George S. May Business Blog

5 Reasons A Bailout Will Not Work

“It is not worthwhile to try to keep history from repeating itself, for man’s character will always make the preventing of the repetitions impossible.” – Mark Twain

Well put Mark. It is interesting, in that, we as a society tend to think that with all of the improvements in technology and medicine, our future will somehow be different than the vicious cycle that is our planet. That we will somehow break the chain and set on a new course that history has never proven to be true. Now, I am not a pessimist and the more that the economy goes down hill the more I wish that suddenly one of the great ideas, that ended up turning out to be not so great, of the past would suddenly be put into play and solve our current economic crisis.

Example: A bailout for the big three automobile makers.

Bad idea. Ask Reagan. Ask Henry Paulson. Heck, ask the Romans! They experienced a credit crunch of their own all the way back in 32 AD!

Tacitus, in Book VI of the Annals, breaks down how zealous mortgage lending stirred up with the government interfering with the creditors loan terms and interest rates lead to major downfall in mortgage prices.

So, if the above two reasons (Rome and Reagan) weren’t enough to sway your opinion on the bailout, then here are 5 more reasons why it won’t work.

1. The market is not the root of the problem. It’s not that cars are not being bought. Think about it, we haven’t heard that Honda is need of a bailout. Why do people stop buying something? It is not as good as a competitor. GM can try to ignore that problem, but eventually it will come up again.

2. Bailouts congratulate mediocrity. Been to an American made car dealership lately? Well it is not too pleasant. The people working there have experienced wage cuts and seen their friends get fired. So not only are conducting business in an apathetic manner, but they are also understaffed. Lines are grueling, people are angry, service is poor. So now if and when they get money it will be like taking your son to the movies after he got an F in math. Who’s to say he’s going to study harder for the next test.

3. Bailouts try to revitalize old tricks rather than give birth to new fresh ideas. It’s almost the same as at the dealership. We don’t need to congratulate the engineers of Ford for continuing stay behind the trend and put out huge, gas guzzling monster trucks. Gas is expensive, people want fuel efficiency. Don’t let these companies settle for being uncreative. Leaders succeed in this world.

4. A bailout is not going to fix the inner workings of the American auto industry. The system is set up to where it poises the unions in a constant suspicious, cautious position against management. Trying to keep the same system in play and just giving them new money will be like trying to treat an old dog a new trick because you got a new bone. Bottom line, unions within the auto industry still posses the old confrontational conflict, seize-and-conquer control mentality. It is certainly not going to change with new money.

5. Bailouts swindle the American people out of the future. Why do we need to keep buying cars that cost more, use more gas, and last 50,000 miles before they all but die? It is not fair to us. People fall far into debt all the time because they can’t pay for the both an overhaul of their engine and their loan payment in conjunction.

I found a great quote by E.L. Doctorow:

“History is the present. That’s why every generation writes it anew.”

If you don’t trust my five points, take a jog back through history and see how time and time again, history repeats itself.

Do you have an American made car? How do you feel about the idea of a bailout?

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