Minyan Mailbag: Where Do Bailouts End?
Reminder: Recession is a healthy thing.
Editor's Note: The following originally appeared on December 20, 2005 and, in light of current events, has been reprinted here for the benefit of the Minyanville community.
In my opinion, General Motors (GM) is falling because the $4 million boy "CEO" is clearly incompetent! I base that opinion on his last few moves without consulting the union.
Regardless, I don't believe President Bush is gonna want a dead GM on his legacy... No way! Not gonna happen, not in his library. I say there will be a big pension bailout to save the "lousy companies."
And if that occurs, does it not make your boots shake? A government bailout here, a bailout there: When does it end? It clearly shows something very wrong structurally in our economy.
I had a conversation with an investor recently and we were discussing the economy. When I told him that a recession was a healthy thing, his eyes lit up. He had not heard that one before, but agreed with me.
A recession tears down unproductive capital that finds its way into an expanding economy. Yes, companies go out of business but the fact is they should (on average). This frees up capital for more efficient companies that prosper in the next expansion.
Through a combination of lack of political will and Federal Reserve hubris, they have refused to allow a recession of any magnitude. The Fed has printed money in response and we are now where we are: saddled with huge debt and left with an economy based on speculation and ever rising asset prices. Deflation is not an option now, although in another time and place there is nothing wrong with deflation for the consumer and general wage earner. It is only the rich that can't accept deflation for that would debase their power. Is it any wonder we are where we are?
As for GM, I am afraid they will go bankrupt at some point: if not, it will be by breaking up the company into neutered units. It's a matter of time and how it plays out in the economy.
They do have a few bullets left and they will use them, so I doubt it will be in a straight line. But you never know.
Actionable ideas, instant analysis. Real-time from bell to bell.
Minyanville's Buzz & Banter - 14 day FREE trial
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter