Finding a comprehensive solution to problems like this involves looking at the issue from all angles and walking a thin line of compromise. That is a daunting task even in the best of times and even when all parties are acting without ego or self-interest.
The Tough Role of Government — and Taxpayers
This balancing act is not unique to banks and financial institutions, as evidenced by the Detroit automaker bailouts.
How do you decide how much help to give a key segment of the American economy? What do you give up when you throw the Darwinism of the market out the window and allow Uncle Sam to decide which businesses deserve a second chance and which ones don’t?
Even in hindsight it’s impossible to tell who is right and who is wrong. It’s pointless to speculate about how the global auto industry would look like without the bailout, or how things would have been different if Lehman would have been propped up instead of falling into bankruptcy. You might as well speculate about what JFK would have accomplished had he not been assassinated or whether Jerry West could compete in today’s very different NBA.
The businesses are huge. The stakes are huge. And the egos of those involved are huge. There are no simple rules to this game.
But that’s no excuse to quit playing and just take the path of least resistance. Constant vigilance is required not just for financial regulations and “too big to fail” banks, but for all corners of the economy. And if members of our government aren’t willing to spend time on the issues that really matter, it’s time to trade them for politicians and regulators who are.
As Dr. Martin Luther King once wrote, “The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.” And in today’s challenging regulatory environment and sluggish economy, the character of policymakers is front and center.
When politicians are afraid of voter backlash, we get legislation that is popular but bad for the economy. When politicians are afraid of moneyed interest, we get legislation that is good for corporate earnings but bad for common citizens.
There are no easy answers. But if those in power thought they were getting an easy job when they became a member of Congress or FINRA or the Federal Reserve, they never should have thrown their hat in the ring in the first place.
It might be impossible to ever wind down TBTF banks to a size that is “safe.” And even if it is possible, that doesn’t necessarily mean we should in a free-market economy.
Rather than looking to regulators for a hard-and-fast rule to save businesses and consumers from themselves, we should instead look to regulators to constantly protect the public interest — both businesses and consumers alike — based on the unique problems of the day.
In a perfect world, that’s what government is for, right?
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace??.com or follow him on Twitter via @JeffReevesIP. As of this writing, Jeff Reeves did not own a position in any of the aforementioned securities.