bailouts, a follow-up

I was glad to see that my last post on bailouts engendered (what a great word) so much response. This is my attempt to address the comments made.

The economy is going to suck wind for a while. How long that while is depends on, well, everything, but a key factor is how much toxic waste is left in the financial system and how that will impact, well, everything else.

As for whether I will feel the same way in 25 years? I'd like to hope that my life will never depend too deeply on the status quo. In many ways, it does not and will not need to for at least the next couple of years. I'm highly mobile, live well beneath my means, and have little to nothing to absolutely demand my presence in a particular place. This gives me a healthy cushion, but it still sits upon a presumption that the basic infrastructure of society will function when I need to access it. In that sense, almost everyone is intimately dependent on the status quo. I don't have a water well, generator and some hunting rifles for the day that the system goes catatonic. I need groceries to be available at the store, my apartment to allow me to live there, and electricity is really, really nice.

Can the automakers survive? Yes. And I was very happy to see them sent packing from D.C. being told that they needed a business plan (who'd have thunk it!) before a $25 billion loan (read: donation) would be extended to them. I was also deeply amused that the Executive administration criticized Congress's rebuke of the automakers. If only we had asked Bear Stearns, Fannie Mae, Freddie Mac, AIG, Merrill Lynch, Countrywide, and Washington Mutual for business plans. We could have saved all that money and actually done something useful with it instead of funding spa trips for people who aren't me.

I'm not fully up on what Citi is getting, but I did decide to abuse the system and take advantage of a dead-cat bounce on Monday in the markets.

So are bailouts disastrous? No, not really. They need to be well thought out loans that a responsible bank might make if they had the size and scope to absorb a loss, which is always a possibility even with the most prudent loans.

As for the idea of Big Oil bailing out the automakers, I'm not sure how to respond with anything but incredulity. Oil and gas companies are in the oil and gas business. They aren't in the wind or solar business unless by choice. And they certainly aren't in the car business. Should Intel bail out every poorly run computer maker? And now that the price of oil has tumbled, I'm waiting for Congress to call the oil and gas industry executives back and thank them for bringing the prices down as was desired at the Congressional hearings on the subject earlier this year. What? International oil and gas companies don't control the price of oil at will? Oh, we had no idea since we're just elected officials and only listen to the shrillest people in the room.

The price of oil will climb back. Current prices are unsustainable and the length of time they stay this low will depend on how much demand destruction has occurred / will occur due to the recession we are in (yes, it already started) and if commodity prices that affect drilling, completion, and production costs come down accordingly. Right now, those costs to the industry still exist so the current price is not economically viable. If it stays too low, too long, people pack up shop and then when demand eventually increases, the ability to meet that new demand doesn't exist, there's a surge in price and we do this all over again, but hopefully without reckless financial lending going on at the same time.