BAIL THIS!!!!!!

Over the last few months the term bailout has been heard everywhere. First there was a 700 billion dollar bail out given to banks. Over recent weeks the American auto industry has been requesting a bail out. These two things have not only dominated the news cycle but come up in everyday conversations everywhere.

I think everyone has blame in this situation. The banks have been greedy and reckless with the money they have been entrusted with. The need to make money and lots of it caused them to be take crazy risks. They made tons of money before the bottom fell out and now that they are caught with their pants down they need some one to “bail them out”. The average American is not off the hook either. There are many examples of reckless and irresponsible spending. There are countless examples of people living beyond their means and buying things (such as houses) that they could not afford. In this age of information people still claim they did not know what they are signing? If you make a 200 thousand dollar purchase and don’t do your homework why should everyone else bail you out? The government for the last 25 years has fostered an environment which encourages this idea of inordinate risk taking and irresponsible spending.

None of this is really relevant for the present (it is relevant for the future but not now). Whatever the reason is for us being in this mess, we are here. The question now is what do we do? I think the idea behind both of these bailouts could not have been more wrong. The methodology behind these bailouts could not be more flawed and the execution or purposed execution has been abysmal. I think the only way we are going to get out of this mess is if we completely change the way we have done things. Giving all this money to the people who led us down this road is a ridiculous idea. Whose wonderful idea was it to give a butt load of money to some of the richest guys in the world with no accountability or oversight? Why would you expect them to do the right thing? I further think the whole idea of trickle down economics is silly in this economy. It goes against all of human nature. I think in this case you have to employ a strategy that lets human nature work for us rather then against us. I say give to people in need not to people who want.

Here is what I would do. The government gave away 700 billion dollars. There are 75 million homeowners in the United States. If you divide 700 billion by 75 million you get a little over 9300 dollars. What would happen if the government gave every home owner 9300 dollars? Before you say it will never work consider the ramifications.

The people who were 4 months behind on their mortgage could catch up. This would relieve some of the pressure exerted on banks by toxic mortgages and bad assets. The people who still couldn’t pay would now have 9300 dollars in cash to try to renegotiate their mortgage. The people who were current on their mortgage would have a number of options. They could pay down there mortgage more and get ahead. They would get a great bargin and pay less interest in the long term. They could put it in savings and thereby amass capital. They could invest it and thereby help the economy. They could pay down debt making their loan possibilities more attractive. They could put it into education for themselves or for their children. This would increase the effectiveness of our work force. They could give it to a charity and help their community. Even if they just brought a plasma TV or something else they don’t need they would buy something which would increase demand and cause companies to perhaps hire more people. This approach would help people who needed it but it would also reward people who did the right thing with their money. The people who paid all there bills on time have many more options then people who spent money foolishly. Isn’t that better then giving all our money to a bunch of rich people who could care LESS THEN A FART about us?

The auto bailout is the other thing that has been on the news. This grinds my gears even more for many more reasons. These American companies have built crappy cars for years. They have built an inferior product. They further had no foresight either economically or environmentally. Some would say that they were just building cars that Americans wanted to buy. In reality they put ZERO energy into marketing an alternative. I have seen more hybrid commercials in the last 6 months then I have in the last 15 years. When they were making profits and selling SUVs and hummers and over priced bad cars by the BUTTLOAD, why weren’t they investing that money into researching a fuel efficient car. Why weren’t they reinvesting that money into re tooling their factories? Why weren’t they preparing for the future instead of giving multi million dollar bonuses to their executives? Now that Toyota and Honda have a 15 year head start on hybrids and batteries they want US taxpayer (the same people who brought crappy SUV’s) to bail them out.

I may be inclined to give them the money if I thought it would work. I don’t think the bailout of the financial industry is right but I am not going to make another mistake just so I can feel better about the first mistake. The automobile bailout IS NOT GOING TO WORK. The first reason is the state of the American consumer. Over the last 15 years Americans have had a savings rate of -5%. That means that for every dollar an American makes they owe someone else a $1.05. Compare this to the average Chinese worker which had a savings rate of +24%. That means for every dollar they make they put 24 cents in the bank. This is for a number of reasons mainly the cost of living is rising way faster then salaries as well as some good ol' fashioned IRRESPONSIBITY. What ever the reason, many Americans are in no position to buy a new car even if they wanted to. Even if Detroit was making perfect cars, there are simply not enough people to buy them.

The second reason that this will never work is because of the American cars themselves. The cars coming out of Detroit are years behind the industry in hybrid technology. They are even further behind in battery technology. To cut cost what is the first thing they are going to do. LAY OFF WORKERS. This is a classic example of how the little guy is getting completely screwed. Before I go any further I would like to say that auto workers currently in Detroit make $29/hour and not the often reported $75/hour. Why is there a discrepancy? Here is the answer. The car companies pay workers a salary. They also pay their health care and all that other stuff. Then they are still paying retired workers their pensions. By some crazy union negotiating there are some severance packages and job banks and unemployment benefits. The companies add all these expenses up then divide by the number of people currently working and you get 75 dollars per hour. You may have missed that. I just added up the money that EVERYONE (retired unemployed and working) but I only divided by the NUMBER OF PEOPLE WORKING. When you divide the amount the companies are spending by the amount of people they are spending the money on you get $29 and hour NOT $75. The fact that they are paying a bunch of people that aren’t working doesn’t change the fact that the guy on the line working 12 hour shifts is getting 29 dollars an hour. Trying to pin this crisis on the average worker is SHAMEFUL. I can’t believe people actually want to take away from people who have less and give to people that have more. So what is the industries purposed solution? TO PAY THE WORKRES LESS AND CUT JOBS. So the person that is already barely making it is going to have his wages cut and be laid off. I find it ironic that Joe six pack is the guy that the republican ideology is suppose to stand up for and he is the one once again that will be screwed.

So what is the solution? Well I can think of 2. One is the safe answer that I think may work. One of them is the crazy man answer that I really think will work.

Solution 1

Like my bank bail out solution, I would give money to everyone who buys an American car. I am a hard core Toyota guy but if I were given a $5000 Ford coupon I would seriously think of trading in my Toyota and buying a Ford. All the people driving around in a ‘92 Honda civic may see this as an opportunity to buy a much needed new car. If people had cash on hand they would be more likely to get a loan from a bank. It is probably easier to get a loan with a bigger down payment because you need a smaller loan. At the same time the government could offer incentives for buying hybrids and give less money toward the purchase of an SUV. This would make it in people’s best interests to buy fuel efficient cars and would encourage the industry to invest in clean technology. This would also mean that to meet this demand that the auto industry would have to make more cars and more importantly need workers to build them and salesmen to sell them.

Solution 2

Find something else for the big 3 and their workers to build. It is very possible that the big three is too far behind to ever catch up. There are other companies (like Tesla in the Silicon Valley) that have produced a car with a battery that gets 100 miles per charge. The Chevy Volt which is due to come out next year gets less then 50. So Chevy is going to release a car next year that today is already obsolete. The Tesla cost way too much to produce. So give Tesla the money to buy Chrysler and retool the factories. Then they will have a car that can compete and plants to build it cheaper. Let Ford continue building cars because I think they have the best chance of doing it. GM would get money to retool their factories and retrain their work force to build the infrastructure that our country so desperately needs. There are many cities that are building new railway systems that have to go outside this country to buy them. The government has a chance to initiate a massive infrastructure project and at the same time has the power to make sure that GM is at the forefront of this technology. Once we have built all the light and magnetic rail, bullet trains, wind turbines, solar panels, and power lines we need GM will be in a position to SELL THESE PRODUCTS TO THE REST OF THE WORLD. Who knows that may even create more jobs.

Either one of these plans is better then giving a lot of money to a bunch of greedy rich guys to go down a path that will lead to nothing but ruin.

That was supposed to be a 30 second light article but I got carried away. I am not an economist, I know nothing about cars and I don’t like math all that much. As always I want to hear reasons from people why this won’t work.

BAILOUT? BAIL THIS!!!!!