Jaeger Research Institute

TOO BIG TO FAIL Why Bailouts Promote Consolidation by James Jaeger

Every time we bailout a corporation that has been deemed "too big to fail" we move our entire economic system towards a system of ever larger corporate entities. Ever larger corporate entities are a result of natural growth, but they are also a result of mergers and acquisitions. All this is fine, but when a corporate entity gets into financial trouble, one of the causes the thoughtful analyst must look at is size. Did this corporate entity grow too large to properly manage its assets? And the answer to this question is often, yes. With size comes the problem of centralized management. Size promotes economies of scale, but it also promotes greed, miscommunication and debt.
The nature of existence in this universe is that entities are born, they grow and they die. This is also the nature of corporate entities. When a corporate entity has grown so large that its management systems fail to guide the enterprise into prudent and sound financial policies, maybe this is a message from the universe. Maybe the universe is saying, it's time this corporate entity recognizes it's served its purpose. Artificially extending the life of a corporate entity, whether it be a bank, insurance company, auto manufacturer or railroad on the grounds that it's "too big to fail" should be a serious red flag.(1) Why would a nation of prudent citizens allow its economy to be peppered with corporate entities that are "too big to fail," minefields all over the landscape ready at any time to blow up the future.

What does this all mean?
The answer to this question goes right to the heart of the issue of consolidation and anti-trust laws long on the books, but rarely, if ever, enforced these days.
Each time the taxpayers bailout a corporate entity that has become "too big to fail," we postpone the day of reckoning. As more and more corporations merge with each other, their bargaining power becomes significant enough to influence state power. As they influence state power directly and through lobbyists, they are able to reconfigure the laws of the nation to suit their purposes. We the People suffer and go unrepresented. Among the laws they influence are laws about consolidation. The laws about consolidation are relaxed or removed from the books so corporate entities are free to grow "too big to fail." It's a nefarious game and the American citizen loses when s/he plays by the "rules" established by the corporate fascists that infest Washington.
Where does this stop? Well if you do the calculus, it becomes evident that it stops with one huge corporate state, the dream of a Hitler or Stalin.
With each round of bailout, we allow corporate entities to grow bigger than the natural law would have permitted them, i.e., they would go bankrupt unless they were bailed out. With each new round of bailout, we send the message: consolidate and you will escape bankruptcy. Become "too big to fail" and you will eventually join your "too big to fail" corporate brothers and sisters in Merger Heaven, Ltd., a division of Globalization, Inc.

Media Consolidation:
So corporations continue to consolidate and no one complains about what's happening because the very media that is supposed to be society's watchdog is part of the problem.
About 8 years ago John Nichols, Barbara Ehrenreich, Ralph Nader, Paul Wellstone, Robert W. McChesney, Barbara Ehrenreich, Ralph Nader and Paul Wellstone wrote a book called IT'S THE MEDIA, STUPID. Did you read this book? Well if not, you can get it for 33 cents at Amazon. That's how much people feel this invaluable book is worth today even though it's one of the reasons we are in the serious financial meltdown we are currently in. Not only has the banking industry and the insurance industry consolidated to a point of being "too big to fail," but count on the fact that some will inevitably make the argument that so has the media? When IT'S THE MEDIA, STUPID was written there were about 10 to 15 major media corporations. The mass media has now consolidated down to six multinational corporations as follows:
TIME WARNER, INC.
THE WALT DISNEY COMPANY
VIACOM
VIVENDI UNIVERSAL
NEWS CORPORATION
BERTELSMANN AG
This is a pathetic indictment of the intelligence of the American citizen, that s/he would allow this to happen while continuing to elect total moron presidents and Congressmen from the DemGOP party that has done NOTHING to remedy this except "put the law on the side of" the corporate entities that are now "too big to fail." Are you STUPID if you allowed this? The book, after all, WAS addressing YOU. Look around. Are you stupid? Everything the book said would happen, happened. Are you stupid? The book SAID if the media was over consolidated it would screen out news and issues vital to the public discourse. Are you stupid? The book SAID, if this happened, you and I would not be aware of serious issues that needed to be addressed and debated before they became crises. Are you stupid? The book SAID there would be CRISES if the people weren't able to participate in the free flow of ideas a democratic society relies upon to survive. Are you stupid? The book SAID the corporations that OWN the media will say and do nothing that would antagonize their corporate sponsors. It's the media, stupid. Get it? Did you not GET what the book was saying or did you simply DO nothing? Well how does it feel to be losing a house or life-savings because the issue was deemed a politically incorrect public discussion in the media that's "looking out for the folks"? Are you stupid? There IS a price to pay for being stupid or inactive. Right?
Thus the above six corporations are now the gatekeepers to much of our "knowledge" base. If this doesn't trouble you, you simply aren't getting it. Of course we have the Internet, but even a casual observer of the mainstream media can see the talking heads assaulting and invalidating the Internet at every opportunity. "The Internet has porn, or child molesters or posts beheadings or recipes for bombs," ad nauseum. Well LIFE has all these things. The Internet is just a reflection of the human condition.
I don't mean to imply anyone is stupid, but I do feel many are lazy. They are lazy because they drink too much beer and alcohol and then they plaster over their unwanted attitudes, emotions, sensations and pains with pharmaceutical drugs. Alcohol, drugs and bad food, combined with a lack of sleep CAUSE people to be low on energy. When one is low on energy, they come off as "lazy" or "apathetic." Such a person is neither lazy or apathetic, s/he is just low on energy for the above reasons and this can easily be corrected.

Bank Consolidation:
Now apply the above discussed media consolidation mania to other industries. For instance, LIBERTY BANK was once a small independent bank around 1985. Then LIBERTY was bought and merged with MERIDIAN BANK around 1990. Later MERIDIAN was bought and merged with FIRST UNION BANK around 1995. Then FIRST UNION was bought and merged with WACHOVIA BANK around 2000. Now in 2008 WACHOVIA may yet be bought and merged with WELLS FARGO, J.P. MORGAN, CITIBANK or who knows WHAT BANK. Soon the bank that buys and merges with Wachovia will be "too big to fail" and it will continue to rampage through the environment eating up all the rest of the banks, then the insurance companies, then possibly the media companies. As soon as the banks eat up the media companies, entities that have ALREADY been placed heavily in the pay of pharmaceutical companies, you will have MEDIA-BANK-DRUG corporations that are not only "too big to fail," but who will entertain and drug you as they rape and pillage you on your way to accepting a totalitarian corporate world government.

Consolidation Promotes Fascism:
Bailouts promote consolidation, consolidation promotes the merger of corporate and state power, the merger of corporate and state power is fascism.
What is Fascism? Fascism develops when state power and corporate power merge. The key words being "merge" and "power." You are not merging the state and corporations, you are merging their POWER. Secondly, it's the MERGED power that governs, NOT either the state or the corporations. Thus, in a fascist state it would be incorrect to say the "state is ruling the corporations" or the "corporations are ruling the state." Neither entity rules the other. It's their MERGED POWER that does the ruling. This is what we mean by FASCISM. The merged power of the state and the banking system is one of the early examples of fascism we have. This quasi-governmental, quasi-corporate entity is a fascist banking cartel known as the Federal Reserve System. It is this "system" that is at the heart of the "too big to fail" syndrome, for it's the Federal Reserve System that fuels the corporate consolidation though fiat money and fractional reserve lending practices. Ultimately, all the money that comes to bailout corporate entities that are "too big to fail" comes from the Federal Reserve System's power to MONETIZE DEBT.(2)

Socialism, Communism, Fascism and Capitalism:
To understand what Socialism is, one must first understand what Communism is. Communism is an economic system whereby the state owns the MEANS of production. Socialism is an economic system whereby the state owns the OUTPUT of production. MEANS of production means CAPITAL. CAPITAL means money, machinery, labor and land. OUTPUT means revenues generated and thrown off by the MEANS. Revenue thrown off by the means is another way of saying TAXES.
So Communism owns and confiscates all production for the state and Socialism confiscates excessive amounts of tax money for the state. Socialist states in Europe, for instance, confiscate as much as 50% of the money citizens pay for retail products and services. This is the outrageous sales tax a Socialist state demands.
So what is the difference between a Socialist state and a Fascist state? A Socialist state rapes the people mainly through excessive taxes. A Fascist state rapes the people mainly through excessive debt. Both ultimately rape the people through taxes because debt causes inflation, a hidden tax. Debt causes inflation because the Federal Reserve System facilitates the conversion of government bonds (government IOUs) into Federal Reserve Notes, what we use as a currency. This is known as MONETIZING DEBT, turning debt into money. When this is done, the money supply is INFLATED. When the money supply is inflated it becomes watered down or diluted (just like stock when a corporation authorizes and issues more stock, existing shareholders are diluted). When money is diluted it has less PURCHASING POWER. When it has less purchasing power, PRICES RISE because it takes more Federal Reserve Notes to purchase a given product. When prices rise, it has the effect of a tax. Inflation is therefore a HIDDEN TAX.(2)
Corporate fascism uses debt (which generates the hidden tax of inflation) and Socialism uses endless taxes to fund their respective "operations" and expansion.

Adam Smith vs. Alexander Hamilton:
Today we have, in essence, two economic systems. One has been tried one has not. One has failed, one has not even been tried. One of these systems is GOVERNMENT REGULATION -- also known as Communism, Socialism, Fascism, Monopoly Capitalism, Unbridled Capitalism and Authoritarian Capitalism. The other system is known as FREE ENTERPRISE -- the Grand Regulator in the Sky, Adam Smith's "Invisible Hand."

"It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages." - Adam Smith, Wealth of Nations

Adam Smith applied his "Invisible Hand" metaphor to argue against protectionism AND regulated markets. Unfortunately Smith didn't differentiate sufficiently between the two because he never lived into our time to witness the empirical experiment that's now taking place. In one case -- market regulation -- the Invisible Hand of free market capitalism will cause an expansion and the other -- protectionism -- causes corporate fascism and empire.
Smith reasoned that an economy left alone from government regulation will do all of the things above discussed: regulate the economy by letting businesses that are "too big to fail" fail so that consolidation does not evolve into corporate fascism, such as we have today; those unfettered business will prosper as if by an "invisible hand" of supply and demand. Where Smith went wrong was applying this Invisible Hand principle to international free trade. Smith envisioned that free enterprise capitalism would not only seek out the cheapest and best labour domestically, but the cheapest and best in the international market as well. Thus Smith opened the door for multinational corporations that outsource their labor forces thus destroying the manufacturing base and the middle class of the U.S. Smith has been used as a justification for this so-called Globalization agenda. The problem with Adam Smith is he flies in the face of Alexander Hamilton who warned: a nation needs to remain strong economically so its political structure can also remain strong.
Thus rogue and imprudent applications of Adam Smith have provided the intellectual basis for our nation's "leaders" and Benedict Arnold-CEOs to wander from the Republic envisioned by Hamilton and the Founders. We now have multinational corporations trying to establish and justify an international trade under NAFTA, GATT and WTO policies that are opening the door to a fascist global government and thus undermine a distributed network of nation states. Corporate entities, once loyal U.S. companies, have now consolidated into mercenary, greed multinational entities that are loyal to no nation, state or People. Pursuing cheap labor in global markets, they revile protectionism and cite Adam Smith as one of their progenitors.
Here's the problem: free enterprise capitalism only works in a given universe. If you merge two or more economic universes, the expansion of the smaller universe will occur at the expense of the larger universe. In other words the expansion of the Third World will occur at the expense of the First World. More specifically the expansion of the China will occur at the expense of the United States. Why is this? The reason is because of the First Law of Thermodynamics, which states:

"The increase in the internal energy of a system is equal to the amount of energy added by heating the system, minus the amount lost as a result of the work done by the system on its surroundings."

In layman's terms this means HEAT always flows from a WARMER system to a colder system, never the opposite way. An ice cube melts because the HEAT from the surrounding environment flows into the ice and out of the warmer air. The COLD from the ice does NOT flow into the air. COLD does not flow anywhere, only HEAT flows. HEAT is a measure of the MOTION of atoms and the molecules these atoms build. The more heat the more motion. The more motion the more heat. Motion is heat. Heat is energy of motion. Again, energy of motion, HEAT, always flows from the higher motion entity (the HOTTER THING) to the lower motion entity (the COLDER THING).
Translated into global macro economics: The United States is a higher motion entity (the HOT THING) and the rest of the Third World is a lower motion entity (a COOLER THING). The U.S. is 4 percent of the world's population yet it uses 25% of the worlds' energy. Since heat is a form or energy, it follows that the United States also generates 25% of the world's human-made heat. Again, heat always flows from hotter entities to colder entities, per the First Law of Thermodynamics, thus energy of motion always flows from hotter entities to colder entities. More developed nations have greater energy of motion because they have more manufacturing and industry than less developed nations. This manufacturing and industry creates motion and energy in the form of money and heat. Thus money, like heat, will always flow FROM higher developed nations to lower developed nations. Money and energy will thus flow from a GDP nation like the U.S. to a lower GDP nation like China. This potential difference between terminals is measured by the trade deficit in dollars and the exchange rate FOR dollars. Dollars are a form of energy or heat transfer.
Thus if you merge two or more economic universes, the expansion of the smaller universe will occur at the expense of the larger universe. The expansion of the Third World will occur at the expense of the First World.
So when apologists of the Globalist agenda, such as Fareed Zakaria, write articles like "THE FUTURE OF AMERICAN POWER -- How America Can Survive the Rise of the Rest" (3) what they under estimate are the effects of the First Law of Thermo Dynamics. Such apologists are trying to allay Americans fears about their country's vital energy transfers, energy transfers in the following ways:
1. Trade imbalance;
2. National Debt;
3. Petro-dollar outflow;
4. Transfer of technology;
5. Loss of jobs.
In short, the United States is a patient etherized upon the table as it bleeds. Americans MUST wake up and ACT.
What globalist apologists OVERESTIMATE are the effects of a Non-Zero Sum Game, the idea that if you increase the size of the pie, everyone will get a larger piece. This so-called win-win strategy, is bogus unless played with participants of similar magnitude. If you are the Lion and I am the mouse, we are only viable partners under certain extreme circumstances. Unfortunately globalization is not a win-win strategy for the Lions in the United States, at least in its early stages. If Globalization is to succeed the United states WILL continue to bleed (read lose energy, power, money, motion and heat). This is a universal FACT. Possibly it's the way things will happen, but it's not pre-ordained. Unfortunately the use of Adam Smithian-economics to justify the rape and pillage of the Globalist agenda and to thwart Alexander Hamiltonian-advice to build a strong domestic economy based on the U.S. Constitution is not very wise, or patriotic.
What should be happening is the U.S. Government should be doing its Constitutional job.
The job of the U.S. Government under the Constitution is to PROTECT, not PROVIDE. It's job is to create GENERAL WELFARE not welfare in general. Protect means protect its citizens from interior and exterior threats, such as the 9-11 terrorists that it FAILED to protect us from. Protect means protect its citizens from corporate entities "too big to fail" by NOT allowing them to ever grow and continue to sizes that can threaten the entire economy. Better to have many "smaller" companies, some portion of which may fail, than to have just a few giant companies that if any one or few fail will precipitate the failure of the entire U.S. economy -- or the dollar itself -- once the music stops.
The U.S. Government should not be PROVIDING regulations -- the flip side of which are FAVORS -- to businesses whether such businesses are the elite bankers in New York (who have formed the Fed); the mainstream Media (who has consolidated to "Ignore the Folks") or the Pharmaceutical corporations (who have co-opted the media to such an extent they feel free to trash out-spoken critics, such as Tom Cruise, whose only "crime" was he voiced his opinion that it's not okay to drug children with Ritalin when they are just acting like children).
PROTECT also mean protect U.S. markets from goods manufactured in slave-labor countries. The Invisible Hand cannot work when it's being hand-cuffed by unfair trade policies, such as those being forced upon American citizens by the World Trade Organization (WTO). Adam Smith was never meant to invalidate Alexander Hamilton. Alexander Hamilton's republic comes first then Adam Smith's free market is free to thrive.
And, as the U.S. remains strong under Hamilton and properly directed Adam Smith, it can, and should, lead by example. This does not mean invading or tampering with other nation's internal affairs as justified by the mantra of "spreading democracy." You don't SPREAD democracy on the world, like some sort of fertilizer. You demonstrate democracy, through, among other things, an unfettered MEDIA, to the world and those who like it and want it can make it happen for themselves and in their own special ways, just as we Americans did some 230 years ago. Of course we never would have made it if the French hadn't intervened and helped, so there are definitely cases where a democratic nation, in good economic shape, can and should ask its citizens if it may help someone out. But this policy does not require entangling alliances with nations all over the planet as warned by the Founders. It depends on prudent judgment as to when U.S. power should, and should not, be utilized. Anything else makes us an Empire or a Reich, not a Republic.
Unfortunately, American citizens -- due to the profligate corporate media, the government-sponsored public school system and endless anesthesia from corporate pharmaceuticals -- have failed to KEEP the Republic Ben Franklin hoped for.

Summary & Conclusion:
So as we have seen, when the citizens of a Constitutional Republic permit corporate entities to become "too big to fail" they are begging for corporate fascism to ruin their lives. The first step in handling this mess is to make a decision: Do you want a GOVERNMENT-REGULATED SYSTEM or do you want a totally FREE ENTERPRISE-REGULATED SYSTEM?
Both a GOVERNMENT-REGULATED SYSTEM and a totally FREE ENTERPRISE-REGULATED SYSTEM will provide regulation. A hybrid system will not. This is what we have now, a hybrid system. I believe this is one of those rare times where an all or nothing philosophy applies. You either have an economic system that's totally free of government regulation or your have one that MUST BE totally regulated by government. Economists have been arguing about this for centuries. The experiment of totally regulated economic systems has been tried many times in the form of Communist and fascist states. Nazi Germany, Fascist Italy, Communist Russia, Castro's Cuba, Salazar's Portugal, Pot Pol's Cambodia, Pinochet's Chile, Franco's Spain, Suharto's Indonesia, Papadopoulos's Greece and Mao Tse-tung's China come to mind. All of these states have done the experiment of creating regulations to regulate the regulations that failed to regulate former regulations. Regulation is like arsenic, it only takes a tiny amount to kill the body-politic.
To date, however, there has never been a totally free-enterprise state in the history of the world. THIS experiment has not been done. I am NOT talking about mere laissez-faire capitalism, the idea that government should keep its hands off business beyond what is needed to maintain property rights, liberty and security. I am talking about a system whereby government stays out of business to such an extent that "if you become too big to fail, you WILL fail" is the norm. An economic system whereby "if you borrow too much money, or lend too much money to risky borrowers, you WILL fail." A state whereby, "if you don't have enough money to expand, the government will NOT print up fiat money to STIMULATE the economy." A state whereby it "expects you to work harder and become more efficient rather than rely on Federal Reserve injected LIQUIDITY every other quarter." A totally free economic system that says: "We in the government will not stand in your way: you are totally free to succeed OR fail." If you succeed, "you may grow as big as the market and Universe permit, but if you fail, you will not be bailed out even if you are TOO BIG TO FAIL."
A Constitutional Republic is a country that has a government which acknowledges the natural force of universal supply and demand -- created by trillions of transactions made by billions of human beings the world over -- is the legitimate "regulator" that prevents corporate entities from consolidating and thus becoming "too big to fail." A Constitutional Republic keeps a nation strong so it will never be subject to the First Law of Thermodynamics or entropy.
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(1) See "The Name of the Game is Bailout" in a book entitled, THE CREATURE FROM JEKYLL ISLAND by G. Edward Griffin
(2) See documentary film entitled FIAT EMPIRE available at http://ww.FiatEmpire.com
(3) See May/June 2008 issue of FOREIGN AFFAIRS magazine at http://www.foreignaffairs.org/20080501facomment87303/fareed-zakaria/the-future-of-american-power.html FOREIGN AFFAIRS magazine is published by The Counsel on Foreign Relations.

Originated: 27 September 2008
Polished: 02 October 2008

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