From: solman@athena.mit.edu (Jason W Solinsky)
Subject: Re: Regulations
Organization: Massachusetts Institute of Technology
Distribution: usa
Date: Sun, 12 Apr 1992 18:21:23 GMT

In article <1992Apr12.120224.10993@husc3.harvard.edu>, koumis@husc4.harvard.edu (Anthony Koumis) writes:

|> [stuff about anti-trust laws]

The situation which caused the anti-trust laws to be passed was created by
government before it knew better. They passed laws that increased economic
prosperity, by offering incentives to companies (in fact they passed an awful lot
of them back then, and they're still doing it). Unfortunately, not only did these
result in monopolies, but the subsequent unusually lopsided distribution of the
weatlth that these initial monompolies caused, made it much easier for other
monopolies to form (enter steel industry).

|> [stuff about bankruptcy]

bankruptcy means limited liability. This means that if a company gets sued for
pollution, or something like that, there is a good chance that people won't be
able to collect. Without limited liability, every time somebody wasn't able to
collect on a debt, somebody else would wind upo in debt for the rest of his/her
life. I guarantee you that there would be fewer debts in the first place, if
people were worried that this would happen.

NOTE: It is unlikely that the notion of unlimited liability would be acceptable
to most shareholders. Consequently, most companies would purchase bankruptcy
insurance. (at a cost of course).

|> If they lend money to company X and get a secured interest in it but company
|> X goes bankrupt w/o bankrptcy rules that say secured interest go
|> before unsecured interest and the first perfected secured interest
|> goes before other perfected interest than the company has no set rule
|> to base their actions on.  SO if it is too risky to determine, there will
|> be no lending.

It just means that banks would have to secure more substantial collateral and
loan guarantees. It is likely that there would be considerable profit to be made
for very stable companies selling loan guarantees. Naturally the cost would be
based on the fundamental solvency of the borrowing company versus the solvency of
the loan guaranteeor. There have been many periods of time where there were
loans, but no bankruptcy. (although not recently)

|> [more stuff against certifying agencies]

I'd rather not spend any more time on those today. e-mail me a list of complaints
if you want and I'll go through it some other time.

|> One last point, Jason's argument seems premised on the fact that
|> gov't have evil intentions and that in a free competitive market
|> (the model of which does not exist) no problems of cartels and lack
|> of information etc. will happen.  IF govet is evil why is big
|> business so trustworthy?

Business has profit as its sole motivation. Profit is gained by giving people
goods and sevices in exchange for money. People will only agree to such an
exchange if they are convince that it is in their best interests. Therefore, in
order for a business to make profit, it must do things that people think are good
for them.

The motivations of government are power and popularity.

Jason W. Solinsky