Archive: Opinions

Language plays an essential role in our lives.  Over the centuries, we have developed a deep and rich treasure trove of sayings, metaphors, and other linguistic tools that deal with maritime travel.   Some of these like, “Finding safe harbor, full steam ahead, and abandon ship,” are well known and used in everyday speech.  They are used to illustrate a point or describe a situation in ways that the average person can comprehend. 

As we begin to unravel the economic crisis that faces this country, media outlets have relied upon one of the most recognizable nautical terms, the word bailout.  Watch any TV newscast, listen to any radio talk show, or read any newspaper, and you will see and hear the word “Bailout.”  Bailouts are the in thing.  They seem to be the only way answer to our economic crisis.

But what is a bailout?  A bailout is an act of loaning or giving capital to a failing business in order to save it from bankruptcy, insolvency, or total liquidation and ruin.  In essence, a bailout is a bet, and the institution that puts up the funding for the bailout is betting that the influx of capital will get the company in question back on its feet.  Once on its feet, profits will soon follow, and business will return to a normal, healthy pace.  If the company turns a profit, the risk pays off, and everyone benefits. 

Since last year, the United States Government and a handful of private firms have bailed out more institutions than one can track.  The Bear Sterns Companies, Freddie Mac and Fannie Mae, The Goldman Sachs Group, Morgan Stanley, American International Group (AIG), Citigroup, Morgan Stanley, Bank of America, General Motors, Chrysler, and the list continues to grow with each passing day.  These companies, among others, are deemed “too big to fail” because their goods and services are considered by the government to be absolutely necessary in maintaining the nation's welfare and indirectly, its security.

The question now before the American people and Congress, is this:  Should we continue to offer bailouts to failing companies?  An essential element of a healthy free market is that both success and failure must be permitted to happen.  If we continue to intervene and sustain companies with obsolete or unsustainable business models, we prevent their resources from being liquidated and made available to other companies that can put them to better, more productive use.

For years, Ford, GM and Chrysler ignored market research and focused their efforts on super size vehicles like the Tahoe and the Hummer.  They ignored the growing number of Americans who bought Hondas, Toyotas, and Nissans with higher mileage per gallon ratings, higher safety ratings and higher quality ratings.  Now, these same CEO's, who ignored the market for several decades, want the American People to offer them a bailout and pay for their million dollar bonuses.   

At what point should the government stop the bailout and simply bail out?  Are there companies that are truly “too big to fail?”   During my teen years, my family spent a lot of time helping out on my uncle's dairy farm.  After putting in a hard day's work, we would head toward the pond and dive into cool waters.  If time permitted, we would get into the old aluminum canoe, the one with a leak, and bail out the water that managed to seep in.  Once this was accomplished, we would get into the cane, paddle out to the middle of the pond and wait for the canoe to take on water at an alarming rate.  At some point when the water level in the canoe came perilously close the pond level, we would yell, “Bail out!”  Immediately, we would dive out of the boat.  Last one out got stuck bringing the canoe back to shore. 

Sounds silly, but it does teach an important lesson.  At some point, we knew it was time to get out.  This is exactly where our government stands.  Should we be in the banking business, the automobile business or the insurance business?  I have often heard that Ford, GM, and Chrysler are too big to fail.  Perhaps that is exactly what they need- failure, followed by Chapter 11 Bankruptcy, so that others with foresight and market skills can produce the goods and services that meet our needs in the 21 century and beyond.  Now that is to the point. 

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