Towards a Monopoly of Big Business and Big Government: Why the House Must Resist the Bailout

 by Joseph BH McMillan  

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This is not the time to relax Competition (antitrust) laws, it is time to enforce and strengthen them.

For once, I shall keep an article short and, hopefully, to the point.

Much has been written about the "bailout" both here, and in the "mainstream" press.

One of the best commentaries is by Jeffrey A. Miron, a senior lecturer in economics at Harvard University (http://edition.cnn.com/2008/POLITICS/09/29/miron.bailout/).

Given the number of excellent articles condemning the immorality of a bailout, and also refuting the Armageddon scenarios painted by those eager to save their colleagues in the financial industry, I want instead to address a different angle.

The immediate and long term effect of a bailout will consolidate financial power in the hands of just a very few financial institutions. This is already evident in Britain and Europe where Competition Laws had to be waived in order to allow the buyout of HBOS (Halifax Bank of Scotland) by Lloyds TSB.

As the names suggest, HBOS and LloydsTSB are themselves the result of four banks merging. So from 4, we now have 1 – and at the same time, we have government (the EU) accommodating this concentration of financial muscle by suspending Competition Laws.

If the bailout goes ahead, it will be in the government's interest (in the US and Europe) to assist this consolidation of financial power into the hands of the few. It will facilitate an easy and expeditious implementation of the bailout plan. The fewer "players" the government has to deal with, the better. A side-effect will be the enormous temptation for corruption – but that’s for another day.

The end result will be a convergence of government "interests" with the interests of Big Business. And ask any small business who gives them their biggest headaches, and the answer will inevitably be government and their bank.

With all this concentration of power, the little man (individuals and businesses) will be even further removed from any ready access to funds. We all know how difficult it is already to get a human being on the other end of the telephone when we call our bank. Only those people and businesses with financial clout (meaning that they are in hock to the banks for millions or billions) will actually get to speak to anyone resembling a "manager." The rest of us will get recorded messages, and piles of forms.

In short, we will end up with a kind of Command Economy with government and Big Business calling the shots, and running the "free market."

Of course, many will argue that we will have precisely that scenario if government does not intervene – and there is some evidence of this in the rush to mergers and acquisitions that are now taking place. But all this activity is being promoted by government – it isn’t the result of the market working through the problem. In the US and Europe, almost every merger and acquisition has the clear fingerprints of government all over them.

So this is not the time to relax Competition (anti-trust) laws, it is time to enforce and strengthen them. If not, we will end up with a hideous alliance between big government and Big(ger) Business – what got us into this problem in the first place – but magnified many times.

If we resist the bailout, many big financial institutions will certainly fail, as they should, but the opportunity for smaller, decentralized institutions will blossom. It will take a little time, but it will happen. The case of a small regional Building Society is evidence of this.

While credit is supposedly drying up in the major financial institutions, a Mutual Society in the Midlands of Britain is pumping nearly $1 billion into the market for new mortgages and credit.

West Bromwich Building Society is a mutual Society owned effectively by its depositors (members). It resisted the temptation to join in the bonanza of going Public, and as a result, also resisted the temptation to jump onto the ‘securities’ bandwagon to make a quick profit. They are community focused.

The Chief Executive of West Bromwich is paid about $400,000 basic, and about $700,000 with bonuses and benefits; and the members are secure. Those CEO’s who presided over the current mess get tens of millions of dollars per year, some even in excess of a hundred million. And they want the taxpayers to pay a further $700 billion to clean up the mess?

Now I’m not saying that the West Bromwich is the ideal model for a small regional bank (mutual society), but it does show that prudence and local commitment works. In my view, that provides a model not just for the financial institutions, but also for government.

The further removed financial institutions and government become from the communities they serve, the more we all become little cogs in the wheel to turn a buck for greedy and corrupt financial and government apparatchiks.

We shall now see whether the GOP holdouts in the House have the courage of their convictions.

Politics: General

Read more articles by Joseph BH McMillan