Dangerous Dan Thoughts and musings on the world

11/10/2008

Bailouts

Filed under: General,Politics — Tags: — Dangerous Dan @ 11:04 pm

Dear God, where will this bailout mess end?  When the government was given a mess of cash to start bailing out companies, it was like opening a Pandora's box of lobbying, posturing, and damned corruption.  Direct government meddling in the economy generally, in individual industries, or in the markets never turns out well.  It only disrupts the market and keeps it from operating correctly.  It was government interference in the mortgage markets that helped create the current crisis and the solution is now to have more meddling get us out.  It won't.  If the market fouls up, even when due to outside influence and not itself, it will self-correct when left largely alone.  This chance was dashed.  Once the government crossed the line and started giving out massive loans, bailing out banks, and then got a huge money wad to use at will, all companies had to do was petition the Treasury and congressional talking heads for some of the money and try to prove themselves so valuable they had to have it, i.e. that they are too big to fail.  This incentivizes companies to increase the size and scope of their operations, while no longer having the proper fear of failure a corporation should have so that they streamline, are efficient, and serve customers effectively.  This is corporate welfare of the first order.

The latest entrant to this game is sickly General Motors.  GM is an important American company and nobody wants to see it go under, but there is no reason it should be immune to bankruptcy.  Indeed, eliminating the risk of failure or of bankruptcy prevents GM from taking the much needed measures to improve its business, such as eliminating brands and renegotiating stifling union contracts as Stephen Bainbridge argues here.

It looks like American Express is also entering the bailout game.

This is only going to get worse.  Many companies will survive that should fail.  Worse yet, which get bailed out and which don't will increasingly be determined by political, as opposed to economic, considerations.  Those companies that spread money around to the right legislators will have powerful representatives arguing on their behalf.  Also expect Congressional backscratching as representatives and senators trade political favors in backing one another's favored companies receiving federal help.  Disgusting.

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