Crony Capitalists Invent the “SIFI” Shield for Protection from Competitors and Taxpayers

| May 12 2013
David Leeper

Tea Party Conservatives and Occupy Wall Streeters don’t agree on much, but they do agree on one thing — both groups despise crony capitalists and crony capitalism.

Huge corporations, especially banks, insurance companies, and other big financial institutions are nominally born of free-market capitalism where success and growth comes from providing the best services at the lowest prices.  One might think that these huge corporations would therefore favor unfettered competition.  And they do — when it comes to their suppliers — but not when it comes to themselves.  Instead they are strong advocates for Big-Government regulation as long as those regulations favor their own businesses and disadvantage their competitors.

In the past couple years, in cooperation with Big Government, these huge corporations have invented a new crony-capitalist principle to protect themselves from competition.  Via their lobbying activities inside the halls of Big Government, they get themselves declared a “SIFI”.

What is a “SIFI”?

The acronym stands for “Systematically Important Financial Institution.”  Sounds impressive, no?  They used to be called simply “Too Big to Fail” or “TBTF” institutions, but that term has rightly fallen out of favor a bit, so they’ve obscured the concept further with the arcane “SIFI” acronym.

SIFI is not just a new marketing or propaganda term.  At recent financial summits, G20 leaders asked the Financial Stability Board to bless both the acronym and the concept with new policies that protect SIFIs — nominally in the public interest, of course, but actually in the interest of the SIFIs.

There may never have been a more open invitation to abuse of governmental power and corruption of free-market capitalism than the SIFI concept.  SIFIs can, and have, engaged in risky investments with depositor and client funds, knowing that SIFI protections will bail them out of failures with government funds.

The money for these bailouts is borrowed or printed, adding to national debt and/or inflation.  And who pays the tab for that?  Naturally, it’s the general taxpayer, seniors on fixed incomes, and two or more generations of as-yet unborn children.  These children are sold into debt bondage without their knowldedge, let alone their permission.  And inflation from newly printed paper money eats into the purchasing power of retired seniors.

If a SIFI were indeed “too big to fail”, the answer isn’t bailouts — it’s breakups.  Break up these mega-corporations into smaller companies that must compete ferociously with one another, and then watch them like a hawk for collusion, price fixing, and other SIFI tactics.

The Left likes to paint Tea Party Conservatives as anti-government anarchists, but this is one area of government, if it remains uncorrupted, that true Tea Party Conservatives do support.  That is why free-market advocates like the followers of Milton Friedman support anti-trust as a legitimate function of the federal government.  The problem comes, of course, when “SIFIs” can effectively bribe their way past anti-trust or other regulations with campaign contributions or various back-room deals.

Dodd-Frank was supposed to protect taxpayers, but it is a gold-mine of opportunities for crony capitalist companies and their lobbyists to buy new carve-outs and exceptions.  The complexity of Dodd-Frank is implicit protection for SIFIs since smaller competitors cannot afford the lawyers, lobbyists, and campaign contributions to buy themselves carve-outs and exceptions.

As hard as it is to believe, Tea Party and Occupy types may one day find enough common ground to cooperate on breaking up SIFIs into smaller competitors that have to compete to survive.  But for that to happen, both Republicans and Democrats will have to stop trading campaign contributions and other favors for regulatory carve-outs and exceptions for SIFIs.  Don’t hold your breath.

3 comments
dleeper47
dleeper47 moderator

Absent some forms of regulation (like anti-trust), there are plenty of incentives for large companies to try to form monopolies ... they can buy out smaller competitors, sell products at a loss for a while, offer sweet "combination deals" with other products, and othewise hobble smaller competitors.

 

Government intervention that (1) *increases* choice for customers, (2) *increases* competition among players, and (3) *protects* small innovative companies from huge firms with obsolescing products is good government intervention (IMHO).  

 

OWS-ers think that for-profit corporations are inherently evil, greedy entities that exploit their workers, pollute the environment, and cheat their customers.  They would take delight in breaking up a big monopoly, and in some cases conservatives should too, as long as it really does lead to more competition and free choice for customers.

 

One place where I'd favor Big Government's heavy hand is in the sale of health insurance products across state lines.  Using the Commerce Clause *as intended*, the Feds could vacate state laws that now restrict the sale of  those policies across state lines.  That one change, and the resulting competition, would be one of the biggest steps Uncle Sam could take to reduce the cost of healthcare.

WesternFreePress
WesternFreePress moderator

It is certainly true that TP and OWS types agree that crony capitalism is a bad thing. However, I don't think common ground is likely beyond that because the OWS people have no clue what the problem is. Crony capitalism will never go away so long as government can dole our favors and protected status.

 

Check out this infographic from Mercatus for tons more on this: http://mercatus.org/publication/beyond-bailouts-what-cronyism

 

Also, check out these two really short videos from AEI: http://www.westernfreepress.com/2013/05/12/what-is-cronyism-and-why-does-it-grow/

 

Bailouts, loan guarantees, tax credits and special tax status, regulations, and so much more. These are the fuel that keeps the crony capitalism fire burning hot.

 

Until a special interest (corporate, labor, farm, etc.) goes to a politician seeking favors and hears the following response, "I'm sorry, Bob, we're the government—WE JUST DON'T DO MUCH," crony capitalism will never go away. OWS types are unlikely to accept the fundamental truth that cronyism is not the fault of capitalism but of government. So I don't see much hope of common ground there.

 

On the anti-trust aspect-----Monopolies might be a problem at times, but I am not sure that heavy anti-trust power is the way to go. If government didn't do much other than provide a level playing field, equal treatment, equal taxation, and simple, knowable rules, monopolies would be far less likely to form. Leaving the focacta situation the way it is and then trying to fix it with periodic trust-busting seems to me like trying to fix a botched facelift with another botched facelift. The key is not to get into the situation in the first place.

 

WesternFreePress
WesternFreePress moderator

 @dleeper47 On the former . . . aggressive trust-busting in the absence of drastic reduction in the size, scope, and role of government is just adding power to power. I am happy to discuss trust-busting AFTER government has been limited significantly.

 

On the latter . . . . it certainly raises the fascinating question of Incorporation Doctrine vs. Federalism. Obviously we assume that the Bill of Rights is incorporated into the states; a state certainly cannot take away your freedom of speech, for example. But what things should and should not be incorporated? Where do we say that a right is paramount and must be incorporated, and where do we say that state sovereignty is supreme and should decide? This seemingly abstruse question is quite interesting to me!