Bailout Effect

Yet another example of how bailouts cause all manner of consequences in the marketplace. Legitimate and well run companies find themselves at a serious competitive disadvantage when firms like AIG are showered with billions of dollars in reward…

via Bailout Effect: AIG Underpricing Commercial Coverage | The Big Picture.

This is the general problem with bailouts and subsidies: bad companies displace good companies, just as bad money chases out good money. The government is contemplating doing the same with the auto industry: punishing companies that make vehicles consumers want and rewarding companies that make vehicles that consumers don’t want.

Every thing is a trade-off. Politicians seem to think that saving jobs now is worth a future dominated by inferior products and services (assuming they think about it al all). I might feel differently if it was my job at stake, but even then I’m not sure that I would want to risk condemning future generations to a reduced standard of living solely for my short term convenience.

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