Mr Khan said:
HappySqurriel said:
Honestly, the short term thinking of corporations could easily be explained by excessive government involvement in the economy ... Since the government has the power to bail out powerful and connected corporations no matter how poorly their business was run, corporations don't have to consider long term viability of their company because buying influence with the government ensures they will survive no matter how poorly they are run.
On top of that, it isn't difficult to ensure that corporations are responsible for all externalities they produce, and the board of directors are accountable for all laws broken by the corporation, and to follow through with this. In most cases it is pretty straightforward to calculate the cost of reversing the harm caused by coporations, and appropriate penalties can be assessed by a court of law. If a corporation trys to buy influence from a judge or elected official the board of directors should be charged with a crime and should go to jail.
It doesn't take that many companies going bankrupt from being short sighted, that man companies seeing multi-billion dollar penalties for being irresponsible, or that many boards going to jail for breaking the law to get the vast majority of corporations to act responsibly
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But that only applies if you get deemed "Too Big To Fail," which is a risk in and of itself. Lehman Brothers and Behr Sterns weren't Too Big, even if AIG was. The risk of complete annihilation outweighs the chance of a bailout, and plus if you find yourself having to get bailed out, are investors really going to look kindly on you in the future?
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Was AIG really "too big to fail" or was it "too well connected to fail"?
Regardless of whether there will be a bailout or not, or what form the bailout takes on, the possibility of a bailout impacts how companies evaluate the risk associated with their actions. Consider that many of the businesses/industries that are bailed out end up requiring another bailout years later, the most likely reason for this is that these businesses make decisions which (at least in part) are driven with the expectation that they will be bailed-out if things go poorly.
