No Bailout

First of all a disclaimer: I am not an economist, I am not a banker, I am not in the mortgage or real estate business and don’t profess to know a whole lot about most things.

I hear warnings of another depression. I hear all kinds of scenarios of businesses going belly up. I hear it is absolutely necessary to bail out the economy.

Yes, we have a lot of strained financial institutions. Some are so mismanaged that they probably will fail while their corporate officers take millions in golden parachute benefits and move on to mismanage another company.

Tightening credit is not a bad thing. When I grew up, a few people had a credit account at department or grocery stores, but credit cards were non-existent. About the time I graduated college, I started receiving a credit card now and then. They were gasoline credit cards. My wife and I managed to get a Sears revolving charge card which meant we could purchase more than one item at a time on credit.

We paid cash for our food, cash for our gasoline, cash for our clothes, and cash for our meals out. It was a reasonably good system. If you had the money you could make the purchase. If you didn’t you just had to continue to wish.

During the time we matured to legal age, people could buy a car or a home IF they had a good credit record and the potential earnings to make the monthly payments. Even into the early-seventies, we continued to operate primarily as a cash based society. Inflation was almost unheard of. There were no corporate bailouts. If you screwed up, you screwed up. Learn your lesson and move forward. There’s nothing wrong with making a mistake. The problem occurs when you make it again.

On one of the blogs I read, someone mentioned we should shut down the stock markets for a week to allow for a “cooling off” period. That’s not a real bad idea.

I don’t think a buyout or bail out is necessary. When companies get themselves into financial trouble, let them go out of business or sell to another interested company. So what if a major manufacturer goes out of business? There are plenty of other manufacturers out there to take up the slack. So what if a major bank goes under? Their good book of business will be easily absorbed by other financial institutions.

Companies go out of business every day. Companies are sold every day. Companies fail every day. So let them do it.

I see no reason to “bail out” those who made bad decisions and who are apt to do it again. That would not solve the problem. It would simply exacerbate the problem. Oh yes, those who are in debt up to their eyeballs will probably shed tears and beg for relief. But people and companies who are financially responsible will continue to get along just fine.