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

Posted: May 12, 2013 at 12:45 pm   /   by

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.