Comment by kbenson | Hacker News Reader

Comment by kbenson | Hacker News Reader

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The government didn't give money, they invested because the market wasn't in a position to do so when the industry needed it. The narrative that the company is only going to do good short-term because the government gave them a lot of money doesn't make sense when the government has since sold it's position in that company for a profit, meaning the market now viewed that company as a more favorable investment then they did when the government intervened.

> The free market is supposed to weed out the chaff.

The free market doesn't care about stability, but we as the people that deal with the market, should. An unconstrained free market will swing wildly, which is one of the ways it will identify the chaff to cull, or depending on how low the swing is, the not-quite-as-good wheat to cull. The US has long recognized the benefits of a steady economy though, so while there isn't as aggressive culling, allowing some mediocre companies to survive, the environment itself is more amenable to sustaining a population of people which is the whole point of the economy.

What you're completely ignoring is the consequences such bailouts have on the market dynamics[1]. It creates a massive morale hazard which can and will incentivize market actors to take part in risky behaviour. If you are seeking to stabilize the "free" market, you are not going to do it by rewarding the losers or picking the winners.

Failing is just as important aspect of a self-regulated system as is the price, since the government voided that mechanism since forever we have an entirely disrupted market perfectly conditioned for too-big-to-fail participants.

[1] https://en.wikipedia.org/wiki/Moral_hazard

I think that depends entirely on whether you saw what happened as the government bailing out GM, or the government keeping an industry from collapsing, which just happened to by by taking the first major company of that industry to fail, and injecting capital. I don't think it would be wise to expect the government to bail GM or any other auto-maker out of a financial problem in all industry conditions and all market conditions. Investors that expect that will lose their money to investors that correctly assess all the preconditions required. I don't expect most investors to be so stupid as to think nothing bad can happen to their investment in a failing company because occasionally extreme measures are taken in extreme circumstances. At a bare minimum, they should recognize that even if a company is bailed out, that doesn't guarantee a positive return, just a theoretically less negative return than before.

> they invested because the market wasn't in a position to do so when the industry needed it

How is this different than "The industry planned poorly and deserves to have its assets liquidated?"

Because that industry employed two million people and a blow that large to the workforce with the economy how it was might have resulted in consequences that reached far beyond that industry.

Put another way, a free market will result in the best solution. Eventually. There's no reason we can't target what might end up being cascading failures to reduce the negative swings in the economy. I would hazard that this will result in a better economic outcome quicker, but even if it doesn't, I think it at least results in less human suffering, which is a fair trade in my eyes.

As I understood it, the durable goods industries are the part of an economy that gets hit the most in a recession: Whether B2B or B2C, in the case of an uncertain economic outlook many customers will postpone investments in durable goods (e.g. cars, machining, housing upgrades like better heating/isolation systems etc.) more than they'll do with other products.

So: Many companies were similarly over-leveraged, but those in the durable goods industries were folding over it.

See IIRC Finland as an example: No banking or housing problems in 2007/8, but still in a recession because of the big role durable goods exports play in their economy.

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