It’s too big to fail

Philosophy Forums Society, Government, and Economics
1

These words are used frequently these days to describe certain US financial institutions and its’ automobile industry.

But what does that mean?

It means that various entities can not survive without them. In effect, these financial institutions and the automobile industry have become monopolies.

If it’s too big to fail, then it’s too big.

It’s past time to scramble the game. Break up these large institutions, and start some real competition. I think Teddy would have done it.

If we had a number of truly independent car companies, then some of them would be working at counter strategies, and we would have real options for the future.

With regard to the large financial institutions, while we would still have an exposure to the mortgage problems, they would likely come in varying degrees and we could stand some degree of failure. Examples of relatively successful financial institutions that were largely unaffected by the mortgage problems are Wells Fargo, Morgan Stanley, and most small local banks. It should be noted that Citibank has roughly 3 times the assets of Wells Fargo. As it is, a bank like Citibank could destroy the liquidity of an entire system.

The only drawback to breaking up these behemoths that I can see, is that the G&A expense is partially duplicated and, for the automobile industry, tooling costs could be higher per vehicle than for the composite industries. I am open to other insights.

With regard to the automobile industry, there has already been a 25 billion US dollar set aside for new design. This could be used to offset the cost for the broken up industries. (Though, my personal guess is that this amount is too high).

The advantages of, more marketing strategies, more Real competition and less dependence on these industries, more than out weigh the downside in my opinion.

One final, and most likely controversial comment, is that the UAW should at least be broken up also. It too is a huge monopoly, and frankly the US car companies work at a substantial disadvantage to foreign car companies operating in the US. Roughly $85.00/hr US dollars for a total benefit package versus $47.50/hr US dollars.

My personal preference would be to see a 3 year moratorium on all union activities which would allow the companies to get established. After that the game should start anew.

2

I agree with you. What’s the point of free markets if you don’t let them work? If the U.S. thinks its biggest problem is the bankruptcy of auto makers and these financial institutions, it has another thing coming…

3

  1. Free markets and competition are overestimated. After the great strides forward from 1900 to about 1980 circa, most items have been perfected, most situations cannot improve anymore, most technology has been optimized, there is very little room left for any real and useful and valuable innovation and competition. In fact there is plenty of room for degrading and making things worse through competition like software becoming ever more crappy, financial instruments blowing up the world financial markets, health care blowing up the prices of everything, etc. Competition today is now a game between who came make things worse.

  2. US auto industry has been making very good small calls for 50 years in Europe with Ford and Opel, this talk about them having to “learn” how to make them is absolutely ridiculous! You think that today companies can’t have access to every and all possible information, technology and countries and people from all over the world to make good cars ? Totally absurd, today everyone with money can do almost anything. Again, there is no room to improve things anymore, we are at the end of the “progressive” cycle, now we are entering the “fight” and “war” and everyone against everyone else cycle. All will become poor…

4

If you consider that General Motors and GM Europe employ 300,000 people, and that their failure entails 300,000 wages no longer being spent on taxable luxuries and 300.000 people either applying for benefits or looking for other jobs, pushing others out of work and lowering wage structures and consumer spending in general, then the meaning of the term ‘too big to fail’ becomes apparent.

Any large company’s actions, successes and failures will have an affect on the rest of the market, and therefore on the lives of the people within that market. Whether this is the result of too much, or not enough market liberalisation, the time to argue over which is not during a recession; if the state has to step in to prevent the catastrophic consequences of a massive corporation going under then it is better to do so and save the human hardship that would be caused, even if it does result in the few executives and bankers responsible for the failure being rescued form their own mess, rather than worry about curtailing the freedom of the market.

5

Hi Dorky,

Thanks for your response. I think that the main problems are the leadership or will to take on the large institutions, and fear of failure. No more Teddy Roosevelt’s I’m afraid.

The courts have worked? sometimes, but they take forever and have addressed precious few cases.

Hi Nameta9,

I’m not arguing for a “free market”. I am only trying to play in the sand box that we already have. Within that constraint, I have seen competition work and it is clear to me that it is generally a good thing from both the consumer and producers’ perspective. Though, I should admit that I have also seen ruinous competition*.

You wrote:
“most items have been perfected, most situations cannot improve anymore, most technology has been optimized, there is very little room left for any real and useful and valuable innovation and competition.”

I can not disagree with this strongly enough.

In one case study on Lean manufacturing, Twin City Fan had over 1200 improvements on their products and production techniques last year.

This is a company that manufactures fans!!!

Breaking up the car companies is actually a close call, because no one company dominates and there has been some innovation, though I think that AIG and Citigroup are clear cut situations.

You wrote:
“US auto industry has been making very good small calls for 50 years in Europe with Ford and Opel, this talk about them having to “learn” how to make them is absolutely ridiculous! You think that today companies can’t have access to every and all possible information, technology and countries and people from all over the world to make good cars?”

The future/present is here, not the past. I have not seen a fleet of US cars with all aluminium bodies and chassis or, better yet, composite carbon; and I can not run out and buy that fuel cell car they have been talking about for decades. Why can’t I online-order a custom car and have it to my house in 2 weeks? I am pretty sure I could go on to make an extensive list.

My Position:
Whether or not you or I can come up with the future is irrelevant, the point is that more competition will almost certainly come up with different marketing strategies*.

Your Position:
Everything is known and nothing better can be done any better. Thus there is no point to compete.

*Different marketing strategies are generally chosen because if everything is the same then different companies need to compete on price, which does lead to ruinous competition or possibly collusion (Illegal).

Hi Sheep,

I pretty much agree with everything you have said.

I am just trying not to have these situations happen again.

Thanks Ed

6

Hundreds of improvements on fans / manufacturing, thousands of patents, etc. etc. I don’t believe it, there are some improvements - inventions here and there and far and in between and becoming ever rarer since the more time passes the more the improvements - inventions - innovations will have been discovered and maybe used. How many times can you discover Electricity ? or the Internal Combustion Engine or the Microprocessor ? not many. In fact I wouldn’t want to be in a scientist’s shoes, having to somehow discover something new when it is becoming virtually impossible, you are forced to make believe you invent and discover something new, maybe like “subprime loans” ? It is becoming really hard to discover and invent something new and useful in science, it has been mined to the bottom, it is probably mostly all over now.

And then there is no “trickle down” effect of these “improvements” to the common man, to the “general good”. The last was the Internet and User Generated Content I would say, all others have just slightly brought down the prices of some consumer items like TVs and computers. But even there they change the standards and software and force you to buy it all over again like MP3 killing off your old vinyl record collection, Windows Vista killing off your excellent Delphi software environment, LCD TV making your 4:3 TV broadcast look crappy (backwards evolution) etc. etc. Health care improvements have resulted in prices exploding defeating any very questionable improvements there have been.

Any progress forward at this point is through systems changes, like huge public transporation systems and bus systems to improve the energy crisis, telecommuting where possible, free salaries to everyone and very cheap housing and rents. There is no need for everyone to own a house, you just need a good house at a small rent price like 300 dollars a month for a 3 bedroom house. That would be progress today.

7

A simple technique that is constantly used when problems can’t be solved or situations can’t be improved anymore is to express a vague and ambiguous concept like “improve productivity” or “increase innovation” or “increase research” as the silver bullet, as the hot new solution to problems that can’t be solved. The car - energy problems can’t be soved with “more research” or “innovation” but must be solved through many more BUSES, and PASSENGER TRAINS, and PUBLIC TRANSPORATION.

The economy can’t be solved by throwing money at it, but by furnishing LOW COST RENT homes everywhere needed. The rent should be 300 dollars a month for 3 bedroom, 1 living and one bath everywhere from LA to Manhattan and in between.

The fairy tale of innovation, research and development, technology won’t change anything, it is just an illusion used to fool people into thinking that there are miracle solutions. The solutions today are all POLITICAL and SYSTEM WIDE.

8

Hi to All,

Nameta9,

You wrote:

“How many times can you discover Electricity ? or the Internal Combustion Engine or the Microprocessor ? not many”

I profoundly disagree with the sentiment of this statement.

On the discovery of electricity (moving electrical charge):

  1. Lightning is electricity - Franklin
  2. Magnetism can induce electrical current - Faraday
  3. Electromagnetic Field Theory - Maxwell
  4. Photons are electro-magnetic radiation - ?
  5. Constancy of speed of electro-magnetic radiation => Lorenz transforms =>
    Invariance of Maxwell’s equations
  6. Tessla’s alternating current
  7. Super cooled Hydrogen and Helium generate super conductors
  8. Some near normal temperature ceramics are super conductors. Whoa!
  9. Semi conductors generate => gate controls => generate fast computers
  10. Quantum Mechanics and electro-magnetic radiation => Quantum Electro Dynamics => Prize for
    Feynman et al.

I am sure that I am missing all kinds of info.

Items 1, 2, 4, 7, and 8 can be classified as discoveries of electricity. Item 6, modern household electricity, might also be considered a discovery of electricity.

Items 3 and 10 are two of the greatest models ever produced by the human mind and are the direct result of exploring the concept of electricity.

Personal Opinion:
In the next 25 years, there will be at least two other profound discoveries of electricity. One will come from intense work on the Strong Force. Additionally, I would guess that there would be at least another dozen discoveries in the next 100 years.

On the Internal Combustion Engine and Microprocessor
The propulsion systems for the automobile have already started to be significantly modified and I expect the role of the internal combustion engine will be greatly diminished in the next 3 to 5 years. Nanotechnology already has prototypes to replace the Microprocessor.

You and I have almost diametrically opposed belief systems:
I believe our knowledge of the world is minimal. e.g. even the number of fundamental forces is not known.
You believe the world is essentially known.

You wrote:
“In fact I wouldn’t want to be in a scientist’s shoes, having to somehow discover something new when it is becoming virtually impossible, you are forced to make believe you invent and discover something new, maybe like “subprime loans” ? It is becoming really hard to discover and invent something new and useful in science, it has been mined to the bottom, it is probably mostly all over now.”

I sure hope you don’t influence many young minds!!!

This is probably the greatest time ever to be going into science. So many things to learn and discover!!! It’s incredibly exciting. Bio-anything in particular is just at the dawn of discovery, but everything is wide open.

Hi old,

I do agree that system changes will happen concurrently with changes to the auto industry.

The following is a pictorial representation of the reasoning for breaking up large monopolistic organizations or groups of organizations.

I’m just thinking out loud here. (Notice that I screwed up the number of demarcation points on the x axis.) I’m open to interpretations and or questions.

Figure 1:

The y axis is a representation of the percentage of car ownership. The x axis represents the different attributes of a car. You can see that with 3 companies the area under the curve is only partially filled, and this assumes an ideal situation where each company manufactures only to a specific attribute.

Initial attribute list:

  1. Cost of Operation
  2. Price of Vehicle
  3. Toys
  4. Safety
  5. Design
  6. Performance
  7. Interior Space
  8. Fuel Efficiency

In real life there is foreign competition and each company has an array of attributes. These attributes frequently overlap.

Figure 2:

Initial attribute list:

  1. Cost of Operation
  2. Price of Vehicle
  3. Toys
  4. Safety
  5. Design
  6. Performance
  7. Interior Space
  8. Fuel Efficiency

Here there are multiple companies in the idealized world of each covering separate attributes. You can see that more of the demand curve is filled in.

Figure 3:

Final attribute list (the result of significant market changes):

  1. Safety
  2. Price of Vehicle
  3. Toys
  4. Cost of Operation
  5. Fuel Efficiency
  6. Performance
  7. Design

Here I have assumed that the violet company has failed due to poor management
The green and blue companies will also likely fail due to lack of capitalization required to retool to meet the demand required by different attributes.

Assuming that the market was broken up, under the second scenario, this leaves, roughly, two thirds of the market intact.

However after the first scenario, we would only have about 1/3 of the blue company in operation.

I should point out that the big three US car companies already have multiple divisions and theoretically market to differing market segments. However we all know that the marketing is largely cosmetic.

I would truly be grateful if someone would suggest alternative scenarios that might be realistic.

9

It is the “market” that influences the “young minds”. Back between the 1960s and 1980s, scientists and engineers were paid more, treated better, somehow had more incentive to enter the fields. Today in the west science and tech seems to not be paying too well anymore, they are laid off, treated like crap often, experience means nothing, 40 or 50 year old engineers are no longer needed, finance and marketing make the big bucks, etc. etc. Software is outsourced, technicians in other countries can make it with 500 dollars a month pay, the western pay levels are too high, etc. etc.

It is the entire environment in science and technology that seems to have changed compared to even the 1980s. Therefore I have many doubts about how much the future of these fields can offer, and anyways the number of enrollments in science and tech have been going down every year for the last 5 to 10 years in the west (I am considering the west as USA, EU and JAPAN). This may also be due to the DOT COM bust of the early 2000s and maybe because alot of mediocre people entered the computer fields and were filtered out. Anyways, I think it is hard to discover something new and relevant, but go ahead and make that breakthrough, we need a PUBLIC TRANSPORT BUS SYSTEM that can be programmed and managed through the internet, a kind of PACKET SWITCH technology but using gasoline BUSES instead, optimized routes, internet calling systems from private passengers that need the BUS to pass near their suburban home, etc.

In these SYSTEM fields there may be alot of possibilities…

As for the Bio-anything, I cringe at the idea of what can become. A true mircale of science that wil go from a blessing to a curse, we already have the example of the entire field of HEALTH CARE gone crazy, prices exploding, drugs that people use and don’t need, this is a field of not only diminishing returns but of all out BACKWARDS PROGRESS and backwards evolution…

10

I also believe that we don’t know alot, but I feel that it is better that way. You don’t want to know more, even though it is out there. How about modified brains, modified neural circuits in brains that perceive a completely different universe, technological singularities, etc.

Better not to know more, you don’t want to have more knowledge and discover more things. Sicence is a double edged sword, better stop before it is too late…

Search the posts nameta9 and old6598 made in these forums on technological singularities to have a sense of the coming NIGHTMARES…

11

you simply can’t let the free market “do its thing”

it just won’t work

I love the idea of libertarianism on paper but actual application is guaranteed disaster. these bailouts are the result of a complacent government and failed union trades

to be honest, i’d love to build a faux nation somewhere in the world and set up its own mock government and let the free market dictate everything possible…
i’d be curious to see how that nation would fare

12

You got many examples in Afirca of completely free markets, free for the strong to do whatever they want to the weak. Look no further than Somalia, Ethiopia, Democratic Republic of the Congo, Nigeria, Niger, etc.

That is the real totally free market at work, and it works perfectly, a few strong, better, more talented people in the upper classes of those countries have most of the wealth, all the others can just starve and be slaves…

13

Hi Guys,

To nameta9

Your comments about the time frame and how corporate scientists and engineers are treated roughly corresponds to my experience.

It is possible, though I will not make any strong claims, that smaller companies would treat these professionals differently. However, this is not my primary goal.

To all,

My goal is to make the system we have more stable without losing flexibility. I do not wish to become involved in some ideological struggle between free market and socialism.

I think that breaking up some monopolies and/or near monopolies will help in this regard. I can not even say all monopolies due to the role of utilities, post office, et cetera.

Because I am pretty sure that I am right, I am going to explore this concept more thoroughly.

Thanks Ed

14

watches Titanic

Thinks: He cool a thread called “It’s too big to fail.”