Bailing Out Corporate America - Research Paper Example

Bailing Out Corporate America “The 160 or so largest banks in the country have about 6 trillion in assets and about $110 billion in capital. Butif we take the real market value of all their outstanding Third World loans, set aside half the paper value of all their commercial real estate loans to cover for expected defaults and count their loans in leveraged buyouts at their real market value, we wipe out the existing capital of all the big banks. To fill that capital hole at a safe level of, say, 10 percent of assets, taxpayers may eventually get dunned for perhaps $140 billion to $150 billion.”(Walker, 1991, pg 2). Sound familiar, as you can see, it was written in 1991. This very same scenario can be seen in new articles from 1943, 1980, 1991, and now 2008. The American people say that they do not want to reward greed by bailing out the corporations but greed is not the real problem. The real problem is that it fails the American dream. How might we define the American dream? It is more than cars and money. James Adams was the first to actually attempt to define it. That definition was of “a land in which life could be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.” This is a dream that European upper classes might have some difficulty in interpreting and now many of our own are having trouble hanging on to. Americans have become weary and mistrustful of it. It is a dream about a social order in which each man and woman shall attain their fullest potential of which they are innately capable of being recognized by others for what they are regardless of the circumstances from which they came. This is the dream that is being lost to Americans who are working hard and losing to companies who are not. From the time we are young children, we are taught, if we work hard and do well, we will be rewarded. Essential to the American dream is the belief that you will be rewarded if you are successful. This is so much a part of the society and culture that it also becomes part of the ethics of the culture. If you work hard throughout your life, you will have what you want and maybe more. This is where the anger really comes from. Greed is part of the American dream. All Americans are greedy. Americans do not hope to have just enough, they hope to have everything they can get but they expect to get it by working hard, doing a good job, and being successful (Sandel, 2009) anything else is considered theft. Why then, are we rewarding with millions of dollars those companies that have just lost millions of dollars? This is the dilemma for the American people. To top it off, CEO’s who are claiming large bonuses after such losses are saying that they had no control over what has happened, yet, when times are good, they deserve bonus because they did a really good job. Which is right? How do parents tell their kids they can have their American dream when they work hard, if the Corporate cultures that they see are the opposite? For many years stock and housing prices climbed. CEO’s were talked about as if they were almost God. After all, look at the value they have created for their companies and the stockholders. Then the housing bubble burst in a maze of loans that were given to people that could not afford them and millions were lost in real estate by these corporations. Wall Street firms teetered and some fell. It devastated Americas largest firms (Hovde, 2008). What about the devastation of millions of Americans that lost their retirements and homes? A sixty two year old fellow who lives on my street saved his whole life for retirement and was planning on retiring next year. To get there he gave up many things including visits with his children, believing that he would have long visits with them and trips to see them when he retired. His retirement was worth over $300 thousand, now it is worth $80 thousand and his daughter and grandchild have lost their home so they are now living with him. He is not having a problem with the greed of the companies; he is having a problem because his American dream has been lost. He worked hard all those years, dreamed, and saved and now he has lost it all. That dream dwindles even more when those funds are then given to the very companies that created this loss (Stein, 2009). The fact that $100,000 payments for personal use of corporate jets, a $200,000 gym membership, a $2.5 million company reimbursement to cover personal taxes are the kinds of perks these CEO’s are getting would not be a problem if they were successfully running their companies and not losing taxpayers money and dreams (Sessions, 2009). In fact, in the American way, it gives others something to hope to be. The average corporate perks ran $380,000 a piece which was a 4% increase since last year, and they took a combined $350,000 billion in bailout money or U.S. taxpayer money. American CEO’s are making 44 times what their European counterparts are and 100 times those of their Japanese counterparts (Cassidy, 2009). Someone’s home and retirement paid that $350,000 billion. This time, the bailout has been all the major car industries, insurance industry, and the banks. The cost to Americans is hard to know as of yet. AIG and the auto industry alone have cost $61 billion dollars. Three of the banks, Bank of America, Wells Fargo, and Citigroup have paid back a total of $90 billion from the banking industry but that is a small amount compared to the total given to banks of $337.5 billion dollars (Kiel, 2010). Not only has the Americans tax money been used to bail these banks and corporations out but the secondary cost is that almost every Americans credit card interest rate has gone up, reaching around 30% or in some cases more. Bank of America’s lowest rates now, for its best customers is 14%. Again, it is not greed that is the problem but another chunk of the American dream. This is the interest rate for good customers, those who have been paying their bills. This creates a situation causing even more Americans to have financial problems and fail. Kiel (2010) would say that it was also wrong for Americans to get in so deep with credit cards. That probably is true but who encouraged them? Also, is it morally right to bail out the rich so they can then penalize the middle class for the same mistakes they themselves are making? Are we not saying, it is alright for a corporation to meet their budget but not alright if Americans do not meet theirs? That alone has ramifications for not only the public but the banks. How is it that we continue to use taxpayer money, not to improve the lives of taxpayers, but to improve the lives of corporate business? Americans pay taxes, according to Oliver Wendell Holmes in 1927, “for a civilized society”. Does civilized society mean bailing out banks, insurance, and auto industries when they do not do their jobs and get paid huge salaries to boot? This writer would say no. Civilized society means funding public goods and services for the good of citizens. Funding of highways, schools, and national parks, as well as healthcare would also be included. Yet right after the bailout was approved by Congress, the three main banks went to bat against the funding needed to drive American jobs and provide healthcare (Palmieri, 2009). Keeping our citizens working would be a part of civilized society, as would saving money for our elderly and their care. No where in the tax code does it say that Americans must pay taxes to assure that Corporate America stays profitable, continuing to provide an elite group of CEO’s who make more money in a day than many Americans make in a year (Kiel, 2010) with salaries and bonuses for jobs poorly done. Does it not remind one of the years in which the King of England taxed those who could not afford taxes to add to the coffers of the rich in the Kingdom, when taxes were unfair, when Americans dumped tea in the harbor? How is this so much different? There is then, much controversy. If the banks and auto industries are the wrong people to bail out who should be bailed out? Steven Schwartz of Duke University (2009) believes it should be the markets that should be bailed out. The belief here is that in order to stop collapse of the financial markets, the federal reserve should bail them out. The article supports what many of us believe, by continuing to bail out corporate America, only the symptom of the underlying disease is addressed. The underlying disease is a lack of confidence in the credit markets in general (Schwartz, 2009). It has come to a moral hazard at this point when corporations, and banks take unnessisary risk because they know that in the end the Federal Government will bail them out (Schwartz, 2009). According to Schwartz,(2009) the moral hazard, this time, could have been averted if the Federal Government would have stepped in when the subprime crisis started and shored it up by purchasing securities at a discount, they might have even made a profit. Today’s taxpayers also have some ability to understand what is going on and what does or does not need to happen on the government side. As the U.S. House of Representatives voted on the stimulus legislation, they had in their hands an open letter from 23 citizen groups that cautioned that the current package appeared to “favor the redistribution of wealth over true economic expansion”(NAICS, 2008). This joint statement was organized by 362,000 national taxpayers. They stated clearly in their letter, “this package will not lead to the kind of economic stimulus that has been advertised.”(NAICS, 2008) NAICS felt that the answer was not to bail out the corporations but try to reduce tax rates, making the capital gains tax rate permanent, and put credit card interest back on the ability to take a tax deduction.” Why were there not more Americans involved in this protest? Apathy? Colvin (2009) from Fortune magazine would have us believe that Wall Street and Corporate America should not be punished because it is bad for Americans to do so. Americans are having trouble seeing how it can be worse for them. They want their piece of the pie, which they earned, instead of giving it to a Corporate America which has not. In the months ahead, according to Colvin (2009), it will seem even worse as the banks and corporations recover and there is still a high jobless rate and many homes are still foreclosed. Is there something wrong with this statement? The American dream again is being attacked. Why do we expect Americans to be jobless and lose their homes while their taxes bail out the banks that are now successful? The non ethics of this situation defies belief. Would your bank lend you money based on a 1:100 asset to liability ratio? (Lauren, 2008) Where are the auditors in all of this? We hand over bailout funds to be handled and administered by the very institutions whose poor oversight led to the problems we are now in financial trouble because of in the first place. Good faith taxpayers are asking to pay for losses as a result of aggressive greed, negligence and incompetence and in some cases corruption and fraud. Those CEO’s we are talking about are banking their funds elsewhere. Many American dreams were lost with those funds. Kirk Kerkorian is an example of the negligence and corruption and fraud we speak of. Mr. Kerkorian is a Los Angeles billionaire. His billions come from gambling and casino ownership. The definition of the American dream allows us to accept this, however, he pledged 50 million shares of MGM to Bank of America on a gambling loss right during the time of the bailout. He also sold some of what turned out to be failed investments, some of which were included in Bank of America losses when they claimed bailout funds. Is that called doubling down on bailout funds? These failed investements cost retirees money in losses and the taxpayers again paid for them with the bailout funds. This writer believes this is not ethical or moral and the Securities Exchange Commission should have picked this up. Again, the government surely rewarded failure as Mr. Kerkorian ended up with $600 million. This might have covered many homes that were being foreclosed (Grover, 2008). Americans saw this as theft and should have yet it goes unpunished in any way. In fact, it was rewarded. In conclusion, it is easy to get angry about this situation, especially if you lost your home or your retirement. The media hype makes it difficult to understand just exactly what is happening and why the money is being used in this way. They neglected to tell us though that a letter of major importance needed our attention. Worse, because of so much information, it becomes confused in our minds as to why we are truly angry. We continue to say we are angry because Corporate America is being so greedy. If greed were the issue, however, would we not see the American Dream different than we do? If greed were the issue, would we not only want to earn what we needed? Greed is not the issue. The issue is the American Dream is being bent, melted, changed. We no longer trust that our government has our dream in their sights. We even realize that once was OK and understandable and maybe even twice but the same Corporations are consistently rewarded for bad behavior over and over again. We begin to lose heart and hope. This writer believes that the true problem is that it is an infringement on the American dream that causes the anger. This whole episode of bailout has taken the dream of ownership and retirement away from many Americans. It appears that our government would take our dream and give it to others. This makes us distrustful and angry and we lose more than money because in America, we expect to be able to earn our piece of the American dream. Failure of the American dream is barely tolerated from ourselves and not tolerated by our government. References Beerel, A. (2009). The non-ethics of the financial bailout. Communication Service, LLC Colvin, G. (2009). Sympathy for the devils. Fortune. 159(11). Pg. 14. Farrell, A. Bank of America’s profits credit crunched. Forbes. 10(18). At http://www.forbes.com Grover, R. (2008). Kirk Kerkorian Doubling down or bailing out. Business Week Online. Pg. 13. http://web.ebscohost.com Hovde, E. (2008). Washington and wall street complicit in financial crisis; firms chased Obscene, high-risk profit while U.S. government turned blind eye. The Vancouver Sun. A.1. Kiel, P. (2010). Data show. The state of the bailout. ProPublica. Retrieved Jan 11, 2010 From http://bailoutpropublica.org Lauren, K. (2008). Congress needs on ethics bailout. Investors Business Daily. 48(256) Monbiot, G. (2008). Comment and debate; the free market preachers have long practiced State welfare for the rich. The Guardian. London. Pg. 33. NAICS. (2008). Nearly two dozen groups warn congress: avoid stimulus fairy tales, pass Tax-rate reductions. U.S. Newswire. Palmeri, C., Hooanesiam, M. (2009).Will Bofa bail on countrywide? Businessweek Online. Pg 4. Sandel, M. (2009). Bankers on bail. New Statesman. 138(4966) p34-36. Sessions, D. (2009).Executives at bailed-out banks are awash in company perks. Contributor. http://www.politicdaily.com Schwartz, St. (2009). Are feds bailing out wrong people? USA Today Magazine. 136(2756). 7. Available at academic search premier. Stein, S. (2009). Bailout recipients hosted call to defeat key labor bill. Huff Post Reporting from DC. http://www.huffingtonpost.com Walker, T. (1991). Time to stop bailing out the banks. The Nation. September. Retrieved Jan. 11, 2010 from http://www.ebscohost.com Waller, B. (2008). Consider Ethics, Theory, Readings and Contemporary Issues. 2nd ed. New York: Peearson/Longman. Young, G. (2008). Better than a band aid for economy. The Modesto Bee. 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