What Happened to Anti-Trust Law?

What Happened to Anti-Trust Law?
By: Rene Velez Mar. 18th, 2009

A closer look at the shear size of a company such as AIG and the impact on our national economy and its far reaching implications to our global economy make me wonder why congress would allow a company to get so big. By any account it is a monster that is feared by congress, the Fed and our secretary of the treasury. As I recall during my education in finance and accounting I do recall some laws that seem to imply limits to large corporations that had monopolies. It was not too long ago that ma-bell was broken up, Office Depot was not allowed to merge with Staples and Microsoft was charged with operating a monopoly. As it turns out no one is truly is looking out for the national economy in allowing AIG to become the apocalyptic, and financial nemesis that it has become. The Sherman Anti-Trust Act together with the Clayton Act do not seem to protect us from the sheer size and financial influence a large corporation or conglomerate can exert in a free market. Yet it’s devastating effects are upon us all as is evident in the historical bailout of AIG.

Sherman Anti-Trust and Clayton:

The following is an excerpt from WIKIPEDIA on Mar. 18th, 2009 and speaks to address the intention of these two well known laws.
In 1879, C. T. Dodd, an attorney for the Standard Oil Company of Ohio, devised a new type of trust agreement to overcome Ohio state prohibitions against corporations owning stock in other corporations. A trust is a centuries old form of a contract whereby one party entrusts their property to a second party. The property is then used to benefit the first party. In a corporate trust, the various corporations assign their stock to a board of trustees. The trust then issues trust certificates to the stockholders. They receive the financial benefits, while the board of trustees maintain operational control. By consolidating control of most companies in an industry under one controlling board, the industry is essentially monopolized.[7]
Around the world, what U.S. lawmakers and attorneys call "Antitrust" is more commonly known as "competition law." The purpose of the act was to oppose the combination of entities that could potentially harm competition, such as monopolies or cartels. Its reference to trusts today is anachronism. At the time of its passage, the trust was synonymous with monopolistic practice, because the trust was a popular way for monopolists to hold their businesses, and a way for cartel participants to create enforceable agreements.[8].
The Sherman Act was not specifically intended to prevent the dominance of an industry by a specific company, despite misconceptions to the contrary. According to Senator George Hoar, an author of the bill, any company that "got the whole business because nobody could do it as well as he could" would not be in violation of the act. The law attempts to prevent the artificial raising of prices by restriction of trade or supply.[9] In other words, innocent monopoly, or monopoly achieved solely by merit, is perfectly legal, but acts by a monopolist to artificially preserve his status, or nefarious dealings to create a monopoly, are not.

Our Regulatory Framework is Outdated

The current economic crisis clearly is reflecting that our regulatory agencies are far behind and in many cases incapable of dealing with the economic structure of today’s large corporations. We can now see with certainty that we have not engineered the controls and safeguards to manage business in the 21st century. I continue to think free markets do work, but not without due caution and controls to prevent catastrophic failures that bring down a national economy. Scholars will look back at this moment in history and will learn much by our failures. Systemic control are in fact very important, the real question is how do you do that and not stifle innovation, creativity and the growth of an economy. We must find a balance in how to do this and we have to do it quickly. A completely unregulated economic engine is like building a race car with no brakes simply because you believe that the purpose of a race car is to go fast and nothing should slow it down. Any aeronautical engineer would tell you, you need to have landing gear on an airplane even though they serve no purpose in flight. Why then would anyone argue that controls and safeguards stifle economic growth. It is amazing to ponder on how creative and innovative mankind is. This is true in science as it is in business. However, we have a propensity to derail ourselves. Our sense of curiosity ability to innovate and experiment and to exert our will outside of the envelope is a dangerous thing. Systems, controls and regulation should not be of the nature to hinder our progression but rather to make us stop and think of the consequences of our actions.

In this economic crisis we allowed our economy to venture onto the edge of a cliff and we are in effect balancing on the center of gravity.


The Implications to Global Economics

International trade and commerce has served this country well. It has also created stability and economic opportunity for all who trade with us. International trade and commerce is bringing many emerging markets to the forefront of world politics and economic opportunity. Look at China, India and Brazil. This venture is feeding the hungry, clothing the poor, educating the masses and in sum improving the human condition for many countries.

As our global economy continues to evolve we should be very concerned about how we go about creating interdependent relationships on the global level. We must understand the repercussions of failed business, failed economies and how debt and other financial structures work and are supported. Why do I mention this? We need to be extremely fearful of what could precipitate from forming relationships with countries who’s banking system, economic system and monetary policy is severely flawed. Where a business failure in one country is marginalized, for the most part, to its boundaries, in an entire country economic failure, to the extent of what we face today in the U.S. could mean a holocaust, political unrest and even war.

Just as the U.S. has tried to be a responsible country in creating peace and avoiding conflict that saves lives we now have the obligation to make sure that no country could possibly fail economically to the point where all chaos breaks out and we are unprepared to address these issues. We must be preemptive.

Surely, we have only a limited control as to what we can have sovereign countries do, but we must be risk averse. The propensity and desire of other countries to emulate western economic power on a framework that is not suited to support that activity will in fact have profound effects throughout the world. Economic and political instability are key ingredients to war and political, cultural and religious ideology that is contrary to everyone’s desire for world peace and democracy. That being said I doubt there are many in congress (if any) that have a full grasp of the consequences and what are the drivers to these events. Economics is tricky and complicated to master.


Trends to the Future

There is much talk in the accounting profession to start to merge the standards of accounting into an international standard. In effect we will abandon historical cost accounting and adopt fair market value accounting. Many a seasoned accountant thinks this is a huge mistake. Adding fuel to the fire is the continued interest of merging foreign stock exchanges and in forming business combinations of capital markets in order to support multinational business activity. As emerging markets continue to expand and grow we will in effect need access to capital from around the world. Although, I feel that diversification of investment is a good idea, we must be extremely cautious of the inequities, abuses and the confusion of information that will be inherent in the complications of different economic climates, political risks, accounting rules and methods, regulatory systems controls and laws, competitive laws and a host of other issues of a modern day economy.

Does our president, our congress, our regulatory agencies have the ability to judge and limit the associated risks? The answer is a resounding NO!. No one is. No one company has their hands completely around this. In fact many are venturing into uncharted waters and learning as they go along. Many are making history in their own right and even ignoring the recommendations from experts in various disciplines. Why? Because of greed. , because of need.

The desire of countries, companies and governments to seize opportunity for greater wealth and for the maintenance of market share could well be the undoing of what greater good democracy and capitalism may offer. As the greatest capitalist country in the world we need to be cognizant that wherever we have influence, we will be blamed for the downfalls and potentially devastating effects not only of economic cycles but of failures of sovereign economies. History already shows us the Unites States has taken blame for many well intentioned efforts to help governments, and its people.

With the failure of so many large businesses in this economic downturn, do we as a nation abdicate our foreign policy and national responsibility to large multinational corporations? We need to start realizing that each U.S. company that ventures to a foreign country to do business is in effect an economic ambassador and by shear economic might and political influence is at the forefront of foreign policy. Congress, regulatory agencies and the like come along for the ride after the fact.