Thursday, February 11, 2010

The Monopolistic Behavior of Corporations

And the government that allows it

I am sure you've had this experience one way or another with a computer, an iPhone, or some other thing. You buy the thing, say, a computer, and then you add some ram, or upgrade the hard drive. Then something happens and when the maker of the thing finds out that you have modified or opened the thing, they say the warranty is void. So, what they are really saying is that when you buy something from them, you have to do everything they say, like not add components from a cheaper source, or they will not guarantee even what they made (or, the entire machine). So, I wonder, where exactly is the free market? If I can't add parts to a computer unless I want to jeopardize my entire investment, where exactly is the consumer's choice?

So the people, the government, should step in and prevent this type of monopolistic behavior from happening in the first place. But instead we see a government going against the people's will, sometimes simply by not acting, and sometimes by cooperating with those who are taking advantage of their position of power. And in this vein, we see President Obama say that he doesn't mind that the Wall Street bankers who got rescued by the people should be rewarded for their reckless actions that put the entire world economy at risk with bonuses. Here is what he said to Bloomberg BusinessWeek on Tuesday:

Q: Let's talk bonuses for a minute: Lloyd Blankfein, $9 million; Jamie Dimon, $17 million. Now, granted, those were in stock and less than what some had expected. But are those numbers okay?

THE PRESIDENT: Well, look, first of all, I know both those guys. They're very savvy businessmen. And I, like most of the American people, don't begrudge people success or wealth. That's part of the free market system. I do think that the compensation packages that we've seen over the last decade at least have not matched up always to performance. I think that shareholders oftentimes have not had any significant say in the pay structures for CEOs.

Q Seventeen million dollars is a lot for Main Street to stomach.

THE PRESIDENT: Listen, $17 million is an extraordinary amount of money. Of course, there are some baseball players who are making more than that who don't get to the World Series either. So I'm shocked by that as well. I guess the main principle we want to promote is a simple principle of "say on pay," that shareholders have a chance to actually scrutinize what CEOs are getting paid. And I think that serves as a restraint and helps align performance with pay. The other thing we do think is the more that pay comes in the form of stock that requires proven performance over a certain period of time as opposed to quarterly earnings is a fairer way of measuring CEOs' success and ultimately will make the performance of American businesses better.

Is President Obama saying this because he believes it? I think I have to trust him that he does; and if he does, then he is part of the problem, not the solution. He doesn't see that there is nothing entrepreneurial about profiting from the American people rescuing them from oblivion. We saved the system to save "our way of life", I get it; but does our way of life include getting run over by the system? I would prefer not. Also, I don't think a baseball player who would recklessly put the survival of the team in jeopardy would be rewarded with a bonus or a new contract. So I am really not sure what President Obama is trying to accomplish here, but maybe he is simply hedging, as he's been doing pretty much since he became president.

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