Let them fail

We don’t need to bail out GM & Ford. Let them fail. They, and their stockholders deserve it. They deserve it for failing to anticipate the changes in the price of gas. Economists have been talking about rising Chinese demand and limited supplies for years. It was a given that the price of oil and gasoline would go up. GM & Ford did nothing to anticipate this and plan for more fuel efficient vehicles. They deserve to fail. Let some entrepreneurs buy up the plants, buy up the remaining parts and buy up the designs at a fire sale. They might manage to do something with it that the incompetent engineers, managers, executives, directors and stockholders haven’t.

To hell with them. We didn’t need the government to bail out the carriage makers in the 1910s. We didn’t need the government to bail out candle makers after Edison invented the light bulb.

And while were at it, to hell with Congress too. Ford has a 65mpg diesel car that isn’t affordable in the US thanks to the incompetence of those morons in Washington.

57 comments

  1. Chris says:

    Its not. I’m just in a p—y mood today and wanted to vent.

    I do suspect some of the so-called Republicans in this state plan to vote for this welfare program. I spit on any that do.

  2. boyreporter says:

    Hey, Chris, chill. I agree about bail-outs, but you folks on the “right” are a bit slow to take ubrage about raids on the Treasury like this. A bigger problem, decade after decade, has been not the occasional bail-out, but firmly entrenched corporate welfare. In its many forms, including huge tax breaks and sweetheart deals with local governments (to avoid property taxes), corporate welfare has gotten a free pass from so-called “conservative” thinkers who want the rest of us to yank up our bootstraps and be self-sufficient, not depend on the evil “government.”

  3. Chris,

    I hate to say it, but I hope you stay in a p—y mood. I agree with you more when you’re in one.

    Chris good mood = pro-government intervention
    Chris p—y mood = pro-free market

    Maybe there’s a pill you can take to fix this so you can be a good mood free marketer.

    *smile* Just mess’n with you.

  4. Doug Deal says:

    boyreporter,

    I agree with you, corporate welfare is a big problem. It is not a left or right issue, they all seem to love to give perks to whoever are their favorites in the corporate world.

    Big corporations have every advantage in the world, from the economy of scale in regulatory compliance, to tax breaks given to them by states and local governments, to liability protection for being a corporation, and now federal tax dollars to bail them out whenever they intentionally skirt good business ethics to line their profits (for the short term).

    Small businesses, on the other hand (especially sole proprietorships) have none of these protections, and are an important part of our economy. As “free market” as many commenters on this site pretend to be, they certainly love the thought of giving tax payer money to make up for bad business decisions and ethics problems.

    Instead of government subsidy they need long term prison sentences confiscation of their personal assets as contraband.

  5. muffin15 says:

    The question I have is…Who got bailed out? Ask anyone who had Lehman or Bear Stearns stock if they got “bailed out”. Those people lost their jobs and in many cases their life savings. They bailed all of us out (American citizens) and US taxpayers clip a nice coupon the deal. Further, let the auto makers fail and you will have life long employees who get their pensions and health care from these companies grabbing their pitchforks because they have to default on all of their obligations. Then the dollar tanks and our country will be on sale. What I am saying is that we live in a world of unintended consequences…so be careful what you wish for unless you have the vision to know what happens next!!

  6. muffin15 says:

    for the record..I am not a left wing nut or anything like that… it’s just that our financial system is just so leveraged up right now that things can get very bad very fast…this is not time for Econ 101….too much at stake for our country right now!

  7. Doug Deal says:

    muffin,

    So I will mark you down in the column of people who want more corporate welfare. More jail terms and less bailouts and this crap would stop.

    The reason that these businesses do not improve is because there are no personal ramifications when things go wrong. If you commit fraud (make no mistake that is what is behind the financial and housing meltdown) you should be in jail and your assets should be forfeited to pay for restitution and heavy fines).

    Every crook who took out a loan on property by lying about his income who later defaulted later should be in prison. Every loan underwriter who knowingly approved a loan that contained lies because “no one every checks anyway” should be in jail. Every executive who approved and encouraged these practices should be in jail.

    Plus, every dollar of their personal assets (some of which were gained by this illegal activity) should be at risk for forfeiture to pay restitution to the American tax payer.

  8. Rogue109 says:

    this is not time for Econ 101….too much at stake for our country right now!

    We should ignore proven economic principles and free-market solutions because there is too much at stake? Whatever.

  9. muffin15 says:

    Doug…
    I agree many should pay the price for their bad deeds. My question is who has been bailed out? And speaking to the point of the posting..”Let them fail”.. letting the car makers fail would be poking a stick in the eye of the middle class that has work so hard to earn their pension and health care. Further…mark my words ..you let car makers fail, and we will be in state sponsored health care so fast your head will spin! Like I said unintended consequences… just wanting some deeper thought before posting

  10. Chris says:

    muffin – either we let them fail now and take our medicine, or we kick the problem down the road some more and have an even bigger problem for our children to deal with.

    You’re gonna get a kick in the nuts. Do you want it done by a llama or a bull?

  11. muffin15 says:

    I agree..
    just making a differentiation between letting finance companies fail, which are failing nad haver not been bailed out (which is the business I am in)…and letting automakers fail…the United States cannot let auto makers fail without taking on all of their obligations to former employees…that will not fly ..automakers are Main St. USA

  12. Bill Simon says:

    “You’re gonna get a kick in the nuts. Do you want it done by a llama or a bull?”

    LOLOLOLOL! (Ahem). So, Chris…is there an experience you’ve possibly had with both animals that you’d like to explain? 🙂

  13. Romegaguy says:

    I heard they have llamas working at the massage parlors in Macon and they’ll kick you in the nuts if you pay them $150 extra.

  14. Doug Deal says:

    muffster,

    I really have little comment on the Automakers in particular, because I have not been following what’s been going on there as closely.

    However, it is my belief that when a company gets to the size where it becomes “too big to fail”, it might be time to force them to break up. I would also add that it should be illegal to offer pensions that are backed by the very company that is offering them. That is a lot like allowing a company to diversify into financial auditing so they can audit their own books.

  15. I have always understood, and I am pretty sure I did not read Adam Smith erroneously, that free market capitalism was essentially that – free. Why is it then, that in the past few months company after company has had to be bailed out in some fashion?

    I would rather the companies fail and the economy take a downturn than I would to bail out any of them. The reason why free market capitalism isn’t working is because we are there with a safety net to save them from crashing. Excuse me, but if there is a safety net how can they realize the danger?

    The housing crisis is due to poor practices. They can do this because they don’t have to be responsible. They know there is a safety net.

    We are effectively creating a socialist state by bailing out these companies. We need to stop that. As long as they depend on the government to be a safety net, they will never truly develop fiscal responsibility. Deregulation only works if the company sees itself as accountable, and thusly does not make poor business decisions. If they do make poor decision they fail. That’s it.

    Free Market Capitalism is about taking risks. Thanks to the Government, that risk has been removed if they view your company as critical. Adam Smith, you can begin rolling over – if you haven’t already.

  16. Tekneek says:

    Of course Republicans will line up for this cause. They love to bail out big businesses. Joe Public? Absolutely not. They’d rather that ‘drain on the economy’ crawl into a ditch and die.

    Many of them are hypocrites when it comes to “free market” talk. They are the very first to talk about “free market” when we have stores full of Chinese crap and tens of thousands of people here lose jobs to a cheaper workforce in India. When it is no longer good for the big money keepers in this nation, all of a sudden we don’t need to be believe in a “free market” system anymore. This is why the GOP has no credibility.

    When it comes to “free markets”, there is probably only one political party in the US that seems willing to practice what they preach and that is the Libertarian Party.

  17. Doug Deal says:

    Teleneek,

    When it comes to “free markets”, there is probably only one political party in the US that seems willing to practice what they preach and that is the Libertarian Party.

    Except their Senatorial candidate Buckley

  18. Tekneek says:

    He certainly sounds better than Saxby Chambliss. You’re not really going to make the case that he has more bias than Saxby, are you?

  19. Doug Deal says:

    He came to a couple of events in Gwinnett county when he first ran for office. Besides the fact that he did not seem to understand what a Libertarian was, he went on to talk about how the tax code was wonderful the way it was and he kept saying it could be used to encourage people to act in certain ways. He also had a list of big government programs he supported.

    Basically he believes in big brother government. Unless he has changed since then.

  20. Tekneek says:

    Hmmm… I would certainly be confused by that. Barr’s VP choice shocked me recently when he professed his love for Sarah Palin (basically, if you saw the post you may know what I am referring to). Barr may have lost my vote over that alone.

  21. Game Fan says:

    Freddie Fannie Ford GM, there’s no end in site when Uncle Sam is there to take care of the big boys. Subsidizing stupidity. Some corporations are like little theocracies without borders. Wreckless and collectively stupid. It starts to happen when they cozy up with the politicians with the lobbyists and the revolving doors.

  22. Chris says:

    Pensions, like Social Security are a Ponzi scheme. The fact that either are legal shows that autistic serial killers have more brains and ethics than the average member of Congress.

    They are frauds perpetrated on workers who are too dumb to manage their own finances or too lazy to see to their own economic future.

  23. As much as I hate earmarks, they are taking up a very small amount of the budget now that we have bailed out companies that seem to think they are above the free market framework.

  24. odinseye2k says:

    “They might manage to do something with it that the incompetent engineers, managers, executives, directors and stockholders haven’t.”

    One of these days, I’ll have to give y’all a lesson or two on path dependency in technology and how you can sometimes get yourself screwed up against a wall.

  25. “Ford has a 65mpg diesel car that isn’t affordable in the US thanks to the incompetence of those morons in Washington.”

    It really is the fault of the morons in California, and the other states that have adopted CARB emission standards.

    Europe has passed one of the toughest emissions standards in the world. California decided to trump them and up the particulate count on diesel. So cars with a lower carbon footprint than a Prius are kept out of the US because they emit an amount of smog that just 5 years ago would have gotten them design awards.

  26. Tinkerhell says:

    Oh dear Lord, I basically agree with BoyReporter on something. That must be one of the signs of the apocalypse. Maybe he just forgot his meds this morning… No bail outs. Yep it’ll hurt for now, but in the end it would be the best thing. Playing nanny to big corp (read as big $) is a part time occupation for D&R’s both.

    >Pensions, like Social Security are a Ponzi scheme.

    That depends on the terms of the pension. If you are paying into it then, yes it’s crap & you’d likely be better off with a 401 or Roth. If it’s simply a perk from your company then it’s hardly a ponzi.

  27. Let’s see… in the space of roughly seven days you have just witnessed the near-simultaneous failure of:
    1. Fannie Mae
    2. Freddie Mac
    3. The FHLBs (Federal Home Loan Banks)
    4. Lehman Bros
    5. Merrill Lynch

    …which, all totaled equals companies representing:

    APPROXIMATELY SEVEN AND ONE HALF TRILLION DOLLARS

    And we’re not done yet.

    Not even close.

    On deck is AIG. Worth what?

    You must know what this means. The Fed is going to inflate our money supply at heretofore unseen rates in order to cover the bailouts and forced buyouts. We’ve nationalized the mortgage industry, let’s work on the rest now.

    Econ 101? Try “Economics In One Lesson“.

  28. jsm says:

    I see this from just a slightly different angle. The people we’re bailing out are the irresponsible. Those of us who are not over our heads in stupid debt are not heavily affected by this, but we get to pay for the bailouts.

    The problem, as I see it, is the entitlement mentality that this country has developed. We have become richer and richer over the decades since the Great Depression, and now most people believe they are entitled to have the best of everything – home, car, TV, cable, home theater, computer, etc., etc. Since we really can’t afford it and generally won’t work harder to get it, we use our credit cards and sign irresponsible loans. Debtors, until just recently, have been all too willing to allow us to sign for more than we can pay. Now our world comes crashing down on us, and we want Uncle Sam to give us a sense of security, even though it’s a false sense.

    Let’s be honest people. This generation is living on the successes that previous generations labored, did without, and saved for. Even worse–we’re squandering it. We think someone has done us wrong if we can’t have the nicest of everything. People sign up for welfare, medicaid, Peachcare, etc., and think they deserve it. Somebody has to work to pay for all these handouts.

    Well, I disciplined myself to do without some things when I was getting started in my career. There were things I could easily have whipped out the credit card for that most people around me had in their living rooms and garages. Instead, I paid my debts and learned how dangerous car loans and an unrestrained credit card can be. Now, my only debt in the world is my house and property taxes, so I could care less if brokerage firms and automakers go under. My 401k may falter, but maybe we’ll figure this out as a society in the long run. Somebody needs to tell the American people that we need to work for the things we want.

    I’m also interested that no one has mentioned the union and it’s effect on the automakers. Having known a few people who worked in the now silent Hapeville Ford plant, I’ve heard plenty of stories about people making way more money than their time of service and job skills warranted. The unions can pat themselves on the back for being one of the anchors American automakers have had to drag along. Maybe if the union-loving democrats would back out and let the automakers take care of business, we might see a little more efficiency in that sector.

    We have a societal mentality problem, and we’re in the beginning stages of learning its resultant lessons the hard way. This whole bailout issue is only a result of the root problem.

  29. odinseye2k says:

    “Having known a few people who worked in the now silent Hapeville Ford plant, I’ve heard plenty of stories about people making way more money than their time of service and job skills warranted. The unions can pat themselves on the back for being one of the anchors American automakers have had to drag along. Maybe if the union-loving democrats would back out and let the automakers take care of business, we might see a little more efficiency in that sector.”

    I am always on board to fight for the right to work for less.

    Here’s the trick – even in a union company, people can’t get paid more than what the company brings in (at least not for long). If company profits surge, that is the product of both the workers and the management. Thus, what the union does is ensure that the gains created by all are indeed shared by all.

    I’m not an ascetic. I don’t believe that self-denial is a good in and of itself. Self-denial is merely a means to an end – if your company is getting creamed, then yes, it is worth putting all hands on deck and tightening up as much as possible to get through it.

    We also have this problem of moralizing of “work.” What work is more valuable than other work? Is it on how “hard” you work? No, I will soon spend my days in an office and pull down as much or more than the poor sod out there patrolling the streets of Baghdad or worried about taking a crane hook to the head on an oil derrick. Is it the level of education? Well, I’ll soon have a PhD but so will tens of thousands of physical sciences people that also studied and worked out but won’t necessarily pull down mega-money. Not to mention the humanities students.

    No, it’s just the market. What skills are needed right now (and by the way, skills that often take years to develop which leaves a lot of uncertainty as to how the winds will blow – many CS majors in my undergrad expected to make big, easy money and ended up in Best Buy). Some eras will find you lucky and others will find you unlucky.

    So, yes, indebtedness is a problem. But it is also a problem that those at the top have shipped our national advantages overseas (and been allowed to profit handsomely for betraying their countrymen). We have decided that we can have war and empire and security and still enjoy low taxes. Wages are flat at a time that people are more productive and working harder with a growing GDP. That sounds like a distribution problem to me.

    There are many forces appearing to corrode the middle class, and we need to get our house in order if we want to still have one of those.

  30. jsm says:

    So it’s all about luck? It’s okay for some folks to be “lucky” enough to get hired by Ford and make $25/hr within a couple years (in the 1990’s) no matter the skill level, instead of having to work at a local retail store or restaurant for $10/hr?

    This has nothing to do with the market. It has to do with unions who have bullied the automakers with the backing of welfare-state democrats.

    What are the automaker’s unions doing now to help the automakers? Are they “putting all hands on deck and tightening up as much as possible?” The Big Three have been losing money for years, but I haven’t heard about any union salaries being trimmed. Oh well, those jobs may be gone altogether before long, and you guys will blame it all on George Bush. I’m sure that will make it feel better.

  31. odinseye2k says:

    I would say taking over the pension funds from the automakers (and reducing their obligations) counts as a major step in helping:

    http://www.workers.org/2007/us/dana-0726/

    http://www.usatoday.com/money/autos/2007-09-25-uaw-wed_N.htm

    “So it’s all about luck? It’s okay for some folks to be “lucky” enough to get hired by Ford and make $25/hr within a couple years (in the 1990’s) no matter the skill level, instead of having to work at a local retail store or restaurant for $10/hr?”

    Hey, if you have a friend that works at GM as opposed to the local Denny’s … then, yeah. Getting the edge by happenstance or maybe some conscious networking.

    It’s obviously not all luck … there are folks that are druggies forever that never make the big bucks and there are many Harvard MBAs that will have to screw up very big time to become paupers. But, for a lot of us inbetween – sometimes you’re the statue and sometimes you’re the bird.

    “Oh well, those jobs may be gone altogether before long, and you guys will blame it all on George Bush. I’m sure that will make it feel better.”

    It’s only going to make it feel better if laying the blame allows us to change the policy set into something that works.

  32. Tekneek says:

    If you’re going to talk about union workers not earning their pay, you really need to make sure you give equal time to the executives who didn’t truly earn their keep either. Many of them can be read about in the SEC filings from GM over the past few years. They were paid very well, in the millions, and had free personal use of corporate jets for themselves and their families, and golden parachutes when they were shown the door for their incompetence. They made 400x that of the average line worker at any plant, I suspect.

  33. joe says:

    Tekneek,

    100,000 workers X $10.00/hr (extra) X 2,000 hr/year = $2,000,000,000

    That’s an awful lot of golden parachutes.

  34. Doug Deal says:

    joe,

    What American auto worker makes $10/hr? A reletive of mine operated a fork lift at the hapeville plant back in the early 90’s and he made around $60,000 plus a boatload of benefits. That’s about $80,000 in today’s dollars.

  35. Tekneek says:

    100,000 workers who weren’t earning their money? Prove it, first of all.

    Secondly, $2 billion? Not that much really. It’s possible just a handful of exec level management types ran up that much just on use of the corporate jets.

  36. odinseye2k says:

    Doug,

    I think Joe is trying to say that the auto builders are getting a $10 / hr premium over what they are “worth.”

    Of course, I could just as easily ask why managing other people entitles you to *any* money above and beyond what the people that actually do the execution, but we’ll get into all those nasty market / responsibility arguments. The only counterpiece I would put in there is the way that top technology corporations have technical tracks that parallel management tracks.

    In other words, you don’t have the practice of assuming that it is better for a techie to manage other techies (cause frankly most of us have little HR skills) than to become a super-techie and dream up future strategies and the like.

  37. Doug Deal says:

    odin,

    I do not think that there is any direct link between the importance of the job and the pay, and there should not be.

    Pay should be based on market conditions and varied by performance when appropriate.

    Personally, I think large corporations pay their exectutives way too much for realy lousy perfomance. They could have any number of exectutives at a lower rate, but often go for some over-payed head case because too many investors are caught up in the cult of personality.

  38. Chris says:

    Doug,

    There is also an echo chamber mentality between CEOs, board members and the institutional shareholders. ultimatly its the shareholders who control what the CEO and top Execs get.

    CALPERS probably bears as much blame for this mess as does the government or wall street. They allowed these sociopaths to be appointed CEO

  39. Doug Deal says:

    Chris,

    The only real control that the share holders have is rubber stamping the slate of directors, which pretty much never fails. (I have always voted against the directors when in doubt, since if there was ever a reason to remove them, I want my inertia on the side of bouncing the jerks as opposed to keeping them).

    There are definite advantages in having corporations, but as I get older the more I dislike the concept of pretty much total blanket protection from liability. When the people at the top are not individually and personally responsible for the actions of the company, it takes away an important motivator for these people to behave reasonably.

    Also, it would limit the size of the company, which to me is a good thing. I think a perfect metaphor for a free market is an hour glass. When you have a large number of small companies (small grains of sand) everything flows through the neck very smoothly with little problems. On the other hand replace the sand grains with large rocks, and it gets clogged up quickly.

    Right not, there is too much of an advantage to growing large and consolidating. Something needs to be brought back to counterbalance this to make it advantageous to stay small. My idea is to pretty much gut every regulation for companies under a certain size or for those that stay at full liability and pretty much yoke all the huge corps with nearly strangulating regulations and compliance requirements.

  40. jsm says:

    “My idea is to pretty much gut every regulation for companies under a certain size or for those that stay at full liability and pretty much yoke all the huge corps with nearly strangulating regulations and compliance requirements.”

    Huh? What does that do to prices at retail outlets?

  41. Chris says:

    Doug,

    The reason that shareholders are rubber-stamping the selection of directors (and as a result the CEO) is that in most large companies, the mutual funds, pension funds, and other large institutional investors control all the stock. Its a lot easier for the CEO to buy off a few fund managers than a large number of individual shareholders.

  42. odinseye2k says:

    Doug,

    I think limiting the size of companies is even easier: reduce liability protection for those at the top.

    Depending on the level of risk, there are only so many layers you would allow to get between you and the people in your company.

    On the other hand, there are some companies that need to be big. I would say it would be hard to have a small outfit developing and building jumbo jets or moon rockets.

  43. Doug Deal says:

    jsm,

    Which retail outlets? Smaller companies operating with greater and varied competition will result in more consumer choice, and likely lower prices on non commodity items.

    If i recall correctly, Japan offers internet services that are over an order of magnitude faster than we offer, but at less than half the price. The same is pretty much true for France. (When I was there in 2005, high speed access was 19 Euros a month and was 20 m.o. or 20 mega octets, which is the French way of saying megabits).

    Big companies are bad for consumers, but it is great for the big companies. Do you think that Microsoft could charge $1,000 for a license of visual studio or $400 for a license of office or $200+ for a license of Vista if there was any real competition?

  44. jsm says:

    I was thinking more of big box retailers that benefit from high volume buying. I like local shops for some items, but I buy a lot of my basics from bigger stores.

  45. Doug Deal says:

    odin,

    I think we agree almost completely. It is that liability protection which biases the system. A big corporation can hire full time legal and accounting departments for compliance issues and handling most legal issues, while a small business might have a law firm on retainer and pay much more per billable hour since the legal team is not in house.

    As for the big companies, they certainly have their place for things like defense, rail transport and shipping, but then they would have to agree to regulation (which I think is completely reasonable under the commerce clause due to the true nationwide scope of the company).

    A small company, particularly one that exists solely in one state, or whose interstate commerce is only incidental, should not be touched or regulated by the federal government.

  46. Doug Deal says:

    jsm,

    Big box retailers are hardly the place to go for the best price already. An anecdotal piece of evidence is RAM. I went to best buy, who wanted to charge me $129 per stick of memory that I was able to get at Crucial.com for $24 each. I was able to outfit 2 of my computers with 3 GB of RAM (6 sticks) for only a little more than what Best Buy charged for stick of 1GB RAM.

    The same goes for everything from camera batteries (mine was $69 at best buy, $35 online) to cell phones ($449 at Sprint – $299 with 2 year contract to $199 on eBay with no contract – both new) . Big box retailers, with the limited competition with all the consolidations and bankruptcies, are not so great in the price department.

  47. jsm says:

    “An anecdotal piece of evidence is RAM.”

    Doug, I’m thinking more basic things like food stuffs, hygiene products, clothing, etc., like you would get from Target, Wal-mart, Dollar General, and similar retailers. I’m not trying to argue with you. I’m just wondering how your idea affects prices for necessities that affect lower income families much more than middle and upper income folks. Even some middle class families have already felt the pain of rising prices for milk, eggs, and other basic food items due to energy costs. It would seem that putting strangulating regulations on big retailers would hit us again on the basic things we all have to buy regularly.

  48. Doug Deal says:

    jsm,

    With the decrease in regulatory requirements and mandates on small business, they would be able to deliver their good more cheaply than they do now, which would make them more competetive against the larger chain grociery stores.

  49. GreenAllTheWay says:

    Hey, I would like my mortgage paid off. Oh, I invested $10k in this start up business, can I get that back too? And my 401 k declined 20% this month, I need that back too. OH, and I want a $27,000,000 bonus for losing all this too, please, Mr Bush!

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