Ok the title is a bit of an misstatement but I am getting so tired of massive government transfers to the rich. Basically here is what has happened. People with tens and hundreds of millions of dollars didn’t want to be subject to pesky regulations just because capitalism requires it. So they paid their politicians to not regulate their investment activities. They paid their lawyers to evade the legal requirements that they couldn’t get their political friends to remove.
Largely what they did was take huge amounts for taking positions that risk the economy for personal gain. The investments have huge leverage and massive negative externalities to the economy. Any capitalist would know this is exactly what the government is suppose to protect the economy from. Unfortunately our politicians think capitalism is that whoever has the gold, therefore should make the rules. A sad state but not a surprise.
So then, the negative externalities begin taking effect and the government now seems to think that massive government intervention is a great thing. What a sad state of affairs.
What should happen now. That is hard to say.
But certainly with the amount of huge financial bailout the government has engaged in recently certainly they need to plan for this far in advance (it is obvious their preferred method of letting their friends take huge risks with the economy and pay themselves well while the risks work out requires huge bailouts very frequently).
You could, I suppose, decide everyone should pay to support a few thousand people being allowed take positions that have huge negative externalities (in risks to the economy) and pay themselves millions before those externalities become obvious and then bail them out when it doesn’t but that doesn’t seem like the best strategy to me. Though it is obviously the one we have chosen. This is one very non-partisan issue. They pretty much all support letting those that pay the politicians well, do whatever they want. And then support bailing them out if there are problems.
What should the government do in economic matters. Not at all hard to say. Politicians shouldn’t auction off the health of the economy to those that pay them the most money. Politicians should not allow companies to subvert the legal and tax system and be rewarded (just because those companies pay the politicians well and fly them to nice vacations…). The government should regulate negative externalities as capitalism requires to function properly.
But most of all the voters need to vote for those actions. As long as voters elect those that believe in corporate welfare this is the natural result.
Related: Why Pay Taxes or be Honest – Politicians Give Lobbyists Tax Breaks for Billion Dollar Private Equities Deals (not the politicians are given the deal makers cash loans) – Estate Tax Repeal (payoff to the rich) – Politicians Again Raising Taxes On Your Children
To me it seems fairly obvious that if you want to have government policies that encourage taking huge financial risks with huge negative externalities to the economy so a few people can pay themselves huge sums then the economic way to manage that system is to have a tax on the risky behavior that is then used to bail out when the consequences of not regulating the obvious negative externalities come home to roost. Either that is too complex for our leaders to understand: very doubtful. They don’t understand basic economics and financial markets so they think the newest high leverage financial trick isn’t going to end the same way all the rest do (and therefore are surprised each time history repeats itself): sadly possible. Add to that they get paid huge amounts of money to believe this and have maybe a couple of economists telling them that this is perfectly predictable. And then you get what I think is the most likely. They know perfectly well they are letting those that give them huge amounts of money damage the economy for their own benefit (and then those doing so pay the politicians a bit to let them keep up the game). Somewhat ironically those paying themselves many millions I actually believe are more likely to believe their own hype. They have have so little understanding of economics and financial market history that they actually believe their flawed financial models. Of course, they need to believe something that justifies paying themselves obscene amounts of money.
This is to bail out investment bankers. Essentially what they have been doing recently is using massive leverage and fancy accounting and paying themselves huge amounts of money. Now others look a the massive leverage and say – jeez you are lousy credit risks, we don’t want to lend you money certainly not at these low rates pay us more. And the bankers find they can’t afford to pay more without going bankrupt.
So then the government decides to lend them money since only anyone that pays any attention to financial market history would know that massive leverage and counting on huge amounts cheap money (and relatively stable markets) forever is a certain failure of an investment strategy. But we don’t want rich people to suffer just because the inevitable happened.
You have to be a sucker like me not to play this game and not expect the government to give you cheap loans whenever your obviously flawed strategy fails. Which shows how little I know because it isn’t a flawed strategy when the government just gives you cash when the market says your strategy was a failure.
More than 21,000 people working for KBR in Iraq – including about 10,500 Americans – are listed as employees of two companies that exist in a computer file on the fourth floor of a building on a palm-studded boulevard here in the Caribbean. Neither company has an office or phone number in the Cayman Islands.
The Defense Department has known since at least 2004 that KBR was avoiding taxes by declaring its American workers as employees of Cayman Islands shell companies, and officials said the move allowed KBR to perform the work more cheaply, saving Defense dollars.
But the use of the loophole results in a significantly greater loss of revenue to the government as a whole, particularly to the Social Security and Medicare trust funds. And the creation of shell companies in places such as the Cayman Islands to avoid taxes has long been attacked by members of Congress.