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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Take Responsibility For Your Actions

Comments (22)

I made a mistake this morning.  I allowed myself to get ramped up during my morning information routine.  As I read through my online news and feeds, I kept seeing various permutations of discussions around "the bailout."  Which bailout you ask?  So did I.  Before I knew it I was way down a rat hole of reading about all the various requests around "the bailout", tricks for getting "your share of the bailout", absurd requests from very large established companies regarding "the bailout", some surprising and particularly offensive (at least to me) requests from other companies around "the bailout", and lots of justification for action couched in terms like "economic disaster", "crisis", and "collapse."

You don’t have to go very far to see where I started getting ramped up – just read the front page of the New York Times business section online this morning.  Note to self – you are an idiot – you should have gone running instead.

I hate the word bailout.   None of the companies I invest in are getting a "bailout."  When they make bad decisions, don’t execute, or run out of capital, they fail – which sucks, but it’s part of the economic cycle. I tried calling 1-800-BAIL-OUT to see if I was missing something.  They wouldn’t help me, but they let me rant about what I think about bailouts (smart entrepreneurs!)

Everytime I hear the word "bailout" it makes me think of Atlas Shrugged.  There’s a good idea – before you are allowed to mention the word "bailout" you have to read Atlas Shrugged – that’ll slow people down a little and make them think.

I’m not against government involvement and financial support in the broad business ecosystem.  That’s not what got me ramped up.  What got me ramped up is the pervasive and omnipresent requests for a piece of "the bailout" along with endless hyperbole justifying the naked requests for money from the government without clear consequences.  This, combined with the endless language of fear and panic from our "leadership", rather than a rational discussion of cause, effect, and proposed solutions makes me nuts.

Fundamentally, I feel like the ethos of "lack of responsibility" is finding its way into every nook and cranny of the discussion.  The connotation of "bailout" is "it’s not my fault – please bail me out."  By definition, if you are asking for a bailout, you need to take responsibility for your actions and how you got there.

Before I end, I’ll leave you with two things to clean your palate.  The first is from my friend Shawn Broderick titled UAW Rip and cuts to the core of the notion of taking responsibility for your actions, understanding cause and effect, and coming up with solutions based on a real understanding of the underlying facts.  The second is from another friend – Karyn German (who is one of the execs at NewsGator) titled What I Have Learned About Leadership.  Just reading it made me feel better.

  • http://www.craigmische.com Craig Mische

    I agree. Send the automakers' mgmt Atlas, let them declare bankruptcy and re-organize w/a new business model.

  • Vinod

    Interesting..I also thought about Atlas Shrugged while wondering about the consistent pounding of words such depression, crisis and bailout in CNBC. I was wondering what Hank Rearden would think about this long line-up for bailout money.

    well …. Who is John Galt ?

  • http://wallen.typepad.com Wallen's

    Fully agree! Bail out of a financial system can arguably be justified under certain conditions because it's the “blood system” of an economy but car producers??? It feels like kids running after a bag full of candies. To make the matter worst, it's not as if car producers didn't get warnings and government support several times already.

  • Dave

    You say “I'm not against government involvement and financial support in the broad business ecosystem.” But isn't it pretty obvious that this sort of involvement is exactly what leads to “bailouts”? To think that it wouldn't, you would have to imagine that the government will be consistently run by long-term rational, benevolent, non-pandering individuals. You cite Atlas Shrugged, but the lesson there is that the situation we are in doesn't just happen – it happens because people like yourself (strong, competent leaders) acquiesce to the mediocrity that is the essence of government involvement. I'm not a hardcore Objectivist but this does seem to be a case where the dictum “check your premises” is appropriate.

    • http://www.feld.com Brad Feld

      I guess I’m not sure what I mean by “government involvement and financial support in the broad business ecosystem.” When I wrote it, I was thinking about the function of the Fed in dealing with monetary policy and some of the Treasury’s activities. I’m not a hardcore Objectivist either; I’m fundamentally an optimist about the long term resilience / behavior / opportunity of the American Democratic System, including the part that has all the extra “non-rational, non-benevolent, pandering individuals.” But, after spending a little time watching the completely irrational and emotional interchange between Barney Frank and Larry Kudlow on TV while I ate dinner, I start thinking that make I should quickly head to Galt’s Gulch and make sure the x-ray screen is still working.

  • http://www.ashimmy.com alan shimel

    I have to disagree. This is not about bailing out the execs at GM or the unions at all. What this is about is national security. The repercussions of an industry wide failure of the auto manufacturing sector would have ripples and implications across the entire country. Further losing that manufacturing capability would be a national security threat to our ability to compete in the global market. The government has an obligation to do what is right for the “common good”.
    The argument that bankruptcy can fix these problems in naive. We need a concerted effort from the government and industry to chart and execute a strategy for success in a critical area for this country to compete. There are no guarantees what a bankruptcy proceeding winds up with here.

    • http://www.feld.com Brad Feld

      I disagree with the whole thread on “national security.” I accept that the complete failure of the auto industry has deep negative implications for the US economy, but I’m not suggesting that the US auto industry should liquidate. It’s quite easy – assuming our leadership has real courage – to effect a “controlled restructuring” (call it pre-packaged Chapter 11, call it bankruptcy, call it whatever you want) of each of the major auto companies if desired. This is effectively what the government structured with AIG by taking control of 80% of the equity. Same drill here – if GM gets $10 billion from the US government, the common shares in GM should be diluted dramatically (or eliminated completely.) The union contracts, which appear to help support the non-competitive aspect of these companies – also need to be restructured. I’m sure there are lots of other unsecured creditor relationships that need to change. All of this can be done in a controlled way. And – done very quickly if the leaders really want that to happen.

      The only real argument against this that I’ve heard is that people will stop buying GM (or Ford, or Chrysler) cars because they will be afraid they won’t have warranty service. This seems like an straightforward thing for the government to “underwrite” (or guarantee) for new cars that are bought during the restructuring process.

      I’m no expert on this so I’m likely completely wrong on the specific solutions. However, my main point holds firm – the leaders of these companies (and the unions) need to take responsibility for their actions. Watching some of the coverage on TV tonight from the Congressional Hearing was remarkable (in a negative sense.) Separate private planes from Detroit to Washington (I would have symbolically flown coach.) Complete inability (or unwillingness) by Waggoner to answer the direct question “how much money – worst case – do you need to stay in business through March 31, 2009.”

      • Sean

        Well at least they didn't try to drive their yachts up the St. Lawrence and around to DC.. I was cringing the whole time, it was similar to Ali G's ice cream glove pitch skit, only with real money and jobs on the line. They drove the point all the way home that they don't know how they have to change, that alone really answers the questions that matter.

        How much do you think it would cost to start up a new car company? Isn't that an alternative option? What's that cost? Well under a billion and a couple years to get some seriously good car designs and then some wild unknown to create the ability to manufacture them in volume? There are a lot of variables, I bet you could make some really interesting runs at it with $25b and maybe 3 or 4 years. The time it takes might not be appealing but imagine if we started 5 of these companies and ended up with 2 or 3 companies that legitimately compete with Toyota, Honda and Hyundai?

  • Karyn German

    Ah, talks of Objectivism…this sure does bring back memories. :'} I've noticed a lot of anger and cynicsim among my colleagues in discussing the bailouts. The term has become an over-used metaphor for everything from picking up after someone in the kitchen to software development lifecycle management practices. Then again, we are a feisty crew at NewsGator.

    Thanks for the kind words on my blog post – you can't imagine how much better it made me feel to write it. Of course, now my employees are watching me like a hawk to see if I screw up…they probbaly won't have to wait too long.

  • http://www.angelsandpinheads.com Steve Murchie

    I had the same reaction reading a short piece this weekend about city governments across the country putting in for their piece of the pie. Some, like Atlanta, have budget shortfalls and hope to be rescued; others, like San Jose, are anticipating dollars that can be used for economic development projects. What??? Where did this sense of entitlement come from? Perhaps it is time that we let a few dinosaurs die off and end this notion that there is a pot of money just at the end of the goverment rainbow.

  • john

    Amen brother!! And we all know that the only way the car industry will figure out how to succeed is to allow them to fail. They won't get creative until they are backed into a corner.

  • John Ball

    I usually find common ground with your posts Brad and often fall into the daily involuntary head nodding. Today is an exception – sort of.

    I too hate the term bailout and I am ashamed at the number of “American Institutions” rushing to for the teat of government subsidy. This really pisses me off.

    However, I am reminded that Ayn wrote fiction, which history proves can easily be converted into life guides.

    Nearly 1 in 10 jobs in this country is tied to the auto industry. If we simply allow the automakers to implode (which they very well may deserve), we may see the long reaching effects of Chapter 11 touch more Americans than has ever been witnessed. Remember the renegotiated pensions brought about by UAL Chapter 11? Employees with 20+ years of service, who were once courted to an industry in need of skills, are today receiving less than 1/3 of what they had planned for their pension and retirement. Those pensions are nowhere near the top of the list of secured creditors. UAL's pension shortfall in 2005, when it was allowed to default totaled $9.8 billion and it only employs 100,000 people. GM employs nearly 300,000, Ford 250,000, etc.

    Allowing the auto industry a soft landing via Chapter 11, probably means that taxpayers will be footing the bill for lost pensions in one form or another. I don't have my hands on the facts, but my rough back of the envelope efforts suggests the cost could be more than $1 billion/month for what; 8, 12, 20 years?

    I suggest we provide low interest, government backed financing or “venture” type funding to the auto industry while simultaneously forcing immediate salary reductions in exchange for “equity” and a wholesale revamping of executive leadership. Kind of like being forced to ask your dad (or your friendly VC!) for an advance on your allowance; a price must be paid. (no real snarkiness intended!)

    John

    • Steve Bergstein

      A number of commentors have implied that Brad expressed direct opposition to a “bailout”/”rescue package” for the auto industry. He didn't.

      Brad says, explicitly, that leaders who ask for this sort of assistance must accept that asking necessarily implies that they made errors. Admitting those errors includes taking responsibility for them: identifying what they were, how they happened, how they should be rectified moving forward, and how similar errors will be prevented moving forward.

      Although classifed as “current affairs,” this post might also fit into the ongoing “Failures” (and learning from Failures) theme.

    • http://www.feld.com Brad Feld

      Yeah – this one seems to be a polarizing issue, especially among the people who think Ayn Rand writes philosophy!

      I think “bankruptcy” is misunderstood. There’s a huge difference between a liquidation (Chapter 7) and a controlled Chapter 11 where the US government provides the DIP financing, wipes out the value of the common stock, provides capital for a real restructuring, and preserves the appropriate pension liabilities. I’d never suggest that we should liquidate these companies. Nor do I really think I know the answer. However, I do believe that “just giving them $10 billion per company” isn’t likely to solve much of anything the way things have played out in the past.

      That was what really prompted my “Take Responsibility For Your Actions” comment. I’ve been an investor and an entrepreneur in a number of companies that have failed. Whenever they failed, there was pain and I lost all the money I had invested in them. I recognize this is on a smaller scale, but I take every failure personally and try to learn from it. It doesn’t seem like any of the current leadership of these companies really understand this, especially when they are – in the words of someone I heard today – totally “tone deaf” about things like flying from Detroit to DC on private planes. It’s a picky detail, but a symbolic one.

  • Bill

    I had been for a bailout until I realized it was for emotional reasons, not objective ones. Stripping away the sadness of the event, it is obvious that the industry needs a swift kick, and handouts don't get them or us anywhere.

    Interesting reading:

    http://www.nytimes.com/2008/11/19/opinion/19romne

    http://online.wsj.com/article/SB12266974612562936

  • Jim Pollock

    I am stepping into waters that are deeper than my swimming ability, but what the heck. I doubt the entire auto industry in the US is about to implode. Sounds like GM was closest to the edge when sales began to drop. But if you suddenly took GM out of the picture (which is HUGE, no question), I dare say there would suddenly be WAY more than enough business for Ford, Chrysler and the other foreign companies. Suddenly a tough year for all becomes a miserale GM year and a Happy New Year for all others. And before GM itself fails completely, it will do what all entrepreneurs do and cut back, shed dead weight and focus.

    If the Fed “bails out GM”… what are they bailing them into? To fail NEXT quarter with the same product lineup? SOMETHING is WRONG at GM and other car companies and they need to learn how to survive in the very real, very dynamic world in which the rest of us live.

    Jim

  • http://www.loupaglia.com/correlate Lou Paglia

    Love the Atlas Shrugged reference, complete match to some of the issues we are facing. (great book btw, except for the 80 page soliloquy by Galt). Galt and Reardon would have a field day with this UAW situation.

  • Scott

    Feelings aside on the auto industry and whether they deserve it or not (I don't think they do.), here's my main issue. None of them had a plan on what they would do with the money and how it would help. None of them could even say how much they needed. As an entrepreneur, banker, or VC, can you picture having a meeting about receiving or providing money that went down like the Big 3 CEO's on the hill? First, as an entrepreneur, I HAVE to know exactly what I need and how I'm going to use that money to be successful. If I ever said “It will help me live for a few months longer while I come up with a plan.” the meeting is over. Matter of fact, I wouldn't even get in the door.

    Second, their emphasis was always on the impact to the US, not how they would address their major issues. The issue with Wagoner's speech was that it read more like a ransom demand letter then a move-forward plan to make the most of the money. “If you don't give us money, X people will lose their jobs., $X Million in taxes will be lost, X suppliers will not get paid, etc.” At no point does he say, “We know what we need to do.” or “We know exactly how we'll use this money” outside of just using it to survive longer. When asked how much money GM needed, he wouldn't say and more likely, didn't know.

    Whatever your feelings on the Auto Bailout, until they have a plan to succeed, know exactly what they need, taking action to drastically reduce costs (lose the private jets) and show how they're going to make the most of any investment, it's a terrible investment for anyone to put their money into, period.

    • Mike Sankowski

      Would step 1 be to bring in the UAW and try to bring forward the scheduled 2010 cuts to beginning 2009? ”

      ____This would be about as bad of a move as we can imagine right now. We are facing a crisis that could be far, far worse than anyone here is thinking.

      We need money in the hands of working americans pronto. Laying off people are reducing their salaries right now would be almost as bad as liquidating the company.

      The problem isn't too little govt spending, it has been too little. I know most here are thinking there is crazy talk. But the only way for people to get money to pay their taxes is by govt spending. How else would anyone get that first dollar to pay the taxes that are due in federal notes? If the govt doesn't first spend money there is no money to pay for taxes. Taxes are what creates the initial demand for currecy. Without taxes, why would anyone want to have U.S. govt script?

      • Mike Sankowski

        Now this is not to say there would be no production, or there would be no people working. No this is about the monetary ramifications of government spending that then impact the finacial and real economies.

        The U.S. ran surpluses in the late 90's that sucked enormous amounts of cash out of the system. it is no accident that people then had to tap mortgage equity to get money to maintain and expand their lifestyles. Note that we did not have incredible growth in the early 2000's despite this huge amount of equity withdrawn. There was a demand for money that did not exist in the system, so it came from the asset base of the united states. Now that mortgage equity is gone, there is not enough money in the system, which causes people to want to horde money – clearly leading to a deflationary spiral we are now facing. Right now, we have too high of a demand for cash money and their equivalents, as evidencied by people spending less, U.S. treasuries making new highs, and assets rapidly decreasing in value.

  • HometownBo

    I got to where I am today by starting under a Government money program (not quite a bailout)–the SBA. In effect, I mortgaged every personal possession I owned to buy a business that I understood. Under this program, the government demands comprehensive accountability from those of us who borrow a few thousand dollars (annual personal and corporate financials). If these bigwigs want this Federal money, let them sign for it personally. I recognize that none of them have $10B to secure a loan, but it would be symbolic (and really, I think a big PR boost) if every GM VP and above put ALL their houses, cars and 401(k)'s on the line. I'll bet $50 that you'd see a whole new company–everybody working together, pulling together to save their own a**.

  • Steve_Zweig

    So let's write the car industry business plan:

    As I understand it, congress is giving the auto industry about two weeks to come back with a viable business plan to justify $25B. Present burn rates are > $5 billion per month, economy in the tank. Need to cut this in half immediately. Would step 1 be to bring in the UAW and try to bring forward the scheduled 2010 cuts to beginning 2009?

    P.S. For December, tell the exec's to drive back to DC using their own cars (good PR).

  • http://intensedebate.com/people/bfeld bfeld

    Yeah – this one seems to be a polarizing issue, especially among the people who think Ayn Rand writes philosophy!

    I think “bankruptcy” is misunderstood. There’s a huge difference between a liquidation (Chapter 7) and a controlled Chapter 11 where the US government provides the DIP financing, wipes out the value of the common stock, provides capital for a real restructuring, and preserves the appropriate pension liabilities. I’d never suggest that we should liquidate these companies. Nor do I really think I know the answer. However, I do believe that “just giving them $10 billion per company” isn’t likely to solve much of anything the way things have played out in the past.

    That was what really prompted my “Take Responsibility For Your Actions” comment. I’ve been an investor and an entrepreneur in a number of companies that have failed. Whenever they failed, there was pain and I lost all the money I had invested in them. I recognize this is on a smaller scale, but I take every failure personally and try to learn from it. It doesn’t seem like any of the current leadership of these companies really understand this, especially when they are – in the words of someone I heard today – totally “tone deaf” about things like flying from Detroit to DC on private planes. It’s a picky detail, but a symbolic one.

  • Wallen's

    Fully agree! Bail out of a financial system can arguably be justified under certain conditions because it's the "blood system" of an economy but car producers??? It feels like kids running after a bag full of candies. To make the matter worst, it's not as if car producers didn't get warnings and government support several times already.

  • http://intensedebate.com/people/lou_paglia lou_paglia

    Love the Atlas Shrugged reference, complete match to some of the issues we are facing. (great book btw, except for the 80 page soliloquy by Galt). Galt and Reardon would have a field day with this UAW situation.

  • http://intensedebate.com/people/karyn_germ36961 karyn_germ36961

    Ah, talks of Objectivism…this sure does bring back memories. :'} I've noticed a lot of anger and cynicsim among my colleagues in discussing the bailouts. The term has become an over-used metaphor for everything from picking up after someone in the kitchen to software development lifecycle management practices. Then again, we are a feisty crew at NewsGator.

    Thanks for the kind words on my blog post – you can't imagine how much better it made me feel to write it. Of course, now my employees are watching me like a hawk to see if I screw up…they probbaly won't have to wait too long.

  • Vinod

    Interesting..I also thought about Atlas Shrugged while wondering about the consistent pounding of words such depression, crisis and bailout in CNBC. I was wondering what Hank Rearden would think about this long line-up for bailout money.

    well …. Who is John Galt ?

  • http://intensedebate.com/people/craig24 craig24

    I agree. Send the automakers' mgmt Atlas, let them declare bankruptcy and re-organize w/a new business model.

  • john

    Amen brother!! And we all know that the only way the car industry will figure out how to succeed is to allow them to fail. They won't get creative until they are backed into a corner.

  • http://intensedebate.com/people/bfeld bfeld

    I guess I’m not sure what I mean by “government involvement and financial support in the broad business ecosystem.” When I wrote it, I was thinking about the function of the Fed in dealing with monetary policy and some of the Treasury’s activities. I’m not a hardcore Objectivist either; I’m fundamentally an optimist about the long term resilience / behavior / opportunity of the American Democratic System, including the part that has all the extra “non-rational, non-benevolent, pandering individuals.” But, after spending a little time watching the completely irrational and emotional interchange between Barney Frank and Larry Kudlow on TV while I ate dinner, I start thinking that make I should quickly head to Galt’s Gulch and make sure the x-ray screen is still working.

  • http://intensedebate.com/people/smurchie smurchie

    I had the same reaction reading a short piece this weekend about city governments across the country putting in for their piece of the pie. Some, like Atlanta, have budget shortfalls and hope to be rescued; others, like San Jose, are anticipating dollars that can be used for economic development projects. What??? Where did this sense of entitlement come from? Perhaps it is time that we let a few dinosaurs die off and end this notion that there is a pot of money just at the end of the goverment rainbow.

  • http://intensedebate.com/people/steve_bergs2127 steve_bergs2127

    A number of commentors have implied that Brad expressed direct opposition to a "bailout"/"rescue package" for the auto industry. He didn't.

    Brad says, explicitly, that leaders who ask for this sort of assistance must accept that asking necessarily implies that they made errors. Admitting those errors includes taking responsibility for them: identifying what they were, how they happened, how they should be rectified moving forward, and how similar errors will be prevented moving forward.

    Although classifed as "current affairs," this post might also fit into the ongoing "Failures" (and learning from Failures) theme.

  • Scott

    Feelings aside on the auto industry and whether they deserve it or not (I don't think they do.), here's my main issue. None of them had a plan on what they would do with the money and how it would help. None of them could even say how much they needed. As an entrepreneur, banker, or VC, can you picture having a meeting about receiving or providing money that went down like the Big 3 CEO's on the hill? First, as an entrepreneur, I HAVE to know exactly what I need and how I'm going to use that money to be successful. If I ever said "It will help me live for a few months longer while I come up with a plan." the meeting is over. Matter of fact, I wouldn't even get in the door.

    Second, their emphasis was always on the impact to the US, not how they would address their major issues. The issue with Wagoner's speech was that it read more like a ransom demand letter then a move-forward plan to make the most of the money. "If you don't give us money, X people will lose their jobs., $X Million in taxes will be lost, X suppliers will not get paid, etc." At no point does he say, "We know what we need to do." or "We know exactly how we'll use this money" outside of just using it to survive longer. When asked how much money GM needed, he wouldn't say and more likely, didn't know.

    Whatever your feelings on the Auto Bailout, until they have a plan to succeed, know exactly what they need, taking action to drastically reduce costs (lose the private jets) and show how they're going to make the most of any investment, it's a terrible investment for anyone to put their money into, period.

  • Sean

    Well at least they didn't try to drive their yachts up the St. Lawrence and around to DC.. I was cringing the whole time, it was similar to Ali G's ice cream glove pitch skit, only with real money and jobs on the line. They drove the point all the way home that they don't know how they have to change, that alone really answers the questions that matter.

    How much do you think it would cost to start up a new car company? Isn't that an alternative option? What's that cost? Well under a billion and a couple years to get some seriously good car designs and then some wild unknown to create the ability to manufacture them in volume? There are a lot of variables, I bet you could make some really interesting runs at it with $25b and maybe 3 or 4 years. The time it takes might not be appealing but imagine if we started 5 of these companies and ended up with 2 or 3 companies that legitimately compete with Toyota, Honda and Hyundai?

  • http://intensedebate.com/people/bfeld bfeld

    I disagree with the whole thread on “national security.” I accept that the complete failure of the auto industry has deep negative implications for the US economy, but I’m not suggesting that the US auto industry should liquidate. It’s quite easy – assuming our leadership has real courage – to effect a “controlled restructuring” (call it pre-packaged Chapter 11, call it bankruptcy, call it whatever you want) of each of the major auto companies if desired. This is effectively what the government structured with AIG by taking control of 80% of the equity. Same drill here – if GM gets $10 billion from the US government, the common shares in GM should be diluted dramatically (or eliminated completely.) The union contracts, which appear to help support the non-competitive aspect of these companies – also need to be restructured. I’m sure there are lots of other unsecured creditor relationships that need to change. All of this can be done in a controlled way. And – done very quickly if the leaders really want that to happen.

    The only real argument against this that I’ve heard is that people will stop buying GM (or Ford, or Chrysler) cars because they will be afraid they won’t have warranty service. This seems like an straightforward thing for the government to “underwrite” (or guarantee) for new cars that are bought during the restructuring process.

    I’m no expert on this so I’m likely completely wrong on the specific solutions. However, my main point holds firm – the leaders of these companies (and the unions) need to take responsibility for their actions. Watching some of the coverage on TV tonight from the Congressional Hearing was remarkable (in a negative sense.) Separate private planes from Detroit to Washington (I would have symbolically flown coach.) Complete inability (or unwillingness) by Waggoner to answer the direct question “how much money – worst case – do you need to stay in business through March 31, 2009.”

  • Bill

    I had been for a bailout until I realized it was for emotional reasons, not objective ones. Stripping away the sadness of the event, it is obvious that the industry needs a swift kick, and handouts don't get them or us anywhere.

    Interesting reading:

    http://www.nytimes.com/2008/11/19/opinion/19romne

    http://online.wsj.com/article/SB12266974612562936

  • http://intensedebate.com/people/jim_pollock555 jim_pollock555

    I am stepping into waters that are deeper than my swimming ability, but what the heck. I doubt the entire auto industry in the US is about to implode. Sounds like GM was closest to the edge when sales began to drop. But if you suddenly took GM out of the picture (which is HUGE, no question), I dare say there would suddenly be WAY more than enough business for Ford, Chrysler and the other foreign companies. Suddenly a tough year for all becomes a miserale GM year and a Happy New Year for all others. And before GM itself fails completely, it will do what all entrepreneurs do and cut back, shed dead weight and focus.

    If the Fed "bails out GM"… what are they bailing them into? To fail NEXT quarter with the same product lineup? SOMETHING is WRONG at GM and other car companies and they need to learn how to survive in the very real, very dynamic world in which the rest of us live.

    Jim

  • HometownBo

    I got to where I am today by starting under a Government money program (not quite a bailout)–the SBA. In effect, I mortgaged every personal possession I owned to buy a business that I understood. Under this program, the government demands comprehensive accountability from those of us who borrow a few thousand dollars (annual personal and corporate financials). If these bigwigs want this Federal money, let them sign for it personally. I recognize that none of them have $10B to secure a loan, but it would be symbolic (and really, I think a big PR boost) if every GM VP and above put ALL their houses, cars and 401(k)'s on the line. I'll bet $50 that you'd see a whole new company–everybody working together, pulling together to save their own a**.

  • Steve_Zweig

    So let's write the car industry business plan:

    As I understand it, congress is giving the auto industry about two weeks to come back with a viable business plan to justify $25B. Present burn rates are > $5 billion per month, economy in the tank. Need to cut this in half immediately. Would step 1 be to bring in the UAW and try to bring forward the scheduled 2010 cuts to beginning 2009?

    P.S. For December, tell the exec's to drive back to DC using their own cars (good PR).

  • Mike Sankowski

    Now this is not to say there would be no production, or there would be no people working. No this is about the monetary ramifications of government spending that then impact the finacial and real economies.

    The U.S. ran surpluses in the late 90's that sucked enormous amounts of cash out of the system. it is no accident that people then had to tap mortgage equity to get money to maintain and expand their lifestyles. Note that we did not have incredible growth in the early 2000's despite this huge amount of equity withdrawn. There was a demand for money that did not exist in the system, so it came from the asset base of the united states. Now that mortgage equity is gone, there is not enough money in the system, which causes people to want to horde money – clearly leading to a deflationary spiral we are now facing. Right now, we have too high of a demand for cash money and their equivalents, as evidencied by people spending less, U.S. treasuries making new highs, and assets rapidly decreasing in value.

  • Mike Sankowski

    Would step 1 be to bring in the UAW and try to bring forward the scheduled 2010 cuts to beginning 2009? "

    ____This would be about as bad of a move as we can imagine right now. We are facing a crisis that could be far, far worse than anyone here is thinking.

    We need money in the hands of working americans pronto. Laying off people are reducing their salaries right now would be almost as bad as liquidating the company.

    The problem isn't too little govt spending, it has been too little. I know most here are thinking there is crazy talk. But the only way for people to get money to pay their taxes is by govt spending. How else would anyone get that first dollar to pay the taxes that are due in federal notes? If the govt doesn't first spend money there is no money to pay for taxes. Taxes are what creates the initial demand for currecy. Without taxes, why would anyone want to have U.S. govt script?

  • Dave

    You say "I'm not against government involvement and financial support in the broad business ecosystem." But isn't it pretty obvious that this sort of involvement is exactly what leads to "bailouts"? To think that it wouldn't, you would have to imagine that the government will be consistently run by long-term rational, benevolent, non-pandering individuals. You cite Atlas Shrugged, but the lesson there is that the situation we are in doesn't just happen – it happens because people like yourself (strong, competent leaders) acquiesce to the mediocrity that is the essence of government involvement. I'm not a hardcore Objectivist but this does seem to be a case where the dictum "check your premises" is appropriate.

  • http://intensedebate.com/people/alan_shimel2002 alan_shimel2002

    I have to disagree. This is not about bailing out the execs at GM or the unions at all. What this is about is national security. The repercussions of an industry wide failure of the auto manufacturing sector would have ripples and implications across the entire country. Further losing that manufacturing capability would be a national security threat to our ability to compete in the global market. The government has an obligation to do what is right for the "common good".
    The argument that bankruptcy can fix these problems in naive. We need a concerted effort from the government and industry to chart and execute a strategy for success in a critical area for this country to compete. There are no guarantees what a bankruptcy proceeding winds up with here.

  • John Ball

    I usually find common ground with your posts Brad and often fall into the daily involuntary head nodding. Today is an exception – sort of.

    I too hate the term bailout and I am ashamed at the number of "American Institutions" rushing to for the teat of government subsidy. This really pisses me off.

    However, I am reminded that Ayn wrote fiction, which history proves can easily be converted into life guides.

    Nearly 1 in 10 jobs in this country is tied to the auto industry. If we simply allow the automakers to implode (which they very well may deserve), we may see the long reaching effects of Chapter 11 touch more Americans than has ever been witnessed. Remember the renegotiated pensions brought about by UAL Chapter 11? Employees with 20+ years of service, who were once courted to an industry in need of skills, are today receiving less than 1/3 of what they had planned for their pension and retirement. Those pensions are nowhere near the top of the list of secured creditors. UAL's pension shortfall in 2005, when it was allowed to default totaled $9.8 billion and it only employs 100,000 people. GM employs nearly 300,000, Ford 250,000, etc.

    Allowing the auto industry a soft landing via Chapter 11, probably means that taxpayers will be footing the bill for lost pensions in one form or another. I don't have my hands on the facts, but my rough back of the envelope efforts suggests the cost could be more than $1 billion/month for what; 8, 12, 20 years?

    I suggest we provide low interest, government backed financing or "venture" type funding to the auto industry while simultaneously forcing immediate salary reductions in exchange for "equity" and a wholesale revamping of executive leadership. Kind of like being forced to ask your dad (or your friendly VC!) for an advance on your allowance; a price must be paid. (no real snarkiness intended!)

    John

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