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Return of the Trust Busters

Regulation or Break-Up for the Financial Sector?

by BRIAN M. DOWNING

In the late nineties, a prominent Japanese bank, one dating back to the mid-nineteenth century, went out of business. Its director felt obliged to come forward and express the deep shame and dishonor he felt for the venerable institution and the thousands of employees who now faced unemployment. He likely pondered what the old samurai code called for.

The contrast to the CEOs of failed American corporations is obvious and telling. Japanese executives feel an obligation to the public and their employees and have profound senses of tradition and honor. Their American counterparts only come forward under subpoena, blithely wish their employees good luck in their job hunts, and ponder the tax implications of generous severance packages. Something is wrong with American business culture, and increased regulation is far from a satisfactory solution.

Henry Ford, Andrew Carnegie, John D Rockefeller, JP Morgan, and their like were hard-nosed even ruthless businessmen who built their empires by hook or by crook. Laws were passed because of their business practices, perhaps foremost among them were anti-trust laws. But both parties have largely ignored them for several decades and we are left with many immense, badly-run, businesses – especially in the investment sector.

Though shares in the old barons’ firms were traded on exchanges (Ford long resisted this), their businesses had personal aspects. Their private income was formidable but limited by an eye to the company’s future. Most employees were paid pittances but the ratio of top-pay to bottom-pay was not nearly as immense as it is today. Failure would have hit them hard, personally and morally, as success was then tied to religious notions of salvation. The old barons were operating with their own money. They were adversely affected by bad business decisions and the golden parachute had not yet been invented, let alone opened as the firm fell precipitously. The old regime would likely find the new one to be led by arrogant, incompetent, and perhaps even sinful nabobs – the sort of irresponsible scions that novels of that era decried.

Today’s corporate elite are no longer burdened by quaint, nineteenth-century customs of responsibility and they have managed to make the old barons seem almost upright. They are freer from responsibility than any tax farmer or absentee landlord prior to a social upheaval. A return to such quaint customs is as unlikely as a return to the gold standard or a nation of small farmers.

Greater regulation is not the answer. The investment sector is too vast, the regulators too few, and public attentiveness too short. We should reexamine the wisdom of having placed billions of dollars from the Treasury Department and Federal Reserve Board into the outstretched hands of failed and failing banks, investment outfits, and insurance companies – all of whom invested other people’s money in a manner that would have horrified the likes of Ford, Carnegie, Rockefeller, and Morgan, grasping though they were.

Business leaders have shown their arrogant intransigence by awarding themselves lordly bonuses despite their manifest incompetence that has thrown the world into a depression. This should give us the opportunity to withdraw those sums that the Fed and Treasury have hastily deposited since late 2008 and transfer them into mid-size and foreign banks that are lead by more competent and less delusional figures.

Several benefits will follow from this portfolio change. It will allow for freer criminal investigations and civil suits by removing concern with reprisals from the investment sector in the form of economic manipulations during a frail recovery. It will also lead to greater competition as the recent collapse has left the investment banking sector in the hands of a few, immense companies that are unlikely to lead us out of depression, but better able to collude. Indeed they are economic hazards – and owing to a recent Supreme Court decision, political ones as well. Break-ups might also awaken members of both parties who have blithely ignored anti-trust legislation that Democrats and Republicans alike supported long ago.

A nineteenth-century writer once said that business leaders were digging their own graves, but they avoided that figurative interment. Neither he nor they could have foreseen how furiously and heedlessly their grandchildren could shovel.

BRIAN M. DOWNING is the author of several works of political and military history, including The Military Revolution and Political Change and The Paths of Glory: War and Social Change in America from the Great War to Vietnam. He can be reached at: brianmdowning@gmail.com