Bailouts reward poor performance

Bailouts reward poor performance
Deepak Seth • November 24, 2008
Rochester Democrat and Chronicle

The president and Congress seem to be caught up in the mindset of bailouts being the only mechanism for getting us out of the current economic crisis.

I think it may end up being a case of throwing good money after bad.The federal government should instead figure out a way of rewarding the successful and efficient operators rather than bailing out the inefficient. Obviously the successful operators are doing something right and it is their approach which needs to be propagated throughout the economic system.

The bad practices and processes of the inefficient operators are the contagion which needs to be eliminated to bring the economy back on track.The bailouts allow the same bad practices and processes to get a new lease on life under the very same managements which had created them and allowed them to thrive in the first place. This will only prolong the pain for the entire economy since these companies will continue to sap the system as they continue their market-unfriendly practices.

While the big Wall Street players, banks and insurance companies were driven by insatiable greed to follow unsound practices or to overlook warning signals, several relatively smaller institutions kept their eye on the ball, making sure that they had sufficient collateral before extending loans and have emerged relatively unscathed from the crises.

The government needs to figure out ways of extending the lines of credit for these institutions.These players are more likely to get the monies to deserving borrowers faster and more efficiently. That is what the credit-starved economy needs right now.

A similar approach needs to be followed for the automobile sector. Rather than bailing out the General Motors, Fords and Chryslers, why not reward the Toyotas, Hondas and Nissans that have been consistently more successful in the marketplace? Maybe assist them in acquiring the failing Detroit behemoths and turning them around. Most foreign car companies do a significant part of their manufacturing for the U.S. market in the United States and thus such an approach would better safeguard U.S. jobs.

More damaging is the fundamental organizational and cultural transformation that bailouts may bring about. The shift from "we need to be better focused on consumer needs to be successful" to "we need to have better linkages in Washington to make sure we have a finger in the bailout pie."

It's a shift from "competition" to "patronage" from "consumer" to "feds" from "global competiveness" to "protected islands" from "eliminate waste and improve efficiency" to "who cares, we'll be bailed out in the end." This will be detrimental for the United States in the long run.