MInTheGap

Standing in the Gap in a Society that's Warring with God.

Too Big To Fail?

March 9th, 2009 Visited 1575 times, 2 so far today

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In case you’re new to the planet, many things in this life happen in cycles.  Whether it’s the seasons, the stock market, or governments, there are times where things grow and time where things contract, and it’s for the good of all things.

A recession or contraction is actually beneficial for an economy, because it’s a time where companies are tested—a time where dross is wiped away, where excess is eliminated, and new business is allowed to start and flourish.

We are in the midst of one of these times, and while not free from pain, it is a time to expose what is good and bad, and a time to eliminate the bad.

The Government Reaction to Nature

No, I’m not talking climate change.  Back last fall when it was first found out that a recession was coming and that many banks—forced to value their assets based on what they could get for their loans rather than on what they could get in the future1—informed the public that they were in trouble, the government decided that some companies—the bigger companies—were too big to fail.  Whether it was AIG, GM, or any other short acronym that had been around for a while, “We the People” had to bail them out because otherwise it’d be the end of America.

The problem with this logic is that it misses the entire point of the correction/recession and is blatantly false.

GM has long been plagued with a series of bad fundamental decisions that have made the giant a problem rather than serious competition with the Japanese auto makers.  They have no way of renegotiating promises to retirees of the company who get generous pension plans.  They are losing money on every car since they cannot cut the costs of their vehicles when their competition—being new—can come in with a better product at a cheaper price.

It’s time to open up the area to competition.  It’s time to let these companies fail and encourage new ones to come up in their place.

Republicans Taking a Stand

And fortunately for us, there is a party that’s beginning to get behind this plan:

John McCain and Richard Shelby, two high-profile Republican senators, said Sunday that the government should allow a number of the biggest U.S. banks to fail.

“Close them down, get them out of business,” Shelby, the senior Republican on the Senate Banking Committee, said on the ABC television program “This Week With George Stephanopoulos.” “If they’re dead, they ought to be buried.”

And this one:

Republican lawmakers said Congress should stop providing General Motors Corp. with federal aid and let the company file for bankruptcy if necessary.

“The best thing that could probably happen to General Motors, in my view, is they go into Chapter 11,” Senator John McCain said on the “Fox News Sunday” program today.

The automaker could reorganize and renegotiate its labor contracts to come out “stronger, better, leaner,” McCain, from Arizona, said.

So, what do you think?  Too big to fail, or is failure the best option?


  1. Otherwise known as Mark to Market. []

Comments

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  • Rachel says on: March 9, 2009 at 1:56 pm

     

    I’ve said it before and I’ll say it again: let them go into bankruptcy and renegotiate or close down all together if they can’t renegotiate. It’s sad that the greed of unions are taking down blue chip companies, but the American taxpayer shouldn’t be responsible for bailing them out. It’s not fair that GM employees (and retirees) are getting $70/hour plus pensions and health insurance while they’ve driven their employer into the ground and the rest of the country having to bail them out is dealing with loss of jobs, loss of insurance, loss of wealth, etc.

    Rachels last blog post..Quick Prayer Request Update

  • Ling says on: March 11, 2009 at 10:26 am

     

    AIG and GM were about to go bellyup before they got the money, and they’re saying they’ll be bankrupt any day now, after getting hundreds of billions. Don’t see why taxpayer money has to go down the drain along with AIG and GM’s shareholders. If we had that $200 billion now, it would have helped pay for half of that $400 billion omnibus spending bill, wouldn’t it?

MInTheGap

Standing in the Gap in a Society that's Warring with God.

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