Free Market Economy?

As a business consultant, money drives most of my activities everyday - making money, saving money, chasing money, cutting costs...

This proposed government bailout of major US financial institutions scares me. While I certainly don't want to see our economy collapse, I also think that allocating taxpayer dollars to benefit companies that have been reckless and fiscally irresponsible heads us down a slippery slope. Even worse, it sets a precedent that if large corporations take huge risks and spend all their cash in good times, they can trust that when there is a downturn in the market the government will save them.

Every parent understands the principles of positive and negative reinforcement. If you are trying to train a child to make wise choices and accept responsibility for their behavior, you use incentives to teach them accountability. If they make good decisions, they are naturally rewarded with good things, but if they make bad decisions, bad things happen to them. These same core accountability points hold true for individuals, families and small businesses. If you choose to blow the last dollar of your savings on a trip to Hawaii and your car breaks down, you might have to take the bus or get a loan to cover repairs. If a small business spends a bundle on an ad campaign that is a total flop, they may have to fold.

Now I understand basic economics, and I know that every major US financial institution going bankrupt all at once would be catastrophic, but I don't think that is what would really happen without government intervention. These are companies that somebody will be very willing to take a gander on - if the terms are right. Consider Warren Buffet's recent investment in Goldman Sachs... he's taking a chunk of the company, but infused $5 billion in capital to keep them afloat. It's a good deal for both sides and it protects the basic principles of capitalism and a free market economy. If the government was not an option, most of these companies could find creative ways to stay in business!

One of the single most destructive trends in big business today is massive executive compensation that is not linked to results. Note that I did not say that 'massive executive compensation' alone is the problem. I believe that if you put yourself on the line to lead a Fortune 500 company and it performs well, you deserve to make a ton of money. But I have deep reservations about all the CEOs who have simply run their companies into the ground due to mismanagement, poor fiscal oversight, greed and corruption. These guys should not walk away from devasted companies with hundreds of millions of dollars. Again, it sets the wrong precedent. Do a good job and work hard - get paid a bundle. Do a bad job and take risks with other people's money - get paid a bundle. Where is the accountability? Where is the incentive to make the right decisions? How is pay linked to job performance?

Without all the inside information that folks in Washington have, I truly don't know whether or not government action is the only recourse in this situation. As I stated before, I believe that free markets tend to work themselves out. We've gotten spoiled in recent years and we can't accept the reality that good economies are often followed by periods of inflation, tighter credit and lower values on real estate and stocks. Things won't always be looking up! But here's the real issue:

If our government takes taxpayer dollars to bail out private institutions - what's in it for the tax payers?

No one is helping us right now - the little people. Why don't we bailout good people who are losing their homes... small business owners who are drawing no paycheck to keep their companies afloat... people who are in bankruptcy due to skyrocketing medical costs and a lack of health insurance coverage... people who have been laid off from these same organizations while their CEO's walk away loaded.

What's in it for me to help CitiGroup or AIG?

If the government aids these firms, I believe that politicians should do to banks what they have been doing to the American public for years - stick it to them! Don't give bailout funds - make a high interest loan with tough terms and an upwardly adjusting rate. Take enormous blocks of shares in exchange for assistance, so that the taxpayers can recoup their investment many times over when the market turns around. Demand that CEOs and executives are held accountable for their role in allowing this global crisis to happen. Change the rules so that institutions are forced to save money in safe, low risk places during times of plenty. And make sure that everyone understands that this bailout is a ONE TIME EVENT, and will not be duplicated no matter what happens.

Wall Street is a spoiled, bratty child right now. Willing to accept the rewards for taking risks, but not the responsibility for bad decisions. A free market isn't a free market unless it exists in both good times and bad times.