3 Ways Not to Solve the Financial Crisis

"No. 1 Billionaires, ante up. No. 2 The health insurance and pharmaceutical companies need to be taken over by the federal government before they are the next ones whining to be bailed out. They have failed to create a private plan to care for the American people and that means they don't get to be the only game in town. Eliminate the middle man. Especially since the middle man is a thief. No. 3 All payments to CEOs are suspended in the oil industry until a full investigation of pay practices takes place. Maybe a good way to do it to save time would be to tell them to give back the money and we won't send you to prison. Maybe we could hold the ones who won't cooperate or already spent their billions in Guantanamo with the rest of terrorists."
—    Sharon Keller

These suggestions for solving the current financial credit crisis was written today, Sep 25 2008 by an American citizen in response to an editorial in the NY Times today by Tim Egan decrying the bailout.  I'm starting to think that the opinion of this woman is shared by quite a lot of people, so I'm going to try to explain what will happen if she gets a little bit of her suggestions implemented.

No. 1: Billionaires ante up (or go to prison because you are a terrorist).

If anyone, billionaire or not, gets their money illegally, they should pay the penalty.  We are a nation of laws, not emotions, and we have laws and lots of them, that cover every circumstance for white collar crime.  But I think she is not talking about white collar crime.  She is talking about investment bankers and hedge fund managers who made a ton of money investing in a bunch of things that went bad. They didn't get the money to invest from their own pockets, they got it from investors, mostly pension funds with money from the AFL-CIO and the California Teacher's Union.

Those fund managers made a mistake investing with money managers on Wall Street who concocted a way to get paid regardless of the ultimate success of their investments.  We should fire the pension fund manager who made the investment, but she wants the money manager to pay up. 

The problem is -- they didn't break a law.  They just screwed up and got paid huge for it.  The fund manager who invested with them knew these money managers got bonuses annually based on one year's returns to their firms.  No law broken.  Nobody goes to jail.  We can ask them to give back the money, but they won't. And we can't send them to prison without losing our justice system.

No. 2 Nationalize the health care and pharmaceutical companies.

Apparently she doesn't work for a pharmaceutical company or a hospital.  If she did she'd know that these are not the bad guys.  They are working people, many of whom are among our smartest people and who spent 8 or more years at university before they started working to pay back their loans. 

A simple test of whether we should follow her advice is whether she thinks anything run by the government is less expensive than things done privately.  The Post Office, for example, is subsidized by taxpayers, has all their buildings and employees paid for by taxpayers to do the mail and STILL has to charge pretty much what FedEX charges to ship a package... and still loses money. 

Does she think unfireable employees are going to work 60-80 hours a week to come up with a new drug?  Can she imagine the paperwork they'd have to file to try something unheard of?  Were we to go to nationalize health care and drugs, there might be no cure for polio, for instance.  Dr. Salk went forward with his research in spite of everyone, literally everyone, telling him it wouldn't work.  Do you think he could have gotten the money from a bureaucrat in that case? 

China, India and Russia are trying to undo a century (or longer) of socialist policies and implement capitalistic policies in order to meet the needs of their people, and Sharon wants us to nationalize our health care industry to meet the needs of ours?  Perhaps she does not realize that all of the inventions of health care and drugs in the last 100 years have come from our system and none from nationalized systems? 

Bad idea, Sharon. Nationalize and you throw the baby out with the bath water.  The rich will have the health care that you have now and you will have the health care Canada has now.  Try to imagine having to wait for six months to get your ACL fixed and then see if you want to vote for nationalization.

No. 3 Suspend all payments to CEOs in the oil industry.

That makes as much sense as anything else this woman is saying.  We're hurting for oil, so put penalties and obstacles in the way of the businesses that get oil out of the ground.  While she is at it, she might consider that because of environmental regulation, there has not been an oil refinery built in America in 20 years.  She's probably glad because with fewer refineries there are fewer oil refinery CEOs to rip off their investors.  If we could only get rid of those oil companies then things would be great. 

Did you know that in 1993 under Bill Clinton, congress passed a law refusing to let companies deduct executive income of more than $1 million?  Yup.  The government got into the business of limiting executive pay.  With the amazing unintended consequence that instead of taking a salary, execs started taking stock options and bonuses based on performance.  And that's when their compensation really went through the roof. 

Please remember when you vote for more government that the unintended consequences can be astonishing.  And who should care how much a CEO makes?  The only people who should care are the people paying the money – the shareholders of the business.  No one else is getting penalized.  Worker compensation isn't less because the CEO is making more.  Worker compensation is less because we are competing more and more with cheaper labor overseas and because we keep letting millions of low priced workers in from other countries.

Sharon is acting like the CEO of Exxon took the money from her savings account and she wants it back.  We need to give shareholders more power to elect the board, get rid of that stupid law $1 million limitation and go back to paying reasonable compensation instead of potentially huge option bonuses.

Now go play.