Bailouts?

I know this is a flurry of posts, but as a recent victim I feel that I have to write about something very close to me. This weekend, of my 4 flights, I was 1+ hrs late 4 times and had to spend the night in Salt Lake City (ugh) and wait 6 hours in the same airport on the way back for a total of around 30 hours excess travel time not including the time my parents sacrificed to pick me up from a different airport than the one I was supposed to arrive at. Delta cost me 1/3 of my 3 day weekend and I'm glad that I'm not more easily excitable in these situations. I'd say I was remarkably calm, but I think a lot of people would have blown their tops and maybe I should have. It just got me thinking about the massive, inefficient juggernauts that are blowing up all over society in different sectors in the name of "synergies," "cost-savings," and "market share" that end up reaming the public for massive profits before flaming out like a giant supernova and demanding exorbitant bailouts to save them from bankruptcy.

Airlines are a classic example, failing to effectively police themselves after being privatized in the 1990's. Delta itself, which is quickly sliding down into the worst airline in the skies, is considering merger at current in the name of these "synergies." More recently, the juggernaut banks that were formally able to join the capital of commercial banks and the deals of investment banks with the repeal of the Glass-Steagall Act are reeling in the wake of their own, ridiculous speculative investments and an endless wave of write-offs as subprime losses continue to mount. Citigroup has been mentioned for such governmental support as it lapses into financial dependence on Uncle Sam. The Economist had an outstanding article last week criticizing these firms for robbing consumers blind during the good time and passing on the entire cost of their failures to the tax payers. These firms are quickly saved in the name of the public good (and perhaps incredible lobbyists working Washington) as they constitute such a large percentage of our GDP.

Where does one draw the line? What if Wal-Mart loses it's magic? McDonalds would be an obvious candidate to eventually sink under its own weight, but it is seen as such important indicator for consumer spending that one might be able to picture the government buying out the Heart Attack With Cheese. From my perspective, I feel that when companies reach such inefficiencies and are massive leviathans unable to function, they should be either be supplanted by their competitors or sold off into pieces that can become useful. No one can question that such firms have strong assets and were once run extremely well, but the era of the megalith corporation has seen such unholy levels of consolidation (AOL-TimeWarner?) and unnatural union after union have snowballed into companies too large for their own good. And companies so large that the market is much less shielded from major errors and depressions than it would be in a more fragmented marketplace.

Do we really believe that we are better off in the long-run as a result of these bailouts? In the short-run the economy takes less of a hit, maybe, but the long-term existence of these monsters is a dubious proposition. In the age of the private equity firm, why not let the newest craze, actually running companies better instead of just profiting through fees and singularly technical savings in saved regulatory costs from going private, take over these broken machines part by part? I really think that the short-term focus, personified in these deals and the Fed's utter incompetence in the face of stagflation and complete inability to inspire any sort of consumer confidence by simply panicking and slashing the hell out of interest rates, is going to do some serious damage. The fall-out from subprime and the inefficiencies of these corporations, as well as a number of other economic factors, simply demands that we take our lumps and go through a recession. Going through inflation at the same time would not be an advisable move for the Fed to facilitate. Really brings new life to hilarious Glen Hubbard music video "Every Change of Rate", doesn't it? I think that from a purely theoretical standpoint the market does best with perfect information and fooling consumers into bliss is only going to work for so long. Let's see the government have the courage to do what it seems like they should do: let the economy suffer for a bit and grow from its adjusted value.