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Stop the Bailouts and Let the Bankruptcy Process Do Its Job

By Len Penzo

The US government’s decision to force out the head of General Motors should send chills throughout the private sector for years to come. This only serves to undermine the free market and stretch government authority over the private sector in ways previous administrations never dared.

Although it is a bit late, I am certain that the ex-chairman of GM, Rick Wagoner, finally realizes that he ended up striking a Faustian bargain when he and his fellow chairmen from Ford and Chrysler marched into Washington with hat in hand, asking for federal bailout money.

At the time, it was assumed that no president would ever cross the Rubicon and insert himself into the boardroom of a public corporation to mandate the overthrow of the company leadership, no matter how questionable that leadership may have been.

Like it or not, the government doesn’t have the right to dictate corporate policy to any company to which it bestows bailout money. Even if the bailout money did afford the government such a privilege, who believes they would do a better job running the company than the private sector? It’s no secret that government has proven itself to be completely incompetent when it comes to running anything efficiently. Indeed, if a government bureaucrat was running GM instead of Wagoner, the auto behemoth would have been bankrupt years ago.

This latest chapter in the current financial meltdown drama has managed to shine a white-hot spotlight on the real reason why the economy will take longer than necessary to recover: Our leaders lacked the political courage to avoid giving out the bailout money in the first place.

“But, Len, what other choice was there?”

What about bankruptcy? Until the recent financial mess, bankruptcy was an orderly way the free market dealt with financially troubled enterprises. GM could have been allowed to operate under bankruptcy protection while the bankruptcy courts forced renegotiation of the onerous union contracts that made the company unable to compete with leaner companies like Toyota and Honda. In fact, if our leaders had chosen to let AIG fall into bankruptcy, the courts could have been used to void those unbelievable bonus contracts given to AIG’s Financial Products division as well.

Too bad our leaders lacked the political courage to make the tough decisions when they had the option.

Hopefully the private sector has now realized that asking for a government bailout in order to circumvent the bankruptcy process will expose companies that are dumb enough to take one to drastic and unnecessary government interference.


March 31, 2009

Comments

  1. 1

    Jeff S. says

    A spot on commentary. These bailouts — not just with the auto industry, but also with the big banks on Wall St. have got to stop. I am not sure when bailouts became the preferred way over bankruptcy to deal with companies going under, but this new approach is really dragging our country down the tubes.

  2. 2

    Beverly says

    Interesting stuff! I’m just getting started with blogging and trying to gain some insight into writing articles. I like your style!

  3. 3

    Len Penzo says

    @ Jeff: Thanks for your comments. The fit will be really hitting the shan once the insanely high inflation finally kicks in as a result of all this bailout-mania and pump-priming that is going on. Stagflation redux, if you will.

    @ Beverly: Thank you, Beverly. I truly appreciate the kudos!

    I hope you’ll visit me again.

    Best of luck with your blogging! I’m still a relative newbie in this endeavor (having started in mid December of 2008) and I am learning more and more with each passing day. The scary thing is I have only begun to barely scratch the surface of everything I think I need to know!

    All the best,

    Len

  4. 4

    Credit Card Chaser says

    This is the issue in a nutshell unfortunately:

    “Too bad our leaders lacked the political courage to make the tough decisions when they had the option.”

    You put it perfectly.

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