I’m still unclear about the bank (wall street) bailout. I’m not exactly sure where the money is going, and how it is going to help the average homeowner. But I do have confidence about a couple of points:
1. If banks stop making loans, our entire economy (and the global economy) will grind to a halt. This would make the 1930’s look like child’s play. Therefore, I agree that something needs to be done.
2. Banks have been profitable for a long time, especially when using conservative underwriting practices. It’s realistic to believe they need help bridging the gap, but they’ll be profitable again in the long run. To me this is similar to anyone who gets into a tight spot after making a bad decision; you get some help from friends & family to get back on your feet, and then you’re fine for the long term.
3. It’s help for the industry, rather than for individual banks. Some banks will fail, while the stronger banks will survive. (Chase taking over Washington Mutual is an example.)
The Big Three US automakers are in Washington this week asking for a similar bailout. Personally, I don’t think these arguments can be used for the US automakers. In fact, I think it’s almost the exact opposite.
1. The automakers are in trouble because of decades of poor decisions, bad management, short-sightedness, and hubris. The current economic conditions only served to speed up the timetable and highlight their woes.
2. The automakers are not vibrant companies who have run into a tough patch. They’ve been holding on for dear life for the last decade, watching profits and market share plummet. The foreign companies hit them hard by entering their last profitable market segment - trucks & SUVs. Titan, Tundra, Sequoia, Armada - these are good trucks which are taking away market share and profit margins. Then gas prices spiked and sales of profitable SUVs plummeted. Again, if you’re existence is dependent on cheap gas, and you can’t control gas prices, you don’t have a safe long-term business model.
3. The automakers have complained loudly and at length about their competitive disadvantages compared with newer, more streamlined foreign automakers. Rather than a bailout (band-aide), they might get more accomplished by seeking bankruptcy protections - reorganizing as a chance to break the unions (or at least get major concessions) and reduce/modify their pension obligations. This is bad news for each individual worker & retiree, but it’s far better than having the company close its doors next year.
4. This is an example of industrial Darwinism, and our country has flourished on it. Woolworths gave way to Sears, which has given way to a myriad of other competitors (Home Depot, Target, shopping malls, etc.) Mom & Pop stores gave way to local grocery chains, which gave way to national chains, which are giving way to Walmart. Prodigy was bested by AOL, and then by ISPs such as Cox, Qwest, and Comcast. There are thousands of other examples. The point is that change is progress, and these companies will either become stronger and more efficient, or they’ll be taken over by stronger competitors, or their customers might find a new upstart company with a better product offering.
Where does it all end? Circuit City just announced plans to lay-off thousands of workers, close stores, and file for bankruptcy protection. Do they need a bailout? How about Sun Microsystems, who announced lay-offs last week? Or even better, how about your humble Realtor, who hasn’t had a banner year - I wouldn’t need anything close to $25 billion!
I don’t want to see the Big Three close their doors. I’ll feel terrible for the people and families whose lives depend on them. It will also make this bad recession even worse, and probably longer. However, that’s not a good enough reason for giving a huge amount of taxpayers’ money to failing companies, especially since it will only delay the inevitable.
Your hoping for restructuring in Detroit Realtor,
Chris Butterworth
