Billion-Dollar Handouts

It has always been a source of amazement to me that many in the same crowd that push for free markets - for unrestrained capitalism - are so quick to put their hands out when they are in trouble. These folks inevitably decry social welfare programs, but they are the first in line to demand protectionist laws and a wide variety of direct and indirect subsidies for their own enterprises.

In short, they want a level playing field for their competitors, a field advantage for themselves, and zero tax burden.

Individuals are heavily criticized when they express this same sense of entitlement. As well they should be. Large enterprises, however, can use other arguments to persuade government to bail them out of the messes they created themselves:

1. People will lose jobs.
2. The economy will suffer.
3. Investors will lose their shirts.

These are all risks of a free market, risks companies are happy to accept until they become the economic equivalent of doddering old fools who refuse to step aside and let the young pups play the game. In a global market, subsidizing a failing company only serves to fill a void that a more dynamic company could step up to fill. This is unhealthy, and economists know it.

Thus far, our duly elected representative government has taken steps to bail out predatory lenders and imprudent home buyers, rewarding the wicked and the stupid while leaving taxpayers (that's you and I, my loyal reader(s)) to hold the bag.

We've been given a great deal: a short-term reprieve on an economic bust for the long-term price of more debt.

But wait - there's more!

Now the Big Three automakers have their hands out, insisting that taxpayers need to bail them out because lenders aren't willing to do so.

Wait - the same industry that underwrote loans to folks with poor credit won't lend the Big Three any money? And it is a good idea for the rest of us to loan them money why?

Corporate behemoths go through a natural life cycle, rather like that of a star. When they become too large and bloated, they must die. Nature must run its course. Hooking them up to life support isn't the answer.

This isn't an inevitability. Companies become bloated and unwiedly when the board members and executives spend more time on the golf course than in their boardrooms and corner offices. When that happens, investors need to watch out.

With regards to the Big Three, with their stagnant share prices, all I can say is, watch out, or simply . . .

Fore!