Monday, November 17, 2008

Corporate Bail-Outs

I'm starting to think that corporate bail outs are the new welfare. We've always heard the right complaining that the folks on welfare shouldn't be compensated for not working, etc. I don't agree with that necessarily--poverty is an extremely complicated issue.

By comparison, business is a pretty straightforward. You develop a product, market it to consumers, and if it's something consumers want or need, they'll buy it. If they don't buy it, then you're probably going to go out of business. Businesses fail every day. Life is hard.

So now we're talking about bailing out the big three American automakers. Seems nobody is buying the products they're producing. Wah! For at least the last 20 years, foreign automakers--many now with plants in the U.S.--have been gaining market share because they are selling products people want to buy. It's not just fuel efficiency. Check the dependability ratings provided by Consumer Reports. Many foreign-made vehicles simply do not have the problems of their American-made counterparts.

Fuel efficiency has driven a lot of the switch to foreign made cars. It's not like rising gas prices came out of the blue. We've known for quite a while now that sooner or later, oil production is going to dry up. With China, India and other developing countries exponentially increasing their desire for gasoline, the shortage is probably going to come sooner rather than later. Even if supplies last, increased demand is going to mean higher prices. Have American automakers responded? Nope. And now they want a bail out. Wah!

Helen and Margaret (a very popular blog and one that I follow) today suggested that perhaps the oil companies should be the ones to bail out the auto industry. Great idea! They've been in bed together for decades anyway. While we're at it, why don't we let the sleazy hedge fund managers that made billions of dollars just last year bail out Wall Street? A thorough study of where and how dollars flow would likely turn up lots of other good sources for bail out funds other than tax payers.

The emerging pattern is that corporate entities that failed to exercise due diligence and continued to operate under lousy business plans are getting bailed out with tax payer dollars. What kind of incentive is that? To make matters worse, the same logic is being used to save homeowners that bought more house than they could afford and over-leveraged with home equity loans putting them underwater or upside down on their loans. Wah!

The mantra for welfare reform was making work pay. The new mantra for corporate welfare reform should be about rewarding businesses that succeed. If you don't have a good business plan and you can't move your product, you shouldn't be rewarded with tax payer dollars. That this appears to be happening all over the place keeps me...

The Crotchety Old Man

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