Manhattan Institute for Policy Research.
search  
 
Subscribe   Subscribe   MI on Facebook Find us on Twitter Find us on Instagram      
 
 
   
 
     
 

The New York Times

 

Let the Markets Regulate

October 22, 2009

By Nicole Gelinas

Washington’s role in financial markets should be to create a level playing field through proper regulation, not to create unfair advantages through targeted control and support. The Obama administration’s announcement that it will slash and regulate pay at seven bailed-out financial and economic giants, including Citigroup and A.I.G., does the latter, not the former, harming economic recovery.

In a healthy economy, failed private-sector firms go out of business. Bankruptcy allows good assets and workers to escape bad companies. It also enforces market discipline, as it shows shareholders and lenders that reward comes with commensurate risk.

Washington should be working to make large or complex financial firms more accountable to market discipline by creating a way in which big, complex financial institutions can fail in an orderly fashion.

Instead, the targeted “pay czar” approach gives select financial firms even more insulation from market discipline. The marketplace understands that the more intricately entwined the government becomes with these firms, the more the government will support the same firms in the future.

Lenders, then, will continue to offer firms like Citigroup and A.I.G. money at artificially low interest rates, as they did in the years leading up to the credit crunch, when “too big to fail” was already part of the landscape. The firms will continue to have an advantage over other companies and industries, and government-guaranteed failures will crowd out entrepreneurial start-ups.

Taxpayers and citizens can take little comfort that bailed-out financial firms will have a harder time using that advantage to pay oversized salaries and bonuses. The uneven playing field still distorts the economy and handicaps a healthy economic recovery, one that, absent government distortion, likely would support a smaller financial sector.

Original Source: http://roomfordebate.blogs.nytimes.com/2009/10/22/the-fallout-from-big-pay-cuts/#nicole

 

 
PRINTER FRIENDLY
 
LATEST FROM OUR SCHOLARS

The Real Challenge When Police Use Lethal Force
Stephen Eide, 12-15-14

Why Cops Need To Sweat The ‘Small Stuff’
Nicole Gelinas, 12-08-14

A Bill To Loosen Police Discipline
E. J. McMahon, 12-08-14

More Subsidies For Big Wind
Robert Bryce, 12-08-14

Bill Slanders His Cops
Heather Mac Donald, 12-07-14

What The Numbers Say On Police Use Of Force
Steven Malanga, 12-04-14

Detroit's Bankruptcy and Its Painful Reforms
Stephen Eide, 12-04-14

The EPA Pours On The Pain With New Ozone Regulations
Diana Furchtgott-Roth, 12-03-14

 
 
 

The Manhattan Institute, a 501(c)(3), is a think tank whose mission is to develop and disseminate new ideas
that foster greater economic choice and individual responsibility.

Copyright © 2014 Manhattan Institute for Policy Research, Inc. All rights reserved.

52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494