Mover Mike

This business of one company in an industry getting in trouble, going into Chapter 11 and liquidating debt, employees and inventory is just killling the competitiveness of the survivors.

We saw it happen with Chrysler back in 1979.

After weeks of rising pressure for a federal fix for the multiplying problems of Chrysler Corp., Treasury Secretary G. William Miller produced—and Jimmy Carter approved —a Government bailout. It was designed to prevent the nation’s No. 3 automaker (1978 sales: $13.6 billion) from sliding into a bankruptcy that could have put many thousands out of work and sent a shudder through U.S. financial markets.

That $1.5 Billion bailout kept three companies alive when we really only needed two, it turns out.

Then we had the airline industry. One after another went bankrupt. As a consequence, they got to rid themselves of debt and high cost employee contracts. That made it tougher on the survivors. The airline that went bankrupt now had a lower cost structure and room to go out and buy the latest planes to fly.

We’ve seen it in the furniture industry. Wickes and Levitz went bankrupt and then a liquidator comes in and throws all their merchandise on the market at cut rate prices. It sucks a lot of demand out of the marketplace. In some cases the liquidator brings in furniture from god knows where and sells that too.

Now we have Circuit City filing Chapter 11. They will close 20% of their stores and renegotiate their remaining leases and throw merchandise on the market at low prices in the stores that are closing. In the meantime Best Buy, who already has to face a tough economy, must compete with a lower cost Circuit City.

It’s reported by the WSJ that Best buy said

“Since mid-September, rapid, seismic changes in consumer behavior have created the most difficult climate we’ve ever seen,” said Chief Executive Brad Anderson. Best Buy, he said, “simply can’t adjust fast enough to maintain our earnings momentum for this year.”

Now, we have the federal government throwing money around to the tune of $2 Trillion dollars so far. Who knows what collateral damage is being done to perfectly healthy businesses by the Feds actions.

Where does it end and who is benefitting?

Tags: Corpustler, Economics, Government Spending, Socialism //
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