Monday, November 17, 2008

Bailout Madness

The smartest men in the room all told us that if we didn't bail out the banks/mortgage companies/insurance companies, the credit system was going to collapse. I thought that the question that no one was asking was if we do bail out the banks, what would happen? Well the answer to that came sooner rather than later. Some examples:

Newly nationalized AIG burns through $50 Billion of the $80 Billion in taxpayer money in just a couple of months, asks for, and receives $70 Billion more. To me, this is emblematic of the difference between private corporations and socialist entities. Governments tend to give money to those who "need" it most. Private investors tend to give money to those who are likely to make the most money with that investment. At times, the companies who need it most are in that position because of poor management, and are likely to lose more.

The Federal Reserve refuses to identify recipients of $2,000,000,000,000.00 in emergency loans. This was a bailout that wasn't voted on, and since the Fed is a government sponsored entity and not really a part of the Federal Government, it is exempt from Freedom of Information Act requirements. God bless him, Mark Cuban has funded a website called that attempts to track where the bailout money is going. (I still hope his team loses, but this makes me really respect the man. Edit: I just found out he has been sued for insider trading. I hope justice, whatever that is, is served. I tend to think that the Treasury has contacts within the SEC.)

Now every other struggling industry is lining up to receive their bailout. GM and Ford are first in line, and moreso thant the banks, they have a plausible claim that if they aren't bailed out, their failure will make a bad economy worse. The question that must be asked is: "If they are bailed out, will they survive?" The same issues that make GM and Ford uncompetitive will remain. I wonder if bankruptcy or bargain basement buyout wouldn't be a step toward sustainability.

What industry is next? I know that state and local governments have lined up for their share. Then what? Steel? If automakers can't sell cars, that kills the market for steel. Chemicals? Huntsman is up to its neck in debt. Retailers? Sears could say it's too big to fail. Restaurants? If wages start falling or unemployment goes up, people will start eating at home more.

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