Should American Taxpayers Bail Out Corporate America?
When did it become okay to go to the government bailout line the minute business got bad? In the past, make a bad business decision, pay the price, which might even mean closing doors. With modern day economics, some would lead us to believe that there are companies out there too big to fail.
Some of you still remember the internet bubble and subsequent popping of that bubble almost a decade ago. My own company closed its doors after some of our “new economy” customers lost their funding, resulting in non-payment on millions of dollars already spent on web development. We paid our employees and vendors the old fashioned way – we sold assets, clients, and took second jobs to make sure that we paid every dime owed. Ultimately, we closed our doors, but not one vendor was left without payment or a guarantee of payment. That’s how business used to be done. It never once occurred to us to ask the government to bail us out of our problems, and I don’t remember any other company getting a bailout either.
In 2008, everything seems to have changed. At what point is a company too big to fail? Enron was huge, they failed, and the world continued to spin. This year so far we’ve seen a $350 billion stimulus package, $130 billion going to AIG, $25 billion to the auto industry, $850 billion going to banks, financial institutions and who knows what else, and untold billions going out in backhand deals that most of us will never completely understand. That’s a lot of money, and the way it looks today – we’re not even close to done bailing out big business with taxpayer’s hard earned money.
To be fair, these disbursements are really being sold as investments/loans and if you believe in a short-lived recession they could potentially be very, very lucrative. Even in the case of a long-term recession, some of these deals could pay out quite well if the borrowing companies survive and prosper. If not, these deals will prove to be enormous failures and American taxpayers will be left footing the bill. If you’re a betting person, you’d have to play the odds and assume that some of these already failing companies will continue their path and ultimately fail in spite of the massive amount of money being put into them. Even if you are not a betting person, you should be asking yourself, what makes the government feel that these companies can succeed now in what is being called an ever more difficult economy?
AIG was loaned almost $130 billon and recent articles have them saying that it’s pretty much gone and in order to continue their operations they may need more. Who is asking the question – where did that first $130 billion go? If your friend is borrowing money while quitting their job and buying new cars, at some point you stop loaning that friend money, regardless of the fact that he lets you borrow the cool cars every now and again. At some point, it has to be the same thing for AIG – at some point the American economy has to cut AIG off and let the chips fall where they may. A lot of people are going to lose a lot of money, and that’s unfortunate, but it’s better than the entire nation losing a lot of money so that some investors can sustain their riches.
Survival of the fittest, and ultimately some of these companies need to fail. The strongest will survive and thrive. Right now it’s like we’re slowly pulling the band-aid off, extending the pain, when we should really just rip it off quickly, take the pain, and move on.
A great example has to be the auto-industry. Times are tight – no doubt – but if companies like GM, Ford and Chrysler need tens of billions just to survive, it’s time to ask out loud – can America continue to sustain three mediocre car companies? It wasn’t too many years ago that Chrysler needed only $1.3 billion to survive (which resulted in $300 million in interest paid back the treasury), and now they’re back in line for another government loan – this one much larger than before. Isn’t it time to ask, does America need Chrysler? If they were as good at making cars as, say Toyota, wouldn’t they be profitable like Toyota?
These companies obviously provide millions of jobs – even conservative estimates are over 300 million people that would be impacted by the failure of one of the big three. That’s a lot of people – but is it really?
Hypothetically, if Chrysler disappeared tomorrow, would 300 million people really lose their jobs? Obviously not, because Americans will continue to need and buy cars. Those would be Chrysler car buyers aren’t suddenly going to start riding their bikes – they’re going to buy another car. Sure, it might be a Toyota or Nissan, which could be made in the US or anywhere around the world, but they are going to continue buying cars at the same volume that they might have bought Chrysler cars. And, the companies that are capturing those sales might be more efficient, but they are still going to need some of the people, facilities, parts and mechanics that would have gone to Chrysler. So yes, there would be a lot of pain, but in reality it’s not nearly as much as politicians and economists would leave you to believe.
It’s time to decide – do we keep handing out loans on a hope and a prayer that things will get better in the short-term and we won’t lose our shorts, or do we take our pain and move to the inevitible upswing that follows every loss? I believe Darwin.
Ranter
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Markets are going through major shifts related to advances in digital solutions and global access to low-cost resources. Those companies that will thrive are those that will create new solutions which adjust to these shifted markets. Just because a company survived last year and has a few bucks does not mean it will succeed in 2009 and onward. It requires innovation to deal with these major changes, and only those companies that innovate will create returns allowing them to emerge as strong, viable competitors.
NO WE SHOULD NOT HELP CORPORATE AMERICA WHAT ARE THEY DOING FOR ALL THOSE LOOSING THERE HOMES BECAUSE OF WHAT THE THE LENDERS HAVE DONE. WHY SHOULDN’T THEY FOCUS ON all the americans that need help . we would not be in this mess if lending was owned be our government and regulated. We are in this mess becasue of greed that is it and it still is greed and that is where our hard earn money is going!!!!!! So stop the scandal and greed wake up and see what is going on!!!!