Global Banking And The Bizarro World

Are you aware of the Bizarro World?

It was first described in a 1960s story line in the Superman comic book series. The Bizarro World was a reverse image of Earth, a place where good people could meet their bad equivalents. Superman and Lois Lane, for instance, were always platonic friends and colleagues on Earth, but they consummated their relationship, had children, and fought relentlessly on the Bizarro planet.

The key plot device that drove the popularity of the story line involved the sheer implausibility of separating the good from the bad. The good Superman, for instance, would inevitably recognize some degree of goodness in his (supposedly) bad Bizarro counterpart. He would also recognize some degree of badness within himself.

Wouldn’t it be nice to purge all that is bad, and keep all that is good? It’s a pleasant concept, but Superman and his Bizarro counterpart demonstrate that such efforts generally prove to be futile.

And yet if that is true of people, then why are our government leaders continuing to discuss the creation of good and bad corporations?

Organizational Behavior

You may recall U.S. Republican Presidential candidate Mitt Romney’s famous assertion that corporations are people, my friend. Although his Democratic rivals pilloried the comment as a “shocking” caricature of a heartless business tycoon, Romney was attempting to explain that corporations are embodied by people and managed by people, and then distribute profits to people. In other words, they manifest the behavioral tendencies of people.

Thus, if organizations “behave” like complex human beings, a good corporation that is managed by ostensibly good people will nevertheless sprout bad characteristics. Conversely, a bad corporation will sprout some good characteristics.

The issue of good and bad corporations was hotly debated during the 2008 / 09 global financial crisis, when all three of America’s automobile manufacturing firms approached the federal government and warned of the collapse of the domestic industry without some form of public support. What was the result of their lobbying initiative?

See The USA In Your Chevrolet

Chrysler was acquired, with the support of explicit governmental financing, by the Italian automaker Fiat. And although Ford did not receive direct government support, it indirectly benefited from the support that was extended to various suppliers of the three automakers.

But what of the bankrupt General Motors? The federal government divided it into a Good GM and a Bad GM. All of the productive manufacturing and brand assets, including the Chevrolet and Cadillac franchises, were placed in the good corporation. And all of the unproductive and toxic assets were placed in the bad one.

In the short term, many praised the Obama Administration for saving the American automobile industry, while candidate Mitt Romney was ridiculed for having proposed that the government should  “Let Detroit Go Bankrupt.” But four years have now passed since that transaction occurred; what are the long term outcomes?

A Mixed Bag

On the one hand, the Good GM has indeed emerged as a viable firm in the global automobile industry. Industry experts have praised the hybrid Chevrolet Volt and the fuel efficient Chevrolet Cruze as indicative embodiments that the new GM can compete in the world markets.

But on the other hand, there are increasingly troubling signs regarding the Good GM. The Volt’s sales volume has been consistently weak in comparison to the Pruis, Toyota’s bestselling hybrid vehicle. And after a strong start, sales of the Cruze have plummeted, perhaps as a result of GM’s decision to establish prices that are $2,000 higher than those that are offered by their primary competitors.

High prices? Unpopular automobiles? Those were the bad characteristics that afflicted the pre-split General Motors! They now appear to be re-emerging in the new Good GM as well.

The Banking Strategy

In the United States, the federal government designed the Citigroup bail out in the same manner as the General Motors bail out, dividing the firm into a good bank and a bad bank. But this strategy did not set the stage for sustained success at the institution.

Meanwhile, in the European Union, the Irish government established the National Asset Management Agency to serve as its national bad bank. And just last week, Bank of England Governor Mervyn King proposed that the Royal Bank of Scotland be divided into good and bad entities.

So how has the Irish economy fared under the good bank / bad bank strategy? The results, once again, can best be characterized as a mixed bag. On the one hand, the Irish economy is expected to grow more robustly than the remainder of the European Union during the next two years. But on the other hand, Ireland’s growth rate is expected to average a meager 1.65%, while the EU economy actually shrinks in size.

Thus, one might wonder why Governor King continues to support the bad bank concept. If the good cannot be segregated from the bad in Ireland, in the United States, or in the Bizarro World, why does Governor King believe that it can be achieved in Britain?