Wednesday, March 30, 2011

Of Big Government and Big Corporations

Neil M. Barofsky, former special inspector general of the TARP bailout program, penned a rather disturbing op-ed in yesterday's New York Times.

Barofsky's assertion that the provisions of the bailout designed to help Main Street "have been a colossal failure" should surprise no one.  In fact, it's surprising, if not shocking, that a former government official has admitted that failure.  Nor should one be surprised that the "Treasury [Department] apparently has chosen to ignore rather than support real efforts at reform."  I seldom expect Washington to make things better; I foolishly continue to hope that they will do no harm.

The disturbing element of the editorial is "[t]hese banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed “'too big to fail.'"  More frighteningly,
The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary. Indeed, credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle.
 If one parses that last quotation a bit, the true failure of TARP and the true hubris of corporate America becomes clear.  The institutions that caused the financial collapse expect to be bailed out again.  Further, they are bigger than they were when they were to big to fail.  Logically, that means that when they bring America to the brink of collapse again the economic devastation will be greater.  Finally, smaller institutions will not be able to catch up.  If that's the case, individuals have little or no chance of getting ahead.

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