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When The Government Owns You

by Alexander Wissel, Editor in Chief, Investment U

Dear Investment U Reader,

We’ve heard everyone from the far right to the far left criticize the administration’s plan to kick out General Motors (NYSE: GM) CEO, Rick Wagoner, and the resulting “back to the drawing board order.” The outcry has been a little on the ridiculous side. Let’s face it – he deserved it.

What seems to be scaring investors is that they believe the very essence of our capitalist society is on the verge of breaking down. But that’s simply ludicrous. Wall Street has plunged over the news in the past couple of days, still with no idea of what to make of it all.

In many ways it reminds us of teenager who just found out their parents are “joining them” in going to a movie theatre with friends – not happy.

But lets face it, The government was asked by these companies to lend outrageous, and many times obscene amounts of money to keep these private companies going. Without which, they surely would be liquidating or already in bankruptcy.

We’ve written about the U.S. automakers before, here, so its no surprise that they got what they deserved. Ultimately, any organization needs to be wary of who they allow to take a majority ownership stake. Not all majority shareholders are benevolent Warren Buffett types.

For example, a politician who takes large sums of campaign contributions from a tobacco/nuclear waste/drug/oil company pretty much has to realize that they are beholden to that company if they get elected.

It also means that when they accepted that money, they knew the risks, and accepted that their contributors would own their official positions.

It works the same way in the boardroom. Whoever owns a majority of the shares makes the rules and sets the agenda.

These companies who have accepted large amounts of TARP, Bailouts and Handouts had to understand that they were giving over control. And now they’re crying foul.

The smart companies are already figuring out ways to give the money back, and get the government out of their books. The ones that can’t… well, one of the great things about our capitalist system is that these company’s corporate ideals, systems and principles will die with them.

And in some of these cases, they probably should have been put out of their misery a long time ago.

More on this topic (What's this?)
The Slow Death of General Motors
Telling the truth or being positive?
Read more on General Motors at Wikinvest
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