Friday, December 12, 2008

More political soap-boxing...

Fundamental Principles of Business and How the Government Messes it all Up

A few months ago I spent a lot of energy to try and convince my dad that we needed to bail out the financial industry. Maybe it was because I work in the financial industry but really I think that I was swayed by all the hype and energy that the media built up regarding a great depression and financial Armageddon. Last night I called my dad and confessed that I was very wrong and have now changed my view.

Why would I change when the economy is in worse shape then it was before? I realized that there are fundamental principles of business and life. If you adhere to the principles you will win. If you break the rules you will eventually loose. I’ll outline some of these and I challenge you to measure your family financial situations and the companies that you are familiar with by these principles to see what part of this mess each of us is responsible for.

1. Maintain control of your leverage.
The Church often states that they are completely out of debt except for some transactional debt that is required in some situations. I can only imagine that these situations have to do with the transaction of real estate and the timing to free up or sell assets. Perhaps they have a line of credit with building products manufactures so that they don’t have millions of little transactions. I believe that this strong control of debt is inspired and a key reason why the church is generally considered to be the most financially secured religious organization in the world.
This brings us to the housing crisis. Banks and the consumers used real estate as a debit card and got way over-leveraged. If you watch CNBC you will hear about the deleveraging of the markets over and over. We’re more leveraged now then we ever have been. The problem isn’t just the banks—it’s the people, almost all companies . . . it’s everyone! So when times get hard we stick each other with the debts and the only answer is to either go out of business or get the government to take on your debts.

2. Cash is KING, or Cash flow is KING
There are only two problems to a budget. Either there is too much going out or there isn’t enough coming in. So those who have cash and more cash coming in are in a good place. If you’re in trouble you either raise cash or go to #3.

3. Giving up an asset that has future upside in order to survive until tomorrow is the right answer.
So you either increase your income or you tighten the belt to reduce the outflow. Part of tightening the belt is letting go of great parts of your business/life in order survive even if you plan on buying that part of business back at a premium in the future. GM should let go of some plants, brands, and international companies in order to survive. Following the car theme, Holly and I recently bought a new van. There isn’t anything really cool about a van but if I lose my job we’re prepared to sell that van at a loss. In fact it’ll probably be the first thing to go. (You guys don’t have to hold me to that ☺ it’ll be really hard.) But this is an example of the right thing to do. If a company isn’t bringing in more cash then it’s paying out it needs to tighten the belt, cut some people, some production, and even a division or two.

These three principles of business are key fundamentals and I feel that our government is completely ignoring these things. In fact they are making it worse by going into debt at a ridiculous rate. They’re doing this because they don’t believe that the American people can handle the situation. It’s too hard for us to get through this. What if this turns into another depression? What if we loose 2 million jobs? What if, what if…. I’m sick of this crap. We are a great and powerful people who need to be told the straight deal! We need to go to work. We need to stop spending other people’s money. We need to start living within our means. We need to stop squandering our inheritance. We need to give our kids something other than trillions of dollars of debt.

I’m a GEAR HEAD. I love cars! I subscribe to three car magazines. I religiously watch a number of car TV shows. I dream about someday being in the car business. (Although I do despise car sales people… well, except for Pinkie). It is my humble opinion that US cars are just OK. I don’t feel that they’re innovative. They don’t induce passion. Generally they’re really ugly (think the entire Cadillac line). They all use outdated technology. The new ecotech engines are really cool and have great upside, especially in forced induction situations, but that’s about it. The companies that build these cars have to cut on quality in order to be competitive. The unions have sucked all the life out of the car companies. The top-heavy management and legacy costs create a huge outflow of capital. There is simply no way that they will be competitive. They need a major chainsaw to cut management, divisions, and the number of cars they build. This should have been done early this year but the fools didn’t do it. They chose instead to let it get so bad that they became too big to fail so the principle-less politicians would throw money at them!

Holy smokes.. Natalie just fell asleep sitting on the floor! She fell forward and landed on her face…. HOW FUNNY!!!!

I’d feel better if we built a border fence, built power transition lines across the country, invested in massive solar power collection stations, or even gave tax breaks to buy cars made in the USA (including all the foreign car models made here). Do anything but give people who have failed a green light to squander and fail again!
So I stand in a new place. I’m not extreme right wing. I do think that there are some worthwhile ways and thing that the government can do but I don’t think that throwing money at rich and high leverage focused people is the right answer. Doing this just supports bad behavior and removes the natural consequences of bad decisions.
Just a note to end the post: I’ve been laid off twice so yes I have some blood in the game. I’m more leveraged than I think I should be. I believe in the American people! I know that if we forget ourselves, roll up our sleeves and GO TO WORK! we’ll all be just fine. It will NOT BE FUN! It will BE HARD! It will take SACRIFICE! But it will be all these things regardless of what the government does. I personally would rather take my whooping now than tomorrow.

Let me know your thoughts… mine were very different 3 months ago so you may get me to change again.☺

2 comments:

bethany said...

It's called enabling-an epidemic that is also rampant in this nation. No natural consequences for choices and those of us who believe there should be consequences are considered extremists. Well said.

I have to say though-my favorite part was your random commentary on Natalie falling asleep :)

North Family Arizona said...

Thanks Beth for commenting...It was really funny when Natalie fell asleep like that!

Come on all you other people. You have to have an opinion o this! The auto bailout is socially so much safer then prop 102 or 8 and we all spoke a lot about that. Or could it be that we're just tired of the bailout garbage.......