Fool Blog: Uncle Sam, Please Let Something Fail!

By Alyce Lomax

August 27, 2008

11 Recommendations

I'm so tired of hearing more and more companies lumped into the "too big to fail" category. Someone, anyone, please acknowledge that we still operate under some semblance of capitalism -- let a company fail for a change!

Capitalism may seem cruel, but in the long run, letting poorly run companies fail is both logical and orderly. If a company can't compete on its own vision and merits, propping it up ultimately does no one any favors.

Unfortunately, our nation seems only too happy to rush to the aid of every giant, lumbering, non-innovating, politically connected company we can find. If this keeps up, all we'll have left are non-competitive companies awash with lobbyists, all deemed too big or important to fail, and no one will learn anything from failure. Meanwhile, innovative companies with genuinely strong operations will suffer.

A future where the losers can still win sounds corrupt and dystopian to me.

And the nominee is…
I can see why people are afraid of letting Fannie Mae (NYSE: FNM) or Freddie Mac (NYSE: FRE) fail -- that whole "potential for catastrophic ripple effects coursing through our economy" thing. I'm not happy about it, but I get it.

But the latest rumblings suggest that Detroit's Big Three automakers are now seeking "assistance" from our government, too. When our country is already so deep in debt, why can't we start saying no? (And why do I have to even ask that?)

So I have an ideal nominee for the first sacrificial lamb. Why can't we let General Motors (NYSE: GM) fail? The Big 3 apparently couldn't even figure out that the price of oil was going up, and that maybe, just maybe, Americans wouldn't have unending financial resources to keep driving massive vehicles with laughable gas mileage. Word has it that GM, Ford (NYSE: F), and Chrysler want $50 billion in government-backed loans to chase fuel efficiency. Say what? Loans to address an issue they should have seen coming a long time ago?

Then there's the $27-per-share loss GM delivered recently -- in one quarter. Talk about an utter disaster. How does one company even manage to do that? That mind-boggling number only further convinces me that a bailout of any kind is as huge a mistake as any investment in this stinker.

Have I got a risk for you!
I know the city of Detroit's situation is dire as its major employers falter, but isn't the damage pretty much done already? As these companies continue to underperform, blunder, and stagger, they've already cut thousands of jobs. I'm pretty sure most of the Detroit autoworkers have seen the writing on the wall. (Maybe some of them even wish they could just go work for Toyota (NYSE: TM), Honda (NYSE: HMC), or even India's Tata Motors (NYSE: TTM)).

And what about the top brass at all these bailout-hungry companies? I'm sorry, but those dudes rake in mad money every year. People who defend runaway CEO compensation often argue that corporate bigwigs take on "risk" when they accept such high-ranking jobs. If so, why shouldn't those top executives be on the hook to contribute some portion of what they got paid while things went bad under their watch?

If a bailout proves necessary, why shouldn't a company's highly paid leadership help? Individual responsibility seems completely absent these days, as rank-and-file employees, shareholders, taxpayers, and society at large face far worse financial risk than top executives do.

You can't turn a loser into a winner
Continuously bailing out losing companies makes me wonder why we don't just change our name to the People's Republic of America. (And hey, don't most of these bailouts primarily benefit people who are already wealthy? At least in socialism, the government mainly redistributes wealth to poor people...)

It's not my fault -- or yours -- that companies like GM haven't been able to learn a darn thing for their troubles, except perhaps how to keep operating in an almost willfully subpar, noncompetitive, illogical manner. If they're not going to get a clue, I don't see why we should have to foot the bill.

Come on, people. We're better than this. Let those that deserve to fail, fail, for once. Maybe then, the ideas of "risk" and "reward" will start regaining merit. Otherwise, we're just on the highway to hell.

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Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.

Comment (23)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

On August 27, 2008, at 3:49 PM, pondee619 wrote: Report this Comment

"When our country is already so deep in debt, why can't we start saying no? "
Because the House of Representatives controls the purse strings of this country. My Congressman/woman will get re-elected if s/he can bring Federal dollars into my district. It is the same with your district and yours and yours...
No one gets elected by withholding Federal dollars from their congressional district. It is, therefore, in the best interest of each and every member of the House to have as much money spend on/in his/her district as possible. The only way this can happen is if my Member of Congress convinces other members to support spending on my district. This only happens if my Member of Congress supports your Member's spending on your district. Which continues ad infinitum. Ergo, spending gets totally out of control.
EVERYONE believes that Congress should curtail spending, UNLESS, of course, that spending is in support of ME.
Everyone hates Congress, Everyone loves their Congressman/woman.
On August 27, 2008, at 4:01 PM, Doerdi wrote: Report this Comment

I am tired of the Ford and Gm bashing.
Both companies have reorganized their
business world wide and produce excellent cars .
Their main problem is an overwhelming commitment to their active and retired workforce in the Us.
It took a lot to get rid of it, but it constrained them from competing
successfully in the market.
Toyota and VW were almost bankrupt before Fiat, Mitsubishi as well .All are out with better products now.
Short before dawn night is the darkest.
On August 27, 2008, at 4:51 PM, m1ark wrote: Report this Comment

Failure or the possibilty of failure strengthens everyones decisions and actions. If you are hanging from a cliff and know there is no net below to catch you; you are going to work the hardest and make the best decision possible to save your life. If you knew that a net was there to catch you; you arent going to work as hard.The decision you make doesnt have to be the correct one.You have more chances if you fail to make the right choice or work as hard as you should have.
On August 27, 2008, at 4:54 PM, RFSullivan wrote: Report this Comment

American car companies exploited the patriotism fellow citizens who tried to "buy American" during so many years of horrendously bad vehicles. Consumers finally got fed up, and the Big Three were caught with their pants down.
Bailing out such mismanaged companies reminds me of the "everybody wins" mentality in schools these days. When there are no consequences to losing, no lessons are learned. As a nation, we have to protect capitalism if we expect to compete globally.
Charles Darwin would be rolling his eyes right now.
On August 27, 2008, at 5:00 PM, SamCoach wrote: Report this Comment

The Big Three are the largest private providers of health care benefits in the world, in fact GM alone employs, and provides health care benefits to more Americans than ALL the foreign car companies combined! Even with all the plants closings that GM has announced, GM has more assembly plants in the USA than ALL the foreign car companies combined, and Ford has more assembly lines in America than all the fioreign car companies combined. The big three spend over $17 billion a year in research and development which is more than all the pharmacuetical companies and NASA. Losing or greatly reducing the presence of the the Big Three would be devastating to the US economy.
From a NY Times Blog...“As for being slow [to respond to the market], you should know that 11 of [GM's] last 13 product launches in the U.S. were cars and crossover vehicles … By the way, if [GM] misread the market then how about Toyota and Nissan, both of which recently built full-size pick up and sport utility plants in the U.S.? Their crystal balls must have been really cloudy.”
On August 27, 2008, at 5:29 PM, UH2L wrote: Report this Comment

Yes, keep hoping for the failure of GM and Ford and then see less advertising, healthcare, legal, supplier, transportation business and watch the dominoes fall for many other U.S. industries. Don't forget that the auto industry is one of the few heavy manufacturing industries remaining in the U.S. and it is important for national security as well. These companies took good care of their employees because they aren't in a country that provides socialized healthcare and pension. This is a huge competitive disadvantage compared to overseas-based companies to the tune of $1,500 per car. Let's see Toyota or VW be profitable when saddled with such expense. If our government would have done something about healthcare, closed export markets, and currency manipulation, then perhaps the Domestic 3 would have had a better chance.
This is not to dismiss that some bad moves were made, especially by Ford not investing in many car platforms and letting Lincoln almost die. GM should have put more focus on cars and less on trucks as well as come out with a hybrid earlier. But GM sells the most mid-sized cars, (and some of the most fuel efficient ones too), but they get no credit.
UH2L
http://www.thingsivenoticed.com
On August 27, 2008, at 5:53 PM, USDAN wrote: Report this Comment

So Nissan brings out the Titan (12/17 mpg) and Toyota brings out the Sequoia (14/21) and the Tacoma (15/19) to feast on the same market that the Big 3 did. SO how smart are they? GM has been bringing out better, smaller cars with good fuel economy and they had to be in the pipeline 2 years ago when fuel was cheap. So why the idiot moniker for GM?
Totally incorrect statement about vision...
Those of us who saved our pennies and bought housing within our means feel that the savings and loan bailout stinks.
Get out of the past and relook at GM. They are making great cars with very good fuel economy. Look how many plants have closed from the Big 3 and how many all the imports have opened. 32 vs 14. Thats lost middle income jobs.
On August 27, 2008, at 6:07 PM, Brettze wrote: Report this Comment

You may argue about steel mills of yesteryear. Well, I can answer that steel mills are basically single process of manufacturing so simple to emulate by upstarters.. GM and Ford has to contend with myriads of regulations on safety, energy efficiency, environment, worker welfare, etc.
Over the decades, GM and Ford had been head locked in arms by UAW the strong armed union that never showed any consideration for shareholders. it had been a loong story for GM and Ford. GM and Ford had been considered among the best managements in the world but they are eclipsed by the arrogrance of UAW and the apathiness of shareholders as well as the sleeping lapdogs of government until now.
I always knew that GM and Ford still have a fighting chance to push Toyotas and Hondas back to Japan!
UAW still exist as a menace but I feel that UAW is a changed union for better with more appreciation of shareholders.
On August 27, 2008, at 6:16 PM, Brettze wrote: Report this Comment

If I were the CEO of GM or Ford and sit on the bargaining table with UAW, I would tell UAW to suck in as more less profitable fuel efficient cars needs to be built to fight the growing oil imports . Now you tell me which side would win in such scene twenty years ago or before? UAW would win. UAW just did not care. I would lose to UAW and its NASCAR chumps! Now with massive physical assets to switch in time to produce more fuel efficient models like tomrrow?? You never thought abvout that, didnt you? This was reality before and then now. GM and Ford is not a telemarketing business that can be bombed one night...
On August 27, 2008, at 6:23 PM, Brettze wrote: Report this Comment

UAW made outrageous wages and benefits demands every four year that forced GM and Ford mangement to seek the most economical part makers to supply to the assembly lines dominated by UAW. GM and Ford mangement had been hijacked by UAW who called most of the shots for decades.. Moreover, if GM and Ford goes under, then the brokers who held GM and Ford stock in street name for retail investors would be the only ones who benefitted as their liabilities to holders of GM and Ford stock still in street name would be erased.... Let the loans come and bring GM and Ford stock go up so the brokers will have to come up with the money when it is time for sharehodlers to sell..
On August 27, 2008, at 6:44 PM, arreno wrote: Report this Comment

The writer has emotion but little grasp of "free enterprise" system. Once the Bush debacle has passed we can start digging the country out and have a shot at success, much like we had to do after Reagans Bank, HUD, & Savings & loan scandals. The RT Corp. still lives.
On August 27, 2008, at 7:13 PM, searssucks wrote: Report this Comment

In answer to Brettze about sending a message that Ford and GM are viable and here to stay for years. HOW ABOUT THEY GET THEIR VIABILITY LOANS THE OLD FASHIONED WAY, by floating bonds, getting loans from banks, selling non core assets or new stock issues, or just plain selling out to healthier corporations? Maybe they're not making garbage now, but they did so for years and destroyed their credibility. I went through pain for 25 years with all 3 of the Pig 3 and now I've gone with Toyota. Ford, GM and Crysler have only themselves to blame.
On August 27, 2008, at 7:28 PM, arreno wrote: Report this Comment

Alyce Lomax ""Capitalism may seem cruel, but in the long run, letting poorly run companies fail is both logical and orderly. If a company can't compete on its own vision and merits, propping it up ultimately does no one any favors.""
IF ONLY THIS WERE TRUE..... The Defence Industry gets tax breaks and over-runs, OIL gets depleation allowences, tax breakes, they both have lobbies in washington that are almost as big as Japans lobbies. America does not have a 'level playing field' at its own field to play the game of CAPITALISM.
Our Companies are not poorly run, the unions are bot the boogy man , but the flag our elected folks salute, or don't salute , is closer to the problem.
On August 27, 2008, at 9:37 PM, POpinion wrote: Report this Comment

I am so tired of hearing the old song of Foreign Quality is better. America was built by Quality American People and Quality American Companies. The combination of these two factors made America a leader in the World.
I have driven American Auto's and trucks all my life as generations of my family did. Together we built America. Foreign cars weren't here to do that.
I say the unlevel competition of trade has put our American Companies in the position they are in. Let's level the field of play and compete. We will win.
On August 28, 2008, at 11:29 AM, Jawillde wrote: Report this Comment

It sounds like so many of you would rather live as Socialists. If a non-government business won't give the Big 3 a loan why should the government?
There is no such thing as too big to fail. Yeah, there will be crushing consequences but it is not the Federal government's job to intervene. It already intervenes too much.
I don't want my tax money going to some business that I have no interest in. Give me that money back by lowering taxes and then I can be more beneficial as a spender.
Anyone who has taken the most basic of Economics classes should know that government intervention destroys industries.
On August 28, 2008, at 12:39 PM, Brettze wrote: Report this Comment

How many laid off workers in America is still driving Toyotas and Hondas?? Dont they feel that it is somehow connected to better quality by Japan that is indirectly responsible for their job losses? They are running in circles and stratching heads and blaming or barking up wrong trees..
On August 28, 2008, at 12:42 PM, Brettze wrote: Report this Comment

We will probably hire teachers from Japan and also government workers, lawyers, doctors (already done from India) , um, construction workers, etc because they will do better quality work than us Americans. Ok shut down GM and Ford and we will all drive Toyotas and Hondas... Our President will be chaufeurred in a Lexus limousine... America is strong!
On August 28, 2008, at 12:50 PM, Brettze wrote: Report this Comment

GM and Ford is just like dried up wilted but alive plants. All they needs is some watering and fertilizing and they will be fine again.
On August 28, 2008, at 1:10 PM, Brettze wrote: Report this Comment

Alyce must be pretending to be riding in a balloon and she see the GM ballast and said to herself, " Oh, dear my balloon is not climbing so lets jettison that GM ballast now and Boeing ballast next without really checkiing whehter the balloon is sagging and in need of more hot air. My methapor is that many stocks are already overvalued, while many others are about just right and many others are screamikng bargains.. Alyce want to stick with overvalued stocks because she is so unsure when to sell them...or that she is fixing to keep overvalued stocks even more overvalued!!!
On August 28, 2008, at 1:16 PM, Brettze wrote: Report this Comment

I would agree with Alyce on GM only if...... management failed to win major concessions from UAW, failed to shut down many SUVs and PickUps plants, failed to move to smaller car productions,etc,etc. GM management had been working hard to save GM and the last person they need to hear from is Alyce....I dont just look at GM balance sheets I am now looking at GM 's new car called Volt. Alyce, have you heard about Volt and understand how Volt works? I mean the inner works and new different powertrain inside Volt. If not, I suggest that you get familiar with Volts now... Volts will be introduced in 2010.
On August 28, 2008, at 1:17 PM, Brettze wrote: Report this Comment

Alyce, just buy some GM stock, you chicken !!
On August 28, 2008, at 1:22 PM, Brettze wrote: Report this Comment

cluck,cluck, cluck Hen Alyce
On August 28, 2008, at 1:47 PM, TMFJoeInvestor wrote: Report this Comment

This thread is reminding me of that scene in Fight Club where Edward Norton fights himself.

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