Friday, March 20, 2009

Some Thoughts on Bailouts

If I owned a small business, it would be my responsibility to keep it financially stable. I would have to manage my expenses and debts, so that I could meet all of my financial obligations. If I made a loan to someone who couldn't pay it back, I could go through the legal process, but in the end I may never recover the money. The unifying concept here is responsibility. A business owner is responsible for the health of the business. No one is standing buy to hand over cash in the case of a financial difficulty... until now for some of the largest businesses in the country.

So many bailouts have been announced in the past 6 months that I wouldn't be surprised who's getting federal money next. First it was the $700 billion bailout for an assortment of US banks. Then the plan to save the failing auto industry. The most recent uproar is over the millions of dollars paid in bonuses to AIG executives, after they received billions in federal funds as well. Some of the largest companies in the United States have all of a sudden become exempt from the responsibility that any business owner should face - that of maintaining their financial viability.

I've really questioned if we should bailout any of these companies or not. My gut instinct is that if a company is not profitable, that's their problem, not ours (after all, it's our tax money paying for these bailouts). They should have to deal with it like any organization, fix the problems or give up the company. Apparently the issue is not as simple as it seems. We have a responsibility to the people of our country, if not to the companies. I think this article did a good job of explaining those responsibilities.

The short version is, if a huge company like AIG fails, it's likely to take down a number of smaller companies with it. Or, if one or more of the auto giants were to collapse, that affects dealerships, car parts manufacturers, and everyone else involved in the auto business. Many believe that the cost of failure would be much higher than the cost of the bailouts... so we're taking the less expensive option.

The question I come back to time and again is: Is the system broken? If so, I'm not sure throwing any amount of money at it will fix the problem. It may delay the fall, but not prevent it. Part of me wonders if we wouldn't be better off going ahead and putting out money into managing the fallout rather than trying to prevent it. But I'm not sure that would be any better. I don't know much about our unemployment system, but it doesn't seem (to a casual observer) to be that effective in helping people get retrained and find new jobs. That system, in its own way, may be broken as well.

So what good could come out of this? There comes a point in most people's lives in which we face a crossroads. Times in which we have to choose to stay on our existing paths, or choose new ones. If anything, we are giving these companies the chance to come to their own crossroads. They now have the responsibility to honestly look at their own situations, and choose the best paths going forward. May they choose wisely.