Wednesday, November 19, 2008

Does Detroit Deserve a Bailout?

No, I'm not talking about the Detroit that just suffered through the embarrassing tenure, resignation and felony conviction of its mayor. That Detroit needs therapy along with a check for its legal bills.

I'm talking about the Detroit's Big Three automakers, GM, Chrysler and Ford, whose top executives went to Capitol Hill yesterday begging for a $25 billion rescue package to keep them out of bankruptcy. That money, of course, would be added to the $700 billion that Congress already gave to Wall Street -- half of which has been spent but can't be accounted for.

If you ask me, that's reason enough to stay away from any more big company bailouts. Remember welfare reform in the 90s? The argument was that if you kept giving people "free money" from the government without oversight and limits, they'd never get off the taxpayers' proverbial tit. Why doesn't that now hold true for mismanaged, big industries?

The problem, though, is that if the Big Three are allowed to go bankrupt, many people will lose their jobs at precisely the worst time for that to happen. Some people, like former Republican presidential candidate Mitt Romney, think that's a worthwhile risk if on the other side of Chapter 11, the automakers come out leaner and stronger. The automakers argue that transformation is impossible if they don't get help now.

I think both sides have valid points, though I'd really not like to see any more tax money go to corporate welfare. But hey, my opinion doesn't count here, yours does! If you were in Congress, would you vote to help the auto industry save jobs now with a bailout, or to force it to get its act together by risking job losses and potential bankruptcy?


Butterrfly said...

Initially, I was all for the bailout for Wall Street, but that was because I naively thought that the bailout will stop and reverse the negative returns with my 401K and other investments. Boy, I was wrong.

Hindsight being 20/20, I really think that the great American bailout has set a terrible precedent for corporate America. Argumentatively, the American auto industry has a valid argument for a government handout. However, where does it end? Circuit City is filing chapter 11, I’m sure that other retailers will soon follow, will the retail industry also be entitled to a government bailout? This could be the domino effect of the worst kind if common sense doesn’t kick in soon on capitol hill.

In order to fix this historic economic downturn monstrosity, I think legislators need to call out and address the elephant in the room, “US consumers have no money to spend”. Whether it’s because of balloon rate subprime mortgages coupled with falling house prices or historically high gas and energy prices driving up the cost of living over the past year – the disposable incomes of the average US consumer is severely limited if not non-existent.

To me it only makes sense to give the US taxpayers their money back. Think about it, 700 billion dollars? There are approximately 138million taxpayers in the US. So from my rudimentary math skills, dividing evenly across all the taxpayers that comes to $5071.46 per taxpayer. Now, that’s not a fortune, but its no chump change either. Just using myself as an example, I’d probably SPEND 1000 dollars of it frivolously and bank the rest. Herein lies the genius, assuming that the average American would follow suit, that’s 138 billion dollars of consumer spending back into the economy. Moreover, for banks it would mean a huge increase in deposits, something they are ALL thirsty for these days, to the tune of 562 billion dollars.

I would also combine that consumer bailout plan with a government regulated mortgage refinance program that ALL homeowners would be entitled to participate in...not just those who are 2-3 months behind on their mortgages.

Whew… a lot of typing there.. But there you have it… the official Butterrfly Bailout Plan!

MSJNT said...

I thought the way Congress lit into the Big 3 was too funny. I think that should do like us and cut out expenses that they don't need, then come and ask for some money.Only one of them was willing to work for a dollar. I do hope that they come to some kind of resolutions.