Bailout Mania - by Ravi Patel

  

Entrepreneurs must be puzzled about all this talk about bailing out mega corporations. After all, Entrepreneurs are held accountable for running their own businesses and prudently managing their financial situation. Why is it that the management teams of large corporations are not being held accountable in a similar way?

 

The initial strategy of the government infusing credit and liquidity in the financial system was prudent and necessary. Priming the economic machine with new funds to get it re-started was conceptually right on. However, the government bureaucracy and special interests took over in the implementation phase and the process now  is really messed up.

 

The bailout of the insurance and auto industries, now spreading to other industries and even city governments,  is getting to be detrimental. The whole idea of a free market system where companies have to perform well to survive is being discarded. Management teams of these troubled companies, instead of being held accountable for performance, are being rewarded with additional funds to mismanage them again. When and where will it stop?

 

What is needed is to let the free market takes its course - survival of the fittest, in that failing firms need to reorganize under bankruptcy or bought over by stronger companies with strong management. I am not suggesting that we close down weak companies, but merely revamp them with new and better management to compete effectively in the open marketplace.

 

While this might mean layoffs and short-term pain, it would be in the best long-term interests of consumers, employees, other stakeholders, and more importantly the taxpayers.

 

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