Monday, April 06, 2009

No Company is TOO LARGE TO FAIL!

The argument that companies like AIG and GM are too large to fail, has to be one of the biggest lies ever perpetrated by American Politicians in an attempt to grab control of large parts of the American economy.

As I kept hearing so many of the ruling class continually spew out this rhetoric, I started to think to myself, "Why are these companies too big to fail?" and Why should they be saved in the first place?" It does not make sense. Why should the government bail out these companies when they have been running their own businesses into the ground.

In the case of AIG, did anyone force them to go out on a massive limb and offer the credit default swaps to all of these financial institutions? Why would a company put all of its eggs into a basket that was in reality a ticking time bomb? I'm no business or economics expert, but I have heard many times that one should always diversify. It seems to me that what got a lot of banks and financial institutions into so much was that they had too much of one investment on their balance sheet and did not spread their investments around enough in case that one of these investments went in the tank.

In the case of GM? Who's fault is it that they went with a short term business plan and put all of their eggs into the SUV basket? Why was GM so short sided? Lets face it. Why would anyone buy an American mid sized car, from Ford, GM or Chrystler, when they can get a better car from a Japanese manufacturer for roughly the same price? But the biggest question is, why did these companies sign such ridiculous labor contracts with the UAW? It has been obvious that the Detroit car model has been flawed for years. Many of the so-called Japanese cars are made or assembled in America anyway. The Big 3 has been dying on the vine for years because they have refused to change their business model.

But why then would the government bail out these companies that have made so many bad decisions? Why would the government infuse these companies with piles of money. In both cases the businesses are failing. They are hemorrhaging money. Throwing money at these big companies has done very little. Now these companies keep coming back for more but continue to engage in the same business practices that got them into the mess they were in in the first place.

So why would the government do it? I suspect it has nothing to do with the economy, but rather these amount to massive quid pro quos. In the case of Detroit, it is payback to the union. In the case of AIG....it was a way to help out a bunch of executives that gave money to the right causes or right candidates...and also to funnel money to banks outside of the US. Whatever the real reason, the evidence supports that we should have just allowed these companies to fail (bankruptcy) and let the chips fall where they may. At least we wouldn't have mortaged the future of our country and its economic stability in the name "saving" companies that really did not deserve saving.

The free market corrects itself. This crisis has happened because so many in the industry did not look at the long ter, but rather only paid attention to the short term. The companies that were being prudent would still be around, and other companies would rise up and take place of the failed ones.

2 comments:

Jiggy said...

Oh but fear not. Obama has ousted the CEO of GM and now Obama is the CEO of corporate America, and he'll right everything!!! We'll no longer have failing business plans because the Obamassiah has taken everything over.

Deckard said...

Ohh...You are right. I forgot.

No, there is no anti-Israel Bias at the NY Times.

Recently the New York Times published an Op-Ed of a Palestinian who describes the deplorable conditions that he says exist in Israeli prison...