The Dow dropped 504 points as major American corporations nosedived, some of which are being saved with your tax money. It is way past the time to give corporate executives additional incentives to avoid asking for a congressional bailout. Instead they must run their companies responsibly.
It started when Bear Stearns was bailed out by federal authorities a few weeks ago. What is unprecedented about this is the Federal Reserve, which formerly operated as a lender of last resort to banks, for the first time channeled cash to a financial investment firm, radically expanding its sphere of regulation.
In the wake of this, market-watchers speculated which firm would be bailed out next. On Monday the feds let Lehman Brothers, one of the nation’soldest investment houses, collapse. Another giant, Merrill Lynch, was acquired by Bank of America as Merrill’s value plummeted.
Then AIG, with initial assets of one trillion dollars, lost 60% of its value. Fearing the global financial tidal wave AIG’s failure would cause, the feds stepped in. The international insurance giant wasspared Lehman’s fate.
These private-sector failings happened atthe same time of the collapse of mortgage giants Fannie Mae and Freddie Mac.
Those two institutions have no one to blame but themselves. Mortgage lenders were issuing mortgages to people with no income and noassets. That is simply insane. Who gives a loan to someone who cannot cover it and has no income with which to make payments? Someone who thinks that Congress will bail them out with your money if things gobad, that is who.
Some on the left criticize this as thefailure of the free market. They will demand increased government control of the economy, but they are wrong. Markets have both potential and risk. Business leaders get paid to exercise their judgment of the markets in order to maximize a company’s profits. Boards of directorsexercise their judgment to elect corporate officers who will best achieve this goal.
But that is not what is happening in somecorporations. A corporation should not pay one dollar more than necessary to keep corporate officers from quitting. Instead some are paying one dollar less than the amount that would send shareholders into an all-out revolt. Such corporations are operating to enrich their top employees at the expense of shareholders. That is backward - corporations exist to enrich shareholders.