> Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed.
There's an interesting issue there, though. Given:
1 - in general, higher risk => higher reward (if the risk comes off ok)
2 - fast growing competitors can dominate a market, wage a price war or buy slower-growing companies
Isn't there a potential problem that companies which are sensibly prudent can be simply out-competed by those which don't hedge against low-probability devastating events?
i.e. the natural state of the current economic system could be said to favour companies which grow more quickly by accepting risks which mean they cannot survive in the long term?
GM was not ruined by a low-probability devastating event. They made bad management decisions over and over again for decades. This was a train wreck that everyone could see coming from miles away.
If anything, GM is a casualty of the huge asset bubble caused by 4-5 years of 1-1.75% interest rates (Greenspan). That bubble had to burst, and when it did, it was obvious that companies in bad shapes would be hit the most.
The fact that GM was in bad shape was its own doing, though.
Yes I think that's true in the short run and it's a legitimate strategy. But bailing them out means to make the taxpayer pay for making it true in the long run as well, and that's a mistake.
Is there a reason to bail those companies out of bankruptcy with tax payer dollars?
If you're simply pointing out the potential advantage that a large number of higher risk competitors may hold, remember that advantage is tempered by lacking the pole position and the resources that the large company typically enjoys.
My startup is competing against some very large companies, and while we are faster, cheaper, better service, etc... They have existing marketshare, long term contracts, huge advertising/sales budgets, long track records, massive good-ol-boy networks, etc... We're doing great (we only want/need a few customers, not the whole market), but I doubt we'll ever "out-compete" the big fish to the point that they fail or we lead the market space. Being the big fish has a ton of advantages, even if they are slow moving.
> Is there a reason to bail those companies out of bankruptcy with tax payer dollars?
If it's a company that would be almost certainly successful and profitable but is caught in a bind because of the freeze in capital, then it can be a good idea. The resulting economic slowdown can cost taxpayers significantly.
If it's a company that would be almost certainly successful and profitable but is caught in a bind because of the freeze in capital...
Then Warren Buffett will buy it out. If it's a company that is a bad, high-risk investment, its managers will skip asking big outside investors (there are plenty of hedge funds and private equity shops with spare cash on hand) and go straight to the government.
But if the risk pays off, the returns are there right? And give the risk-taking company an advantage over it's competitors?
It seems companies can't affored to account for low-probability, high-impact risks. If they do, they'll be out-competed by those who don't (unless/until such an event occurs).
Exactly. This is not a crisis. Under the capitalist system those entities (individuals or organizations) who demonstrate their ability to manage resources effectively get more to manage, those who don't are ringfenced from doing too much damage by their resources being taken away. That is how the system is supposed to work, and how the system is working now.
I think that is something we tell ourselves even though it is not really true. We live in some amalgamated economic system built on various rules of thumb, tradition and what ever else works to at least try to benefit real people and not perceptions. I guess the system also gets out of hand at times. ;)
It is ugly, though, to see the pigs begging for a place at the trough. What was sold as a bailout to sore up systemic instability in the financial sector has become an everybody-invited tax money giveaway free-for-all for the favored donors and supporters of Congressional election campaigns.
The next time I complain about high taxes and someone says "STFU the government does so much for you like libraries and fire stations", I am going to throw this trillion dollar pile of shit in their face.
I totally agree with your sentiment. The government, if it wanted to bail out the banks at all, should have attached some good strings to the money. Oh, well. :(
it seems natural and appropriate to let poorly run businesses fail. unfortunately, our central bank doesn't prioritize based on inflation rates: http://www.house.gov/jec/press/2005/10-18-05.pdf instead they do the following:
instead of managing inflation, they generally do everything possible to prevent periods of deflation (which requires propping up the money supply) which is what happens when you let industry leaders fail. if we let all of the businesses fail instead of bailing them out the fallout would likely be unprecedented.
people need to realize that this is not an adam smith capitalistic system, this is a system heavily influenced by the government. this leaves room for regulation loopholes and mistakes which create bubbles which ultimately pop. this bubble has been patched for years, its getting too big to pop. popping it would remove our status as world police and likely be a large security threat.
george bush wanted to let these companies fail, but he was told, albeit mostly by market and industry leaders that letting them fail would create a chain reaction of failures and deflation.
the answer is probably to let some companies fail so as to punish poor businesses, but we have to be wary of purging the entire system.
America is a Democracy or a Republic, not a "Capital-something". Capital is just a tool. A smart country reaches into its toolbox and chooses the best tool for the job. Extreme models; extreme capitalism, extreme free-market views, etc... will always get you into trouble. It pays to be agile.
Should we bail out GM? I don't want to, but if we do it won't crack my top 10 list of things the gov wasted money on over the last 20 years.
That's what capitalism stands for.
Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed.