Wednesday, February 18, 2009

Bailout -vs- Bankruptcy

Thomas E. Woods Jr. has just written a book called "Meltdown" (February 2009). It's very current and includes facts and sources after the election of President Obama in November 2008. The $800,000,000,000 "stimulus package" (passed just a couple of days ago) was anticipated. "Meltdown" is so well-written that I'll probably refer to it in future posts.

But this week the automobile companies were back in front of Congress begging for more money. Woods has written about letting big companies go bankrupt. I found the following passages succinct--

". . . the idea of bankruptcy should not be so unthinkable as the Fed and the Treasury consider it. A firm doesn't disappear when it declares bankruptcy. Its capital equipment and its assets continue to exist. But they pass out of the hands of those who have failed to employ them in ways that best satisfy the public, and into the hands of those more likely to do a capable job. If they in turn should fail, these assets will pass into the possession of still other owners."

". . . these firms we're told are too big to fail are in fact too big to be kept alive. The longer they are kept on life support, the more they drain capital and resources away from fundamentally sound firms that could put those resources to much more productive use from consumers' point of view. Keeping such firms alive via government bailouts discourages rather than encourages capital formation and economic recovery."

All my adult life I've been loyal to Ford and General Motors automobiles, wanting to "support the US." Yet for the last 40-50 years I've watched these companies fail to match the products of other manufacturers. No doubt union contracts and expenses have hampered them. But to force the US taxpayer to subsidize these auto manufacturers will only reward incompetence and delay the inevitable while increasing the national debt. (I also object to "bailing out" big banks . . . as well as state governments which are starting to salivate for federal funds).

1 comment:

  1. Well, that's what I thought. Bankruptcy court has rules supported by 200 years of testing through lawmaking and courts of appeal. Bankruptcy court and its appointed trustees prioritize payables and receivables with an eye to resurrection. Deals made outside of such discipline could allow for all kinds of monkey business, dontcha think?