(by: Rene Velez September 26th, 2008)
Here is a term that as of late has a double meaning. “Critical Mass”. In business the term is used often to describe the volume of business required to get attention, show up on the radar, or to have a significant impact upon others. Looking at the current scenario of the financial crisis you come to realize that AIG, Fannie Mae, Freddie Mac and the banking industry as a whole have a significant critical mass. The White House’s desire to bail out the economy legitimizes the importance of corporate Critical Mass. Yet you might say that the Critical Mass of corporate largess now has another Critical Mass to contend with. That is the Populous Critical Mass. This is defined as those citizens, and the public at large who’s opinions and views determine the outcome of how the Corporate Critical Mass should affect them and how government, in this instance should react.
For many years now I have been envisioning a social, political and economic revolt from the middle and lower class. Is the current economic fiasco a turning point? I don’t really know. Nonetheless the related nature of why the popular view that bailing out corporate America is filled with disgust, lends credence and support for the general discontent of the American people with big business and with our government.
The Next Shoe to Drop
Maybe we are just at a turning point. Maybe people are just now starting to react. Maybe this is just the tip of an iceberg that will lead to the type of calamity that precedes the great change America needs. If this is the beginning, what else will disrupt our national and global economy in the near future? My guess is the writing is already on the wall. The airlines and their future position due to expiring fuel contracts looks bleak. I suspect a continued rise in the cost of fuel and a downsized economy could just be the straw that breaks this important logistical network. The other industry which plays a vital role in our economy is the Auto industry. Here too, the news is not good either. With sagging car sales and a lack of innovative product to counteract the consumer demand for fuel efficiency and as well as functionality and style, has already proven to undermine the major auto manufactures in the US. Will these be the next corporate bail out candidates? Perhaps.
The Differences
As for the automotive industry, perhaps a bailout is not likely, at least not from the government sector. Despite saying this I know $25 billion has been promised already. However, This is mostly a stop gap measure in order to buy time and create new platforms for the NT American auto. Most likely the bailout will be from the private investment market. Why? I suspect because although a critical part of US logistics, (and the economy) there is a ready and available foreign market that will fill any potential void, with barely an immediate impact on the demand and supply side of economics. The airline industry might be another issue. Although the same might be said of the airline industry I believe that national security might play a role in saving the airline industry, but only if there are no takers for a bailout, from the private investment sector.
Socialized Capitalism
All of this bailout talk and the government’s need to apease the general public’s demand to either be paid back or to share in the upside of a turn around situation has bolstered talk of a Socialized form of American democracy. I might add that these views are well justified. But is that really bad? Maybe we could actually do this right and pay off our national debt? Maybe this is not so bad considering how bad things really are? The real issue is that socialism is a dirty word in American democracy. It should be! For me the real fear is that government can’t do anything right without it costing the taxpayers a fortune. So any possible upside is likely to be absorbed through bureaucracy. Here in Florida, after Hurricane Andrew, insurers suffered significant losses. So much so they stopped insuring homes. The demand and need was so great that the state had to step in and become the insurer of last resort. This worked out for a while although the state was not into it for profit. Other than stabilizing the market and allowing for a period of recuperation, the state and taxpayers did not benefit. As the years past private insurers came back into the market.
The Popular Critical Mass
Is it possible that the revolt I have been thinking about will be no revolt at all, but rather a fundamental change in how we manage this country and all the mission critical goals we have before us? The popular vote sees the need for change and that the old ways of doing business and government can not continue. In fact the old way of government is coming under attack heavily these days. Free markets do work, but with diminishing rewards to the lower and middle class. These are the constituents the government is supposed to protect. But, they (the government) do so poorly simply because this has been a fickle crowd to please when it comes to re-election. The real money and backing for a political candidate’s re-election comes from big business, lobbyist and political action committees. Lou Dobbs from CNN says it best, “the best government money can but”.
The Need for Leadership
Despite all of our current concerns of economy, foreign policy, healthcare, social security, education etc. etc., this is still a great nation and a great country. So much so every politician will take his or her turn selling you this point, all while they mismanage your government and make you appreciate it.
I don’t question American ingenuity! I don’t question American hard working families! I don’t question American resolve!!! Above all I don’t question America’s commitment to generosity when the time comes for a nation such as ours to help others in greater need. I have though, for many years, come to question greatly the leadership in America.
In corporate America, greed and short term planning geared for quick profits are bringing down our sustainability. Worse, these philosophies have created corruption in corporations across our country and are undermining the working public and this country. Corporate and ethical responsibility are in my opinion at their lowest. You are more likely to have a corporate citizen do something of social value these days if it has a great deal of impact and marketing value than simply because it’s the right thing to do.
In government, the political process of re-election and or guaranteeing yourself a soft landing by means of a corporate job after your years of service, means politician’s play up to big money and influence rather than their constituents. No one wants to take a hard line position simply, because it’s good for the people. The simple truth is that our politicians are not the leaders we want them to be nor are they the leaders they should be. You can’t afford to make any waves in politics. Sadly, even when politicians do well the general public ignores them rather than standing behind them and supporting them. In these cases we as a people get what we deserve.
How do we arrive at better leaders? Training, education both at the elementary level and in higher education. We need to instill pride in public service. We need a better way to grade our political and corporate leadership. Elections alone do not work. We need perhaps, an independent board of academicians that can (a) create national strategic objectives and (b) grade how well corporate America and government perform their respective roles, and issue reports to the people of this country. Depending on the overall score and determining factors; leaders are in the worst case replaced or simply given vectors for performance. What I see are boards for varying strategic industries and for sectors of government. Will this be perfect, no. But it will give us a chance to focus, direct, and be intelligently critical towards achieving overall objectives.
I should mention that these boards have to be totally independent, with no possibility for self enrichment in the future, no ties to those being judged. As an accountant I would liken it to the type of independence accountants must have when auditing except much more pure. The idea is to form a sterile and objective basis for analysis.
The Big Bailout Problem
The bailout as presented does nothing to protect the taxpayers. It transfers the risk and exposure to the taxpayers for years to come. It gives much, too much, power to the secretary of the treasury. (An appointee) It provides for no regulation that would provide protection for a recurrence of the fundamental problem in this crisis. It fundamentally insulates and protects the wealthy and irresponsible companies that have created this mess. It is a reaction geared towards addressing , if not playing to fear and initiated by panic.
Without question I don’t like this bailout, though I think it may have some positive benefits. But this may be minimal if any. This equates to high risk.
The more I toil with this scenario the more I say, NO BAILOUT!. Let the market fail and correct itself. Not on my hard earned taxpayer dime!
I may well hurt. My 401K, IRA’s and mutual funds will take a huge hit. My home value may continue a precipitous decline. Yet I rather take that risk than strap my children with additional debt. Give me a leadership I can count on and I might risk otherwise. But seeing what I see now in corporate America and in government……..no thanks!
The Critical Mass
Now more than ever the critical mass has shown its muscle and power to influence political leaders (I use the term “leader” loosely). It is the critical mass that has shown up and that will dictate how government responds and who will win another term in office. Strength in numbers.
Citizens Show Up
Yes alternatives exist. Some examples are (a) increase the FDIC insured limit to $250,000 or more. (b) take a direct capital (ownership) position in failing banks that guarantee an upside to taxpayers, (c ) provide for taxpayer relief and restructuring of overvalued homes with high mortgages and adjustable rate mortgages, (d) provide regulation of the banking industry to prevent future instances of overleveraged banks, (e) pass new laws to go back to the traditional borrowing requirements that evaluate the ability to repay debt, (f) require first time home owners to undergo credit training. (g) creating private equity vulture funds to buy out bad debts from banks at discount prices.
I for one would like to try instituting policy that is geared towards regaining the public’s trust in the banking and equity markets. The economy should follow and perhaps then citizens will show up for the political bipartisan group that has what it takes to assemble and get things done!
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