Bob Reich's Idiotic Ideas On 'Corporate Governance' & Bankruptcy

Robert Reich, former Clinton Secretary of Labor, former Harvard economics professor, current UCLA public policy professor, wrote a preposterous editorial in this past weekend's edition of the Wall Street Journal entitled, "We Need Public Directors on TARP Bank Boards."

If I recall correctly, the one thing then-Treasury Secretary Hank Paulson promised about institutions which received TARP money was that government would never exercise a role in management or attempting to influence management. The bailout funds were to be a temporary capital loan of passive nature.

Now, we have Reich clamoring for not just "public directors," but,

"Those public directors should be appointed by the president. In exercising their oversight function, they should seek guidance from the president and his top economic officials."

Government policy doesn't get much more fickle than this, does it?

But Reich buried in his editorial an equally-disturbing viewpoint. He wrote,

"Perhaps government had no business meddling in the private sector to begin with. AIG, the big banks and the auto companies should have been forced to work out their problems with their creditors, or else be put into temporary receivership until their profitable units or nonperforming loans could be sold off. Perhaps any company that's judged too big to fail is too big, period. Antitrust laws should have been used to break these giants up before they got so big.

These arguments may be relevant to the recent past and possibly to the future, but they're beside the point right now."

I find it very troubling that a public policy professor at a major US university feels that longstanding, effective institutions and processes for the handling of failed business enterprises were just one option, and not necessarily the best one, for firms like AIG, GM and Citigroup.

Reich allows that we have antitrust laws to prevent problems such as banks that are 'too big to fail,' but he conveniently omits the little detail that his Clinton cabinet buddy, Bob Rubin, was the one who let that happen.

This is precisely the sort of capriciousness that sends investors scurrying to the sidelines when it comes to long term capital commitment to the US economy.

According to Reich, it's a matter of debate whether financial services or auto makers who are technically insolvent, or soon will be, should be directed to our society's chosen paths for this- Chapter 11 bankruptcy filing, in order to operate under court protection while liabilities are sorted out and operations are either reorganized and released to operate again, sold, or closed.

But it's not a matter of debate that, having inserted itself into the workings of private enterprises, government should now also demand board seats, held by activists, voting the wishes of the country's president.

This takes fascism the next logical step toward explicit socialism, doesn't it? And Reich thinks it's just good sense and government.