Friday, November 14, 2008

Too Big to Fail?

AIG was not too big to fail. Fanny Mae and Freddie Mac are not too big to fail. It's history lesson time, friends. I present companies who were not too big to fail and did.

1. Braniff International Airways: was an American airline that existed from 1928 until 1982. It operated in the central midwest, South America, Panama, Asia and Europe. The airline ceased operations on May 12, 1982, a victim of escalating fuel prices, aggressive expansion, and fierce competition.

2. TWA: went into bankruptcy several times and was finally bought by American Airlines instead of going under.

3. Apple: Almost died in the early 90's from their inability to capitalize on and market the Windows OS. (I am grossly simplifying, I know.) Nevertheless, it allowed Microsoft to buy up Apple shares and gave Apple the influx of cash to start making a product that was unique and innovative.

I originally had Chrysler on my list but in the 80's it asked the government for a bail out, got one, and slowly got itself back in the black. Furthermore, the tax payers subsidized Chrysler's failure until it came up with a product good enough to sell. That's not the way business is supposed to work. I propose that if Chrysler had sold to another car manufacturer they would have a better product to work with.

I guess you know what I'm getting at. GM, while a large company, is not too big to fail. Rather it is too big not to fail. In this kind of economy where the businesses who survive are the ones who cut their expenses, there is no reason for tax payer money to subsidize GM's inability to manage costs. And that includes the unions. The United Auto Workers are fighting for this bail-out because it keeps their cushy pensions in place and keeps the workers in unreasonably high-paying jobs.

Add that to the Congressmen who desperately need those union contributions and those union votes and you have a recipe for overpriced cars, which means that GM won't be making a profit anytime soon. And there we go again. It's a cycle that should be broken now. Get government out of business. Period.

GM was in trouble long before this recession hit. They knew that the pensions were draining profits. This has been coming for several years. I say let them go. I know it will be painful in the short-term, but long-term will be for the best.

With GM out of business something new and better would come our way. Like Apple who's original system was a mediocre product, now with the iPod and iMac and Safari, they have a terrific product line and a brilliant marketing strategy.

Why subsidize a product that people don't want? If GM is not making a car worth buying, then why should the American people pay for it?


Karen said...

FYI - Braniff was based in Dallas and Southwest was its eventual successor. Chrysler paid the government back fully when they became profitable again. Under its president, Lee Ioccoca, the minivan was developed. And all the other domestic carmakers had to play catch-up. It dominated that market for probably 20+ years. It started losing sales to Toyota's Sienna minivan, Honda's and American carmakers.

Anonymous said...

I agree. It is ridiculous that we're rushing to bail out a business. If they were making products people wanted, they wouldn't be in this mess.