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August 22, 2008

Enough is Enough: End the Bailouts Now!


I have just learned through CNBC and the Wall Street Journal that the Big Three automakers are asking the Federal government for $25 billion in loans to help them get through the downturn in the U.S. economy. Enough is enough!!

When a business is struggling, it’s the business model and strategy, not the economic times that dictate performance.

The Big Three need to recognize that they brought themselves into this situation with poor management, inflated labor costs, and terrible product placement. Producing high margin products while the cost to operate them (fuel) rose and demand crashed is just plain stupid.

In the 1970s, Lee Iacocca saw a need for a smaller, more fuel efficient car that can help Americans save money on gas and reduce our dependency on foreign oil. Nobody listened then, and they are too late to listen now. In business, the backstop of a government bailout is always going to encourage higher risk and more irresponsible behavior.

Airlines Amtrak Mortgages Automakers

The business models of each of these companies needs to be changed and if there are such changes already in place, they need to be accelerated. How much more does the American taxpayer need to pay for? In a capitalistic, free market society, the rewards are greater, but we must recognize that the risks are greater, too.

If we attempt to subsidize one of these, we will subsidize both. I would rather have ZERO car manufacturers in the U.S. then have the government funding one (or three) to stay open. A collapse at Ford, Chrysler, or GM would cause companies across the industries above to maybe reconsider their practices before relying on the government to come to the rescue.

Just like the subsidization of bad practices in the auto industry, mortgage companies are still trying to hold onto as much mortgage paper as possible in the hopes of continued government bailouts. These companies need to sell their bad paper at a large discount and take the write-offs. It’s time to eat and digest all of the mistakes of the mortgage market. (As one economist said, “bon appetit!”)

It’s time to hold these companies accountable for their mistakes, instead of holding the taxpayer accountable.


(SR71)Atomica said...

The American government are RIGHT to bail out the Big Three automakers, because if we allow them to fail and then we find only foreign automakers available, that means that if our government have to rely on a foreign automaker to make sensitive military vehicles and equipment, then a hostile government can get those plans and sabotage us.

Furthermore, we also should not have allowed a bailout of Fraudie Mac OR Fartie Mae, because they clearly show how badly suited the US government really are to providing home mortgages.

Bail out the automakers, because they are far more efficient at getting the job done in their industry than Fraudie and Fartie have been in theirs, but close Fraudie and Fartie down and start surrendering mortgages to local firms or to the occupants themselves based upon fair market assessments.

Jeremy said...

The cost you are discussing would be the perpetual welfare payment to American manufacturers for mismanagement.

Why not move to the southern U.S. to help control costs? Why not offer a better product placement that aligns with the wishes of the consumer?

A government bailout will also hurt the company's equity, killing stockholder value.

Sex Mahoney for President said...

I like what the first guy said, because it's freakin' hilarious, plus he uses hilarious sound alike names to reduce complex problems into simple sound bytes just like the New York Post and various other media conglomerates owned by Rupert Murdoch.

Every so often, you and I agree about something and this is one of those times. American automobile manufacturing is as dead as the evening newspaper and Lawrence Welk. Americans need more fuel efficient cars from companies that won't start sacrifice fuel economy for "zazz" the next time the dollar takes a tumble.

Gasoline, a byproduct of a non-renewable resource, is never going to get any cheaper. It's time to let those businesses that cling to it wither away and die.

Sex Mahoney for President

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