Ever since I left Germany in 1973 and immigrated to the United States, I was of the opinion that this country’s prosperity was based on survival of the fittest.
I was reminded of that when I read “That’s Not the American Way: Chrysler’s Bailout and the Road to Ruin:”
Chrysler’s plan to close about 25% of its dealers is the natural outcome of a series of very unnatural events surrounding its bankruptcy, says Howard Davidowitz, chairman of Davidowitz & Associates.
Specifically, Davidowitz was speaking about how the Chrysler bankruptcy was “hijacked” by the Federal government, which allegedly threaten creditors “if they didn’t go along with the fiasco of turning the company over to the unsecured lenders.”
Barack Obama’s plan is to “sustain the union” in an effort to secure future votes in five key Midwestern states, Davidowitz says, without hesitation. “We the taxpayers are bailing out the union [and] bailing out Chrysler, which is an inefficient company that shouldn’t survive and can’t survive in the long run, anyway.”
More generally, the Chrysler saga is evidence of how “we keep putting more money into hopeless companies,” he says. “That’s not the American way. We let inefficient companies collapse and be replaced by more efficient companies. That’s the only way this economy can work.”
By propping up inefficient companies and keeping zombie banks alive, Davidowitz says “we are exactly on the same path as Japan,” which is now two decades into its economic malaise.
But there’s one key difference between the U.S. and Japan: While they had about $16 trillion in savings and a 19% savings rate when their bubble burst in 1989, the U.S. savings rate was negative a year ago, a now a relatively meager 4.2%.
“That’s a big problem for the financial stability of the U.S.,” says Davidowitz, who had a hard time envisioning an alternative to a very grim scenario for America: “With big government, mad borrowing, and not letting things fail, there’s no way we can have [rising] living standards,” he says.
[Emphasis added]
Sad but true. The United States has now taken a path that is about as un-American as I have ever seen one. By implementing policies that no longer let only the fittest companies survive, we are now having the fittest compete with the sickest because they are being propped up for dubious reasons.
I have no idea at this point whether we will be following Japan’s path to a lost decade (or two), or if we can manage to come to our senses and change course before it’s too late.
Nobody has that answer, but I am sure that, no matter which road we will be forced to travel, investment opportunities will present themselves to those who are not only prepared to take them but also disciplined enough in their approach to survive even treacherous market conditions.
Comments 3
This is just more right wing propagana crap! Almost no one was crying in the wilderness when the pass this in 2 days or the world collapses crowd got 800 billion for their buddy bankers.
I realize my economics degree is from several decades ago but the lobbyst crowd has been picking the winners since that time and nothing has changed. This country made political decisions in the 1980s to switch to a banking and finance economy and abandon manufacturing at an excellerated rate. Other then America there isnt a country that exists today that doesnt have a littany of trade barriers at multiple levels. Anybody writing the praddle in this article has no idea of how the world economy actually works. Oh I dont hear anyone ‘itching about the fed gov payout to AIG that transferred 12 billion the same day to Goldman Sachs. Nuf said!!
Anon,
You are right on.
Here is an article that you might find appropriate:
Jim Rogers calls most big U.S. banks “bankrupt”“What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent,” he said. “What’s happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics.”
How the banks were bailed out, I believe, was a bad move. They were given money with no strings and then the “Ben” at the Fed said he wouldn’t let any big bank fail. Wow! If I had been a big bank’s CEO, I would have been dancing in the street! Free lunch and dessert coming! Bernanke said the government, during the Depression made two big mistakes: it tightened the money supply and it allowed banks to fail. He said he wasn’t going to do either. He sure didn’t. However, with the approach he took we clearly moved quite a bit from the traditional American capitalism more toward socialism.
And the auto bailout has continued this trend. While we were in trouble, I don’t think we did the right thing, with both of these — and I voted for Obama and still think Obama is a good president. We were and still are in a bad economic place, but I think the bailouts were handled badly. For example, if Americans who are familiar with making cars can’t sell them, I sure don’t think the U.S. and Canadian governments will be able to make and sell them; we’ve just empowered the foreign car manufacturers to do even better by bailing out GM and Chrysler.