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?"
Re:I have a better idea... (Score:5, Informative)
On behalf of all anonymous contributors, I award you all of our mod points.
Comment removed (Score:5, Informative)
Re:I have a better idea... (Score:2, Informative)
Right, because there's no information imbalance there for the average investor. None whatsoever.
Re:I have a better idea... (Score:5, Informative)
The amount of money necessary to prop up the banks was less than the amount FDIC would have had to pay out if the banks went down in flames.
Re:I have a better idea... (Score:5, Informative)
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.
Re:I have a better idea... (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.
Re:I have a better idea... (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.
Re:I have a better idea... (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.