Posted by Dave Bath on 2009-01-24
The archetypal state claiming it was founded on liberal democratic and capitalist principles is the USA, with support for separation from colonialism being "No taxation without representation".
With governments throwing money at large companies, the catchcry for the design of the bailouts should be near-synonymous:
"No capitalization without representation and returns."
After all, the call for equity, directorships and dividends in return for capital is much more in tune with the philosophy private enterprises use to justify their existence than the call for representation determining government policy in a monarchical system.
We should be using such a catchcry to force politicians to act in line with their primary responsibilities, the interests of citizens, rather than corporations who argue against their social responsibilities and corollaries of their justifications for their own existence, because such a catchcry not only puts the argument succinctly, but will have some resonance with the general population, and thus be a more effective means of embarassing the politicians from their current plans which can only be driven by the need to keep donors happy.
This approach, that public monies should not be used for corporate largesse, but as standard investments that provide equity and policy leverage has been discussed in more detail, although without the simple "catchcry" I should have thought of back then, in the following posts:
- "Sarkozy’s smart move" (2008-11-09)
- "Oz climate policy levers jeffed by state premiers" (2008-12-21) which applies just as much to financial policy levers as those required to manage climate change risks
And how much mucking about would be required if our governments (state and federal) still had total ownership of banks and thus able to direct bank activities? If state-owned banks were making loans, and getting customers, the commercial banks would be forced to make the loans necessary for our economy otherwise their market share, and therefore share price, would plummet.
Unfortunately, Swan’s guaranteeing of loans by the private banks doesn’t really have any of the extra regulations and returns advocated by The Economist when bailing out, or socializing the risks of banks. Neither does it insulate us from losses by the banks overseas.
How can Swan trust the unanimous decisions of representatives from each of the major banks to grant commercial loans based on risk assessments, when the current financial crisis was in large part caused by the complete incompetence of all those banks to assess risks in the first place?
And remember, with market capitalization low, although still a bit high compared to unbubbled true worth, we’ll get great value for our money if equity reflects the proportion of our bailouts compared to current market capitalization…. value we’ll realize when share prices return to normal – as the government is both promising us and relying upon.
- "Government as banker? you bet!" (Peter Martin, 2009-01-19). While you are there, make sure you look at the “Bubbles Alive” parody of the BeeGees in this comment.