September 29, 2008

A Great Big Damned Expensive Nail

There's this old nursery rhyme, and it goes like this:

For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.


It's a medieval parable, warning against the failure to invest in the future; the price of a nail isn't all that much; it's only a sliver of metal, and the time to install it is a few brief strokes of the hammer.  But it's always tempting to save a little here and there.  A little adds up.  Until your horse throws its shoe, and within moments you've lost it all.

So here's a rhyme for the 21st Century:


For want of a bail-out, the insurance was lost.
For want of insurance, the claim went unpaid.
For want of a payment, the business was lost.
For want of a business, there was no job.
For want of a job, there was no loan.
For want of a loan, the home was lost
All for the want of a bail-out.





Here's the thing;

A lot of people say we shouldn't bail-out these companies in crisis; their fat-cat executives should be made to pay, and  they are right.  But the thing is, those fat-cat executives retired. They collected their fat salaries, and padded it with fat bonuses, and when the stockholders - and the Feds - got suspicious, they bailed out with their golden parachutes to break their fall.

By standing by and letting the market fail, we're not hurting those responsible.  They've already cashed out of the game.  They're sitting in one of their four or five homes, toasting each other.

So who do we punish by NOT supporting the bail out?  You. Me. Your grandparents. Your children.  Your neighbors.  Pretty much everyone.  We're screwing ourselves as thoroughly as the Fat Cats did.

But it's worse than that:

Here's something you may not know; just because you don't have a policy with AIG, it does not mean that you are not covered by an AIG policy.

You buy car insurance from Car Insurance Company (CIC).  They take a look at their books, and realize that they might be a little close to the edge.  What do they do?  THEY buy insurance - from AIG.  If too many of CIC's customers have accidents, CIC is covered; AIG  covers the loss.  Only you're about to let AIG fail.  When they fold, they take out CIC, too.

Now you have no car insurance.  And all the cheap companies just failed along with CIC and AIG.  Be prepared to pay a LOT more for insurance, for a lot LESS coverage.

Multiply this times a few million.  Scary, huh? 

It gets worse

Let's say your company doesn't have enought capital to buy into a project.  You only have half of what you need.  So you partner with a company;  you agree to split the costs. Everything's fine and dandy, you've been making money off of it. Then your partner goes under.  You have a choice; cover the other half, or lose the project  Of course, you only partnered because you can't afford it alone.  You not only lose every dollar you've put into it to date, you lose all future profit that had been part of your business plan.  You did everything right, by the book, and you're out of business too.  Mulitply this by a thousand.

So we really have to bail the bastards out. 

Sucks to be us.

Salary caps? Damn Straight.


There should be lots of strings and conditions; and we need to ingore Paulson's pleas against compensation caps.  Paulson argues that that it would prevent bank executives from participating in the bailout.  Well, DUH. That's kinda the point.  If they will go under without participation, they will say yes.  If participation is a CHOICE for the bank, the choice should be NO, because obviously then can survive.  Hey, Hank, these bastards are working for the Taxpayer now.  They want a fat salary for their incompetence?  Get rid of the debt and pay off this loan I'm backing.  Until then, they can shut the fuck up.

The days of rewarding executives lavishly for mediocre performance are over.

No comments:

Post a Comment