Tuesday, February 24, 2009

Why Downward Spirals are Vicious

AIG Tower in Hong Kong.Today's headline from the New York Times reads: "U.S. Is Pressed To Add Billions To Bailouts."

Doubletake. Wait just a minute. I thought the U.S. government has already handed out billions in bailout money ... to banks and finance institutions, to auto manufacturers, even to hard-pressed homeowners. So who is it that is asking for billions more?

The article says: "The government faced mounting pressure on Monday to put billions more in some of the nation’s biggest banks, two of the biggest automakers and the biggest insurance company, despite the billions it has already committed to rescuing them."

Tripletake. "Billions more?"

I'm trying to imagine running a business, like the insurance giant AIG, and running it so badly that I have to come to the government asking for a $150 billion (with a B) bailout in order to keep it afloat. Then, a few short months later, I come back and ask for billions more?

There is only one thing that could possibly be going on here. The entitlement mentality that has been slowly creeping into mom and pop America these past few years, the sense that life owes me something and if I fail it can't possibly be my own fault,  has apparently infected even America's largest institutions now.

What has made the entitlement mentality possible in the past is a codependent government which is there to bail us out. Hence welfare has become not merely a safety net for the truly poor who cannot work; it has become a substitute for having to work which is abused daily by millions of people who would apparently rather sit and home in their trashed up trailers and drink booze and take drugs and abuse their kids.

As parents we see the same thing in raising our families. One of the toughest parts to being a parent is overcoming the conviction that you need to be your kids' best friend. You need to step in and protect them from the consequences of their bad decisions (rather than letting them suffer the consequences themselves and hence learn from them).

So at some point the government is going to have to learn to do what all parents who are being the kind of parents God wants them to be have to learn to do: To just say "no." Sorry, AIG, if your business model and business decisions have been that bad, you are going to have to suffer the consequences for it.

The rub of course is that it isn't just AIG execs who will suffer, it is the thousands of employees and all the others who have paid in money into the bad system and now are looking to AIG for help. The consequences of our failures always affect others, and at this level the net is cast exceedingly wide.

But the cycle of codependence has to stop somewhere. Government may have the deep pockets, but ultimately they are going to turn back to the governed and victimize them with higher taxes in order to pay for their bailouts of AIG, and the banks (selling junk mortgages to those who can't afford them), and the car manufacturers (who, by the way, should have learned a lesson about making more fuel efficient and trustworthy vehicles long ago from the experts like Toyota).

Downward spirals are vicious because they gather momentum as they spiral downward. They become harder and harder to stop. Better to stop it now and deal with the pain.