Bailout madness

Update: David Brooks also wrote about this topic - another incisive mind and great editorial.

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Thomas Friedman has a great mind. His Nov 11 editorial spoke to me.

In any right-minded world, it should be the goal of the stakeholders of that organization to ensure that the best possible management and governance are in place, and further that that management is committed to the sustained best interest of the organization. As the citizen stakeholders, we must act.

It's surprising to me that the management of all of the organizations, be they financial services, manufacturers, or lemonade stands who are asking for bailouts have never gone public with analysis of what happened, why it happened, the nature of their missteps, and most critically, specifics on what they intend to do to return their company to a position of strength.

Further, what do they intend to do with the cash infusion?  Just pay the bills and change nothing??  Does anybody with a brain believe that that's a good place to throw money?

What to do instead?  Well - I wrote a while back about the lending crisis, and I think a similar strategy should be employed with the automobile industry. Let's not give those that failed miserably more money to fail even more miserably.  Please.

So - how to motivate new car buyers?  How about this:

1. The American government creates a used car purchase and export program to donate used cars to developing countries. Used cars are purchased at the 2005 Blue Book value (to give the seller a premium).
2. The cars are then refurbished (economic stimulus to the car parts, servicing and detailing companies), and shipped (stimulus to the shipping/transport industries) to other countries, as negotiated by the Department of State.
3. Consumers are given an economic incentive (government funded loans through the banks (giving them the cash flow) @ 1% per year for 4 years) to purchase new cars. The incentive would also include a 4-year insurance discount of 25% (again funded by the government). 
   
4. Consumers are ONLY required to buy domestically-manufactured cars, but not just from the Big 3.  Any American-built car is eligible. The market forces should prevail, allowing consumers to spend their money where they choose. If the Big 3 don't have the best product, they don't deserve to win, but American automotive workers do benefit.
5. If one or more of the Big 3 end up failing because of this, the foreign manufacturers should have an opportunity to buy them out, but they should not be obligated to hire union labor, nor should they be held accountable for the legacy retired worker pension problem. The UAW should be obligated to liquidate its funds to cover what they can, and the rest is in the hands of the former employees. 
   

While this may sound harsh, it is reality. Others don't keep getting their pensions funded when they lose their jobs. All retirees receive state-funded medical care, and the rest is now in their hands, the hands of their families and the UAW, who after all was formed to take care of them.

I believe this type of plan could work quite well, while preserving the principles of a market economy.  No doubt some people will suffer, but the alternative of wholesale corporate welfare is even worse.

 The used  car buy-back reduces the inventory of these cars in the country (which is good), puts (on a percentage basis) more fuel-efficient and safer cars on the road than any other time in history (both in the US and elsewhere) and increases consumers' spending power. This type of stimulus approach has the added benefit of not rewarding the imbeciles that got us in this mess in the first place, and hopefully forces all of those decision-makers into corporate purgatory.