Bailing Out Companies In This Much Trouble In This Kind Of Economy Is A Fool's Errand

As many of us conservatives have been saying since September, trying to bail out companies in that much trouble, especially when the economy is in this much trouble, is a fool's errand. We said then and we say now that throwing money at the problem does three (BAD) things:

1. It creates only an illusion of helping solve the problem. Makes one feel like he's 'doing something'. Of course 'something' must be done. While it's unattractive in the absolute sense and is certainly painful, a structured bankruptcy has to be considered more seriously.
2. It creates the false hope that severe economic pain can be avoided. There are elements of our society that are highly invested in avoiding pain, no matter the cost and no matter how much a waste of time, energy and resources it is. Pain is unavoidable. But pain is good because it helps us be more effective and resolute in preventing it the next time the same circumstances start materializing that caused the pain before.
3. Turning off the money spigot is extremely difficult when the companies come crawling back for more. And they will because the spigot and, perhaps, the reservoir itself aren't big enough. The bucket we're pouring that money into has at least a couple of holes in the bottom. One is the product and how it's been managed in a way that helped create the problem. Another hole is the bad economy. Another way to look at it is we're throwing money at the symptoms while the root problems go unresolved for the most part. We're treating symptoms (money is a nice bandage) while the disease (holes in the bucket) continues killing the patient.

Businesses can't and don't survive using this kind of model (throwing mind-boggling amounts of money at a problem) but federal bureaucrats in government don't have to concern themselves with keeping the bottom line healthy. After all, they can just print more money!

When companies start developing a new product they start by committing significant money to the project. What managers of successful companies know is that it's better to kill the project when the money being spent no longer appears to be capable of producing a desired result. What they know is that the money spent so far is sunk cost and should have NO bearing on a decision whether to continue funding the project. They look at the options ahead of them and do a cost/benefit analysis of each. What's been spent is spent. They can't do anything about that now. Often, heading off down a different path than they started down is the best option for the FUTURE of the company. They can walk away from something that turned out to be a bad decision and feel good about it because it's the right thing to do now. They're more interested in the survival of the company and don't live in denial like people with political agendas do.

There's even an old saying about pouring even more money into something that's not working out: throwing good money after bad. Stopping an effort when it begins to look fruitless is also called cutting your losses. Sure, it hurts to have spent all that money and get nothing for it. But pursuing the folly hurts more! You can't avoid pain at that point but you get to choose which pain you're willing to suffer. The folly of keeping up a hopeless effort and the huge price one pays for doing that are key lessons learned in Business 101 ... by those who paid attention.