bears Stearns fail. But the banks that provided services to other banks were retained.

            • by unrtst ( 777550 ) on Monday February 04, 2013 @06:30PM (#42790427)

              I was on board with you there until you claimed that you don't cure a hangover by drinking more alcohol. That works so incredibly well, I'm starting to think the gov't did the right thing! :-)

      • by Anonymous Coward on Monday February 04, 2013 @04:47PM (#42788955)

        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.

      • Re: (Score:3, Insightful)

        by aaronfaby ( 741318 )
        No you don't. That's Keynesian nonsense. 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. The worst thing you can do is paper over it just to make everyone happy. Another company that is better managed will move in to fill the void, they always do. Now that executives of major corporations know they can rely on Uncle Sam to bail them out for making big mistakes (an
        • Re: (Score:3, Insightful)

          by Cigarra ( 652458 )
          Uhm, no. The point is that if they fail, it will be more than just "some people will lose their jobs", because other companies would be dragged in the fall, and the entire economy would suffer.

          Now I'm not even agreeing with the reasoning, but you didn't quite seem to even grasp it.
          • Re: (Score:3, Insightful)

            by Anonymous Coward

            Sorry, but that doesn't cut it. There was never any bank 'too big to fail' in the sense that their assets would not cover their deposits. TBTF simply meant that bond holders (e.g. owners) of the bank would have lost their investment. For some pension funds and other investment vehicles that could have caused significant havoc but it would not have caused a worse recession then happened. Many, many people lost their jobs anyway and money was spent to prop up banks that made incredibly risky investment decisi

          • by Petron ( 1771156 ) on Monday February 04, 2013 @05:42PM (#42789687)

            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*

            • by dgatwood ( 11270 ) on Monday February 04, 2013 @06:02PM (#42789987) Homepage Journal

              I would argue that there should be a limited safety net for individuals, simply because a basic sense of humanity requires it, and because people don't always have a great deal of choice in the matter when it comes to deciding where they want to work; they work for whoever was hiring when they lost their last job. Any risk they might take by taking a job pales compared with the risk of being unable to pay the bills, so a lack of a safety net doesn't help them avoid bad decisions in any useful or practical way.

              There should be no safety net for businesses, because businesses are not individuals; they do not have feelings; they do not need to be fed; they do not need roofs over their heads. If the safety net for individuals is sufficient, the individuals that work for failed businesses should be able to land on their feet. If it isn't, then the problem is the broken safety net for individuals.

              Of course, there's still the question of whether eliminating the social security safety net would discourage poor investing choices, but again, I think that where individuals are concerned, the answer is "no", if only because most individuals cannot possibly be expected to have the depth of understanding required to recognize toxic assets and other such problems.

            • by The Dancing Panda ( 1321121 ) on Monday February 04, 2013 @06:10PM (#42790107)
              The car one is pretty easy to explain.

              GM, Ford, and Chrysler all share US manufacturers for smaller parts of their cars. Ford did not take bailout money, but did argue for the other companies to be bailed out. Why? Because the smaller companies that they all share would suddenly have 2/3's of their customers cut out from under them, all at once. because economies of scale no longer work for the suppliers, parts prices go up severely and immediately. Demand for Ford cars may shift upwards, and increased production could be an outcome eventually, but the immediate price increases make Ford increase their prices, effectively pricing themselves out of their own market because their competitors failed too quickly. This leaves most of the state of Michigan completely devastated.

              I'm not against the companies failing. In fact I would applaud it, because GMs and Chryslers have sucked so hard for so long. But it works out better for everyone if it's a more gradual process. This is the same case for the banks. Bad banks need to fail by customers moving their money out of them, so as to keep the least amount of innocent bystanders affected.
          • And they will continue with business as usual until you let them fail, at least once, to get the message across.

            After you do so, their insurance companies / etc. will explain to them that they need to meet certain criteria, or they'll need to find someone else to cover them.

            If you keep it as is, the only lesson they've learned is that in the event of an emergency, their political counterparts will bail them out, no questions asked.

        • by Intrepid imaginaut ( 1970940 ) on Monday February 04, 2013 @05:04PM (#42789137)

          Except in the case of banks, they have all your money, so if they fail, all your money is gone. Reserves are meant to ensure that a reasonable ratio of funds are kept in case of emergencies, but due to the removal of regulations those dwindled to very little, among other things. Personally I'd target the banks and never mind the rest of the corporations, everything else descends from them. Split up their responsibilities so one single entity isn't shuffling funds from pensions to derivatives, make various kinds of banks rather than just one "bank".

          Yes it will reduce the bulk of funds available for any one activity (like mortgages), but that's the price you pay for security; also it might inspire growth due entirely to creative activity rather than hype. There are a lot of other options for growth as well, but if you want to ensure this never happens again, return Glass-Steagall. Simple as that.

          Stallman's idea is pretty good but it has a lot of gotchas as he mentions himself, not least of which is finding a definition of 'size' that quicksilver accountancy and shell company structures won't slide around immediately.

        • Typically, companies are not bailed out. Kodak for instance. I think we're talking about an entire industry, for example farming. Given the size of farms today, if one farm shuts down, there might be no food on you table tomorrow.

        • by tlhIngan ( 30335 ) <> on Monday February 04, 2013 @05:08PM (#42789193)

          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.

          • by dinther ( 738910 )

            If people make bad investments then only they should suffer the consequences.
            If investments carried real risks then cooperation's would not grow large so fast either.
            Just because it is inconvenient when a large business fails is no reason to prop it up because it creates MORE large cooperation's, not less until there is no diversity left and the entire economy is one large state owned collective. We all know how well that works.

            • by squiggleslash ( 241428 ) on Monday February 04, 2013 @05:56PM (#42789919) Homepage Journal

              If people make bad investments then only they should suffer the consequences.

              That's great in cloud cookoo Libertarand land, but in the real world, we live in a connected world. Things affect me that happen way out of my sphere of responsibility.

              If I'm on a desert island, yeah, I'm responsible for most of what goes wrong (weather, etc, excepting.) But here?

              - I can make a bad decision, and destroy my means of support.
              - My boss can make a bad decision, and destroy my means of support.
              - My employer as a whole can make a bad decision, and destroy my means of support.
              - My employer's bank can make a bad decision, and destroy my means of support.
              - The bank used by a major customer of my employer can make a bad decision, and destroy my means of support.
              - The bank used by 10% of the customers of my employer can make a bad decision, and destroy my means of support

              We try to regulate banks and businesses so that doesn't happen. Likewise we also regulate driving. Just because you drank the beer doesn't mean it'll be you that's hit by your SUV.

          • The point here is to reform the system so that there is a regulated priority of payouts. As a company grows and becomes "too big to fail", it comes under increasing regulation regarding distribution and liquidation. First step: employees are retrenched with a minimum of 2 years cost to company payout before any other debts or bonuses are paid. Executives get paid last and receive no bonuses, incentives, increases to salary, exceptional payouts, or other weasle word names for bonuses. Second Step: creditor c
        • Except that's not really what happens at all.

          Perhaps we should look back at a simpler example of companies "too big to fail" that did: Coal mines. Once upon a time, coal towns could rely on a steady stream of work for not-too-bad (for the time) pay. No, it wasn't really enough to get wealthy or pay off significant debt, but you could live and raise a family. Besides the straightforward income from mining, the whole town's economy would be fed by the coal mine, from the saloons entertaining the miners, to co

      • by KarlIsNotMyName ( 1529477 ) on Monday February 04, 2013 @04:55PM (#42789055)

        Rather than bail them out, you can simply take over their properties when they become worthless. Or make a deal to take them over rather than them becoming worthless, and have ownership, rather than simply give money away. In the process, fire or sue those responsible for the collapse.

        Or, bail out the next layer down, ensuring change and that the same exact problem can't happen again.

      • by Charliemopps ( 1157495 ) on Monday February 04, 2013 @05:11PM (#42789219)

        That's what "too big to fail" means.

        No... what it actually means is you're being lied to. Most of the banks we're talking about here would still be bankrupt today if the feds hadn't suspended mark-to-market rules in 2008. They did fail, continued to fail, and are still failing today... despite the bailout. The bailout didn't save them. Allowing them to set the value of their own assets to whatever they wanted saved them. If I could claim my house was worth $10 million dollars and refinance it at whim, it'd be pretty hard for me to go bankrupt as well. It's a house of cards the government is allowing banks to build taller and taller. It WILL come down.

      • The point is that a company that is "too big to fail" will never actually fail, under any circumstances... EVER. It'll either go into bankruptcy and restructure its debts, spin off portions of itself into other companies, or it'll be split apart and sold to competitors. This happens to one major airlines almost every year! Delta went bankrupt, went through bankruptcy, and then almost immediately bought Northwest and became the largest airline in the world. The next freaking year, the same thing happen
      • Iceland didn't bail out their thieves - they voted nationwide not to do what the Very Serious People believed they should have done, which was to slash spending and bail out their thieves, lending Confidence to the International Investors Who Would Provide Jobs.

        Instead, they let the banks fail, and refused to provide a penny to the international investors who wanted a bailout. And they are jailing their thieves.

        And guess what! They are the only recovering economy in Europe. They are BOOMING. The Very Serio

    • Re: (Score:3, Interesting)

      by Anonymous Coward

      Bail out the taxpayers, but not corporations.

    • Re: (Score:2, Insightful)

      by gewalker ( 57809 )

      Brilliant absolutely brilliant. Too bad the guys that wrote the Constitution didn't think of that. Oh wait -- they did. Bailing out corporations (or individuals) was not among the enumerated powers granted to the federal government. Probably half or more of the federal budget is likewise unconstitutional (not that almost anyone in Congress or the Courts care)

    • Re: (Score:3, Interesting)

      Or, since corporations are "persons", why not tax them in an analogous fashion?

      For instance, divide their income by the number of full-time employees they have (averaged over the year, not just on a particular date), and determine their tax rate based on that metric. For this purpose, a full-time employee would be one to whom they pay a salary which exceeds the local minimum and additionally receives full social benefits. Social benefits in the U.S. would mean health insurance and suchlike; in much of Eu

    • by Hatta ( 162192 ) on Monday February 04, 2013 @04:49PM (#42788975) Journal

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

      • by N0Man74 ( 1620447 ) on Monday February 04, 2013 @05:03PM (#42789129)

        I like that idea, but it will never work. Executives will always try to maintain plausible denial, and send an underling down the river instead.

        • Then you make the legal punishments just as strong for running your economy destabilizing large company incompetently. And I assure you, if your company is doing something on a large enough scale to destabilize the economy and the CEO and board don't know about it, they are not running the company competently.

        • by Hatta ( 162192 ) on Monday February 04, 2013 @05:42PM (#42789683) Journal

          That's what RICO is for. It doesn't matter if you knew about the specific acts. If you control a firm that engages in a pattern of racketeering activity, you are guilty under RICO. Mobsters play the same kinds of games that executives do, and we have tools to deal with them.

          We already have the legal tools we need to put all of these people in jail. The one thing we don't have is an executive that believes in the rule of law.

      • by RazorSharp ( 1418697 ) on Monday February 04, 2013 @05:20PM (#42789349)

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

        Good idea. There aren't enough people in U.S. prisons.

        On a serious note: Using the threat of imprisonment seems to be a poor deterrent for crime. The U.S. has a larger prison population than any country in the world yet we have the most crime among any first world nation. Putting people in prison is like sending them to crime school: They're now for the most part unemployable, they have to spend months/years surviving the prison lifestyle, and any fallback money they had before landing in prison was probably sucked away from legal fees and fines imposed by the court.

        So now imagine this situation: You have a Harvard grad who was once the executive of a fortune 500 company. All his material possessions have been stripped away from him and the only things he has left are his mind (which is sharper than the average criminal's) and an intimate knowledge of American criminal culture. Do you really think that this person is rehabilitated? That he's learned his lesson and he'll go get a job at Taco Bell and live the rest of his life as a wage slave?

        No. 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. The 'throw them in jail' solution is a short-sighted one. Look to the war on drugs as a prime example. Unnecessarily throwing people in jail begets more crime in the long run. If you want to recommend excessive and inhumane punishments for what basically amounts to negligence and fraud, why not just recommend execution and free society of these people forever?

        • by Hatta ( 162192 ) on Monday February 04, 2013 @05:40PM (#42789643) Journal

          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.

    • by mlts ( 1038732 )

      If we don't bail them out and depositors suddenly have lost their checking/savings accounts, then we will be back to bank runs at a moment's notice, mattresses stuffed with money, and panics. Do we want that? Banks have security issues, but they are far more secure than a pile of gold stashed between two chunks of drywall in a disused bathroom.

      Don't forget that the bailouts did return most of the money spent with interest. In fact, in some cases, it was more of a smart investment.

    • by Sir_Sri ( 199544 )

      Too big to fail isn't some legal definition. It's a practical reality. If BP couldn't pay the 30-40 billion dollars they're looking at for deepwater horizon the UK stakeholders would have lost their savings in BP. They would then require they find new jobs, collect unemployment, collect more social benefits, the government would have to top up/take over etc. pensions etc. The cost of coping with the failure of the company would have been a lot more than just covering their arses on a 40 billion dollar

  • by Anonymous Coward

    Noted software license defiler and communist Richard Stallman urges heavy taxation and breakup of country's largest corporations!

  • Simply clever.

  • please stallman (Score:3, Insightful)

    by Anonymous Coward on Monday February 04, 2013 @04:40PM (#42788847)

    Ugh, this read like a computer law proposal from an old senator-- This, is completely out of his areas of understanding.

  • Sherman Act (Score:4, Insightful)

    by Anonymous Coward on Monday February 04, 2013 @04:42PM (#42788877)

    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.

  • by h4rr4r ( 612664 ) on Monday February 04, 2013 @04:43PM (#42788889)

    The banks should have been broken up as part of the bailouts. No need for any complicated new tax codes.

    • Agreed, break up the banks, though... do bring in a new tax code. It should fit on one or two pieces of paper, and say Companies pay X% tax... the end

    • by Optic7 ( 688717 )

      I agree with your sentiment that the banks should have suffered at least a little bit for their incredible screw ups. For instance, in Germany the government got some major concessions from the banks in exchange for bailouts, like having to take write-downs on the loans that they held.

      However, one thing with the bailout plan as it happened in the US would have served as a snag to these ideas: to the best of my recollection, ALL the large banks were forced to take bailout money, whether they needed it or not

  • My simple solution (Score:5, Interesting)

    by nedlohs ( 1335013 ) on Monday February 04, 2013 @04:48PM (#42788959)

    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).

  • by Anonymous Coward on Monday February 04, 2013 @04:52PM (#42789009)

    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

  • Scrape the idea (Score:5, Interesting)

    by Arthur B. ( 806360 ) on Monday February 04, 2013 @04:52PM (#42789019)

    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.

    • The domino effect also applies to car makers such as GM, they go under and a gazzillion local businesses go down with them. I like your comparison to organics, large companies are like keystone species, remove them and the micro-environment they provide also disappears. Now you could say "don't let a company get that big in the first place" but then you are giving every other nation an "economy of scale" advantage you ideology won't allow you to use.
  • by darkeye ( 199616 ) on Monday February 04, 2013 @04:52PM (#42789027) Homepage

    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.

  • by eksith ( 2776419 ) on Monday February 04, 2013 @04:54PM (#42789049) Homepage

    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.

  • by rmdingler ( 1955220 ) on Monday February 04, 2013 @04:57PM (#42789077) Journal
    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.
    • by RazorSharp ( 1418697 ) on Monday February 04, 2013 @06:00PM (#42789963)

      That may deter you from personally getting involved in the cocaine trade, but it certainly hasn't deterred others. If you already had a criminal record, if you weren't very intelligent, or if you were socially ostracized for some other reason, it may not seem like a bad risk. Furthermore, here's where your analogy really doesn't work: the reason cocaine is such a profitable product is because of its illegality. If cocaine was legal there would be razor-thin profit margins and it would be dirt cheap.

      It's not really comparable to financial markets. The main reasons for white collar crime are that 1) oftentimes it's dubious whether they're committing crimes -- many of the actions taken may be considered immoral, but the actors don't bother to consider whether they are legal 2) we have a system in place that encourages such behavior 3) a lack of transparency when it comes to the books.

      People in China commit far fewer crimes than Americans do. There are far more negative incentives. But does any sane American want to live in China?

      One thing people overlook about Anthony Burgess' A Clockwork Orange, as they're distracted by the sex and violence and funny words, is the moral. To paraphrase, one should do good because it's good, not because they're compelled to. Prison sentences in the United States are much more harsh than in European countries, yet European countries have much less crime.

      Your suggestion reminds me of child support. All the poor losers out there who go to prison because they didn't pay child support and then can't get a job to pay their child support when they get out of prison because they have a record. So then they turn to real crime or they just go back to prison for not paying child support. Brilliant system there.

      As the Burgess' paraphrase indicates, I'm no fan of inflicting behavioral reinforcement on human beings, but if you do choose to go that route, isn't it Psychology 101 where you learn that positive reinforcement is much more effective than negative reinforcement?

  • 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.)

  • 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

  • by swb ( 14022 ) on Monday February 04, 2013 @05:11PM (#42789225)

    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.

  • Glass-Steagall (Score:4, Interesting)

    by Capt.Albatross ( 1301561 ) on Monday February 04, 2013 @05:17PM (#42789309)

    It seems to have worked well for almost 60 years, during which time the global economy did pretty well.

  • Simplest Solution (Score:5, Insightful)

    by CanHasDIY ( 1672858 ) on Monday February 04, 2013 @05:24PM (#42789395) Homepage Journal

    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.

  • by Beeftopia ( 1846720 ) on Monday February 04, 2013 @05:56PM (#42789911)

    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.

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