SAN FRANCISCO, Nov. 19, 2008
Rewarding Failure: Why Stop With Big 3?
With Tongue In Cheek, Declan McCullagh Urges Treasury Chief To Bail Out Everybody
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Treasury Secretary Henry Paulson (AP Photo/Susan Walsh)
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In-Depth Q&A: Big Three Bailout? Why Detroit's automakers might get a rescue package
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Timeline Financial Meltdown Track major events that lead to one of the most tumultuous times in Wall Street's history.
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The Honorable Henry Paulson
U.S. Department of the Treasury
1500 Pennsylvania Avenue NW
Washington, DC 20220
Dear Secretary Paulson:
I understand that House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid are urging you to hand $25 billion or more to Detroit's nearly bankrupt automakers. While President-elect Obama indicated on 60 Minutes that he likes the idea, the Bush administration has been skeptical.
That is unfortunate. Bailing out companies that lose money on every vehicle they manufacture and cannot adapt to changing market conditions is not merely necessary in today's economic climate -- it's the American way.
It would be shortsighted to stop at GM, Ford, and Chrysler. My modest proposal is that plenty of other nondeserving companies could use a helping hand.
Mervyn's department store can't compete with its rivals on price, selection, and locations. But its stores are a fixture of local neighborhoods across California and the West, and the federal government surely has an obligation to prop up this failed company -- even if it means everyone else pays more in taxes. This is the price we pay for keeping part of the American dream alive.
Managers at another retailer, Steve & Barry's, also made bad decisions. Today the failing company employs over 5,000 people, and it would be unreasonable to expect them to search for new jobs.
Because Circuit City was unable to keep up with Best Buy, it filed for bankruptcy protection last week. Bailing out this failed retailer would stimulate the economy by allowing it to go about the important business of outfitting Americans with 52-inch LCD TVs.
Trendy, unprofitable Web 2.0 startups are endangered. CNET's tech layoffs scorecard shows that Helium.com, Eons.com, ManiaTV.com, Imeem.com, Zivity.com, and Jaxtr.com have been struggling. So what if Al Gore's Current Media cable network has a self-described "history of losses" -- don't the San Francisco hipsters who recently lost their jobs there deserve a little bailout love?
Spoilsports point out that we have a record federal debt and already spent around $4.28 trillion on bailouts and guarantees. That misses the point. As Federal Reserve Chairman Ben Bernanke correctly observed, our government's printing press "allows it to produce as many U.S. dollars as it wishes at essentially no cost." There's really no downside.
With another $50 billion or so, Countrywide could have avoided its pennies-on-the-dollar sale to Bank of America. That led to an unfortunate situation for Angelo Mozilo, the Countrywide CEO and chairman who greased his way to more than $400 million in riches in part by handing out below-market-rate loans to favorite politicians, including an Obama aide and Senate Banking Chairman Chris Dodd. A bailout would have let Mozilo, an upstanding American success story, keep his job.
Smaller companies are not immune. Take Oregon-based Marnella Homes, which apparently believed that the housing bubble would never pop. Without an immediate bailout, owner Tony Marnella may lose his Maserati. Time is of the essence.
Let's not forget journalists. Newspapers are losing readers, advertising, and employees. Did you know that the Christian Science Monitor will cease publishing in print form? Not only is a media bailout necessary -- and you can count on some glowing editorials -- but perhaps you can do something about the Craigslist problem while you're at it.
Chrysler deserves a bailout. The car maker is owned by Cerberus Capital Management, a private equity firm that counts former vice president Dan Quayle as an executive. President George W. Bush's former Treasury Secretary, John Snow, is chairman. Taxpayers will understand that prominent Republicans and their colleagues must be rewarded for their distinguished service.
It's true that the United Auto Workers union demands above-market wages and featherbedding, such as a "Jobs Bank" program that pays people not to work, and has hamstrung Detroit's competitiveness. And it's true that the auto makers themselves have made one or two tiny mistakes, like GM's vice chairman dismissing the Toyota Prius as a public relations stunt.
But bailout opponents are short-sighted. Earlier this week, GM Chairman Rick Wagoner wrote: "Nearly a half-century ago President Kennedy declared that his generation of Americans was living in extraordinary times and facing extraordinary challenges. Our times are no less challenging. They demand solutions that are creative and courageous."
What could be more courageous than bailing out a failing company that paid Wagoner $15.7 million last year? That's a surely-justified increase of
You may be concerned that by rewarding failure, you encourage it. The reality, of course, is that layoffs must be discouraged through any means necessary. One option would be a law preventing employers from firing workers until the current crisis is resolved, which would also eliminate unemployment payments and reduce the unemployment rate.
Killjoy economists no doubt will prattle about capitalism. Some nabob will point out that nowhere in the U.S. Constitution is the federal government granted the authority to bail out private companies. Ignore them. We must remain true to our nation's founding principles: no company may be allowed to fail.
As Wagoner said, it's vital that you remain courageous as you steel yourself for the daunting task of doling out other people's money. The future of the republic depends on it.
Sincerely,
Declan McCullagh
San Francisco, CA
declan.mccullagh@cnet.com
Declan McCullagh is the chief political correspondent for CNET. He previously was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives in the San Francisco Bay area. His e-mail address is declan.mccullagh@cnet.com
By Declan McCullagh
© MMVIII, CBS Interactive Inc. All Rights Reserved.
Add a Comment See all 47 Comments
- Circut City didn''t "fail to compete". A few years ago, the idiots running the place decided that the top sales staff were being paid too much, so they laid them off. Permanently.
I guess nobody mentioned to the CEO that the sales staff was paid on a commission basis, so all Circut City did was fire the top 20 percent of its sales force.
You can imaging the effect on the remainder of the sales people.
This is probably the most "Republican" thing I''ve seen done in many a year."Holy Cow! Our top sales force is actually making a living. Fire Them!"
What a true testament to the fallacy of Regeanomics. - Reply to this comment
- Failure? Making gas guzzlers instead of electric cars to the expense of the public, and paying out $100,000 salaries and bonuses is hardly a failure in the eyes of the companies. Government lawyers at the Internal Revenue Service lied but lost their case anyway (http://www.howgbeattheirs.spaces.live.com). Lawyers at SulmeyerKupetz & Charlston Revich Chamberlin Wollitz (http://www.16lunchtime42.com) were rewarded over the years by Judges for their lies and violations of the law. Our only failure here will be if we don''t admit that the Big Three is just the tip of the iceberg --- or should I say tip of the Titanic?
- Reply to this comment
- Let them FALL!
They will file, regroup & rebuild.
They build *** cars, bad MPG, low safety ratings, covered with plastic, no belles and whistles, and want me to pay the same for that crud as I would a Saab? Forget it. - Reply to this comment
- You''re still giving money to losers whether they be bankers or dumb over extended, pie in the sky,
unthirfty home owners.
Reward greedy poor people or rich still a bad investment. - Reply to this comment
- Why not pay off the mortgages (just home mortgages, not loans for businesses). It would be cheaper, more people would be willing to buy more goods, and thereby creating more jobs and saving businesses.
- Reply to this comment
- The American Auto makers didn''t just "fail" in a vacuum - the Republicans from Reagan on down made it very clear that hoggish consumption was the American way, big vehicles were "manly" and conservation, fuel mandates, alternative technologies, emission controls, hybrid designs - all of this was wimpy, un-American, costly intrusion into corporate perogatives and the choice of consumers ! Especially after the 9/11 attacks, American nationalism reached fever pitch, no one cared about down-sizing or alternative fuels - the leaders of the car companies are all Republicans, they all bought into the American macho thing - huge SUVs and Hummers with flags flying and Iraq War bumper stickers were the rage. But NOW - it''s the UAW making us anti-competitive ???? Now, after the Republicans have pissed billions of tax dollars into the sands of Iraq and Afghanistan, we can''t do anything to save the millions of American jobs ? It''s not the American auto workers who failed, it''s the Republican leadership who failed then and continue to fail now. This is the moment to completely remake the American auto industry, to force cars of the future into production based on science and technology, not glitzy ads and false patriotism.
- Reply to this comment
- Want to talk about rewarding failure?
How about the fact that Americans are supporting German and Japanese auto companies after they failed to defeat us in WWII.
Do you want America to depend on these country%u2019s auto companies the next time we need to equip ourselves for war? How about the Koreans or the Chinese?
We are running out of reasons to create steel in this country, Try fighting a war without steel.
Wake Up folks. - Reply to this comment
- After we bail out the companies, we, the consumers will have no money to shop there. I was in Circuit City last week and really wanted to buy some things, (USB memory, and a backup hard drive)--then I remembered that I can''t buy anything at all. The prices and products were great, but no money is no money.
- Reply to this comment
- True that was a racist statement
but that still does not make it false. Sorry.
True most poor are not black but
more blacks are poor.
Politics of Poverty
Republicans -lock them up
Democrats -pay them off - Reply to this comment
- The money should be going to middle class consumers who will spend it on things we need like education and health care. Instead it is going to the same fascists who run the "democratically elected" government of pigs. Fortunately most of us see the American corporate crooks for what they are. I know the rest of the world does.
- Reply to this comment
- Rewarding Failure has become the American way!
If we didn''t reward failure, we would have to fire congress and close every federal program!
Congress is packing up for another vacation, never mind that the country is in crisis, and they once again failed to solve anything. It''s time to jet off home for the holiday and they won''t get back till next year.
It appears that the mortgage brokers bought more of congress than the big three. Now the big three are going to pay the price. Bail out the suits on wall street and the bankers that committed banking fraud but not the auto industry where you may save some blue collar jobs. Personally I wouldn''t have bailed out anyone but if your going to bail out Bankers why not Industry, at least Industry actually produces something other than an illusionary balancesheet
I guess congress is counting on the American people quietly lining up in bread lines like they did in the depression. America has changed since then, maybe they will figure out that they failed when the cities are burning and riots break out around their mansions. - Reply to this comment
- I was just charged an over draft fee
& in my jealous rage I could certainly strangle
a few bankers, but I have taken anger management,
however there are plenty of people who have not.
Does that mean blood in the streets.
How to control the pissed off poor?
Most poor people are black.
The new president is black,
Coincidence ???
Posted by Markangeloo at 09:39 AM : Nov 20, 2008
Show some statistics and state the source to show what you assert- That most poor people are black.
Otherwise, I''d say this is just a plain racist remark. - Reply to this comment
- I would agree with you amrt except that $25 billion isn''t the real cost of the bailout. The American automakers have horrible business practices. The long term effect of letting them continue on this line is terrible for the economy. As of yet, I have seen no plan for how they will be profitable again. This bailout just pushes the window of when they will fail back a couple of months.
- Reply to this comment
- EQUATION OF THE DAY:
FED LENDS OUR $ TO BANKS FOR 1% (PLUS) WE BORROW FROM BANKS @ 10 TO 20% (PLUS) 8% TAXES (EQUALS) WE FOREVER LOSE (PLUS) FED & BANKS WIN (MINUS) TRUTH (EQUALS) DEPRESSION (TIMES) MORE LIES (EQUALS) POLITICIANS (PLUS) INVESTORS (DIVIDED BY) GREED (MINUS) LAW (MINUS) GOD (EQUALS) REVOLUTION!!!
EQUATION EXPLAINED:
10 YEARS AGO-ALL OVER THE NEWS-"PEOPLE HAD TO CHOOSE-MORTGAGE PAYMENTS OR GAS FOR CARS". THEY CHOSE GAS-THE MORTGAGE INDUSRTY CRUMBLED-FED SAYS SOME FAULTY PAPER AGREEMENT BETWEEN BANKS AND INVESTORS CAUSED IT-WHEN HIGHLY PAID FEDERAL ECONOMIC GURUS LOOKED THE OTHER WAY-OIL COMPANIES REAPED $60 TO $80 MILLION A YEAR (TIMES) 10 YEARS = $800 MILLION (ONE COMPANY ALONE)-NO WONDER THE %u201CFAILOUT PLAN%u201D IS NOT ENOUGH%u2026 FORESIGHT AS GOOD AS HINDSIGHT-WHATEVER IT IS, THE PEOPLE MUST NOW PAY FOR IT.
FAILOUT PLAN IS TO BAIL OUT ILLEGAL IMMIGRANTS WHO BOUGHT AMERICAN SOIL VIA FANNIE AND FREDDIE-THEY GOT BAILED OUT FIRST TO COVER TRACKS, PLAN NOT WORKING FOR ANYONE ELSE. AFTER GOV%u2019T APPROVAL & MAE, MAC BAILOUT - GURUS CHANGE- WANT TO INVEST IN BANKS INSTEAD OF HELPING PEOPLE-NOW GURUS ADMIT ECONOMY IS IN A SLOWDOWN.
PRICE OF OIL COMES BACK DOWN, CONSUMPTION NEVER CHANGED.
ABORTION IS OK, BUT THE BILL IS ON FUTURE GENERATIONS THAT WILL BE KILLED, AND THEY ROB THE RETIREMENT EGGS OF US ALL.
THIS IS WHY WE HAVE AN ELECTORAL REVOLUTION-PEOPLE WANT CHANGE-IT WILL NOT COME FROM POLITICIANS.
THIS IS A BALANCED BUDGET-FOR THE GREEDY! - Reply to this comment
- The issue here is whether the situation of the automakers is similar to the situation of financial innstitutions like Fannie Mae, Freddie Mac and even AIG where failure presents us with costs to the economy that exceed the amount of the bailout. If so, then the argument for bailing them out is a good one. There is no other consideration.
- Reply to this comment
- I''ve got a couple of web sites that are going kind of slow. Need more "Ads by Googles" clicks!
Where do I sign up for this bail out money?
Gimme some cash! - Reply to this comment
- Good work bobnjersey, I agree.
Europe has never let the bulls loose completely in their economy. America has ridiculed France and Germany for many years. Europe''s way is not boom or bust. There is no foreclosure crisis there like here. Everyone has health insurance and education through grad school for free, they have a real retirement system that matters and provides plenty. Hell, wine is still cheaper than coca-cola in Paris restaurants, and I can stay at a really nice Comfort Inn in Paris for less than in Marion, Illinois near a federal prison!! Europe has cosen a more measured but more secure path to societal and economic stability. We need to also. - Reply to this comment
- [It would be shortsighted to stop at GM, Ford, and Chrysler. My modest proposal is that plenty of other nondeserving companies could use a helping hand. ]
the current state of things are a clear sign that the free market isn''t as pure and self sustaining as has been promoted for the last hundred years. even alan greenspan ... the protege of ayn rand ... one of the most fervent proponents of the laissez faire model of capitalism ... a champion of the idea that capitalism cures all ills ... begrudgingly admitted in testimony a few weeks ago that there may be a small flaw in the model (how modest of him).
instead of viewing all these troublesome conditions as a ''bailout'' ... it should be viewed as an opportunity to change the way these companies do business ... change their approach ... make them capable of dealing in the current environment. give them the assistance ... but insist that it''s contingent on changes to the way they do business ... and it should include all the players ... including the uaw.
the free market model is failing ... and those that keep chanting it''s mantra ... ayn rand''s mantra ... will be the one''s responsible for the complete failure of the american economy ... with the belief that this will serve everyone better.
it''s not about the model ... it''s about what the model provides for the society. the model should be shaped and molded to serve the society ... not the other way around. - Reply to this comment
- I was just charged an over draft fee
& in my jealous rage I could certainly strangle
a few bankers, but I have taken anger management,
however there are plenty of people who have not.
Does that mean blood in the streets.
How to control the pissed off poor?
Most poor people are black.
The new president is black,
Coincidence ??? - Reply to this comment
- In only 4 months, Chrysler designed from scratch and was mass producing the M-3 tank in 1941 for the Len-Lease Act. They and the other of the Big 3 all made helmets, guns, aircraft parts, and even the planes thmeselves, other tanks... Chrysler made the B-25 bomber... most all of this conversion happened in about a year or so. Auto production for civilian purposes pretty much stopped.
Why can''t that happen now?? Shut down the production of SUV''s. Close the door on this wasteful era of gas-guzzling idiocy. Open the files on concept cars that we have already seen... make deals with the VW Group, Mercedes, Silicon Valley think tanks, MIT physicists and engineers and get cars in the showrooms that get mileage like the new VW diesel Jetta and Polo, the Toyota Prius... cars that look good and make a statement... and make OPEC start eating their own oil on toast for breakfast... well, that won''t happen, but everyone is whining and everyone is concerned about one ox getting gored while the rest of the herd is running over the cliff... - Reply to this comment
The road ahead in Afghanistan, and the crucial decision Obama faces.
