Let’s face it – there should be no such thing as “too big to fail.” Most of us work for companies that are not in that category. If our employers screw up and the company goes down the tubes then we will individually hurt and perhaps the micro-economy around that company will hurt a bit but for the most part the US GDP won’t even see the speed bump. This is the way that it should be – screw up and fail then just pick yourself up and get on with life.

“Too big to fail” simply stinks of a type of monopoly. I know that monopoly prevention is usually about consumer rights and price gouging, but is this that far from where we are now? Isn’t consumer price gouging exactly what we just went through with the TARP program?  I know that my taxes feel like I am getting gouged! This is especially true when I know that I am paying way too much in taxes and that still doesn’t cover what the US government spends! If it is a choice between taxing me more and the US Government (and the state governments) spending more, than I know the choice that I want to make – cut the damn spending!

So what is my suggestion?

The FDIC was nice enough to give us a list of banks here. The first thing that I see is there are some BIG banks! How can these not be monopolistic when they are that much larger than banks that are ranked just 10 places below them.  We need some sanity here.

1. No bank in the top 100 largest banks can be larger than double the size of the next smallest bank.
2. No bank in the top 100 largest banks can be more than five times larger than a bank that is ranked 10 spots below it.
3. No bank in the top 100 largest banks can be more than ten times larger than a bank that is ranked 20 spots below it.
4. No bank in the top 100 largest banks can be more than twenty times larger than a bank that is ranked 40 spots below it.
5. The top 100 banks combined size cannot exceed double the combined size of the banks ranked 101-500.
6. No FDIC insured bank can have more than 10% of its ownership by a non-US entity.

Yes, I know that the title of this article only says 5 rules but the list has 6 rules. The last rule is simply to reduce our banking exposure to undue influence by foreign nationals. We need to realize that our banking and financial systems is just as much of a strategic US asset as our defense contractors. We want the decisions of our strategic institutions to be governed by good business intentions and not the political aspirations of a foreign body.

Because of all of this re-arrangement, we would have to do this with plenty of warning. I would suggest that the law wouldn’t take effect for 5 years after signing to give the banks time to adjust. Also, in the first 5 years after the law is in effect (years 6-10 after signing), the penalty should simply be a 1% fine for the amount of out of compliance the bank was in e.g. if a bank was too large by $1B than the fine would by $10M. After the first decade, a bank would be taken over by a government agency to accelerate their divestitures, existing management and board of directors would be fired (and forbidden to run a bank for 10 years), and then new management would be installed by the shareholders.

There would also need to be a grace period of perhaps 3 years if banks ranked lower than the bank in violation decreased their size by more than 10% in a year and that caused the non-compliance. We cannot punish one institution due to the acts of another. However, we can require them to adapt to the current situation within a reasonable time, I suggest 3 years.

What would this do for the financial institutions?

The first thing that would likely happen is that the banks below 500 would likely start to get bought up pretty rapidly by the banks that are 101-500.Also, the top 100 banks would start to divest portions of their business to other banks (or create new entities) so that they could balance out. It definitely would mean that the top 10 banks would get smaller relative to the next 20 banks. That is the point, they would no longer be too big to fail. While we wouldn’t want them to fail, we also wouldn’t be on the hook as taxpayers to fix their screw-ups.

With the built-in delays and grace periods, it would probably take 20 years to get to a better balance. That is okay. In the words of some great philosopher: haste makes waste. It took us several decades to get the current mess that we are in and if we try to adjust too quickly, we will screw it up.

I know that there will be a lot of nay-sayers that think this won’t work or some other way will work better. I am sure there are good ideas out there but any idea that still concentrates wealth in the hands of a dozen corporations is simply not a solution to the core problem. Those suggestions are only to take care of a problem that presented itself already – in other words they are a band-aid to an existing cut. My suggestion is that we know that injuries and mistakes will happen in the future (banks will always fail) but let’s not get in trouble as a nation because of the problem.

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I am just aghast at how stupid these companies are. Current reports are that they didn’t install an “acoustic switch” on the well. From NewsInferno:

The Deepwater Horizon oil rig that exploded last week was not outfitted with a safety device that might have prevented the massive oil spill now nearing the U.S. Gulf Coast. The device, known as an acoustic switch, is a last-resort protection against underwater spills, and is required by regulators in Norway and Brazil. Unfortunately, the U.S. has no such regulation for oil wells operating off of its shores.

According to a report in The Wall Street Journal, an acoustic switch is a remote control device that a crew can use in an attempt to trigger an underwater valve that shuts down a well that’s damaged. The switch is meant as a last resort, as the primary shut-off systems almost always work on wells when they are out of control. It can be triggered from a lifeboat if an oil platform has to be evacuated.

According to the Journal, U.S regulators did consider requiring the acoustic switch on offshore wells, but drilling companies resisted because of its cost, and questions about its effectiveness. To be fair, the switches have never been tested in real-world situations, only simulations. U.S. regulators also maintain they are prone to causing unnecessary shutdowns.

Are these guys just plain stupid.  Didn’t they see Jurasic Park where the pessimistic mathematician, Ian Malcolm, talks about if something can go wrong then it will go wrong?

BP AND ITS KIN SHOULD HAVE BACKUP SYSTEMS FOR THE BACKUP SYSTEMS THAT ARE BACKING UP THE BACKUP SYSTEMS.  IF THEY DON’T HAVE 6 FOOLPROOF WAYS OF TURNING OFF A BROKEN WELL THEN THEY SHOULDN’T DRILL!

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I agree with their policy of charging for carry-on luggage.

I am sick and tired of getting to the airplane on time, quickly and efficiently getting to my seat with my one computer bag, settling in with a good magazine and my iPhone, and then watching all of the other idiots try to stuff all of their earthly possessions into the overhead compartment.

When I flew last week, at least 4 people didn’t have room overhead and had to gate check their bags. This simply slowed down the boarding and we left the gate late. In addition, the person sitting beside me had to gate check her bag because it simply didn’t fit in the overhead bin. I am not sure why she thought it would fit, it was so large and heavy that she couldn’t lift it over her head (and i swear that my overweight 6′3″ frame would have fit into the bag she was hauling).

I think the airlines are screwed up.  Make checking bags more efficient and friendly but shrink the size of the bag that is allowed on the plane to be briefcase size. Get their passengers onto the plane without the process feeling like I am being crammed into an old VW van. Then when we land, it won’t take me 20 minutes to get off the plane while the fat woman in front of me tries to pull her massive flowered bag out of the compartment and wheel it down the aisle.

Flying was never fun but now it is becoming painful.

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I would add that there is another huge tax that I am paying that many people that are poor do not pay.  My oldest son is in college.  Because I work very hard and make a very nice income, I pay list price for college education. My son is not eligible for financial aid simply because his old man works too hard. Luckily, he understands the value of hard work as well and has earned some merit based grants based on his academic credentials. He also works at part-time jobs to help pay the way. Anything in excess of that, Dad pays for.

I wouldn’t complain about the costs of sending my son to college except that the system is not totally fair. I am very familiar with another family with kids that are slightly older than mine. In their case, the father has had little success in building a career and essentially earns a buck or two over minimum wage. The mother doesn’t like to work, and even though she is a trained nurse she only works 15 hours a week – not because she can’t find work but rather she doesn’t want to work that many hours (she says standing too long makes her feet sore). Together, they sired 6 kids (obviously they knew how to work at something). As those kids grew up, food stamps were regularly available to them and they ate a free school lunch. The kids are smart and when they finish high school they have all gone to college – the most any have had to pay is ten grand for 4 years at a very good private college. Most of the others paid nothing except for incidentals. One studied overseas for a year for free.

All of these kids received government secured student loans. These are capped at a certain amount per year.

I am happy that these 6 kids are devoted to their future enough that they have gone to college. They appear to be starting their lives in good jobs and I am happy for them and wish them well. However, as I write checks for college for my son, I am jealous of their lazy parents – they don’t work hard and their kids are not penalized for that. I work hard and am penalized.

It just doesn’t seem fair and I am fed up.

By MIKE DONAHUE

I’m in the 32% federal and 10% state income tax brackets. I pay a 1.2% property tax on very expensive California real estate. I am subject to the Alternative Minimum Tax. I am self-employed and subject to a 15% payroll tax on the first $100,000 in income and an 8.75% state sales tax. If I have a gain from investing, I pay a minimum of 15% federal and 10% state tax but can only write off $3,000 per year if I lose.

And now the government wants me to pay more?

As a child I mowed lawns, shoveled snow, had a paper route, sold sandwiches at school, and cut up dead trees and split them for firewood to sell during spring break. I have worked every summer since I turned 14. I took out student loans for college and worked 35 hours a week, at night, to pay for the rest.

Since I graduated in 1983, I have been in straight commission sales and have had many 60- to 70-hour work weeks. No secure salary, no big promotions, no pension—just me profiting though helping others while being subject to the swings of the economic cycle. The first 20 years were tough, but it’s finally starting to pay off.

I drive a nicer car (bought used), live in a better neighborhood, have more retirement savings than many. But I am certainly not rich, and every month I find my ever increasing bills (and taxes) tend to match my income. I have more than most only because I’ve worked harder than most and because I am a saver. It was not easy.

Why then does the government feel so entitled to take my money and give it to others? Why should I have to carry so many people on my back? Call me cruel. I don’t care. I give to whom I choose—but since so much is confiscated (and wasted in the process) I have little left I wish to give.

During the 1990 recession I could have qualified for state and federal assistance, but my wife and I managed to get by as she worked nights while we juggled our infant daughter between us. It was hard. However, it never occurred to us to take from others to subsidize our shortage. It’s not our way.

Life is hard. You learn when you fail and you make changes when things hurt. Why then is the liberal agenda trying to make sure nobody feels any pain? And why does the government feel so entitled to steal from many in order to give it to others. What has happened to personal responsibility and accountability?

My patience and pocketbook are reaching the breaking point. I am not for equal outcomes regardless of effort. I’m tired of being the mule. Maybe I will quit and live on the dole for awhile. I probably even have enough health issues to join the one in seven adults categorized as disabled. I’ve been poor and I’m not afraid to go back.

Remember it was social mobility that made America great—the ability to earn and get ahead. If Congress continues to buy votes at the expense of social mobility we will no longer be a great nation. The truly rich will stay that way but many “Henrys” (high earners, not rich yet) like me will quit. We may be only a small percentage of the population but we pay a large portion of the taxes and employ many. If you take the incentives away you will lose Henrys.

Mr. Donahue is a financial adviser in La Jolla, California.

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President Barack Hussein Obama has been talking for quite some time about the “mess” that he inherited from George Walker Bush. He has made references to mops and other allegories to describe the challenges that he has faced. While that is all well and good for the first few days of the Presidency, at a certain point BHO needs to own the problem.

That day is today.

There is no defined time for the honeymoon period of a new candidate. Most people felt that September 11, 2001 was close enough to the inauguration of George Walker Bush (just under 9 months) that the attacks on that dreaded day were at least partially the fault of William Jefferson Clinton. The honeymoon is certainly longer than the first 100 days that are all the talk at the beginning of a term. Everyone seems to agree that it doesn’t extend beyond a year from the date the person is elected.

For the past 12 months, BHO has been the President or the President-Elect. Every day he has received security briefings. Every day he has had access to and influence over thought leaders on a wide range of issues. Every day, he could pick up the phone and call any world leader, banking leader, Senator, Governor, or Representative.

When a person inherits a farm or house or china from a parent, from that day on the item or property belongs to the heir. This is the same now for the issues within the United States. The mess no longer belongs to GWB – it is the sole ownership now of BHO and he better get to work fixing it and stop talking about mops!

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I do think that it is interesting that the rude outburst occurred due to a statement from BHO regarding healthcare for illegal aliens. There is a reasonable argument that BHO, while perhaps not lying, was not telling the complete truth. Check out this interesting video below and then read the rest of my comments.

Now I see that the Democrats in the Senate would like to toughen up the loopholes to prevent illegal aliens from getting taxpayer supplied insurance. I don’t get it, BHO says that this can’t happen but now a few days later there is an amendment that prevents this thing that can’t happen.  Makes me think that BHO was bending the truth a bit and probably knew it.

Of course the solution that the Senate is currently thinking about is to use Social Security numbers.  Seems reasonable.  SS numbers have become the defacto national identity card that we need. I have ranted on this before, if we would just have national identity cards then we would control much of the illegal problem that we have.

Below are a few clips from a recent article in the Wall Street Journal:

A key Democratic senator said Friday that lawmakers planned to toughen provisions in a health bill to prevent illegal immigrants from enjoying benefits, in a Democratic response to concerns by some Republicans.

Members of the Senate Finance Committee met Friday, and Sen. Kent Conrad (D., N.D.) said they wanted to use Social Security numbers to ensure that illegal immigrants weren’t eligible for subsidies envisioned as part of a plan to expand health coverage.

President Obama’s health-reform proposal has sparked heated debate over whether the plan benefits illegal immigrants, as demonstrated by Rep. Joe Wilson’s “You lie” outburst. WSJ’s Elizabeth Williamson breaks down the details of the proposed new government-run insurance plan.

Still up in the air is whether illegal immigrants would be banned from participating in federally regulated insurance “exchanges” under Democrats’ health bills, even if the immigrants were willing to use their own money to buy policies. On Friday, a coalition of three dozen faith-based groups wrote to Congress to express anger at the proposed ban.

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Dear Employee: 

As the CEO of this organization, I have resigned myself to the fact that Barrack Obama is our President and that our taxes and government fees will increase in a BIG way. To compensate for these increases, our prices  would have to increase by about 10%. But since we cannot increase our prices right now due to the dismal state of the economy caused by banks that can’t run an effective business, we will have to lay off sixty of our employees instead.

This has really been bothering me since I believe we are family here and I didn’t know how to choose who would have to go.

So, this is what I did. I walked through our parking lots and found sixty ‘Obama’ bumper stickers on our employees’ cars and have decided these folks will be the ones to let go. I can’t think of a more fair way to approach this problem. They voted for change…… I gave it to them.

I will see the rest of you at the annual company picnic.  

            
                                                          THE BOSS

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Now attention is also being shown to the venture capitalists. This is not necessary. Nothing in this current downturn can have VC activity pointed to as the cause. In fact, VCs are fairly well self-regulated by the activity of the stock market and they take a sizeable set-back when the tech bubble bursts (most notably in the early part of this decade).

No VC is too big to fail and no VC has a huge majority of the market. It simply doesn’t make sense to overly regulate this industry when so much of what we enjoy on a regular basis is the result of VC activity (nearly the entire IT industry including the technology that makes this blog possible and your ability to read it).

Here are a few thoughts taken from a column at the Wall Street Journal:

Just when the economy needs risk-taking the most, risk-takers are under the most threat. The Treasury now wants venture-capital firms declared as systemic risks and put under tight restrictions as part of the broader re-regulation of financial firms. Venture capitalists argue that since they don’t use debt and their firms are comparatively small, they shouldn’t come under rules designed for highly leveraged, too-big-to-fail banks.

How this debate turns out matters, because some 20% of U.S. gross national product is created by companies that were formed through venture backing. They include Intel, Apple and Google. How policy makers treat venture capital is a measure of the amount of innovation and enterprise that happens in an economy, with more regulation leading to less innovation.

This is a tough time for venture capital, with investments by firms falling more than 50% in the second quarter. The 700 or so venture-capital firms in the U.S. are mostly small partnerships, with a modest voice in Washington. They say the industry as we know it can’t survive if firms are regulated as investment advisers, which would mean complying with rules for disclosure, compliance, record keeping and privacy designed for huge firms.

Uncertainty about which regulations applied to early-stage investing slowed the growth of venture capital. It wasn’t until deregulation in the late 1970s that the industry took off. The capital gains tax rate was cut to 28% from nearly 50% in 1978, and for the first time pension funds and other fiduciaries could include venture capital as part of an overall portfolio. During this vital period venture firms began to nourish what are today’s high-tech leaders, from information technology and the Internet to genetic research and health care.

The proposal now to tighten how venture firms operate suggests that we are in a stage of the regulatory cycle closer to the New Deal than to the entrepreneurial era that followed. Adding regulatory burdens would do nothing to help the investors in venture funds who are willing to take the big risks, knowing that about half of venture-backed companies fail. It would only increase the costs of doing business and make risk-takers more risk-averse.

No venture capital firm has asked to be bailed out, and none are too big to fail. As hard as it is for regulators to understand, the nature of venture capital is such that it should not even aspire to be a low-risk enterprise.

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