The blogverse is a buzz with the news that big Al Greenspan, former drinking buddy of the high priestest of Libertarianism Ayn Rand, has come into congress and admitted that he was wrong about banks regulating themselves for their own best interest and long term survival. Ms. Rand’s Corpse was clocked spinning at mach 3 in her grave over in Valhalla NY.
Greenspan’s point is this - The practices which caused the current crisis if left alone would destroy the financial institutions which performed them, therefore who could have imagined they would become commonplace. Of course this point rests on 2 flawed premises.
- The US Government believes in capitalism and will allow these companies to fail as they should.
- The objective of a company is long term survival and growth.
Its premise 2 which is far more insidious and honestly has made me begin to doubt the logic behind our current investing and stock system. During Greenspan’s early days and drunken binges about the town with Rand, companies were valued based on consistently growing and paying a dividend. Warren Buffet learned investing in this time, and is famous for quoting, the proper length of time to hold a stock is forever.
Over the late 90’s this attitude began to change, more and more, companies (and CEO performance) are valued based on how rapidly their common stock price rose. Everyone and their dog was day trading and looking for a fast buck. The .com bubble burst but this attitude lingered. CEO’s were desperate for quick gains which makes the company look dynamic and profitable, or were tossed out in he street.
It is little surprise that this attitude meant that the long term growth of a company was sacrificed for quick profits, nor is it particularly surprising that libertarianism is left holding the bag.
The point being missed here, is the libertarian principles will work if
- You allow companies to fail
- You allow enough time for the process to correct itself.
By interfering with the survival of the fittest aspect of the economy, the government is not preventing the correction the market so desperately needs. Since they are stepping in to bail out companies, there is no reason for large companies to look for long term growth, because now Uncle Sam will bail them out of any reckless behavior.
