The economic apocalypse is here.
Or so the media began to holler last December. The War on Terror was suddenly irrelevant after both the Democrats and GOP agreed the surge was working. People took notice of the economy at first, but heeded little caution.
Then financial institutions started failing.
First, there was Bear Stearns. IndyMac then admitted they no longer could compete, as did Lehman Brothers. When AIG, Fannie Mae and Freddie Mac admitted defeat, the jig was up. The stock market took the cue to dive.
The phrase “too big to fail” has been thrown around like Mr. Bill over the last two months. It has been applied to Fannie Mae and Freddie Mac, who are government-sponsored lenders, and AIG, one of the world’s largest insurance companies; like a parasite, the terminology has been passed on to new hosts.
General Motors and Chrysler are the newest adaptors of such a label. They claim the pending merger is not enough to repel failure.
Just weeks ago (the same week as the bailout, actually), the United States Congress granted a $25 billion loan to Ford, GM and Chrysler in order to enable research of fuel-efficient and alternative-fuel vehicles — something they ignored when the U.S. was caught up in an SUV phase. Now, GM-Chrysler is asking for even more.
But the Big Three has nothing to offer now, the market is showing an interest in foreign products after a gas price explosion. The same events took place only a generation ago during the 1970s energy crisis, and the result was a small, light, fuel-efficient car that was rushed to the showroom floor despite a few small defects: the Ford Pinto.
If one word defines the U.S., it is capitalism. Recently, a Wall Street Journal article analyzed whether the financial crisis will result in the downfall of our economic.
But America is not a victim of capitalism; it is the victim of a lifestyle of instant gratification and a lack of the need to take responsibility for actions.
Companies and stockholders want to make money now, without thinking of the long-term consequences. If a firm gets too far into the red, they have come to expect the U.S. Treasury to give them money.
It’s as if they were college students asking their parents for financial help, convinced that they can’t make it through the rough patch alone.
Only, car manufacturers and banks aren’t people, they are businesses. Ford, GM and Chrysler sold as many gas guzzlers as they could without realizing that someday consumer preferences may change. Banks wanted the short-term profits from sub-prime mortgages and unwittingly dealt out their own demise. This downturn may eventually affect the real economy.
The argument for bailing out of the automobile industry is protection of working class jobs. But by donating government funds, we are eliminating the incentives for responsible business practices and rewarding laziness and ambivalence in the upper echelons of corporate America with the resource they are supposed to be working toward obtaining in the first place: Cash.
Ryan wants to hear your thoughts. Send them to ryan.oneal@asu.edu.
