Today marks the one year anniversary of the collapse of Lehman Brothers, one of the worst financial disasters of our time, as it nearly brought down the international financial system. Yesterday I was reading an article about how the big banks are showing signs of life with their actions and things are starting to move, signalling a possible economic recovery. This makes me wonder about the adage of being “too big to fail.” What is the right decision in this situation?
It appears to me that after the latest cycle, quite possibly and hopefully the worst we will see in our lifetimes, people are hoping that this time things will be different. That once we actually do reach a point of recovery, we won’t make the same mistakes that were recently experienced. This cycle has been painful; it has been gut-wrenching; it has been a lesson I surely don’t want to repeat, as I get it and don’t need to learn it again.
I am very nervous about this thought process. As the saying goes, history repeats itself, and that did not become a quote we all use without good reason. For generations, for decades, for centuries, the animal in human nature causes us to make the same decisions and choose the same paths as before.
Some of our largest banks, which the government determined were too big to fail, received billions in taxpayer TARP funds. Our money kept these institutions afloat and I understand the reasoning behind keeping their doors open, especially using the Lehman example. I am dismayed, however, at the actions of these institutions. By receiving government funds, they are able to continually take on high degrees of risk, knowing there is a safety net underneath them. Prudent due diligence has gone by the wayside with the knowledge of someone is there to catch them. I liken this to the casino industry. If you could borrow $1 Million dollars and gamble it, knowing you would get it back if you lost it PLUS knowing you would get to keep any winnings you made, why wouldn’t you do it? This is exactly the system we have allowed to be established.
And, what about the outrageous salaries and bonus payments we still continue to hear about? I am all for the entrepreneur earning as much as he or she can based on value and return to society, but I am not about taking from you and me, putting a chokehold on getting capital back into circulation while cutting off small business, and then handsomely rewarding the big bank players in the process.
The veritas, the truth, as I see it, is that nothing has really changed, that we are repeating ourselves and that we will all pay the price of the failure to learn what could be a valuable and useful lesson. As we continue through this cycle, which I believe still has more pain to come, I hope for and have faith in the success of the small business, for the will of the entrepreneur, and for the recovery of our great land.
Too big to fail? Ok, I’ll give the government that. But what about keeping the backbone of American capitalism healthy? I’m not saying the answer is in government bailouts for small business, as anyone who knows me knows I believe in complete personal responsibility. I’m only asking for the same access to capital for small business so that it can keep its doors open, giving it time to make the changes and adjustments necessary for its own success. In short, allowing business to help itself.
I have thoughts on how I believe this can be done without the banks, allowing history to repeat itself in the manner I believe will lead to our recovery. I will write more in the coming days, but in short I believe in private capital + private enterprise = economic recovery.
I look forward to sharing more of my thoughts and receiving your feedback.
All my best,
Thomas J Powell
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