One bailout after the next. So why not tech?
I must have been dozing in government class when they explained the part about how the U.S Constitution grants the legislative or executive branch the power to bail out failing businesses.
Joking, of course. Here's what the Constitution actually says: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."
No, this isn't the start of a civics lesson. But what with the laundry list of corporations on Wall Street and Detroit lining up for government assistance, how long before a company from the technology industry decides to get in while the getting is good?
Considering current events, that's not a far-fetched possibility and the candidate company need not be one step away from intensive care. Take a gander at Thursday's Wall Street Journal story reporting on on the latest holdup: In this case Bank of America is about to get another TARP bailout from Treasury Secretary Hank Paulson--not because the company's teetering on the edge, but to help close its acquisition of Merrill Lynch.
The Journal article notes that BOA is "now broadly exposed to the nation's economic ills. With its recent acquisitions of troubled California mortgage lender Countrywide Financial Corp. and Merrill, the bank is now a major player in every corner of the battered U.S. financial system."
Of course, nobody put a gun to CEO Ken Lewis' head. He decided BOA had an opportunity to build itself into a financial services superpower while his competition was failing. And so he took a shot.
Since Paulson is in such a giving mood, why shouldn't the same privilege get extended to Advanced Micro Devices or Yahoo or Palm? Thousands of people, who depend on their livelihoods--directly or indirectly--will go on the dole if those companies continue to sink. And what would be the implications of losing such centers of technology innovation? Surely, that can't be in the national interest?
And while the printing presses are still warm, why limit the list to companies piling up red ink? For instance, Dell is not losing money but it's no longer the powerhouse it once was. That can't be good for the industry or the country. Michael Dell is working on that question as we speak and no doubt, could do wondrous feats if Uncle Sam offered $20 billion or so. And that would be cheap compared with the $25 billion BOA already received from the government. I'm sure some nitpickers may call for congressional scrutiny, but if we're already betting that Rick Wagoner can revive General Motors, why is Michael Dell not an equally good risk?
Of course, the answer is that all this borders on the insane. Then again, it fits with the ridiculous times that we inhabit. In case you missed it, Hustler magazine wants a porn industry bailout. Why not? Nothing is too crazy in Bailout Nation, folks.
Charles Cooper has covered technology and business for more than 25 years. Before joining CNET News, he worked at the Associated Press, Computer & Software News, Computer Shopper, PC Week, and ZDNet. E-mail Charlie. 
Well, unless Dell can convert its capacity to build a tank in wartime, or guarantee and conduct billions in transactions an hour.
um, did u bother reading the post before flaming? my dell point was tongue in cheek. i think the bailouts are ridiculous. so would a tech bailout.
- by RG_in_Tampa January 22, 2009 11:45 AM PST
- I own a small business that I started in 2000. It had about $400K in credit lines in 2006 that helped with cash flow of all of the employees. In 2007, one of the banks reduced the line by $60K; although, revenue had not declined. In 2008, a couple of other banks got on board and reduced the lines by another $115K. They now have me paying interest monthly, with quarterly principle paydowns of $20K.
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(7 Comments)Additionally, AMEX announced that in January, they are discontinuing their small business capital line program for all businesses. This dropped another $35K LOC from my companies aresenal. At the same time, they converted theirselves to a bank and got in line for a handout.
I'm consider myself lucky because the banks are working with me to pay down these lines. I have a friend that owned a lumber company that had 2 million in credit lines against receivables and inventory. These lines are reviewed annually. At the review time, they simply called the line with a 30 day notice. He couldn't get the lines refinanced, so it put the entire company out of business. They had been in business for 6 years profitable every year.
The ridiculous part about these bailouts is they are doing nothing to kick start lending. The banks are collecting the check at the same time they raise interest rates and shut down lines of credit. It's infuriating. I'm not completely against bailouts but to do them with no strings attached is the most idiotic move I've ever seen with tax payer money.
The only positive thing that I can say is that in 2 years, my company will be debt free and the banks will be out of the picture. I will not be quick to forgive the stress that they have put me under. My goal will be to remove all personal debt next.