Bail Outs Revisited

In previous posts, I have supported bail outs for our banking system and auto makers because of the fried economy. I still think government intervention is a good emergency tool to use to prevent a complete collapse, but because of politics, the bail outs turned out to be a bad idea. It reminds me of a panhandler asking for a couple of bucks to “get something to eat” but you know he or she is just going to use to buy a 40 oz. At some point you have to say no.

I think the factors that play into a decision for government intervention should be based on the national interest. It’s like the old moral situation that if you knew something bad was going to happen and could prevent it, but it might lead to your death, would you still act?

There really is no debate that the economy is a foundation of a peaceable livable society. Look at all the countries that have poor economies – they tend to have bad political and social situations.

The banks need some infusion of cash to keep them open because it might have led to a domino effect – one fails then they take others with them. Part of that is confidence. The reason the Great Depression was so “great” was because of a lack of confidence and government intervention at the time helped restore some confidence.

The auto industry is a different interest based on the number of people employed not only making the cars but those who supply the makers and the subsidiary economy dependent on the industry. For 2 or more of those companies to fail would hurt big time. Probably as bad as the rust belt era of the 1970’s when dozens of steel makers and other heavy industries went bust putting millions out of work.

The problem I see is that once the money came in nobody seemed to work on changing or saving their business. AIG and the banks still paid their bonuses, had their lavish parties, and held on to the money for mergers. The auto makers just kept up their business as usual while Senators and Congress critters insisted that Unions take all the lumps.

So while I still think the bail outs were a good idea – I admit they didn’t work out like they were sold to us. But that’s what happens when you give away money without strings attached.

What should have happened was the large banks and AIG who were failing should have been broken up and those struggling with toxic assets should have had those assets taken off the books at their current value – why should the bank profit from their own bad decision. Bonuses should have been stopped as well as any spending not directly connected to doing their core business – like office redecoration, parties, or lobbying.

Then there would be a follow up with a review and changes, if needed, in government banking regulations to try and prevent this problem from happening again.

The auto makers should have presented a plan about how they will change their product mix and business model to reduce expenses while moving toward more energy efficient cars and trucks, as well as those that use alternative fuels. The goal is moving to a leaner business and one that will be able to compete and contribute to the move off our oil dependency.

It’s not any different than when a person asks for a business loan – you have to show a viable business plan – or you have investors who can kick you to the curb if you endanger their return on their investment through bad decisions.