Pick Wayne's Brain

September 21, 2013

Pru Too Big, Too

The Financial Stability Oversight Council, a US Treasury Dept agency created with the passage of Dodd-Frank, has designated insurance giant Prudential Financial as “too big too fail,” a move that forces the third non-banking institution so designated to undergo additional oversight and stress testing to avoid the kind of financial crisis we endured before. The Pru joins American International Group (better known as AIG) and General Electric Capital Corporation (better known as GE Capital) as non-banks to earn the distinction, and it’s one they don’t want. The FSOC “determined that material financial distress at this company — if it were to occur — could pose a threat to US financial stability,” but they stressed that there were no signs of trouble at the moment. The Prudential said in a statement that it is “reviewing the rationale for the determination and our options.” The rationale, I’m sure, has to do with the fact that Prudential has over a trillion dollars in assets worldwide. If they were to engage in extremely risky behavior they could bring about global financial ruin. They should be scrutinized more closely.

Better yet, they should be broken up into smaller companies that can’t be bring down the entire global financial markets should they fail. “Too big to fail” is the same as “too big to exist.” No person and no corporation (they are not the same thing) should ever be so big and financially powerful that they could bring down the world economy should they stumble. That is not a sound financial footing. I’m neither an economist nor a person educated in the field of Economics, but I can promise you this: No economy can work if the money within it doesn’t circulate. If all the money is in the hands of too few people, then it stands to reason there isn’t enough leftover for everyone else to use. Hoarding more money than you’ll ever need to use in your lifetime is not just selfish, it’s actually harmful to everyone else. In order for society to function, people need to have money to spend to get the things done that they need done. For example, I’ve got a gutter that needs to be repaired. Money’s a little tight right now so I can’t get it done. If I could, the gutter repair company would not only fix my broken gutter (which could save me money down the road form damages caused by the broken gutter), but they could take the money I pay them and use it not only to pay their workers, but also to pay for the materials they used to fix my gutter. Their workers, in turn, would take their paychecks and go to the store to buy groceries, and the companies from which they bought their supplies to fix my gutter would use their money in a similar way. And the money would move from one business to the next, into the hands of the workers, who in turn would circulate the money around getting the things done that they need done. None of us are getting rich off the one or two transactions we have with that money, but we’re all getting what we need. That doesn’t happen when rich people sit on money they don’t need. (And, no, their investment into more stocks does not help the economy nearly as much.) What good is having more than you need? How do you benefit from excessive selfishness? And why do we treat the philosophy of Selfishness as something positive?

To paraphrase Aaron Sorkin, the Republican Party has been so busy trying to keep their jobs that they forgot to do their jobs. The Tea Party faction (a project of the Koch Brothers and their ilk) has got the semi-normal members of the party so frightened of losing their jobs that they cave in out of fear of being primaried out of Congress. The result is forty one pathetic attempts to defund Obamacare. I keep hearing them say how Obamacare is “destroying” the country, yet I never once gear exactly how this is happening. No one ever truthfully explains how the law is harming our nation. What I do hear is example after example of how conservative business owners are trying to get around Obamacare by cutting employees’ hours so they won’t have so many full-time workers who are eligible for health insurance. In other words, because some people will be selfish, everyone has to suffer. Instead of denouncing the greedy business owners, conservatives has held them up as examples of what could go wrong with healthcare reform. “Obamacare is bad because greedy, selfish people like me can take advantage of it and my workers.” Maybe the law needs to be strengthened, not repealed.

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