Poll: Should we Bailout Detroit?
November 26, 2008
Last week I posted an open letter to our two state Senators and my Congressman, offering ideas on how to bailout General Motors, Ford and Chrysler. Only one Senator sent me the “canned” reply. I said then that I generally favor a bailout but more recently, I am beginning to favor chapter 11 reorganization bankruptcy. John Song posted a tweet that pointed me to an article about the history of auto company bailouts, which around the world, go beyond Chrysler. Bailout or not, what say you?
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Bailout might not be the right word. This is still a loan (albeit a very large one). Some of the businesses receiving money don’t even want it (e.g. Bank of America), but they are required to take it at a 5% rate. Why? Because the Feds want them to loan money. The banks won’t loan money to bad risks anymore (they shouldn’t), and nobody has equity in their homes due to the real estate bubble.
Sorry for the tangent. Detroit should get a bailout if they negotiate a new deal with the UAW. They won’t be competitive in the world otherwise. If it takes Chapter 11 to get them to the table, so be it.
It should be self-evident that a business that is too large to fail is also too large for a free market economy.
Such businesses, by their nature, must be rescued. But any business that is bailed out should also be broken up into smaller companies that actually compete against each other.
Otherwise, let them go down and bail out the industry instead by giving consumers a voucher for a new energy efficient American made car. That would help seed worthy start-ups to replace the Big Three cartel.
Bailouts are just another example of the US’s failure to invest in our long term growth by placing more importance on the present than tomorrow. Let capitalism work as intended. It may take time to recouperate but this is an investment. Its similiar to the ‘bailouts’ for the steel industry decades ago. The US steel industries refused to invest in better technologies and soon the germans and japs had a better product. Rather than capitalism forcing the current companies to make better products, or for new companies to enter the field, we just taxed the crap out of imports.
Sorry GM, you’ve had your chance and you screwed up. Lets take the bail out money and invest in some new start up companies that may become the Hyundai of tomorrow.