I Eat Bear

It would seem that the government is once again pursuing blunders, and is still playing "Let's save the bank". How can I say that on the day the Fed siezed WAMU, for a quick sale to JP Morgan Chase? It is the bailout plan, and it has a HUGE flaw.

First, and most important is the US is standing up to try to help resolve a GLOBAL credit crisis. That is to say, the US is part of the problem, and not the entire problem. And, the US is getting limited support from other countires to help resolve it. Yes, I think there is some European support, and maybe a few others, but nodody else is digging deep into taxpayers pockets to fix this so called "banking crisis". And, I am beginning to think it is just "so called".
Why? Well, let's start with acquisitions. If things were so bad, would JP Morgan Chase have money to absorb Bear Stearns and Washington Mutual in the same year? Would Bank of America be in a position to pick up Countrywide, and spend $50 Billion for Merril Lynch? Ok, these may be excellent investments for them, so I am excited for their prospects. But the cost was too high. It cost jobs, savings, and heartache for countless people. Just a casualty of an acquisition? Maybe, but my heart goes out to those people more than I can mention here.

So, what is the real goal of this huge government bailout anyway? Well, it would be hard to say it does not heavily favor the banking industry (and I include investment houses in this group).
Support for a group that has basically mis-managed to the extent the problem is now GLOBAL in scale. I find that a little unfavomable in itself. Yes, they are letting some of the smaller, and possibly worst offenders fail. That is about the only thing I see them doing that shows any insight at all.

Once again, our untrained government, is tampering in the private sectors, and despite mountains of proof that they do it poorly, they still persist on doing it single handedly. What should they have done? Well, the first step would be to get the greatest business minds you can find together to pound out a resolution. That would be too easy, and to do so would mean they admit they are truly inept, and they are, and just proved it by not doing so.

But, let me offer some other ideas that just might have worked, and I have yet to hear any mention of. First, and the thing missing from the government bailouts is, the whole plan lacks INCENTIVES to do better. Instead, it sends the overwhelming message to businesses to get as large as possible, as soon as possible, because when you get a certain size, the government will unconditionally bail you out.

But the message from the government is equally clear on some other problems. There is no INCENTIVE to build anything NEW, which over time, could truly add to GDP. They are still trying to maintain, the defunct system they now have.

So, let me add something here that I think could be an asset to the government, rather than the liabilities it is so anxious to assume. And, it is fairly simple, and has a good chance to work.
And, better yet, it solves many of the evils resulting from this credit mess, and adds money to the government in the long term, rather than reducing it with the plans they have today.

The answer, in my book anyway, is for the government to offer grants to small business start-ups. Ok, we have some today, but to qualify, you have to be willing to work in economically depressed regions. Now is not the time for that. Make them available for economically prospering areas now too. And, yes, make a lot of them available.

Under this scenario, let's see what happens. Construction of many new sites, and for the sake of arguement, we are going to call that GROWTH, not to mention making employment for construction workers, and the employees required to run the new businesses. It may take a year or two, but a good percentage of these new businesses will be producing taxable revenues, so the government does get money back. Considering that we also have an unemployment problem in this country right now, this kind of plan would seem to be killing two birds with one stone. Then we have raw materials needed for both the site, and the new operation, so we have created a need for more products and services, which helps the bottom line of other businesses, which in turn, return tax revenue back to the government. It seems to me, this is more taxpayer relief than the plans the government is now proposing.

So, with a little less emphasis on trying to solve the GLOBAL problem, in just a few years, we could be solving the same problem, just using different methods. As cash is generated, and it should be, it becomes returned to the global economy. Oh, I am sure many of you are saying that does not solve the IMMEDIATE problem. Truth is, there probably is no cure for the IMMEDIATE problem, that does not create more problems than it solves. But, funding more small businesses is a start, that could produce long term positive results, rather than tossing good money after bad, as they seem to plan to do very shortly.

The US did not create the global problem (but did contribute nicely to it). Nor can it solve it alone. But, the answer is not to maintain a stagnant failing system either. The answer is to create GROWTH and INCENTIVES to succeed.

Could we collapse in the mean time? Well, yes, it might be painful. I doubt it would be fatal.
There would undoubtedly be more company failures, but that is likely to happen anyway, no matter what we do.

So, at the risk of sounding self-centered, maybe the solution to the problem, starts at home.
And, if the government is going to try to heal the ills of the global economy, maybe, just maybe, it is time for the physician to heal itself.

Comments: View Comments |  Friday September 26, 2008