November 13, 2008 - Bailout Bust

I read yesterday that a consumer advocacy group in conjunction with Citigroup and other credit card companies approached the government with an idea. They proposed that certain individuals who were having trouble with making payments on their credit cards be allowed to have up to 40% of their debt forgiven. They asked that the debt to be written off by the companies would be allowed to be considered a tax write-off as well. The government promptly refused.

Now this makes me more than a little miffed, not because I think I could take advantage of such a program, but because the government is so ready to toss billions towards failing businesses and banks (including the ones responsible for the mess in the first place...aka. Fannie Mae), but they won't even blink at helping individual citizens! It feels so familiar: Fannie Mae's managers created the sub prime lending MESS which has sparked this economic meltdown. Who gets government help, the people losing their homes? NO...Fannie Mae does. So why is this?

The big picture even makes me more angry. The government is pulling what is estimated to be around $5 trillion from what is and will be (essentially) our individual pockets and putting it into the pockets of businesses who are failing because of greed, mismanagement, and poor decision-making.

They won't help YOU, individual citizen, as you face foreclosure, unemployment, and credit card debt...but they WILL increase your taxes so that they can "bail out" businesses and banks who got themselves and all of us into this mess. Why? Because Congress and Big Business are in bed together and always have been.

One great example of poor business decisions causing their own collapse is the Big Three automakers. This group of nitwits find themselves bankrupt (effectively) because of several reasons:

1) They make a product that is fuel-inefficient. Compared to worldwide competition, American vehicles are fuel hogs. All it takes is gas prices to go up and suddenly your product is no longer competitive, demand goes down, supplies backlog, and you're in trouble.

2) They make a product using unionized labor. Unions were necessary during the 1800s in order to protect laborers from powerful employers who forced long workdays, terrible working conditions, and pennies for salary. There are laws that protect laborers now...we no longer need unions. All that unions do now is force high wages and expensive benefits which in turn elevate the prices of whatever is being produced. Did you know that taking into account benefits, the average auto-making union member is paid around $85.00 per hour? Is it any wonder that American vehicles are so overpriced that even Americans would rather not have them in their garages?

3) They borrow more than they make. Like most other businesses (and individuals for that matter), the Big Three automakers have debt out the wazoo. When you spend more than you make year after year, there comes a time when the lenders come a'callin'. Well: they're a'callin'. High interest payments, by the way, are just tagged onto the prices of the vehicles in the showroom...making them even less competitive in the worldwide market.

Capitalism in its purist form would take care of companies like this quite handily. When we were a capitalist nation, a business which created a product that was inferior to and more expensive than other companies' products would quickly find itself out of business. But now that we live in the our-government-can-save-us-all AND borrow-if-you-need-more era, these poorly run companies will continue to live much longer than they would otherwise.

But at what expense? YOURS!!! The government will give these guys billions upon billions of dollars. Where does this money come from? Two places: taxes (aka...your wallet) and foreign loans (aka...your wallet and your children's wallets). It's maddening to think that our government is going to take from us and our children in order to further the poor business practices of deficient, inefficient, and idiotic companies. That's just what you and I need: more debt, more taxes, and cars that are too expensive, fuel-inefficient, and inferior to their competition.

What needs to happen? The government needs to step away from the bailout business. Companies who are poorly run or otherwise need a bailout should be allowed to fail. Yes, people will lose their jobs (they'll lose them anyway in the long run), but the price will be so much cheaper to the Bigger Picture. If the automakers of America were allowed to fail, some smart businessman will come along, believe me, and start up a company which will take advantage of the vacuum created by the Big Three collapse. They will learn from their predecessors' mistakes and build fuel-efficient cars at prices which make them competitive and profitable on the world market. They'll likely hire all the unemployed workers from the failed companies as well. That's capitalism. Bad business goes away, good business survives...survival of the fittest in an economic sphere.

Unfortunately, there isn't anything to be done. Congress is in bed with business. They're addicted to borrowing and they're addicted to spending beyond their means. They'll continue pumping money into these failed companies until the dollar-printing presses break down. The dollar will become worthless (inflation, here we come), more foreclosures will result, unemployment will rise. This is real trouble without much of a solution. Sorry to be so depressing.