Should the government bail out corporations that have severe financial problems?

[InigoMontoya]

So a company that does not run itself as well as the competition is now free to get itself in trouble again.

The government should stay out of the way and let it fail.

It is one of the responsibilities of the government to help the economy stay strong.
This means letting companies that are not strong fail in favor of the companies that are operating as they should.

Philosophically, I strongly lean towards a libertarian idealist view - similar to what you’re exposing. Realistically though, I’m just not sure we can selectively enforce those concepts, that selectively.

In my thoughts, we have to take into account that we simply don’t live in a libertarian governed nation. Our business subsidies arguably dwarf our subsidies for the poor and people. A bailout is nothing more than another subsidy. If we find it worthwhile to subsidize a sports stadium, bribe businesses to relocate, subsidize our wealthiest companies the equivalent of their own profit levels… All under the pretext that it’s better for our country… Why should we not consider bailouts? Especially when they’re needed not due to corporate incompetence but global-governmental matters? Especially… when every other developed nation does the same to their businesses?

 

[vz71]

Philosophically, I strongly lean towards a libertarian idealist view - similar to what you’re exposing. Realistically though, I’m just not sure we can selectively enforce those concepts, that selectively.

No selectivity at all.
Simply stop government meddling into private businesses.

 

[Captain_America]

re: original question.

The government has no choice.

The large corps just stick the gun against Uncle Sam’s head. Uncle Sam is meaningless and gutless when it comes to dealing with the financial system.

Too Big To Fail is a Way of Life, a Way of Doing Business.

 

[Captain_America]

No selectivity at all.
Simply stop government meddling into private businesses.

Right. Let’s also start to see private business (starting with the crowd at the Public Affairs Council) stop meddling in government.

And the Washington lawyer-whores.

 

[mikekle]

So a company that does not run itself as well as the competition is now free to get itself in trouble again.

The government should stay out of the way and let it fail.

It is one of the responsibilities of the government to help the economy stay strong.
This means letting companies that are not strong fail in favor of the companies that are operating as they should.

My thoughts exactly!

We all know these companies are bound to fail again, if it happened once, chances are, it will happen again.

I think it would be a good thing if chrysler had failed, if they (or any of the auto makers go under), then you can be sure there would be another start up to take their place, and maybe the new company would sell more affordable cars.

The US is the ONLY country where the price of a new car is totally ridiculous, most other countries, a person can get a entry level car, with hardly any options, but still a dependable car, for under $8000. some countries, new cars can be had for $3000!!! Then look at new car prices in the US…the cheapest Ive seen is around $15,000. GEEZ!!!

I think they should have a very cheap new car, for people who only want a dependable car and not interested in air conditioning, radios, cup holders, etc. Back in the day, it was common to buy a car without A/C…is that even possible today? LOL

 

[Captain_America]

Good post above.

Let capitalists suffer pain, just as they enjoy pleasure. I don’t say that being mean at all to business—I’m a small businessman—but it’s a gross market distortion if you have businessmen making decisions without having to face any negative consequence.

Much better decisions would result, less speculative stuff, and this is good for investment and in generating/permitting the economy to take a bigger-picture, longer-term view of what’s going on.

Less speculative short-term stuff that ultimately harms manufacturing.

THE BIG PROBLEM is that the argument can be made that Other Governments support “their” businesses and that we need to match them in this market distortion.

EVEN BIGGER PROBLEM in 2014 is that we STILL view business as being tied to a location. . . or even continue with the old idea that businesses have local loyalties.

 

[InigoMontoya]

I think it would be a good thing if chrysler had failed, if they (or any of the auto makers go under), then you can be sure there would be another start up to take their place, and maybe the new company would sell more affordable cars.

Why would another auto maker come into fruition? The market is essentially flooded. There’s a long history and numerous case studies on the difficulty of bringing up an auto manufacturer. Especially when every other major manufacturer will be fighting with zeal to take over that former market share - with their current lineup. Along with having massive government subsidies, incentives, and bailouts as well.

While you may not be from America, Chrysler is a massive employer offering actual real and decent jobs. The loss of those jobs and the accompanying supply chain would have been devastating to communities across the US and even felt by our national economy.
mikele:

The US is the ONLY country where the price of a new car is totally ridiculous, most other countries, a person can get a entry level car, with hardly any options, but still a dependable car, for under $8000. some countries, new cars can be had for $3000!!! Then look at new car prices in the US…the cheapest Ive seen is around $15,000. GEEZ!!!

I think they should have a very cheap new car, for people who only want a dependable car and not interested in air conditioning, radios, cup holders, etc. Back in the day, it was common to buy a car without A/C…is that even possible today? LOL

Where on earth are you getting this? How much traveling have you done? We have some of the cheapest auto prices - in the world!!! There’s a massive quasi-illegal gray market on buying vehicles in the USA at retail prices to be shipped and sold internationally. As our prices are that much cheaper. Look at vehicle prices in the developed world; Europe, Australia, Japan, etc! Look at vehicle prices in the developing world; China, Costa Rica, South Africa! Our prices are generally half of what other countries pay.

Sure there’s a few dirt cheap new vehicle options for people in a few places like the Indian sub-continent, China, and what not. But those vehicles are basically death traps, to a great extent they’re often essentially multi-wheeled motorcycles with a carriage body. Which are often legally brought into the US as well, and sold under the motorcycle or off-road classifications.

 

[Kal2012]

What if it costs more not to? What if the company is a pillar of your economy?

I live in Metro Detroit - home of Government Motors (GM) and Chrysler (now Chrysler/Fiat) and Ford.

I didn’t want GM or Chrysler to get bailed out.

Ford didn’t ask for any bailout money and a lot of people respect them because on that one thing.

The autos managed their money like the city of Detroit. They didn’t plan well for the future. People wanted to act like the high-paying union, auto jobs were going to be here forever. Our cities didn’t work to diversify their economies away from manufacturing and Michigan bled jobs during the 2000’s. You have no idea how much some people want to pretend that it’s still the early 1960’s and that things were still booming and they could afford to pay $100K for a janitor and the old job banks. (If you don’t believe me, you can search and find the stories in the Detroit News and Detroit Free Press).

The world changed and they didn’t want to change w/it.

So, my vote is for “Hell No!”

Businesses need to fail if they are badly managed and don’t want to deal with new economic realities.

 

[Captain_America]

… the above it spot on.

The big problem with bail-outs is their natural inequity----moral as well as marketplace.

What we’re really saying here is:

BIG BOSS (with uninformed, uninvolved board): “Oh. If we opt this risky route, we might lose everything.”

UNDERLING SUCK-UP: “Look. If we win, we win. If we don’t, we have Uncle Sam pick up the pieces, make good our losses to investors. . . all we have to do is threaten factory shut-downs and Uncle Sam’ll jump like a flea circus.”

Do you like this?

We’d rather see this:

BIG BOSS (with involved board) “Oh. We’d BETTER NOT take on this much risk, or we’ll lose our shirts.”

UNDERLING SUCK-UP: “Makes sense to me. Let’s plow those earnings back into plant capital investment. Let’s use the business products to make money.”

 

[Kal2012]

Chrysler is a massive employer offering actual real and decent jobs. The loss of those jobs and the accompanying supply chain would have been devastating to communities across the US and even felt by our national economy.

For some perspective: even w/the bailout:
In real numbers, the Unemployment Rate October 2013
National 7.3%
Michigan 9.0%
Detroit 9.5%

mlive.com/jobs/index.ssf/2013/05/michigans_black_unemployment_rate_much_h.html

Also, “the unemployment rate for black workers in Michigan is 18.7 percent, compared to 7.5 percent for white workers in the fourth quarter of 2012”

Since I lived through the bailout, I can tell you that “government restructuring” wasn’t pretty. Our area still lost a lot of jobs and plants still closed. Some of the plants have recently hired people for a third shift because sales are up. However, new hires aren’t paid as much as those that survived the bailout. People are still reeling from the after-math of finding out that their pensions and promises of 'low priced or free" retiree health care weren’t as secure as they thought they were. Bondholders are beyond upset because their investment is just gone. Oh, the State/Feds spent a bunch of money to retrain some of the ‘former’ autoworkers, but it turns out that for a lot of those folks there wasn’t jobs in the new field either. (Another government fail!) A bunch of dealerships that closed still don’t have anything new on their property. Just empty buildings.

(Honestly, the only winner I can think of is Fiat because now we see people driving and testing Fiats in our neighborhoods whereas before, it was just one of those foreign cars"imports" (sneer) that (until recently) nobody drove.)

Our state also has a culture where a lot of people (until recently) believed that all they had to do was get a job at one of the autos and they were set for life. A lot of people wanted to ignore that the global economic picture was changing and that ‘outsourcing’ was a reality. When a lot of us talk about ‘outsourcing’ we aren’t talking about jobs going to India or China, but places like Ohio and the South. A lot of auto companies won’t look at MI as a place to manufacture cars because they don’t want to deal with the our unions and regulations. (We recently passed Right-to-Work in 2012)

In the end, if we claim to live in a Capitalist society, then we need to let businesses fail when they make bad decisions. It’s not up to the rest of America to bail out a company if they screw up royally.

While you can argue they “saved” Detroit, you can make the argument that they hurt more than they helped. In the end, GM will always be “Government Motors”. Chrysler will always be the company that was sold to Fiat…(Fiat! )

 

[mikekle]

In the end, if we claim to live in a Capitalist society, then we need to let businesses fail when they make bad decisions. It’s not up to the rest of America to bail out a company if they screw up royally.

While you can argue they “saved” Detroit, you can make the argument that they hurt more than they helped. In the end, GM will always be “Government Motors”. Chrysler will always be the company that was sold to Fiat…(Fiat! )

Great points!!! A country cannot claim to have a capitalist society and then do things like this LOL. This is pure socialism.

I also agree with the last statement there, I have to laugh when I hear on the news how great GM is doing now and how many cars they are selling! Uh, Anyone would be in this situation if they were bailed out and given millions of dollars…duh!! But I just wonder what happens when they get themselves into a rut again, down the road sometime…will they be touting how great a business they are and how great their sales are then… No, they will be sticking out their greedy hands, expecting to be bailed out again.

I used to love Chevy trucks and bought 2 new ones back in the early 2000s, but Im done with GM now, and would never buy another one. I dont want my money going towards a company that cannot be successful without handouts.

 

[vz71]

I used to love Chevy trucks and bought 2 new ones back in the early 2000s, but Im done with GM now, and would never buy another one. I dont want my money going towards a company that cannot be successful without handouts.

It is an irony (or perhaps perversion) that your actions to not support these companies will lend towards another bailout.

 

[mikekle]

It is an irony (or perhaps perversion) that your actions to not support these companies will lend towards another bailout.

I wouldnt exactly go that far, Their own actions will put them in another bad situation eventually, not because myself or any others choose not to buy their vehicles. Unless they have learned from their mistakes and do not repeat them, from what I can see lately, it seems like business as usual at GM… I wont be surprised when they get into trouble again.

 

[Captain_America]

Don’t forget there’s a usual cycle going on here: companies eventually die of natural causes.

It may be the case that our future is with Kia. . . or some Chinese auto maker.

Objectively there has long been too many car makers. Detroit blew it in the 70s, and even though American Quality is at world par, it’s a bit late running now.

But no. . . government should not be bailing out private firms. This perhaps shows a substantial defect in the organizational structure of American companies. . . management perhaps has too much decision-making power, and perhaps shareholders should be more involved. . .

Of course, even the Neo-Progressive Crowd will never touch Wall Street.

 

[tjones80]

Hey everyone. Should the government bail out corporations that are having severe financial problems and are possibly even facing bankruptcy? In my opinion, the government should not do that because that means our tax dollars are going to the corporation that couldn’t stay afloat on its own. In my opinion, this only encourages bad financial practices that may have lead to the downfall of the corporation to begin with. If a corporation cannot stay afloat on its own then it should sink in my opinion. However, if the government is going to bail them out then they should be required to pay back every penny within a specified amount of time. What would the Church’s teaching say about this issue?

It depends. Will the saving of the corporation actually save it from going out of business. Corporations are a creation of the government in the country they exist in. People may ask what if we lose the money we invest. In the GM bail out we lost 50 billion in tax dollars. However, GM creates billions more in economic activity which produces workers and share holders that pay income tax, buy goods and housing.

The government will also give small businesses loans that they often lose money on, but small businesses altogether generates $100 billion dollars in economic activity.

Of course, we don’t want State capitalism as what was tried in the Soviet Union. That economic system will always go bankrupt, since no one has any skin in the game if it fails and people our guaranteed a job and home no matter what.

An economic professor explained to a class I was in that America is a mixed economy with some socialism ideas like disability and social security coverage for some, but there is enough capitalist incentive for people to want to earn more money and that is what drives our economy overall.

 

[EmperorNapoleon]

What if it costs more not to? What if the company is a pillar of your economy?

I think this is the key exception to the rule. The one example I can think of is the banking industry. In some cases, it might be less costly for the government to bail out a bank than having to make good on federally insured deposits in the event that the bank fails.

 

[vz71]

I think this is the key exception to the rule. The one example I can think of is the banking industry. In some cases, it might be less costly for the government to bail out a bank than having to make good on federally insured deposits in the event that the bank fails.

Economically it is the cheaper decision.

But cheap does not always mean right.

 

[CrossofChrist]

I think this is the key exception to the rule. The one example I can think of is the banking industry. In some cases, it might be less costly for the government to bail out a bank than having to make good on federally insured deposits in the event that the bank fails.

This. ^

 

[O_S_C]

Great points!!! A country cannot claim to have a capitalist society and then do things like this LOL. This is pure socialism.

How could it possibly be ‘socialism’ when the state supports capitalists? To me that sounds like a capitalist state doing what capitalists states do - serving the interests of the national capital.

Socialism is about workers control of production, it’s only in the United States that ‘socialism’ means “whatever the state does”.

 

[vz71]

How could it possibly be ‘socialism’ when the state supports capitalists? To me that sounds like a capitalist state doing what capitalists states do - serving the interests of the national capital.

The government stepping in to bail out a private corporation is effectively playing favorites.

The government has decided to aid in a very special way one corporation while not aiding the competitors.

This does not support Capitalism, as capitalism would allow the corporations to live and die based on their own economic strength.

I do not believe I would call this socialism, but it certainly is not allowing a free market to work effectively.