Constitutional Government as a Stakeholder

I would like to preface this writing by giving full disclosure and stating that work in the financial industry and I believe in an extremely limited government with the minimal services and entitlement programs to keep the country moving.  I am not typically a cynical person, but when it comes to entitlement programs I feel that you are doing a person/organization a disservice by providing them with a fall back due to fiscal irresponsibility. With extensive entitlement programs, the government is essentially telling citizens/organizations that it is okay to take a risk because if you fail, then the government will aid you in recovery.

Now, I’d like you to think back to the fall of 2008. What were some common terms and phrases that the media used in this time to describe what was occurring in the financial industry? For me, the two that come to mind are “Bailout” and “Too BIG to fail.”  Leading up to, what is now coined to be, the worst financial crisis since the depression of the 1930’s, large financial corporations were increasing their exposure to risk and taking on an enormous amount of “bad debt.” When mega-corporations such as AIG, Citi Group, Bank of America, Wells Fargo, etc. realized they would soon be in the red without assistance, the government determined those banks were “too big to fail” and granted financial assistance totaling around $200B of taxpayer money. A list of all “bailout banks” can be found here: http://money.cnn.com/news/specials/storysupplement/bankbailout/

One understated effect of the government granting assistance with anticipation of future repayment is that the government actually became a stakeholder in each of these companies that it assisted. As a stakeholder, the government now has an interest in the success of the company and future profits that are to come. Now, I understand that times have changed since the constitution was written but I don’t believe it states that the government should hold stake in any private corporation. According to John Locke, the sole purpose of government is to protect the rights of its constituent’s ability to secure life, liberty, and property. I do understand that the failure of these banks would have resulted in financial catastrophe;  but the act itself is unprecedented and creates many new opportunities for government intervention. This act really worries me as a citizen because it makes me wonder where they will draw the line as to what is deemed necessary of assistance.

In addition to a limited government, I am a firm believer that (relative) perfect competition is the best economic system because it creates the lowest price for the consumer due to competition. When the government took stake in these companies they essentially owned a portion of that company until the funds were repaid. First, notice that the government became a stakeholder in competing banks. The financial support was not equal among all banks. This deviates from the idea of perfect competition because a bank that receives more funds than another now has a competitive advantage and the government may favor the success of the bank it lent the most money towards.

A second observation worth noting is that additional unnecessary regulations and statutes may be written to favor the success of a specific bank.  

Consider this hypothetical situation:

The Federal Government lends Wells Fargo (a national bank with a great deal of customers) $25B and also lends Texas Capital Bank (a local bank with very few customers and assets) $2M.  Now that the government “owns stock” in each of these banks, the bank’s books must be opened up to the federal government.  In all likelihood, the federal government would be more likely to propose legislation that favors the success of the $25B they lent to Wells while overlooking the $2M they lent to Texas Capital. This is a very vague example but it does bring about the idea that with the government as a stakeholder, they might be more interested in the success of one company over another.

Overall, I do not believe our government was created to become a stakeholder in any private corporation or organization. When the government takes stake in a certain company, it is then tied to the success of that company.  I feel that the government should be as limited as possible to fully protect life, liberty, and property of each citizen. When the Federal government branches out into new industries(in the case lending), it sets a precident that makes me wonder where it all will end.

Globalization: Whatever can be done, will be done

Throughout the years, many innovations have taken place in society. These innovations often lead to changes in the way people within a society go about their every day lives. One critical change that we have, and continue to experience in today's society, is Globalization. There have been many things that led up to the idea of globalization but I believe it is in its most critical stage of development in present times.

A few years back I came across a lecture video on the MIT open-courseware system entitled "The World is Flat." This, by nature, caught my eye and I had to watch. In this video (http://www.academicearth.org/lectures/the-world-is-flat), a man by the name of Thomas Friedman discusses his story, observations, and findings on the topic of globalization. Friedman is a journalist and as many journalists do, posed the following question: "Why does everyone hate Americans?" In his attempt to answer the question, Friedman realized he needed to view Americans from a different perspective. Following this realization, Friedman traveled to Bangalore India to conduct fieldwork. While in India, Friedman met with a very prominent Indian engineer and conducted an interview.  Friedman was told "The global economic playing field is being leveled, and you Americans are not ready." This led Friedman to develop his theory that "The World is Flat" and individual globalization.

Friedman presents the idea that Globalization has occurred in 3 steps through time. The first step of the globalization process began with countries globalizing. This has been around for some time now and lasted until about the 19^th or 20^th century. Counties have always had some form of relation with each other. Regardless of whether the relations are good or bad, counties have and will always have an impact on each other. The next step in the globalization process began with companies and industries globalizing. Examples of this include outsourcing and off-shoring of jobs for cheaper or more efficient labor. Another example is when companies decide to operate internationally and have offices in multiple countries to reach a larger target market. The final step, and the step I find most important and prevalent in today’s society, is individual globalization. When individuals can share their ideas through mediums such as the internet for a relatively cost free method, It creates this idea of individual globalization.

I define Individual Globalization to mean an individual’s ability to reach all ends of the earth to conduct business and share ideas. This has been created by the dot.com boom which led to the overinvestment in digital infrastructure. This overinvestment essentially “wired the world” and made it relatively free to publish ones ideas and conduct business with a connection to the internet.

So what?

The idea of individual globalization should be a high priority to everyone in society. To begin, individual globalization has created a substantial amount of competition that was not there before. As you may know, people in less developed countries work for a much cheaper wage compared to those in the United States. If those countries have the technology to perform tasks that are normally performed here, what is stopping businesses from outsourcing the work to save costs? Examples of outsourced work can range from menial tasks such as answering a telephone to tasks that require high levels of education such as analyzing x-rays or giving advice on medical treatment. This will, if it has not already, affect many American’s ability to get jobs and may negatively impact the compensation they receive. This makes me wonder if there is any correlation between the unemployment rate and the change in amount of jobs sent offshore.

Another result of the “overinvestment of digital infrastructure” is now every person who is connected to the internet has the ability to publish their ideas for everyone else to see. This has many positive contributions to society in the sense that new innovations and inventions are being created and now the creator can seek funding/support for those ideas that may not have been possible prior to the “digital overinvestment.” This brings about my challenge to you. In our current stage of individual globalization, whatever can be done will be done. The important question that I encourage you to consider is: If whatever can be done will be done, will it be done by you, or to you?