No more bailouts for failing firms

Those who claim to be in the know on banking and the economy assured us over the last two months that if we bailed out ailing banaks, our economic troubles would be over.

They assured us the money would keep insurance and banking giants afloat, stemming the tide of recession blackening this holiday season.

Clearly, they were either wrong or disingenuous.

Take American Insurance Group’s $85 billion bailout at the end of September for example. 

AIGee^corporate officials racked up $440,000 in expenses  at a luxury spa in California shortly after the receiving the money. Then on Oct. 8, they went back to the bailout well for an additional $37.8 billion.

Now, AIGee^is back for more.

If AIG’s newest request is fulfilled, the government — on the backs of taxpayers — will have invested 152.5 billon or so in the failing insurance firm.

The money is a mix of loans and capital investment.

It’s also about 22 percent of the $700 million bailout package approved by Congress.

How in the world is spending 22 percent of the money on one company going to stem the recession brewing on Wallee^Street?

That’s just the beginning.

Throw in requests for bailout money from General Motors, Ford, Chrysler, Merrill Lynch, JPee^Morgan Chase and Co., Wells Fargo, several cities and others and what’s left?

A few dollars and several worthless IOUs.

Not worthless you say?

Then explain why AIG is back at the table asking for thirds.

The companies asking for these fund are broke.

There, I said it. They are broke.

Come to think about it, I have friends and neighbors who are broke.

I wonder if they can get a portion of the bailout money in exchange for a percentage of their future paychecks.

I wonder how much cash the government is willing to give them to get them back on their feet.

The way our current banking system works, you generally have to have money to borrow money. You have to prove you are capable of paying it back.

Yet in this bailout, as AIG has shown, that’s not the case.

The bailout won’t work for at least two major reasons:

• The businesses being bailed out continue to operate the way they have always done, with large salaries, extravagant getaways and golden 

parachutes.

• The stock market hasn’t hit bottom yet.

Every dollar we invest into failing companies is either being lost to those golden parachutes or being gobbled up by the bear market.

Back up to September.

If we had let AIGee^and other banks and businesses fail, experts had predicted the stock market would drop by 50 

percent.

With the bailouts, the market has already dropped to 61 percent of its 52-week high. And there’s no end in sight to the stock market slide.

We should take the bailout off the table, let the rest of the failing businesses collapse, and save taxpayer billions of 

dollars.

We can use that money to rebuild the economy with viable businesses surviving Wall Street’s free fall.

 

 

Roger Harnack is general manager and editor of The Red Oak Express. E-mail him at