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December 2008

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December 22, 2008

Anti-trust legislation was enacted more than a century ago to control corporate practices which led to a series of late-19th Century economic depressions and panics. The problems then were monopolies, cartels, cornering-the-market, price-fixing and restraint of trade. We are now in the midst of what has been called the worst economic crisis since World War II. Several of its causes have come to light and a few may invite prosecution under existing laws. But there is one not covered as such which should be addressed while public and political sentiment is likely supportive. Never again should a given company have to be deemed "too big to be allowed to fail." Legislating against bigness is not the object; legislating against concentrations of assets and resources to a degree which endangers the national economy or a significant segment thereof is. That evidently is not all that difficult to define. Government policy makers quickly differentiated between financial houses which required public assistance and those which did not. Corporate executives from the automobile industry also were able to identify -- albeit for their own purposes -- what companies qualify for bailouts. At the head of the agenda when a new administration and Congress take office in January should be legislation to prevent any business entity from being or growing too large for our britches. To soften what admittedly would be a sharp departure from established practice, we would suggest up to a year of grace during which likely targets could voluntarily reduce themselves. Most of the principal internal structures already exist as separate subsidiary corporations, limited-liability partnerships or other business entities. They can be bundled and stock in the new entities distributed pro-rata among existing shareholders. Such spin-offs are not a new idea and have been proven to work quite well. As an incentive, the law can designate such voluntary transactions as tax-exempt and the cost of reorganization qualified as a tax credit rather than a business deduction. Individuals, families and entities holding controlling interest in existing companies should be limited to receiving stock amounting to controlling interest in just one of the new entities. An historical footnote: Du Pont Co. did just that when it shed -- albeit under duress -- Hercules and Atlas Powder a century ago. Would that Delaware today had the likes of the late John Williams or Bill Roth sitting in the U.S. Senate to lead the way.


December 15, 2008

To combat the Great Depression the Roosevelt-New Deal administration put in place a series of initiatives which profoundly and permanently altered the fundamental relationship of Americans with their government. We take for granted today that Social Security, unemployment compensation, insured bank deposits and other social programs are normal aspects of our lives. Some people -- including astute commentators -- have drawn parallels between what is happening now with the economy and the Depression. To be sure, the present situation is still far removed from anything like what happened 75 years ago and is not likely to duplicate history, thanks in no small way to what was learned then. In one respect, however, efforts to spur recovery could have a similarly profound and beneficial effect on the long-term relationship between business and government. There is virtual agreement among thoughtful observers that the financial services, automobile and other industries brought on the situations which now threaten them. Mismanagement, greed, fraud and such are commonly heard explanations. Hopefully, the Obama administration will live up to its promise to deliver significant change and act as aggressively as did their 1930s political forebears. Needed bailouts of staggering proportions must not be ends in themselves, but the means to force equally needed reforms.   

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