I am not actively trying to be a pessimist on this topic so forgive me if I sound like one. Personally, in this situation I am able to see the glass both ways; half full and half empty. However, my goal today is to take a look at the downside of U.S. government bailouts because in the end, no matter the short term benefits - how many jobs we save or at what level we are able to sustain the Dow Jones at - U.S. Government bailouts are not in the best interest of neither corporations nor American citizens. Here is why:

1. Domino Effect

     It’s apparent that AIG was the first ‘domino’ to fall sending other companies to the Fed’s doorstep seeking bailout assistance, the most recent of which are General Motors and Ford. However, with these auto giants requesting bailout assistance, what is to prevent other companies or industries from following suit? With such small margins and quarter after quarter of losses, perhaps the airline industry should seek assistance as well. What about the ailing American tech industry? By funding an American automaker bailout the U.S. Government will indirectly encourage other business entities to seek aid as well. What we will see is a domino effect to which there may be no end, at least not in the near future. Can the U.S. Government continue to fund such massive bailouts without long term consequence to the country?

2. Innovate or Die

     Bailing out companies can be considered an unfair economic practice, particularly to competitors who play by the rules, fly straight, and succeed - or worst, fail! In the past, a large corporation’s success was based on the strength of Washington alliances, peer networking, and perhaps above all, cronyism. However, when worldwide economies began to interact globally and strong foreign competition began to take root in the United States, the new name of the game became ‘innovate or die.’ Yet with all the success of foreign corporations here in the U.S., why are American corporations failing? Simply because they are rooted in old habits and are unwilling to adopt more efficient ways of doing business. So, as awful as it may seem, rather than bailing out these corporations for their inability to innovate, does it make sense that we should simply let them die?

3. Less Laissez-Faire

     It is believed by many that government interference in free market activities will limit the amount of individual prosperity and personal freedom among citizens. The Market, without government interference, is an efficient machine. Everyone’s participation serves as a form of checks and balances and insures that good corporations succeed while rotten ones fail. It also provides a measure for the amount of risk participants are willing to accept. Many corporations, AIG for example, have taken on way too much risk without appropriate oversight or ethical transparency leading to their eventual market failure. In going bankrupt, market mechanisms would have served their purpose and competitors would have emerged to fill AIG’s customer’s demands. What sort of message do U.S. Government bailouts send to other free market countries?

4. A Socialist-Democracy

     Forgive me, for if there is a term for it then I am not aware of it; Socialist-Democracy. Most people feel that the advent of Social Security in the U.S. was a radical step towards Socialism. If this is the case then perhaps U.S. government bailouts will be a leap towards Socialism. While the adoption of Socialist policy is highly unlikely in the U.S., the adoption of Socialist practices could steer the country towards a more complex Socialist-Democratic society. Arguably, companies being bailed out by the Fed are unofficially becoming state owned enterprises. Conceivably accepted by other world governments (Socialist, Communist, Republics, etc.), our Democratic government fundamentally frowns upon such behavior. Is it in the best interest of the U.S. to challenge a key concept that defines Democratic ideology worldwide?

5. Tax Payer Burden

     According to The Tax Foundation, American tax payers work through April 23rd just to pay off the IRS. This does not include any local or state taxes that you pay either which could push that date later into the year. Seeing that American taxpayers practically work for a quarter of a year without realizing any ‘true income,’ is it fair for the government to use taxpayer’s hard earned money to bailout failing organizations? Furthermore, there still exists the possibility that taxpayers will have to pickup this burden even more in the future should this crisis deepen.

I want to know your thoughts.