The True Cost Of Bailouts

Will stimulus money, bailouts and prepackaged bankruptcies bring all of us closer to recovery or are they nothing more than taxpayer guaranteed schemes designed to insulate financial institutions, auto companies and unions from poor decisions and weak fiscal discipline?  Consider the current state of the countries small businesses who have been trampled in the rush to save the “too big to fail” primarily because they lack the political leverage to merit any consideration. The oft stated goals of economic and job growth will only occur when small businesses and private investors quit being treated as the water that can be bailed out to right the chosen ships. For every big company that is reorganized, thousands of small businesses are forced into a slow motion death spiral. The concept of large corporations shedding debt is spoken of as if no one losses any “real” money. Where is the advocate for the parts maker stuck with unpaid invoices from “Old GM” or the company that hasn’t collected from “Old Chrysler” for cleaning the offices they still occupy as “New Chrysler”?  How about the secured bond holders who were called “speculators” by their own government and then strong armed out of their collateral rights?

Work force realignment, downsizing and consolidation are all merely press release phrases used to gloss over the reality that actual people are losing their jobs. Upper management and turnaround specialists use terms like these plus their lack of any real contact with the average employee to avoid a personal connection to their actions. The process of “downsizing” for small businesses is not quite so detached. Small business is – small and therefore the bonds with individual employees are far more intimate. Most are seen almost as family, in fact, in many cases they are family. Losing the business or laying off employees comes at great emotional cost because even though you may not have caused the situation, you feel responsible for the outcome. Jobs you provided no longer exist; lives are affected, plans are destroyed, dreams are shattered.

More than a year after the relationship between government and business became very hazy it may be time to acknowledge the real costs of stimulus spending, bailouts and pre-packed bankruptcies.  HBO aired a special called “The Last Truck” featuring personal stories of workers faced with losing their jobs. Why haven’t we seen a documentary about the thousands of small business owners who are losing their companies, their identities, their savings and their job? Is it because there is no way to explain to someone who has never poured their soul into running a business what it must be like to have your car dealership taken away with a single letter in a Fed-Ex envelope? As a way to end a long term business relationship this is only one step above riding by, rolling down the window and shouting, we’re through!

Where is the outrage over all the trusting stock holders who were “pre-packaged” right out of a large chuck of their hard earned savings? As time goes by these stories will come out and it will become clear that this was not the quick, painless process it’s being made out to be. Aid for the well connected was immediate and in many cases open ended. Deals were made, political debts were settled and those on the outside of the process got what they always get; the emotional scars and the bill.

When you hear ads promising credit card debt reduction, offers to sidestep your tax liabilities or hear of homeowners who can afford to pay their mortgage but choose to walk anyway; consider the losers. The debts being avoided, the money being lost, is real money; the savings of hard working people or tax dollars that could have been put to productive use. Politicians use terms like tax revenues, implying that the government actually earns rather than confiscates money. Referring to deficit spending as government debt is nothing more than an attempt to obscure the fact that it is really the debt of each citizen and we, not the government, will have to repay it. While proposing a new bailout fund for large financial institutions congress was quick to point out that it won’t be paid for with tax (as opposed to real) dollars. Their claim that the banks will pay for the fund would make sense if banks were suddenly allowed to print their own money rather than find some way to extract the cost of this new mandate from their customers.

An even bigger tragedy resulting from all this may be the loss of confidence in a system that has historically rewarded doing the right thing … paying your debts and honoring your commitments.  Does the new reality allow gambling with the houses money, profiting from poor business decisions, gaming the system, losing it all and then threatening that you are too big to fail? Followed by discharging your debts and obligations with government help, claiming that you are suddenly and miraculously (due to your own brilliant leadership) profitable again and of course entitled to a bonus. As a small business owner I can’t get away with any of that because I know I am not too big to fail and it’s painfully evident that I am too small to matter.

James A. Krause … The Dogged One … 2010