A Lack of Boundaries: Private Sector & Government

I recently sat with my business partner discussing the sad state of corporate management and governance that has led major US corporations to go begging to the federal government for help.

Now, we have new regulations affecting the compensation of employees at any company which accepted or requested TARP funds, completely contrary to the promises, at the time, of then-Treasury Secretary Hank Paulson that Washington would be the most passive of investors.

Further, any expenditures at companies which have accepted or requested government "help" are now scrutinized for the potential of being too "lavish" by a Congress that, itself, has overspent taxpayers' money.

How did we get to this point? Is it the fault of corporate America, or the federal government?

I believe it is the fault of both parties. Neither seems capable of respecting boundaries.

In my opinion, as well as others, such as William McGurn of the Wall Street Journal and even liberal Nobel Economics Laureate Joseph Stiglitz, the bankruptcy option has been avoided far too much in the past twelve months.

Bear Stearns, Lehman, BofA, AIG and Citigroup, upon appealing to the federal government for assistance, should all have been referred to bankruptcy court or the FDIC for closure. GM and Chrysler, too, should be in Chapter 11.

Somehow, corporate executives have come to expect their government to play favorites, pick winners, and temporarily prop up failing companies, rather than admit their own mistakes and close up shop.

By failing to observe the boundaries of responsible corporate behavior, boards of directors and CEOs unwisely opened a Pandora's Box of problems by requesting government financial aid. This left them open to having their operations and decisions overseen and scrutinized by political officials who have used the excuse of looking after taxpayer money in order to move our economy down the road of fascism.

At the same time, government officials, beginning with the Bush administration, and continuing into the current one, have unwisely consented to helping private corporations, rather than declining, and sending them to their fate in the financial markets or bankruptcy courts.

By failing to observe the clear line between private and public spheres of activity, our government officials have compromised our economic system and given into the temptation to begin manipulating companies for political purposes and pet political agendas.

Both government and corporations would have better served our society if they had just said "no."

No requests for handouts and government help. No consent by government to involve itself in any private company rescues.

It's difficult, at this point, to see how and where these mistakes will end. But it's very easy to see how and where they began. Our private and public institutions have failed the US by refusing to adhere to time-tested separations that allow the private sector to take risks and bear the consequences with limited public interference.