No Such Thing As A Free Lunch

The issue of governments bailing out corporations has been a contentious one of late, and I thought I would offer some thoughts on the matter. In my view, there are two conflicting motivations on this issue

1. Firms that take excessive risk or firms that cannot compete in the marketplace must be allowed to fail. If they know they will be bailed out, it only encourages further risk-taking, because all the upside is there but the downside is effectivley limited. If risky or uncompetitive firms are allowed to survive, they will eventually damage the entire framework of capitalism.

2. Governments have an important role to play in protecting their citizens from large-scale problems that affect them, but were not of their own making. If a major commercial bank were to fail, for example, many consumers would be at risk of losing their deposits, investments and insurance. In this case, the need to protect consumers outweighs the need to punish firms that take risk. However, it must be clear that these corporations, as vital as they are, cannot expect a free lunch.

Applying these two principles to the current situation, one can see that some of the bailouts that have happened were undoubtedly necessary. The AIG bailout is a good example of this. Additionally, the use of public funds to buy securitized mortgages from ailing banks strikes a good balance of helping these institutions well still providing taxpayers with the potential of getting their money back eventually.

Conversley, I strongly disagree with some of the actions that have been taken, as well as some that might occur in the future. Bailing out investment banks, for example, is something I am strongly against. The collapse of these institutions would result in reletively low impact on third parties, and their faliure would strongly disincitivise mispricing of risk in the future.

On a similar note, U.S. automakers should not be bailed out forever. They are far-reaching enough that a one-time rescue might have been justified, but problems will not be solved by throwing money at uncompetitive firms. That will only delay the inevitable. The detroit automakes have had plenty of time and money to try and turn things around, and have failed. It is time for them to either consolidate or break apart, into units that can be competitive again.

To this point, we have not seen serious problems with industries other than finance, insurance and manufacturing, but if we do, I hope that any potential bailout will only target industries whose collapse would severly damage the livelihoods of a majority of third-party citizens. Our money is better spent on other things than on propping up bad gambles by investment banks or uncompetitive automakers.

For $700 billion we could put a man on Mars, and I'd rather do that than save the jobs of I-Banking execs who've pulled in seven figure bonuses for each of the last 6 years. So that better not be where that money goes.

The Leaders of Men

In honour of Barack Obama's historic victory, and spurred on by a question Dana asked me, I decided to compile lists of my most admired Presidents and Prime Ministers. Some of these men I admire because of their policies, others because of their character. I believe that each of them has contributed something vital to their country and to the world.

U.S. Presidents

1. Abraham Lincoln- One of history's truly great men

2. Franklin D. Roosevelt- Steadied the United States through both their darkest hours, and their finest ones

3. George Washington- Held together a young, fragile nation

4. Woodrow Wilson- Perhaps more than anyone else on this list, he inspires me

5. Theodore Roosevelt- His energy and passion served his country well

6. Harry S. Truman- "The buck stops here..."

7. Dwight D. Eisenhower- A commander, through and through

8. Grover Cleveland- Perhaps the most honourable man ever to be president

9. Ronald Reagan- Brought pragmatism and new ideas to Washington

10. John F. Kennedy- "The eyes of the world now look into space..."

Canadian Prime Ministers

1. Sir Wilfred Laurier- A "pillar of fire...a true Canadianism"

2. Lester B. Pearson- The last great Liberal PM

3. Louis St. Laurent- Perhaps the most competent PM ever

4. Sir. John A. MacDonald- Flawed, but brought Canada together

5. Stephen Harper- "The west is in!"

6. John G. Diefenbaker- Made some mistakes, but he'll always be our "Chief"

7. W.L. Mackenzie King- A weirdo, but an effective one

8. Jean Chretien- 50.58%, plus he did a great job with the finances

9. Sir Robert Borden- Under him, Canada was forged in the fires of war

10. Brian Mulroney- History will be kinder to him in the future than it is today

Honourable Mentions to Al Gore and Preston Manning, two men who never got to lead their country, but who I think would have made tremendous leaders. I hope if I rewrite this list eight years from now, I will get to put Obama on it. Good luck to him.