Sometimes Failure Is the Lesser Evil

by Inya Ivkovic, MA

Double standards abound in Washington and on Wall Street and Main Street, worrying ordinary investors to no end. We have been advised ad nauseam that our economy is so battered and suffering from such a severe phobia of surgically removing the degenerated tissue (my apologies, watched too many ER reruns this weekend) that it may never recuperate unless drastic measures are taken.

We were warned there will be banking failures, threatening to collapse global financial systems, unless taxpayers’ hard-earned money does not come to the rescue. We were also told that taxpayers’ money should not go to institutions that cannot make difficult choices or that cannot adapt to the changing world. Yet, something is amiss.

True, some U.S. banks have failed: 27 in all, since the new president’s inauguration in January. The reason for the collapse was the unmanageable weight of “toxic assets,” as everyone now refers to bad mortgages given to people with below par credit rating and securitized into packages with the high ratings of their issuers.

Advertisement

But how come we don’t know more about such a high number of bank failures? When Bear Stearns, Merrill Lynch and Lehman Brothers failed, the earth shook for days and the economy plunged into an abyss of recession. Yet, not even a tremor after 27 banks have failed in four months? Perhaps names such as Heritage Bank of Farmington Hills, Michigan, or the Corn Belt Bank and Trust Co. in Pittsfield, Illinois, and their size have something to do with it.

Meanwhile, Citigroup and Bank of America remain standing, albeit barely and on billions of dollars in support poured in from the government. Not only that, but the government has even promised to pay for some of their bigger and nastier greed-induced losses.

And you’ve got to wonder about the double standard applied to
automakers. In addition to making radical wage, job and dealership cuts, one automaker has had its CEO fired by the government, while the other just recently had a Chapter 11 filing shoved down its throat. Not that I’m defending the auto sector. Far from it; auto companies’ own imprudence, negligence and complete disconnect with reality remain the main driving forces behind their demise. Yet, it cannot but bug me that Bank of America’s executives, for example, are still there, not even called to the plate to explain themselves, despite the fact they have cost their shareholders about 75% of their investments during the past year.

Perhaps the freakish stock performance as of late has something to do with placating the masses. Perhaps the relaxing of the Wall Street banks’ stress test rules also had something to do with this. Perhaps it is all just another conspiracy theory. In my humble opinion, it could be all three or none at all. But what I’m certain of is that double standards have taken over and that such an approach to public policy could provide fertile ground for an environment in which abuse,
greed and bureaucratic thinking could get ahold of the economic reins yet again. Sometimes, truly, failure is a lesser evil that should not frighten us. Sometimes Failure Is the Lesser Evil
by Inya Ivkovic, MA

Double standards abound in Washington and on Wall Street and Main Street, worrying ordinary investors to no end. We have been advised ad nauseam that our economy is so battered and suffering from such a severe phobia of surgically removing the degenerated tissue (my apologies, watched too many ER reruns this weekend) that it may never recuperate unless drastic measures are taken.

We were warned there will be banking failures, threatening to collapse global financial systems, unless taxpayers’ hard-earned money does not come to the rescue. We were also told that taxpayers’ money should not go to institutions that cannot make difficult choices or that cannot adapt to the changing world. Yet, something is amiss.

True, some U.S. banks have failed: 27 in all, since the new president’s inauguration in January. The reason for the collapse was the unmanageable weight of “toxic assets,” as everyone now refers to bad mortgages given to people with below par credit rating and securitized into packages with the high ratings of their issuers.

But how come we don’t know more about such a high number of bank failures? When Bear Stearns, Merrill Lynch and Lehman Brothers failed, the earth shook for days and the economy plunged into an abyss of recession. Yet, not even a tremor after 27 banks have failed in four months? Perhaps names such as Heritage Bank of Farmington Hills, Michigan, or the Corn Belt Bank and Trust Co. in Pittsfield, Illinois, and their size have something to do with it.

Meanwhile, Citigroup and Bank of America remain standing, albeit barely and on billions of dollars in support poured in from the government. Not only that, but the government has even promised to pay for some of their bigger and nastier greed-induced losses.

And you’ve got to wonder about the double standard applied to
automakers. In addition to making radical wage, job and dealership cuts, one automaker has had its CEO fired by the government, while the other just recently had a Chapter 11 filing shoved down its throat. Not that I’m defending the auto sector. Far from it; auto companies’ own imprudence, negligence and complete disconnect with reality remain the main driving forces behind their demise. Yet, it cannot but bug me that Bank of America’s executives, for example, are still there, not even called to the plate to explain themselves, despite the fact they have cost their shareholders about 75% of their investments during the past year.

Perhaps the freakish stock performance as of late has something to do with placating the masses. Perhaps the relaxing of the Wall Street banks’ stress test rules also had something to do with this. Perhaps it is all just another conspiracy theory. In my humble opinion, it could be all three or none at all. But what I’m certain of is that double standards have taken over and that such an approach to public policy could provide fertile ground for an environment in which abuse,
greed and bureaucratic thinking could get ahold of the economic reins yet again. Sometimes, truly, failure is a lesser evil that should not frighten us.