Posted by: KG | Friday, December 12, 2008

Bailing out the (morally) bankrupt…

… because we didn’t hold the reins when they ought to be.

Partha points to the flimsy equivalency between auto-companies and terrorists. In my opinion, there’s no equivalency there because companies don’t wish to layoff people. They want to employ people and run a profitable business. They don’t work for the greater common good, thats all. If anything, there’s a slight element of holding the government ransom, which is probably what Partha meant. Clearly in the Canadian case atleast, it would seem, if this report were true.

One of the initial Canadian responses I read was from Mr.Flaherty, their Finance minister – Don’t expect bailout. I thought then, that either the Canadian government doesn’t realize the gravity of the economic crisis or it reflected how bad the corporate lobbying in the US was. 🙂 Perhaps, I should have considered that Mr.Flaherty was a politician, himself and ofcourse, Mr.Harper’s government represents fiscal conservatist policies. So yes, you have to play up the base. Shtick to the principles until someone holds you ransom or shows that it is inevitable not to follow principles now. Now, Mr.Harper’s government is in a quandary after everyone was forced to lookup the meaning of ‘prorogue’ last week. Ironically, it was about the opposition  calling no-confidence on the response to the current economic crisis. And, it looks like the auto-industry might get the Canadian money a little too late, too.

In principle, I don’t like the government (US or Canadian) bailing out the auto-industry for the same reason I cited above –  They don’t work for the greater common good. They aren’t interested in that kind of excessive kindness. But, is retaining an indigenous auto industry in the interests of the government and the tax-payer? Yes. Why? Precisely why the Canadian government is being held ransom. Can’t they file for bankruptcy and recover after restructuring? The companies didn’t feel so. 😉 Until now, that is. Heard GM just hired some experts to consider restructuring and filing for bankruptcy. After the auto-bailout failed in the US Senate. 🙂

On the other hand, what I found really absurd in the US’  $700 bn bailout is the lack of control/return on investment for the tax-payer, relative to bailouts in other countries. What I find more absurd, is the lack of inclination in saving an indigenous auto-industry when compared with the gargantuan bailout of Wall Street that came with very little control (Pork comes compulsorily added and charged for). One of the questions being asked is – What if the next industry lines up given the positive signal? This is, indeed, reasonable to ask. There’s talk of Nortel Networks(WTF?!) in Canada looking upto the government for money. 

But it maybe that this is not the time to ask questions or affix blame. Its reasonable to believe that in the current fragile economy, loss of a fair chunk of jobs and a manufacturing potential will easily exacerbate things really badly. That’s how bad this economic crisis has been reported to be. How bad can it really be? Nouriel Roubini aka Doctor Doom, who is one of those experts who had been predicting the exact trajectory of the failures of the US economy all along but wasn’t listened to, wrote in November. (When a professor talks in certainties, we better heed to him)

The prospect of a short and shallow six- to eight-month V-shaped recession is out of the window; a U-shaped 18- to 24-month recession is now a certainty, and the probability of a worse, multi-year L-shaped recession (as in Japan in the 1990s) is still small but rising. 

As bad as it is expected to be, numbers thrown around for the complete Wall Street bailout and stimulus package is a couple of trillion dollars. The auto-industry bailout is peanuts in comparison. Sure, the government must ensure the companies restructure properly and get to be competitive. But competent management of resources and reduction of corruption/pork on the part of the government can do more than to not bailout the auto-industry on the basis of ideology.

 All along, like any common man, my blood has been boiling at how (once more) inept regulatory policy combined with the perennial availability of crooks has left the whole world reeling under economic stress.


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