Returning to the bank

General Motors CorporationImage via Wikipedia

Everyday we read about another company returning to Washington with their hands out, once more.  Please give us some more money as we haven't figured out how to run our companies yet but we know the Government will give us money to stay afloat so why bother changing.

There are a million reasons to do it and there are a million reasons not do.  I keep thinking about this situation in terms of my own life.  We have put Jessica on a budget, clearly stated the amount and the time line.  If Jessica returns to the bank ( the bank being us ) because she blew her wad without thinking it through then by just giving her more cash, we have enabled her to not grow up and take responsibility for herself.  Kids that are enabled by their parents generally never grow up….why bother. 

Certainly each situation is different from AIG to Citibank to GM but how do any of these companies stop using the Government as their comfort zone knowing that if they don't change the way they do business and make the tough decisions, then there is always a pool of cash to return to.

To see an add on the bottom front page of the New York Times on Sunday morning is not Citibank attempting to take a hard look at how they are spending their resources.  How much business do you think, based on the economy at large, that Citibank is going to generate off that ad?  My guess is none and the branding opportunities are more negative than positive.  AIG made some really bad choices down long the line.  Why they don't take the loss and move on but don't have the Government float your mistakes.  Insurance, particularly health, is a disgusting business and more money probably goes to the cost of the employees and paperwork than actual medical costs.  I realize AIG isn't all health care but coming back to the well four times should make everyone evaluate the decision to give them another dime.  Last but certainly not least is GM.  As I see it, GM has continued to be in business the last ten years just to pay for the salaries, the retirement plans and the health costs of the people who work for them now and in the past.  The cars are irrelevant.  I would liquid GM, put all that money into some type of bond and the dividends would pay the retirement funds, the health care and the cost of employees until they find another job for a limited amount of time.  Not a dime would go to the Executives who ran GM into the ground.  Their desire to put all their money into lobbying the Government over the years so they did not have to be think long term or Globally is why GM is pretty much bankrupt. 

Obama should really think this through.  Let these companies go.  Let the assets that they have be liquidated and pay to train their workforce to do something else.  We are in a Global age.  If you can't think about what a company is going to look like in 2 years, 5 years, 10 years or even 15 years from now and make moves based on those plans, not the plans of returning to the Government to keep you afloat to continue business as usual, then let these companies go.  That is a pure capitalistic society. 

My guess is if Sasha came back to Barak after blowing her entire allowance for the month, 2 weeks in, he'd tell her, lesson learned.  You will have to wait 2 more weeks for the next installment unless you come up with another way to make cash over the next 2 weeks and I highly recommend you take a look at your mistakes this past month that got you to this place and make sure it never happens again.  The money lasts for one month, make it last or figure how to generate more cash in other ways to provide for your life style because you can't come back to the well. 

Obama might consider the same lesson with companies of old ( I highlight old ) who saw the train wreck coming and did absolutely nothing to change its course.  He is attempting to change the entire way the Government does business in less than 2 months in office which is the equivalent of turning around a cruise ship.  He should apply the same tenor to the companies begging for more cash.  I am not sure giving them cash is going to change the inevitable place that they will end up, closed.

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Comments (Archived):

  1. ErikSchwartz

    I fundamentally do not understand the issue with letting car companies fail. Failure has been part of the automotive industry since the beginning. Been to a Studebaker or Duesenberg dealership recently?Wikipedia has a list of defunct US auto manufacturers;…Failure is part of the industry. GM failed.

    1. fredwilson

      erik – awesome comment. i reblogged it at

    2. David Noël

      Wooha that list is massive

  2. awilensky

    Mrs. Wilson….Mrs. Wilson! It is harder to get a small business loan than it is to get a multi-billion bailout. The SBA loan (or municipal equivalents) require a virtual homeland security check, while TARP and other major bailouts are oftentimes offered to institutions preemptively.

  3. Morgan

    I find it interesting the newspapers themselves may be the next to ask for bailouts. In France, the government is indirectly subsidizing them by paying for subscriptions for 18 year olds. Companies like Citi and GM are effectively already publicly subsidizing the newspaper business by taking out print ads with money they’ve received from government.I read the NY Times online everyday and don’t see any prominent ads from the companies that are being bailed out. Today there is a big banner ad from Apple advertising their new green laptops. Companies like Apple understand the future on so many levels.

    1. Gotham Gal

      Money for newspapers??? That is totally insane.

      1. Morgan

        I think it is insane but it is certainly a current topic of discussion here and here (where you can listen to the argument via podcast).Most newspaper companies have a lot of debt. And, print newspaper sales are obviously being hurt by people reading their news online. Why would I buy the NYTimes when I can read it online for free AND it’s far better for the environment because it doesn’t have to be transported and it saves paper.The number of newspapers filing for bankruptcy protection is increasing and I think you’ll hear much more about bailing them out.I live in BC where pulp and paper mills are closing fast and furious due to the declining demand for newsprint!

  4. marshal sandler

    Current President of GMAC makes $11 MILLION Dollar Salary moved their support people to Manila President of GM made $4.2 Million last year $15 million bonus it only took these folks 8 years to destroy a 100 year old brand-they should be forced to liquidate and get new executives and yes bond retirement etc-next problem what to do with their inventory

      1. marshal sandler

        Joanne you have a good point if they don’t put a fuel delivery system on their inventory that get’s 40 MPG city they might as well melt it-but our politicians because they are Luddites have not made retrofit a condition of the buy out-I was born and raised in Detroit during my work career dealt with the auto-industry and unions -these people have always operated with Brute Strength and Ignorance-some what like politicians-thanks for reply

  5. schultzmj

    The only thing I would add is that th executives should get nothing and the union leadership should be standing there right next to the executive team with the same zero payout. They held a gun to managements head for the last 30 years while they drove the truck (or SUV) right off the cliff.The amount of wasted capital spent on non-productive activities (think job banks) over the last 30 years is staggering.

    1. Gotham Gal

      Agreed. The union might even be the first in line to get nothing.

  6. Imee

    Very well said! I like the latter parts the most when you did a hypothetical comparison of companies to Sasha spending a month’s allowance in half the time and her President father would say that either she makes do without it completely and wait for the next cashflow, or find a way to generate the money she needs in the latter 2 weeks. Honestly, we’ve all seen this coming, right? But who actually prepared and who didn’t is, well, a whole ‘nother story.

    1. Gotham Gal

      Who prepared and who didn’t is definitely another story. The ones thatdidn’t prepare just figured that it would be business as usual. Lobbyistswould get them what they needed.

  7. Louis Berlan

    Firstly, I completely agree that these companies should be allowed to fail. They make lousy, outdated products, and they’re not a source of innovation anymore. If anything, it feels like they’re holding us back in terms of transportation innovation (rail, mass transit, electric cars, new business plans like ZipCar, whatever). I also think that when it comes to the workers, a financial solution could be found.However, there’s one aspect that nobody seems to talk about when it comes to the failure GM, Ford and Chrysler. These are – even though years of horrendous products and service – huge huge names in the American psyche. Actually I can’t find many that are any bigger. If these companies fail now,it would be a massive blow to the country, in terms of thinking that “wow, we really are in the sh*ts”.Now what would be interesting is to see how we would react to that (I suspect it’d be a kick start), but I’m pretty sure that the Administration isn’t ready to take that risk, or to take the political risk of being remembered as the people who let Chevy, Ford, Jeep die.

  8. David Noël

    Curious to see what AIG will do with their four-year and $80m sponsoring deal with English soccer team Manchester United?!

      1. David Noël

        One step towards a decision? According to AP, GM’s auditors have raised doubts about their ability to continue operation. Interesting.

        1. Gotham Gal

          That is interesting. If the auditors are concerned, so should the Americanpeople about giving them any cash.

  9. Cindy

    Maybe “GM” should be rebranded “Government Motors”.

  10. David Noël

    I just got reminded of this very post. Opel, a German automaker who just got bailed out (€4.5m) ‘thanked’ Germans by buying ads in what is guessed 4.6m newspaper (!) issues.The article is in German but you can see the ad here:…This makes me want to throw up. A bailed out automaker using newspapers to thank for tax payer’s money. Sick.

    1. Gotham Gal

      Very sick. Companies here did the same telling consumers not to worryjoanne [email protected]

      1. David Noël

        (oh I meant €4.5 billion of course, not million!)I still can’t believe it and it makes me angry: bailed out automakers giving money to newspapers. There’s so much in this short sentence that is wrong.