What Do We Need In 2009? More Failure

In his new autobiography, 1,000 Dollars and an Idea, entrepreneur Sam Wyly praises the privations of failure. As a child, his family fell into poverty when his father's grocery store went bust. The experience "taught me at an early age that failure forces you on to another path," Wyly writes. "You have to go in search of new opportunities." His father found new opportunities, selling insurance and running a newspaper. And Wyly became a billionaire building a string of companies including Bonanza Steakhouse, Sterling Software, and Michael's Arts and Crafts.

Lots of entrepreneurs succeed on account of failure. Sometimes it's their own failure, which teaches invaluable lessons. Sometimes it's the failure of others, which creates new opportunities. Quite often, it's both.

But Bailout Nation doesn't believe in failure so much anymore. Over the past year, the government has rescued reckless banks, uncompetitive automakers, and a freewheeling insurance company that made billions' worth of risky bets and lost. There's still a huge federal fund of $350 billion ready to prevent more failures in 2009. And the one prominent instance where the government stepped aside and let the free market work—the collapse of Lehman Brothers (LEHMQ.PK) in September—is widely, and perhaps wrongly, viewed as a mistake.

[See why letting Lehman fail might have been a smart move.]

OK, so maybe all those bailouts have collectively served the national interest, by preventing a panic and dampening the effects of a nasty recession. But at some point—which we might have passed already—preventing failure does more harm than good. Here's why we should be more tolerant of failure in 2009:

Bailouts perpetuate the problem instead of solving it. We're probably about to learn that bailouts are an open-ended—and extremely expensive—proposition. AIG (AIG) and Citigroup (C) have both asked for one infusion of federal money, then another. Are they done? Or will they come back for even more? The $15 billion in federal loans for General Motors (GM) and Chrysler is almost certainly just a down payment on a bailout that could easily total $75 billion or more. And there's no evidence at all that it will compel more people to buy their cars, which is the real problem. In the end, we might still be stuck with too many automakers building too many uncompetitive products.

[See how the feds will govern GM and Chrysler.]

There will also be significant unintended consequences of unprecedented government intervention in the financial system. One problem, for example, has been institutions considered "too big to fail," which leaves the government with little choice but to intervene, to prevent catastrophe. But government-brokered consolidation has now made some of those banks and other firms even bigger. "If these organizations were too big to fail before, what are they now?" asks economist James Barth of the Milken Institute. Heck of a question.

[See 5 risky assumptions for 2009.]

Failure makes room for innovation. The history of capitalism is filled with instances where failure, sometimes on a grand scale, paved the way for progress. Mechanization in the 1800s displaced millions of workers but set the stage for some of the most remarkable technological advances in history. The birth of the automobile killed the horse and buggy and marginalized railroads but gave Americans unprecedented mobility. The Internet has wreaked havoc in the travel, music, and media industries yet introduced us to Facebook, YouTube, and a communications revolution. "With each wave of innovation, there's a corresponding wave of failure," says financial historian James Grant, publisher of Grant's Interest Rate Observer.

With numerous Wall Street firms failing their customers, this might be a moment of incubation for a wave of financial innovation. But will it flourish or die if the government props up behemoths like Citigroup with the ability to soak up capital and quash small competitors? And what automotive start-up will wither with GM and Chrysler blocking out the sun? The catch is, we may never know what doesn't happen while business as usual goes on. "What's important is the concept of opportunity cost," says Grant. "What you stifle is what you can't see."

[See why you and I deserve a bailout.]

Failure makes everybody better. There are examples of this in practically every industry, because the threat of failure forces competitors to improve quality, lower price, and make sure they offer what consumers want. Wal-Mart (WMT) has forced other retailers to be extremely efficient, because if they're not they'll go out of business. Toyota (TM) and Honda (HMC) have helped raise the reliability of cars produced by everybody. Nike (NKE) and Reebok (RBK) became huge successes because the established shoemakers in the 1970s, Converse and Keds, were complacent and failed to respond as consumers took up jogging and aerobics. "Success stories are almost always preceded by failure," says Syd Finkelstein, a management professor at Dartmouth's Tuck School of Business. "That's because the incumbent fails to see the changes around them. What's missing in all of this today is the newer players, the newer thinkers."

Failure is still acceptable. And we need to keep it that way. It's well known that most new businesses fail and that successful entrepreneurs are the ones who keep trying until they get it right. Failure, in other words, is a vital part of American culture, because it makes you smarter and often you get another chance.

But failure is stigmatized in other countries with less of an entrepreneurial culture. That could happen here, too, if we keep spending billions to rescue people who make billion-dollar mistakes. If risk is going to come with rewards, it needs to come with consequences, too.

Comments

[Short Trade...:]

I agree 100%. How is throwing billions of dollars at GM going to change the underlying problems they have? It is throwing good money after bad, and until they make radical changes (which will only happen when Uncle Sam turns off the the free money) they will never become competitive.

Jan 01 07:26 AM

[DiggerUK:]

Your article can be reduced to a soundbite.

"Greed is good, failure is the hors d'oeuvre".

Jan 01 08:11 AM

[cordellwalker:]

it's easier said than done. article is conceptual but not all that realistic. when it comes to credit markets, most people underestimated the mess that ensued after the collapse of Lehman. it's not as easy as "fail, close the door, & go on to do something else".

Jan 01 08:34 AM

[Crocodilian:]

"But Bailout Nation doesn't believe in failure so much anymore."

Not clear that that is a true statement. We've had lots of corporate bankruptcies, but our system has assumed system-wide leverage that was not ready for a severe stress. Add to that, the painful reality is that we don't have the systemic resources to process a major failure -- say, a GMAC or WAMU.

If you want to "make room for failure" in the system, the system architecture needs to be robust. Venture backed firms go bust all the time; but they are funded with equity, not debt, and nothing much bad happens when a startup become a shutdown. Paradoxically, we give significant tax incentives to debt (which is payable out of pre-tax income) over equity (which pays dividends out of after tax income); we should not be surprised that a whole financial industry developed to replace equity with debt. More equity and less debt would leave us more room to let things fail.

Second, financial institutions have to be designed to, as software architects say, "degrade gracefully". Institutions like the investment banks degraded catastrophically-- pull one thread, somewhere in the system, and they rapidly fail. Not only do they fail, but as we saw with Lehman Brothers, they fail in a way that threatens to force the failure of their entire web of business counterparties.

Third, there should never again be such a thing as an "implicit guarantee"; obligations need to go on the books as explicit, or stay off the books and be disclaimed. The bizarre chimera structure of the GSE's was a most pernicious contributor to a system that was ambivalent about failure.

Jan 01 08:34 AM

[gooter:]

Huh?! you sound like a lawyer. Mommy must have got you out of trouble everytime you failed.


On Jan 01 08:34 AM Crocodilian wrote:

> "But Bailout Nation doesn't believe in failure so much anymore."
>
>
> Not clear that that is a true statement. We've had lots of corporate
> bankruptcies, but our system has assumed system-wide leverage that
> was not ready for a severe stress. Add to that, the painful reality
> is that we don't have the systemic resources to process a major failure
> -- say, a GMAC or WAMU.
>
> If you want to "make room for failure" in the system, the system
> architecture needs to be robust. Venture backed firms go bust all
> the time; but they are funded with equity, not debt, and nothing
> much bad happens when a startup become a shutdown. Paradoxically,
> we give significant tax incentives to debt (which is payable out
> of pre-tax income) over equity (which pays dividends out of after
> tax income); we should not be surprised that a whole financial industry
> developed to replace equity with debt. More equity and less debt
> would leave us more room to let things fail.
>
> Second, financial institutions have to be designed to, as software
> architects say, "degrade gracefully". Institutions like the investment
> banks degraded catastrophically-- pull one thread, somewhere in the
> system, and they rapidly fail. Not only do they fail, but as we saw
> with Lehman Brothers, they fail in a way that threatens to force
> the failure of their entire web of business counterparties.
>
> Third, there should never again be such a thing as an "implicit guarantee";
> obligations need to go on the books as explicit, or stay off the
> books and be disclaimed. The bizarre chimera structure of the GSE's
> was a most pernicious contributor to a system that was ambivalent
> about failure.

Jan 01 09:14 AM

[investor88:]

Absolutely true, let nature take its course.

Jan 01 09:16 AM

[MrsLinarcos:]

No bailout for any company, I can't get one.

Jan 01 10:08 AM

[Ricard:]

Good article.

I'd temper the urge to hold banks accountable by citing a few examples:

Bear Stearns's shareholders certainly feel that BS managers failed - they lost nearly all of their equity, and for some employees, nearly all of their life savings after Morgan "bailed" them out. Same is true of Lehman, AIG, and Fannie/Freddie shareholders.

We're in a capitalistic society. Equity stakeholders assume certain risks when they invest, and feel pain when those investments fail. Anyone in financial equities certainly must have felt enormous pain and failure after this year.

As for debtholders, my guess is that the pain for them is yet to come - after the Fed is done pumping money, inflation will be just around the corner...

Jan 01 10:16 AM

[John D:]

It's hard to believe that so many look at the auto industry as a bailout - duh - you should all be looking at it for what it is. The financial sector screwed up royally which Wall St & the government watchdogs all allowed to happen and all of the attention to the auto sector is nothing more than a "smoke & mirrors" show to distract the public. If anything the government allowed the financial sector to collapse - gave them $350 billion with NO accountability (bonuses ???), don't know where most of it went and the only thing that the auto industry did was to get caught in the middle of the credit crunch which they all rely on to sell their products. Wagner & the boys should not have been in Washington answering questions - the government should have been in Detroit telling them how they screwed it up so bad and instead of bonuses on Wall St. the attorney general should have been laying charges to those that abused the system enough to set off a crisis of GLOBAL proportions. If GM - Ford & Chrysler are in financial trouble it's only because of FREE trade instead of EQUAL trade which is another government funded blunder - "come & take ours jobs and profits - we're big enough to handle it - NOT" Hopefully a new government will take the bull by the horns and make changes to an unfair policy to allow the DUMPING of cars and many other products. Time to level the playing field!!

Jan 01 10:31 AM

[Michael66:]

There are going to be many more failures then anyone anticipates.

See this article regarding the prospects for 2009:

www.marketoracle.co.uk...

Jan 01 10:53 AM

[Walt17:]

In normal times I would agree with your point. But I think it misses an important distinction. If a bank is at the point of collapse, let it fail. But when the banking system is about to collapse, letting the system fail would have much more dire consequences. Letting a bad company fail is one thing. Letting an industry fail is much more serious.

As much as I don't like the bailouts, I can't help but wonder if the alternative would be worse. If our banking system and auto industry suffered a total collapse when would our economy recover? And when it did recover, where would it stand in relation to other countries?

My hope is that the continuing cure will include measures to prevent (or at least restrain) a recurrence. My fear is that the fix is only temporary and the next occurrence will be worse.

Jan 01 11:00 AM

[M-P:]

This piece is on-target. The mark of a psychologically healthy person or company is their ability and willingness to take responsibility for their actions and choices. The playing field is not always clear-cut, but the themes are usually clear - do you have an internal locus (personal responsibility) vs. an external locus on control (something outside your control). There are many things outside of our control, but our attitude and language around them is pretty telling. We all know people or companies that typically blame something or someone outside of themselves for their problems without taking-on some responsibility. The real issue is doing a clawback on those who knowingly and willfully planted (and cultivated) the seeds of failure and walked away with millions.

Jan 01 11:10 AM

[icandoitdon:]

the u.s. financial system is a house of cards...a ponzi scheme based on cheap and plentiful credit. instead of acknowledging that as a tragic flaw, both the federal reserve and the treasury are embracing it because they perceive the alternative...which is massive failures and global depression...to be much worse. it would, of course, be worse in the short run, hence they do the one thing they are good at...shoveling more money and cheap credit into the system to prop it up. in doing so, they are inhibiting a healthier, more stable financial system to emerge from the wreckage.

federal efforts to prop up our dysfunctional financial system have merely delayed the inevitable. it is encouraging that banks and consumers have so far refused to play along with their ponzi scheme. capital-constrained banks have gotten religion and won't lend to consumers and/or commercial borrowers who are risky credits in the midst of a declining economy; and those financially healthy enough to borrow neither need or want the credit when returns on incremental borrowing are uncertain, i.e. why buy a house when prices are declining and jobs are disappearing, and why build a new plant in the face of weakening demand for virtually all products and services?. both are acting rationally, in contrast to the fed and the treasury, whose actions are directly contrary to the long term interests of the country.

let it burn.

Jan 01 12:03 PM

[N.John Joseph:]

The present global financial crisis was precipitated by the failure to bail
out Lehman Brothers. Lehman Brothers should withdraw bankruptcy
petition and pass their bad paper to the TARP. This will restore the investor
confidence and stabilize the markets. Implement new regulatory
measures to secure financial growth.

An investor and a father of two about to lose job.

Jan 01 12:14 PM

[Quickdraw:]

Unlike in the case of terminally ill humans, there exist no laws to prevent the euthanization of businesses ...

Pull the plug! Most Americans would prefer to see the Big 3 survive and become healthy once again ... unless that means we all must ante-up from our own pockets an absurdly large sum, to continue life support. It is a commonly accepted premise throughout many fields, that getting rid of the bottom performers promotes a healthier big picture. It is certainly true in the business world.

Few people would knowingly chose to buy the less effective drug, the poorer investment choice, inferior products, or the runt-of-the-litter ... especially not when they are priced at or above better options.

I see the future of the Big 3 resembling this: The phoenix that will rise from the ashes of their galactic short-sightedness and failure will be a better business model. Let them die ... in a few months, perhaps a year or so, the economy will resurrect itself and be stronger for the experience. If we continue feeding this monolithic failure, and throwing good money after the bad, then our grandchildren will still be paying for the priviledge of poorer choices regarding their vehicle purchase options.

Jan 01 12:37 PM

[dw57:]

not sure why we think the 'market' will fix this. it created it. with help from those who were suppose to be regulating them. and just when the 'market' ever recover from its own self created mess (which it seems to always do). while some may like the disaster that the Feds may have averted to occur. They might not like the real consequences. it could of ended up with not just economic crises but also a political one as the majority discovers that their leaders have thrown them under the bus. and the revolt happened to replace the corportacity with democracy again.

Jan 01 12:57 PM

[Bill M:]

Certainly, the only way we can improve is to make mistakes. If we are not allowed to fail, we can not innovate. There will always be a hand out when one goes under.

Jan 01 01:20 PM

[Urbane Gori...:]

You're so right. In fact, if you visit India, you can see this process at work. Its very plain. Some people will walk on the backs of the bruised (Sorry, stole that from Trent Reznor) and succeed... The rest live in and dig through the local garbage dump to survive as rag-pickers.

Books are books. Life is about people.

jegan

Jan 01 03:21 PM

[who:]

Great article. More failures will occur in 2009 unfortunately it will be small guys/ companies. Similar to 2008, the big companies will get their bailouts and grow even bigger.

Jan 01 04:03 PM

[Gedankonomist:]

As long as the FED is continaully able to print money as it pleases, you will have bailouts to politically-connected cronies.

You say AIG was making risky loans and it "lost." No it didn't, AIG got it's bailout, so it "won." I bet that the CEO's of that company took that into account when it made it's "risky" loans.

AIG is a corporate member of the Council on Foreign Relations (CFR). The CFR has 3000 indicidual members, and 800 of these are in government. The rest are in academia, the banking sector or on corporate boards, with very few exceptions.

Jan 01 04:03 PM

[303820:]

This guy makes me sick...
Wal mart imports 80%of what it sales from china...it forces it's suppliers to move their operations to slave labor countries like china, Honduras, and Mexico. Eliminating American jobs.

Toyota and Honda import 55% of their cars from Korea, japan, Mexico and Canada.

Nike and Reebok import 100% of their products from the likes china, India, hong Kong and Bangladesh.

These so called success stories are destroying America's middle class and its purchasing power...

Jan 01 04:13 PM

[303820:]

The current and past administrations have sold the American workers to the lowest bidder in the name of big profits..they have shipped our good paying jobs to slave labor countries…they have lowered our wages in the name of compepition…they have taken away our buying power and replacing with easy credit to keep us buying.
now we’re left with a ton of credit cards and wallmart wages..and we wonder what went wrong.
Thing about it..WHAT ARE WE FIGHTING OVER? wages…we want workers to earn less?
compete with china,s wages? .33/hr, Mexico $1.50/hr? India .99/hr?…
WAKE UP AMERICA.

Jan 01 04:36 PM

[sheople:]

The history of capitalism............... Get real. What we have now is not capitalism. We have the mafia like federal reserve in cahoots with their still standing cronies (surviving Wall Street financial institutions) controlling all markets. This is capitalism?

Jan 01 05:12 PM

[KIT:]

Too big to fail is the new battle cry!

I can't wait for this market to bottom. I will invest in all the newly created banks. It is obvious now that the most outlandish, crazy, financially stupid, flaming gamblers are the way to go. I don't know what the next Kamakazi plan will be but count me in! We know now that we will get a 3 to 4 year run of unsustainable gain ( going up is good, dont care how ) then we jump off at the top. The crash is for others to bare... stupid them.

Jan 01 05:50 PM

[JohnAl:]

Many are saying that 2008 marked the failure of capitalism. They're right. Capitalism did fail. The government pretty much finished smothering it to death.

Jan 01 06:10 PM

[303820:]

TO ALL OF YOU WALL STREET BUFFOONS... LET ME REMIND YOU THAT YOU DO NOT EXIST WITH OUT MAIN STREET... WITH OUT MIDDLE CLASS BUYING POWER THERE IS NO WALL STREET... BRING OUR JOBS BACK OR YOU'LL BE DOWN IN THE STINK HOLE WITH THE WORKING STIFFS OF THIS COUNTRY...THIS... YOU CAN TAKE TO YOUR BANKS!!!!!!

Jan 01 08:39 PM

[Greg Pinelli:]

Duh..we ARE looking at it for what it is..stupid. If GM and Chrysler (to a lesser extent Ford) can't make it..tough! They can either product a limited line of successful vehicles..sell their names and franchises (whatever THAT is worth)..and go do what they do best..play golf at exclusive country clubs. The people that work there..maybe they should talk to their Union...
The world passed these dinosaurs by...when people could easily look updealer cost just why in God's name would they pay extra so the UAW could act like its 1958????
Catch a clue pal..the author is precisely correct....this isn't a bailout...IT'S THEFT.


On Jan 01 10:31 AM John D wrote:

> It's hard to believe that so many look at the auto industry as a
> bailout - duh - you should all be looking at it for what it is. The
> financial sector screwed up royally which Wall St & the government
> watchdogs all allowed to happen and all of the attention to the auto
> sector is nothing more than a "smoke & mirrors" show to distract
> the public. If anything the government allowed the financial sector
> to collapse - gave them $350 billion with NO accountability (bonuses
> ???), don't know where most of it went and the only thing that the
> auto industry did was to get caught in the middle of the credit crunch
> which they all rely on to sell their products. Wagner & the boys
> should not have been in Washington answering questions - the government
> should have been in Detroit telling them how they screwed it up so
> bad and instead of bonuses on Wall St. the attorney general should
> have been laying charges to those that abused the system enough to
> set off a crisis of GLOBAL proportions. If GM - Ford & Chrysler
> are in financial trouble it's only because of FREE trade instead
> of EQUAL trade which is another government funded blunder - "come
> & take ours jobs and profits - we're big enough to handle it
> - NOT" Hopefully a new government will take the bull by the horns
> and make changes to an unfair policy to allow the DUMPING of cars
> and many other products. Time to level the playing field!!

Jan 01 08:48 PM

[303820:]

OUR CAPITALISTIC SOCIETY HAS DESTROYED THE MIDDLE CLASS BY SHIPPING OUR GOOD PAYING JOBS TO SLAVE LABOR COUNTRIES IN THE NAME OF PROFITS.
GAME OVER BOYS...WE NEED TO IN SOURCE OUR JOBS... WE NEED OUR BUYING POWER BACK, WITH OUT OUR MANUFACTURING JOBS WE'LL BE ANOTHER THIRD WORLD COUNTRY!!!

Jan 01 08:51 PM

[303820:]

MR PINELLI ...YOU MUST BE ONE OF THOSE TOYOTA REPUBLICAN...THE LAST TIME I CHECKED YOUR SOUTHERN TOYOTAS AREN'T SELLING ANY CARS EITHER!
TOYOTA'S JOB BANK (YES TOYOTA HAS A JOB BANK) IS COSTING THEM $1 BILLION A MONTH TO PAY EMPLOYEES TO DO NOTHING.

HOW LONG BEFORE THEY CLOSE SHOP AND GO BACK TO JAPAN?

Jan 01 09:07 PM

[Brad Ferris:]

You learn from failure and systemic risks aside I believe bad companies (unsustainable business models) should be allowed/encouraged to fail. What's the point of putting up more money for them to carryon with the promise of future success when we all know that's not possible?

Jan 01 09:18 PM

[kalasend:]

On Jan 01 04:13 PM 303820 wrote:
> This guy makes me sick...
> Wal mart imports 80%of what it sales from china...it forces it's
> suppliers to move their operations to slave labor countries like
> china, Honduras, and Mexico. Eliminating American jobs.
>
> Toyota and Honda import 55% of their cars from Korea, japan, Mexico
> and Canada.
>
> Nike and Reebok import 100% of their products from the likes china,
> India, hong Kong and Bangladesh.
>
> These so called success stories are destroying America's middle class
> and its purchasing power...
>
You have to realize that for a business, staying American does not equate "success". When potential success lies outside of your living place, you have to go out of the door to grab it. This is captialism. Feeling sick does not help.

Jan 01 10:10 PM

[Ahhoi:]

Can't agree more with you man!!! Great article!!

Jan 01 10:11 PM

[303820:]

KALASEND...we have to realize that with out Americans middle class buying power there is no wal mart, there is no Nike, there is no Reebok, no hondas and no toyotas.
We buy most of what the world builds. AND CORPORATE AMERICA CAN'T KEEP ON BITING THE HANDS THAT FEEDS THEM BY LOWERING WAGES AND SHIPPING OUR JOBS OVER SEAS

Jan 01 10:24 PM

[jrs87sch:]

These are broken companies! Broken companies should not be put on life support. I agree that failure causes one to take another path. The failure of businesses is a process of evolution; we have to go through it in order to see a better economy for America.

Propping up dead companies did not bode well for Japan when they attempted, what makes people think this is going to be different. I don't want to have a 10-15 year recession, do you?

Also, unions are part of what is killing our labor force and sending jobs overseas. It's not so much shame on those companies moving jobs overseas; it's the fact that they have to find cheaper labor to stay competitive. Unions are outdated (think about why they were created in the first place), and they destroy the companies that boost our economy. THIS IS CAPITALISM! Go to another country if you don't like it.

Jan 01 11:44 PM

[punk_ash:]

I disagree, lots of companies are failing and no one is bailing them out. Financial Institutions is something that can not be allowed to fail, some of them can be allowed to fail and they were let go. If there was not such a bad recession on the horizon, the GM bailout may not have happened either.

How is AIG bailed out. The equity went to 0, who really got bailed out, probably the counter parties got bailed, which means the system got bailed. The right thing to do.

The government is doing things correctly.

Jan 02 01:31 AM

[Nathaniel S...:]

When I was younger and I fell down, my parents and family were always there to pick me up. Let's show a little love to the banks. Everyone deserves a second chance...

Jan 02 01:38 AM

[Jim Regan:]

I wholeheartedly agree... furthermore, I feel that all of the headlines of "Dow Down 40%+ in 2008" are almost not enough. I think we deserve to fall more like 60% minimum from the damaged goods we created to push off our own burden further down the road. The bailout in general is a big mistake in my opinion

Jan 02 02:22 AM

[captainccs:]

Right on the money!

By not allowing failures to fold America is giving away one of its main competitive advantages. Pampering leads to inefficiency which is one reason America has outperformed Europe and Japan. Unfortunately, the bailout is evening out the playing field to America's detriment.

Even if we accept that some banks are too big to fail, that is no excuse for bailing out inefficient car makers.

And if some banks are too big to fail the right action is to break them up into smaller banks, not to bulk them up even more like the Fed bailout is doing. Remember how the breakup of Ma Bell lowered calling rates. The same kind of efficiency might find its way into the way banks do business if they had more competitors.

Jan 02 09:18 AM

[Chris B:]

So far, most of the bailouts have focused on the "supply-side" of the equation: banks and car companies. However, the problem is not that we don't have enough investment bankers or Hummer H2's, it is that the "demand" side of the equation - the middle class - is virtually broke. As long as that condition persists, nobody will be buying $30k cars and forclosures will continiue to rise, thus causing losses for automakers and banks.

Even worse, the bailouts of the nations largest banks have been used for mergers instead of consumer lending, which means that we will emerge from this crisis with a government-created monopoly, or oligopoly at best, that will cost consumers even more.

Therefore, I think future bailouts should be directed at the "demand" side of the equation:

-Reinstate Pell Grants and subsidize childcare for students so that the underemployed can afford to become nurses, engineers, doctors, scientists, and entrepreneurs. This human investment will pay dividends for decades.

-Expand tax credits for energy efficiency improvements to homes and businesses. Again, this investment will contribute to growth for decades and help construction employment.

-Build light rail infrastructure in every city with over 100k people. This will help construction employment, reduce transportation costs for the middle class, AND reduce our economy's dependance on unreliable foreign oil.

-Cut taxes for the bottom 75% of workers so they have money to spend.

Jan 02 10:57 AM

[303820:]

Every industrialized country protect its industry and its workers…If we spend $10 billion a month blowing things up in Iraq we can spend a few billions protecting our industries and our workers

Jan 02 12:39 PM

[Ricard:]

You democrat...J/K, great points, good topics for discussion.

"Even worse, the bailouts of the nations largest banks have been used for mergers instead of consumer lending, which means that we will emerge from this crisis with a government-created monopoly, or oligopoly at best, that will cost consumers even more. "

As a counter, I think banks do need to raise lending costs, and bake more of it into rate, instead of origination. Banks got punch drunk originating loans and garnering the 1-2% points-based fees instead of focusing on their core business, the rate spread. I have no official numbers, but I am sure that this was a significant factor as to why banks looked the other way when assessing risk, and why ARMs proliferated as they did. Mergers (especially after Wall Street's demise) will cut costs to help offset the new risk premium that banks will have to charge. Luckily with treasuries offering 0 yields, that premium will still probably translate to low mortgage rates, at least in the short term.

I suppose I am a democrat too, I agree with all of your remedies, in moderation.



On Jan 02 10:57 AM Chris B wrote:

> So far, most of the bailouts have focused on the "supply-side"...
> of the equation: banks and car companies. However, the problem is
> not that we don't have enough investment bankers or Hummer H2's,
> it is that the "demand" side of the equation - the middle class -
> is virtually broke. As long as that condition persists, nobody will
> be buying $30k cars and forclosures will continiue to rise, thus
> causing losses for automakers and banks.
>
> Even worse, the bailouts of the nations largest banks have been used
> for mergers instead of consumer lending, which means that we will
> emerge from this crisis with a government-created monopoly, or oligopoly
> at best, that will cost consumers even more.
>
> Therefore, I think future bailouts should be directed at the "demand"
> side of the equation:
>
> -Reinstate Pell Grants and subsidize childcare for students so that
> the underemployed can afford to become nurses, engineers, doctors,
> scientists, and entrepreneurs. This human investment will pay dividends
> for decades.
>
> -Expand tax credits for energy efficiency improvements to homes and
> businesses. Again, this investment will contribute to growth for
> decades and help construction employment.
>
> -Build light rail infrastructure in every city with over 100k people.
> This will help construction employment, reduce transportation costs
> for the middle class, AND reduce our economy's dependance on unreliable
> foreign oil.
>
> -Cut taxes for the bottom 75% of workers so they have money to spend.

>

Jan 02 01:58 PM

[belly48:]

it's all bs, your money only exists in your head. it is just a question of time before the house of card collapses.then what will you do?
your financiell knowledge will be useless

Jan 05 03:23 AM