Let failing companies fail

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Credit: “How not to take a roundabout in the wet,” Flickr/edvvc

The banks and investment firms arguablyneeded bailing out because they’re integral to having functional financial markets, which are in turn integral to, well, modern capitalism. If they go down, almost literally everybody goes down. But a failing carmaker is just a company that blew it. Those fail all the time.

They do not deserve to be bailed out.

In a letter to Treasury Secretary Henry M. Paulson Jr., House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry M. Reid (D-Nev.) asked Paulson to “review the feasibility . . . of providing temporary assistance to the automobile industry during the current financial crisis.”

The letter notes that Congress granted Paulson broad discretion to use the bailout money to “restore financial market stability. A healthy automobile manufacturing sector is essential to the restoration of financial market security,” the letter continues, as well as to “the overall health of our economy, and the livelihood of the automobile sector’s workforce.”

Stability and security are not the same thing any more than a mechanically functioning economy is the same thing as a prosperous one. Governments can arrange for the first; they can only temporarily pretend to arrange for the second, and only at tremendous cost.

The Post helpfully goes on to explain why this is a moronic idea for practical reasons, not just principled ones:

If the request is granted, it would expand the federal government’s role in private enterprise far beyond the financial sector. Critics have warned that a bailout of GM would attract a long line of other companies to Washington to argue that their survival, too, is critical to the economic health of the country. The move would push the Bush administration to decide winners and losers in yet another huge sector of the economy, and it would force President-elect Barack Obama to manage a complex restructuring of the ailing automotive industry.

I work for a newspaper. Where’s the New York Times‘s bailout? Or, more to the point, the Christian Science Monitor‘s? Or U.S. News and World Report‘s?

GM and Ford and Chrysler screwed up massively, failing to foresee a consumer demand for smaller, cheaper, drastically more efficient vehicles. They are very big companies, but they are not special companies, and the problem is not something that just happened to them; Nissan and Honda and Toyota haven’t had an easy ride the last couple of months, but they’re still going concerns. If the U.S. automakers can’t make it on their own, let them go.

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2 responses to “Let failing companies fail

  1. I have heard much discussion that the auto companies need to be bailed out because of “systemic risk.” My question is — if the “system” is dependent upon a group of companies that cannot compete in the free market, wouldn’t that mean the whole “system” needs to be rebooted? If we bail them out now how much worse will things be for everyone when the reboot does finally happen?

  2. I couldn’t agree with you more. Now that gas prices are down, I still see Hummers on the road. People don’t get it, and the American car companies don’t get it. By the way, Toyota isn’t failing!

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