I was listening to a popular financial radio show the other day and a caller asked the question that people like me have been thinking: Why do we “have” to bail out the automakers? Why couldn’t we just let GM fail? Two of the reasons the talk show host cited was because it would damage the US economy too much and because no parts could be made for existing cars.
First of all. What? The economy is already a gaping bleeding wound, so what’s the point of putting a zillion dollar band-aid on it only to rip it off two minutes later and apply another one. Sometimes wounds heal up much better if you just leave them alone.
The bailouts might alleviate some pain in the short term, but I don’t want to be the generation that goes down in the history books as having put a financial cement yoke around the necks of their great-grandchildren. Instead of the Greatest Generation we will be known as the Stupidest Generation or the Greediest Generation. The sins of the father indeed.
To his second point, I would bet my hat that if GM (or the automaker of your choice) closed its doors, that 100 companies would pop up overnight to make parts for existing cars and wouldn’t that be good for the economy? My theory is that when big companies fail, opportunities are created for smaller, smarter, more agile companies. That’s how supply and demand works.
My third point is this: I think economies that hinge on a handful of bloated mega companies are dangerous. They don’t allow Financial Darwinism to work because we can’t (or won’t) allow them to fail — and that is fertile ground for greed, corruption, mismanagement and criminally ridiculous executive compensation packages. It is not an environment that brings out the best in people, but the worst. It makes them untouchable as is evidenced by the “retention bonuses” given to the very people who couldn’t be trusted to manage the companies in the first place.
I say let Goliath fall and let the sound of his corpse hitting the dirt be a warning to all.