-Cp
04-08-2009, 04:25 AM
We have a new F word: failure.
One unhappy hallmark of the Great Recession is a dramatic spike in financial distress. Moody's predicts that the default rate on corporate debt--which helps foretell bankruptcies--will be three times higher this year than in 2008. Home foreclosures are already at record highs, and going higher. Defaults on credit cards and other consumer debt will crest right behind mortgages.
The Obama administration is on the case, bailing out banks and homeowners and aiding dozens of industries either directly, through a financial-rescue scheme that could top $2 trillion, or indirectly, through the $787 billion stimulus bill. Automakers, furniture companies, real estate developers, and even porn magnates have their hands out.
[See a tally of the bailout efforts so far.]
Those efforts ought to help soften a sharp recession. But the unprecedented aid to the private sector may also unleash new problems, the way antibiotics have generated stronger strains of bacteria. "There's something fundamental about the need for failure," says Syd Finkelstein, a professor at Dartmouth's Tuck School of Business and author of Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You. "We're tinkering with the genetic DNA of a capitalist society."
Before “failure” became an unspeakable word, entrepreneurs understood that most business ventures in America fail--producing acute lessons that have helped make America fabulously prosperous. In the 1870s, for instance, there was a five-year depression, followed by a historic era of mechanization that destroyed old industries and generated new ones at a pace nobody had ever seen. "It was a time of terrific insecurity," says James Grant, founder of Grant's Interest Rate Observer. "It was also a golden era of dynamism." Landmark companies like IBM (started in the 1880s), Johnson & Johnson (1885), and General Electric (1892) date from that time.
Read the rest:
http://www.usnews.com/blogs/flowchart/2009/3/27/how-bailouts-can-butcher-capitalism.html
One unhappy hallmark of the Great Recession is a dramatic spike in financial distress. Moody's predicts that the default rate on corporate debt--which helps foretell bankruptcies--will be three times higher this year than in 2008. Home foreclosures are already at record highs, and going higher. Defaults on credit cards and other consumer debt will crest right behind mortgages.
The Obama administration is on the case, bailing out banks and homeowners and aiding dozens of industries either directly, through a financial-rescue scheme that could top $2 trillion, or indirectly, through the $787 billion stimulus bill. Automakers, furniture companies, real estate developers, and even porn magnates have their hands out.
[See a tally of the bailout efforts so far.]
Those efforts ought to help soften a sharp recession. But the unprecedented aid to the private sector may also unleash new problems, the way antibiotics have generated stronger strains of bacteria. "There's something fundamental about the need for failure," says Syd Finkelstein, a professor at Dartmouth's Tuck School of Business and author of Think Again: Why Good Leaders Make Bad Decisions and How to Keep It From Happening to You. "We're tinkering with the genetic DNA of a capitalist society."
Before “failure” became an unspeakable word, entrepreneurs understood that most business ventures in America fail--producing acute lessons that have helped make America fabulously prosperous. In the 1870s, for instance, there was a five-year depression, followed by a historic era of mechanization that destroyed old industries and generated new ones at a pace nobody had ever seen. "It was a time of terrific insecurity," says James Grant, founder of Grant's Interest Rate Observer. "It was also a golden era of dynamism." Landmark companies like IBM (started in the 1880s), Johnson & Johnson (1885), and General Electric (1892) date from that time.
Read the rest:
http://www.usnews.com/blogs/flowchart/2009/3/27/how-bailouts-can-butcher-capitalism.html