Investing in Businesses with Failed Models

On his way out to his guitar lesson my 20 year old son informed me that the government should not be bailing out businesses with failed business models. I have no idea why he thought to say this to me or where he got his information from.

Does my 20 year-old know of John Maynard Keynes and his new popularity as the Obama administration now attempts to stimulate an economic recovery? Has he read Machiavelli's, The Prince, a primer for understanding that politics is at its essence the ability to take and spend other people's money?

What twisted webs will be woven as the "new" economic stimulus package is encumbered with political agendas. We are clearly seeing some of the natural down cycle of Capitalism as the marketplace punishes those who committed fraud, made poor business decisions and refused to change failing business models.

General Motors is a prime example here. By the mid-1980's, it was clear that they were losing market share to Toyota and Honda. Instead of complete and total restructuring and accepting that the playing field had forever changed, they talked "big" change and only made incremental improvements. By the way, that's about 25 years ... to change.

Instead of a competitive Hybrid built for a competitive cost, they have a job bank which rather than forcing laid-off workers to get new skills and move on with a productive life, actually paid many people $30 an hour to do "nothing". Instead of the best built and lowest cost pick-up truck, they outspent everyone on advertising and marketing their over-priced yet still barely profitable products. ("Like a Rock"....... in the proverbial pond; GM stock prices revisited the 1950s this past year.)

In an effort to reinvent Cadillac they came out with a couple of sporty models but that doesn't change the following critique; "If you see a young person in a Cadillac, please send them my condolences on the death of one of their grandparents."

I hope GM makes it. I used to own GM stock. But, it may just be too late. Government money buys them just a little bit more time to get it right. While the corporation deserves what the marketplace is handing it, I am sympathetic to the plight of individual workers and families who stand to suffer greatly if GM fails.