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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.

Prof. Succo,
Minyanville's Why Wall Street Will Never Be the Same
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."

Minyan Ron


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.

-Prof. Succo

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Position in GM.

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