Blog Post

The bailout situation is a mess. If it weren’t so sad for the state and health of America, it’d be funny. The debate this week is over the big 3 automakers requesting bailout money. In the news also are the cities of Philadelphia and Atlanta asking for money. The reason state and local governments are struggling is because they are forced to balance their budgets. The Federal government isn’t and they can borrow or print money to give to the local governments. Yeah, that makes sense.

The Crappy Three

Ford, GM and Chrysler need money or they risk going under. Their labor costs are so high, and have been for some time, that they are unable to operate for a profit. Couple the labor costs with crappy management and you have three crappy companies.

While I believe Obama and the Democrat Congress will bail them out after Obama is inaugurated, I hope that certain Congressional members stand in the way of throwing more money at this awful scenario. One of my favorite investment professionals Peter Schiff says the following in one of his recent commentaries:

As usual, both sides have it wrong. The government should let the Big Three fail not because we no longer need an auto industry, but because we desperately do. What we do not need is the bloated, inefficient auto industry that we have today. By allowing the Big Three to fail, their capacity will be turned over to new owners who will be able to acquire the means of production at fire sale prices and hire workers at globally competitive wages. The result will be a more efficient auto industry making cars that people around the world actually want to buy at prices they can afford. Such auto makers could conceivably be profitable and could become the cornerstone of a manufacturing renaissance in the United States. In contrast, Ford, Chrysler and GM are never ending money pits that threaten to swallow a good deal of our economy.

GM took a full page ad out in my local paper this morning explaining the horrible results of them going under including loss of tax revenue and job losses. How ironic that they are spending their last dollars on full page advertising trying to drum up support for tax payer money (what a joke).

All of their reasons are short term reasons which of course is what our politicians always focus on. Yes, there would be job losses in the short term. But, in the aftermath, healthy, competitive auto manufacturers can take their place which would create a multitude of jobs. Unfortunately, unless a result of a decision can impact re-election efforts in the short term, it is usually not a desired result.

Where Does This Bailout Crap End?

By continuing to bailout poor management and poor businesses, we continue to incentivize excessive risk taking or poor business decisions. By not bailing out these companies, we reinforce the competitive economic principles that grew our country to begin with.

I assure you more retailers and other companies are going down over the coming months or years. Who is next for a bailout? Circuit City? Starbucks? Kmart? When does it end?

You Can Help End The Bailout Mentality

You need to call your congressman and senator and demand that they do not support anymore bailouts. If you have a new representative coming into office after the re-election, call him or her also.

We got a glimpse of how people can make a difference when the first $700 billion bailout vote happened in the House. Thousands of people called their representative and the effect was that the bailout was voted down. It was a beautiful thing to see people taking control over their government. It’s time to do it again. Call and write your representative today. Then do it again tomorrow. Call them every day and demand our government stop interfering with our economy. Tell them you don’t want your tax dollars propping up companies that should not be operating. You have the power to do it. Take this power!