Saturday, November 15, 2008

If You Are bailing Out Your Automobile…

….Then you have taken a wrong turn somewhere. That said, I still believe bailing out the auto industry is way smarter then bailing out any financial industry. Now, that is not to be confused with the fact that I don’t really think that anybody should be bailed out, especially when they make short sighted selfish decisions. However, it seems that our government is dead se upon taking this path, so prioritization has to occur or the impact will be next to nil. If your building is crumbling, it does no good to patch the walls on the 6th floor while ignoring the foundation.

Here is what we know about financial institutions. Generally they were created to allow more free exchange of money between businesses. You didn’t have to walk into the tanners shop with a pouch full of gold to buy materials to make your boots. People knowing that wouldn’t be so inclined to wait outside the tanners residence and roll the business men as they approached. So banks supplied and cashed checks and protected the gold. Then they got the idea that they might hold your money (the everyday consumer) when your loving homestead was a little too unsecured to guarantee its safety. Basically at that point, they sold checks. Sure this is a very generalist view of the beginning of banks. So the bankers were sitting around their meeting table asking, “How can we make more money?” One guys brings up this idea getting people to pay more for products then the market price. He had to explain that it could be accomplished by giving people money immediately in exchange for them giving the bank more money back, but over the course of time. With that came the birth of credit. “Financial institutions” (or “money changers” as the Bible calls them) are organizations that make their livelihood by getting people to pay more for products then they are worth. Business, people, heck even show animals can buy stuff with money they haven’t earned yet, and might not earn.

Real quick quiz. Can you name the one thing in the paragraph above that has to exist in order for this to a fruitful economy to exist? Hint #1, it wasn’t credit. Credit wasn’t around for thousands of years while economies emerged. Hint#2, it wasn’t money. Money too came late. One could still live today on the barter system. Oh, I see you jump up with your hand ion the air shouting, “PRODUCTS!! We have to have products.” Right, a bootmaker could trade a family’s worth of boots to a farmer for a years supply worth of vegetables. He can then trade some of those vegetables to the tanner for more leather. See, no money, no credit. A functional economy without “financial institutions”. Try having a functional US economy without cars. Here we are talking about “energy independence” while we slip into transportation dependence?

The Auto industry supplies “products”. Something solid that the community as a whole needs. The credit industry only makes everything cost more. If a bank won’t give a loan for a new car? Good! Eventually that car will cost its real market value and people will pay for them with the money they already have. If there are no cars for transportation in this country, it can be a much more dire situation.

So bail out the auto industry but put stipulations on it. No more screwing the American people by selling them cars that intentionally do not last that long. Quit scamming with the oil companies to produce only inefficient engines. Last, we expect to see a reduction in large unnecessary vehicles. I don’t care what the demand is. People are dumb, stop catering to it.

That is why it makes more sense to bail out the auto industry then it does the credit industry.

2 comments:

kerrjac said...

You're right about how products are necessary for the marketplace, but that's all the more reason for why the government should stay away from tinkering with them. b/c if they do bailout, and it works, and they get those stipulations, then we're going to have governmental uninformed officials making decisions that require specialized market info. Sure, transportation is necessary for our country. But only in the same way that healthcare is also necessary, along with housing, food, mail delivery, oil, and electricity...and before you know it, you find yourself asking what isn't necessary?

Lord of Logic said...

Kerrjac,

As I preference this post with, “I don’t really think that anybody should be bailed out, especially when they make short sighted selfish decisions.” However, the government “tinkers” with the market all of the time. If I sneezed over your soup bowl you wouldn’t just eat the part where the particles didn’t land. “Along for the ride, in for the crime.”

When it comes to the auto industry, there some very clear cases of the government influencing the markets. Sometimes adversely. From tax breaks given to keep facilities in the area or even the country to rapid deduction, all of these are meant to advantage a business that would make other choices outside of governmental influence. One example is the opening of the loophole caused by increasing the accelerated depreciation (http://www.irs.gov/publications/p534/ar01.html) to $100,000. Essentially every small business with a tax liability of over 100 grand became encouraged to buy a Hummer for their sales guys over a compact car because they could get it for free. The intent of the tax credit, first leveled at $20,000, was to encourage small business to purchase heavy equipment and grow. While the intention was good, it set the big three in motion to develop personal vehicles that weighed at least 6,600 Lbs. At the same time, the best you could get out of buying a hybrid was $3000.

The free market economy is made up of a few major elements. Producers, products, and consumers are some notable ones. The government even dabbles with the consumer factor. From “child tax credits” to welfare to ignoring illegal immigration, the government encourages growth in the consumer base. “More consumers can buy more stuff” is th4e reasoning. The other day a friend and I were debating the merits of welfare. I told him that the CEO of Wal-Mart (the countries biggest employer) and even the financial minister of China are opposed to the US cutting out the welfare program.

If the government is going to “not tinker” with the economy then it has to keep its mitts completely off. The second you allow them to get involved, then varying priorities will emerge.

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