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Bankruptcy Over Bailout

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Congress is getting so much pressure and hearing so many tall tales these days that it’s akin to unscrupulous telemarketers battering the simple minded to buy their product. It is getting to the point where Congress will need to pass legislation to protect itself from money grubbing shysters.

First, it was the Paulson/Bernanke Crime Syndicate (their specialty is counterfeiting) that told Congress they needed a cool $700 billion or the sky would collapse on the United States. Now, it is the poor automobile industry (that just got $25 billion from Congress in October) that needs another $25 billion lest the unemployment rolls in this country  swell by 13 million or 4 million (they haven’t decided on a number yet). Next month, Congress will probably hear from the airline industry and how it needs billions. After that, look for the agriculture sector to weigh in and then who knows, cigarette companies?

The fact is, soon there will be no end  to the steady stream of industries and groups which will lobby Congress for federal largess unless they put an immediate halt to the giveaways. Congress has a golden opportunity to do just that right now by saying no to the automobile industry. No matter what the costs, Congress must say in the words of Roberto Duran “no mas” to billions in bailouts for Detroit.

For one thing, all of these bailouts are unconstitutional and thus illegal. Article 1 Section 8 of the U.S. Constitution clearly specifies the powers delegated to Congress. Nowhere in those roughly 17 powers is Congress given the authority to transfer money from one constituency to another. Nowhere in there does it say Congress can use the federal Treasury to prevent corporate bankruptcies. Critics of this position will say, “but what about the general welfare clause in the same section?” The answer is, if the general welfare clause gives the Congress the power to bailout corporations with taxpayer funds then why did the authors of the Constitution not delineate that power among the 17 powers in that section of the Constitution? Why did they delineate any powers at all if the general welfare clause includes any power? According to the general welfare clause logic of the statists, the Congress can do whatever it wants under that one clause. That is why we are in the mess we are in.

Another reason Congress must put an end to its handouts is because it is investing in losing propositions. The Big Three automakers are a perfect example. Their stock has plummeted by 75 percent since the beginning of the year and all three claim they are on the brink of bankruptcy. If investors are bailing on the Big Three in droves and each has one foot in bankruptcy court and the other on a banana peel, why in the world would our elected representatives even consider putting billions of dollars in them. Would you?

Of course there is a good reason why the carmakers are collapsing. Like other industries that have disappeared from the American landscape, the automobile companies have been the victims of collective bargaining laws passed by Washington and the State of Michigan. It has been estimated that the average GM worker makes $81.80 an hour in wages and benefits. In comparison, non-union Toyota pays $48 per hour in wages and benefits. The legalized extortion that the UAW is allowed to hold over GM puts the company at a competitive disadvantage costs wise by about $1000 per vehicle produced.

So, if Congress should not bail out these broke companies, then what should be done? The same fate should befall the automakers that should have befallen the failing banks. They should be allowed to go bankrupt. “But they are too big to fail.” “Many people will lose their jobs, their homes, and their healthcare.” The bottom line is that the Congress cannot solve our economic problems by throwing good money into unsustainable enterprises. The more than $2 trillion the government has already injected into the economy has proven that. Besides, at the right price, entrepreneurs will buy the assets of the bankrupt firms and start a new American auto industry. There is a market for cars in the U.S. and it is only a matter of time before some American(s) fills that market need. Then the millions of workers who lost their jobs with the Big Three bankruptcies will have an opportunity to work for a competitive company.

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About Kenn Jacobine

  • Tony

    First of all the automakers are asking for a low interest loan; not a bailout.

    Secondly, I think the basic concept that is being missed here is that the only way we are going to have economic recovery in this economy is by finding a way to return consumers to the market. That is the essense of capitalism.

    By letting the Big Three go bankrupt you are losing, not only the jobs employed by those companies, but you are also bankrupting all of the companies that base their capacity on servicing the Big Three. Those are a lot of jobs lost and a lot less disposable income to be used for economic stimulation by the consumers.

    It is asinine that people will write articles like this about bailing out an industry that is an intergral part of this economy and directly affects jobs and cash flow on a wide range of micro economic factors. And yet barely a peep is uttered when Congress showers the financial institutions with cash, no strings attached, no requirements to increase loan output.

    While it is inarguable that mistakes were made in the operations of the Big Three, the unfair trade agreements and the government’s mismanagement of the economy that resulted in this crisis are the main cause of plummeting sales. I’m all for working out a comprehensive plan for restructuring the conditions in which the Big 3 companies do business globally, as well as nationally, but advocating letting them go bankrupt is simply bad economic policy.

    What do you think is going to happen to the price of Japanese and European cars in this country when they don’t have to compete with domestic products? What do you think will happen to the wages in these foreign plants when they don’t have to compete against union wages (or a competative domestic wage)? Letting these companies go bankrupt is wrong on so many different levels its unbelievable that any Amercian with a basic level of understanding of the macroeconomic functions of this country would support it.

    I believe that “bailouts” are bad policy in general but the idea that we can’t grab some cash out the AIG party fund or perhaps our Save the Iraqi Children fund, and use it help our own citizens is perplexing.

    I would love to pack everyone who is living under the illusion that we can just let these companies crash without driving a large part of the country into poverty on a tour bus and take them on a scenic tour of Detroit, Flint and Pontiac, Michigan. You see, believe it or not cars aren’t made in Detroit anymore. They left the cities for the suburbs decades ago; even before they started leaving the country, and the devastation they left in their wake is a perfect glimpse into what will be in store of a large slice of the country if we don’t step in and create some short term solutions fast. Obviously long term health is ideal but to even begin the massive task of fixing our broken global economic policy — giving our companies an even plane on which to compete — we have to first ensure that we have companies left to participate on the world stage.

  • Clavos

    And yet barely a peep is uttered when Congress showers the financial institutions with cash, no strings attached, no requirements to increase loan output.

    Not true. The people spoke loudly and vociferously that they didn’t want the banks bailed out. Congress and Bush ignored them and did so anyway.

    Again, the people are speaking out and demanding no bailout for the car companies.

    While it is inarguable that mistakes were made in the operations of the Big Three, the unfair trade agreements and the government’s mismanagement of the economy that resulted in this crisis are the main cause of plummeting sales.

    Again not true. For more than forty years they have made junk, while the Japs have offered the public high quality autos at competitive prices. All during that time, their managers have allowed the unions to run roughshod over them, to the point that UAW workers are paid more $80 an hour in pay and benefits, and STILL they turn out some of the crappiest cars in the world.

  • bliffle

    Well, Tony, I suspect that most of us believe that the effect of the bailout will not be to preserve the US auto industry, but rather the luxury jet accommodations of the perfumed princes who operate that industry.

  • Tony

    Well then you suspect wrong. If you want to crusade so heavily against ceo corruption pick and industry that doesn’t provide so many jobs throughout the country, both through their own employment and the support of their suppliers. Nearly every CEO in America flies around on private jets and takes massively inflated salaries. AIG just threw a party with American taxpayer money AFTER the bailout.

    The statement that the U.S. car companies just made “crap” and thats why their sales are down is an opinion not fact. The facts are that the U.S. government makes it far easier for imports to be solid in this country than our trade allies make it for us to sell our exports (Korea anyone?). It’s also circumstance that, while Americans still love big, obscene cars, the economy crashed and gas went up, therefore they can’t afford them anyore. It just so happen the Japanese car designs fit the changing desire of consumers due to the economic conditions but had everything not crashed and people still had money, they would be buying their truck and suvs and the sales differental would be far last dramatic.

    If you let these companies go down how are you going to replace those consumers in the economy? How is their disposable income going to replaced when they are working at Walmart?

    Are the unions a problem? Most definately. That’s why I advocated restructuring, but to say they allowed this to happen is again, an opinion. The UAW maintains a large power base that delivers everything from campaign finance to the ability to shut down the entire shipement system if they choose. Obviously changes have to be made but letting these companies crash because the unions got too strong is not the answer.

    To your eliquent rhetoric Biffle. The mistake in thinking you are making is the same mistake a lot of people are making. You think this low interest loan helps corporate CEO but those people already are multi millionaires. You may prevent them from making even more money by cutting them off, temporarily, but you are not doing anything of real damage to the “pefumed princes.”

    The people whose lives you are ruining are the people educated to work in the industry — middle class Americans — who will have to take massive pay cuts entering the service industry when their auto jobs are gone. It is those people who depend on their jobs to pay their mortgages that will be out in the street. Take a look at the forclosure rates in Michigan. These are middle class, suburban families being cast out into the streets and this will only get worse.

    What about the old widows who depend on their husband’s pension to survive? Gone. Their hubands health plan for their medications? Gone.

    It is demonstrative of our perverted sense of ideals in this country when we can’t even wrap our brains around takeing some money (even a billion wouldm’t scratch of what we’re spending)from our free Iraq fund and loan it to the auto industry. We would rather cast American middle class workers into the streets and help poor litte Iraqis, than take care of our own. And we wonder why we are becoming a second rate power.

  • Clavos

    AIG just threw a party with American taxpayer money AFTER the bailout.

    For which THEIR executives should be tried, convicted, and punished to the fullest extent of the law. And they never should have gotten their bailout, either.

    It just so happen the Japanese car designs fit the changing desire of consumers due to the economic conditions greater intelligence and skills of their executives…

    There. Fixed it for ya, Tony.

    That the American car companies were building crap IS an opinion, Tony — an opinion shared by the tens of millions of foreign car owners in america, who for the past forty years, have been voting with their wallets.

    To give billions of dollars to the same dickhead executives who ran those companies into the ground would be the height of stupidity; they’ll just be back in a year or two, wanting another “loan.”

    I say, close the companies down, jail everybody in the auto business above the rank of middle manager, and give the money directly to the line managers and workers to sustain them while they get mandatory retraining for other jobs, to which if necessary, they will be obligated to relocate.

    It will be far better spent.

    What about the old widows who depend on their husband’s pension to survive? Gone.

    Wrong. The Pension Benefit Guarantee Corporation (Federal agency) will take care of them, as it did my parents, both of whom worked for companies which went under after they retired. Neither ever lost a penny.

    Their [widows] hubands health plan for their medications? Gone.

    Tough. Actually, one of the reasons the auto companies went under. The widows and other retirees can get Medicare. It’s what everybody else has.

  • Tony

    I’m not denying that fuel efficent cars are the “smarter” design but the fact is if gas prices hadn’t spike and if people still had disposable income they would still be purchasing the same ridiculous trucks and suvs they always have. Sure the auto companies showed no foresight. Neither did the US government and federal reserve when they manipulated interest rates, started expensive wars on borrowed money, and agreed to destructive “free” trade agreements. The bad business practices of the Big Three pale in comparison to the money management skills of the U.S. government. Maybe we should shut them down too because they’ve been more irresonsible with OUR money than any business in this country.

    The fact is you still gave no explanation for how you will replace all of the voided consumers in this econmy once you have eliminated millions of manufactoring jobs by letting the Big 3 go bankrupt and in turn letting all of their suppliers fail.

    Nor have you compensated for the effects on all the seconary businesses in communities where manufactoring jobs are the main industry. Here’s an example. I own a restaurant in a small town near Lansing Michigan. A good percentage of my lunch rush comes from automotive suppliers like TRW and Meridian Automotive. These companies are in no way affiliated with the business practices of the Big 3 other than the fact that they depend on them for a hugh volume of business. When the Big 3 goes bankrupt and these companies subsiquently cut back and or bankrupt I’m left with a greaty dimished customer base.

    So lets examine the effects of this small micro example. We have job loss from the direct Big 3 companies. Those people no longer spend at local businesses hurting their revenue streams and ability to hire. Then you have the job loss at the automotive suppliers. More consumers elimated, more diminished revenue streams for local business. Finally, because of the smaller revenue streams, local businesses provide less hours for employees, hire less, and close up, taking another class of consumer out of the market.

    And yet you want to justify eliminating that much revenue into our free market economy because you don’t like how the Big Three companies do business. Again, demand a business plan, set requirements (much the same way the Big 3 companies do with Q1 systems for their suppliers), but give them the loan. There is no legitmate justification for destroying so many people’s lives to prove a point.

  • Gentlemen, gentlemen, please calm down. The problem is not convincing the American “consumer” to return to the marketplace to buy more crap.

    The answer is to stop using terms like “human capital”, “human resources”, “reducing headcounts”, “planned obsolescence” and other terms that lie, devalue and dehumanize, and to start viewing fellow Americans as people all in the same boat as you are.

    Capitalism, with its emphasis on “I’m all right, Jack, and fuck you” is not the way to accomplish the task. Cindy B., with her efforts at applying the model of 1936 Spanish anarchism, or an effort to copy the coöperatives of Israel or Scandinavia, might be a better path to pursue. And from the looks of things you sahould pursue that path without reference to the bought out corporate stooges you call “a government”.

    One problem is that America does not produce anymore. The interesting thing about producing things is that you can get customers interested in buying from you. If the Chinese do all the producing for slave wages, and the Indians do all the computer programming for next to slave wages, why should anybody be interested in you? You get reduced to the status of cash cows. And when you run out of cash, then what are you worth?

    That appears to be what your are all now discovering.

    So, bakítzur, in short, as we say here in the not so wholly Holy Land, the answer is to invest in yourselves and creating value in your economy. All I read about is borrowing money from foreigners. That is the very last thing you can afford to do. Either sell out altogether (if you can find a buyer!) or follow the advice of the Irish in the 1930’s – “ourselves alone”.

  • Clavos


    One more comment:

    You use the phrase “free market economy” repeatedly in your comments, especially the last one, yet, what you’re asking for is anything BUT a free market economy.

    Let’s say the big three get a bailout. Will the UAW stand by and let worker pay + benefits packages be slashed in half to make the Big Three more profitable? Will the CEOs and other execs not convicted in court work for $150K a year? Will their suppliers accept half the price they get now for parts, etc? Will you cut your lunch prices in half for those workers who’ve had their pay slashed?

    ‘Cause if not, they still won’t be competitive in the world market, and we’ve wasted everyone’s taxes.

    Next in line will be Boeing (one of the commenters on these threads works there), which is also hurting. Do we bail them out, too? Why?

    And after Boeing, every manufacturer in the country not on the defense tit will be in line, hat in hand.

    And where does it end?

    I say close them. It’s time for a little industrial Darwinism here.

    Retrain and relocate the workers. Some will undoubtedly move to Tennessee and elsewhere to work for the Japs, others will go into other industries altogether; but we’re throwing good money after bad if we encourage bad business practices by relieving the practitioners of responsibility for their mistakes.

    We shouldn’t have bailed out the banks — let’s not compound the error.

  • pablo

    I want a handout too! I think I will call my congressperson today. 🙂

  • Just tell them you’re an American institution, and that it would be a disaster for the nation if people had to buy cheap, substandard Japanese Pablos instead…!

  • If a company needs a bailout of any kind because it is too big to fail, then it is too big for a free market economy. Break up any company that gets a bailout into small companies.

  • bliffle

    Tony’s compassion for the workers/consumers of GM is very touching, but he doesn’t explain why their welfare payments have to go through the hands of the perfumed princes of executive suites. Too much of it sticks to their fingers.

  • The problem is that the “free market” is no longer free. And people like Paulson, whom Heloise warned every freakin body about rode into town and rode out of town with only horseshit to show for our money. Scam is not too harsh a word for the BJ the Hill just doled out as manipulating the free market. It’s been manipulated all right.

    So the question is what to do now? What would a free marketer like JFK do? He would say WTF happened to the free market first. And after he said that he would smoke a cigar from Cuba LOL.

    True. But seriously we need reasons to not give them money don’t we? That’s what we need…reasons NOT To bail out the big three. Bottomline…the free market has been manipulated by tax relief and other things such as a long stint with cheap gas. Think about it: if the free market had imposed $4/gal gas back from the last ten years we would be looking at the same thing the Europeans look at…small cars, tiny tiny cars.

    When I was in Europe (over ten years ago, now its like 10/gal) the only trucks one saw were commerical ones. Gas in England and Paris were already our equivalent of 4 bucks or higher. I know it is also due to the french impot (taxes) that takes away from this being a perfect analogy. But that aside, the free market has not been free and therefore we have had the creation of shit like Humvees and huge trucks and illegal aliens being given money to buy this big crap and then tax writeoffs for legals who also bought into it.

    The answer: the only way that one can reduce the huge number of dealerships selling cars people DONT want to buy and the huge union influence is to let them do some sort of reorganization.

    Then allow the free market to set prices and preferences. Until then America has nothing to sing about.

    To use my own situation as a prime example: I bought a Ford Escape, not the hybrid, back in 2003 and the day I bought it gas was about 1.39 a gallon here in Texas. I noticed gas going up and I was thinking…Heloise don’t do it gas is about to get I can just feel it or see it coming.

    That was the summer and by next summer or so gas was inching up close to two dollars a gallon, a price not seen since 1985! I was not a happy camper. I had quit my job and was planning to move to Long Beach. So, I visit Long Beach CA in March of 2003 and guess what gas there is now a whopping 2.25/gal. Everyone is horrified and mad as hell.

    I’m thinking “heloise I told you so, I told you not to buy that big ass car,” But it is really not that big and I needed it because I have an historic home and am always hauling stuff…and on a good week got close to 20 mpg. So, yes I am saying that if gas had already been over 2 when I went looking for a new car, sure as hell would not have bought it…

  • bliffle

    Bailouts of businesses have the unfortunate result of encouraging competitors to fail. After all, any competitor that doesn’t fail is at a competitive disadvantage to the bailout beneficiary.

    If private persons did this sort of thing we’d accuse them of ‘moral hazard’ and point the finger of shame at them.

  • Cannonshop

    Bailout is bad for business. (How in hell is it that I’m agreeing with Heloise and Bliffle?? This ain’t supposed to happen!) It’s bad, because not only does it encourage bad business decisions in existing entities, but it cripples potential competitors who would otherwise offer viable alternatives.

    The market must be free to flow, and churn, and move with the times. Bailouts don’t allow for this, they are anticompetitive in their very nature.

    Also: if you encourage bad behaviour, you don’t get good behaviour, you get more BAD behaviour.

  • Cindy D

    If private persons did this sort of thing we’d accuse them of ‘moral hazard’ and point the finger of shame at them.

    Damn straight! And that includes people who call themselves progressives and Democrats. Like when I made my point about usury rates from credit cards.

    When someone misses a few payments on a credit card and gets charged 36+% (by a different bank even, for being a bad risk), they’ll get reprimands from those who hold themselves out as the most socially aware and reasonable. Progressives will be crowing, “Well, they should have read the fine print. People should pay back their debts. Blah Blah Blah.”

    Well, the friend I am talking about is now paying back his debt in more than full in less than every three years–and at this rate he’ll still have his debt to pay back forever (well, until he goes bankrupt). This is one of the banks that got one of the hugest bail outs.

    How insulting must that be that he called the bank to ask for a reduction in rate and they said no because they consider him a high risk.

    They consider him a high risk. He’ll pay them off every three years AND he’ll pay them off via the bailout.

    Lately, he says he thinks he’ll enjoy going bankrupt.

  • bliffle

    Cannon asks:

    “How in hell is it that I’m agreeing with Heloise and Bliffle??”

    A triumph of reason over dogma. You’re abandoning the dogma of the perfectibility of Corporations. That, somehow, the free exercise of universal greed will result in the best outcome. You know, as if guided by an invisible hand.

    But then, you always knew it wasn’t true, though it was useful if everyone believed it. Like god.

  • Cannon asks:

    “How in hell is it that I’m agreeing with Heloise and Bliffle??”

    LOL Canon. That’s funny. I wrote a good post on that one didn’t I? I was trying to be insightful and not glib.

    Yes sir re bob, as we say in Chicago, the free market is NOT free. I heard some old geysers saying “It’s a conspiracy!” I think they were talking about the NEW BIG bailout numbers.


  • bliffle

    Cannon is right: bailouts are bad for business.

    Part cause of the current auto distress is the Chrysler bailout 30 years ago. But we had to counterpose Chrysler against GM because we hadn’t controlled the GM monopoly. And we hadn’t controlled the GM monopoly and kept them from buying up their competitors…why?

    Next time we think to concede something that seems harmless to a powerful institution, think again!

  • Cannonshop

    #17 I’ve never subscribed to the “Perfectibility of corporations”, Bliffle. Fifty years ago, I’d be a Liberal (probably) and a century ago, I’d be a Progressive- Trusts/Monopolies are BAD. A free market only works if you have a competitive market where you don’t have a tiny, limited minority of producers achieving control of said market through dominance and saturation. I thought the McDonnell-Douglas/Boeing merger was a bad idea before it was approved, (and so far, Speaking from the floor at Boeing, I’m still right about that.)

    “Too big to Fail” means “Too big to control-it controls YOU.”

    Do I feel bad about the folks in Michigan who’re going to lose their jobs anyway (bailout or not)?

    Sure. I’m an American first, I love my country and I don’t like to see my citizens and fellows suffering. Do I think it’s right to let GM, Ford, and Chrysler fail?

    Damn Right I Do.

    They SHOULD fail-they’ve had thirty years to figure out how to run a company at a profit, that produces a product people want to lay money down for, and thirty years to reclaim their lost prestige in terms of delivering a quality product.

  • bill

    the $81 per hour figure is bogus. This number includes retiree benefits. The average wage is $28.

    How about all the white collar worker go to union scale. Chrysler CEO go 200 Million for leaving Home Depo

  • bliffle

    Paulson has it within his power to require banks to provide bailout loans to auto-makers simply by so requiringas part of the bank bailout.

    The fact that Paulson doesn’t do it is further proof of his complicity in the Bank raid on the US treasury. He’s a traitor to the USA.

  • Clavos

    I heard some old geysers

    Where, at Yellowstone?

  • Clavos

    the $81 per hour figure is bogus. This number includes retiree benefits.

    It does include retiree benefits (and health benefits), but it’s not bogus, because it is what the companies have to pay per man hour, even though not all of it shows up in your paycheck.

    And $28 an hour for a semi-skilled job? Those jobs are worth, at most, $15-17 (with possibly a few exceptions).

  • bliffle

    So, Clav, what is Rick Wagoners hourly wage? How could he possibly be worth that? He isn’t. So why is he still fitting his fat ass into the CEOs chair?

  • Clavos

    No argument from me on that score, bliffle.

    Rick Wagoner (and others) are to blame for the line workers’ excessive wages, not the unions. Union management is SUPPOSED to try to get as much for the workers out of management as they can, while management is SUPPOSED to keep wages as low as they can.

    Union management did its job successfully; the corporate mangers fornicated the canine on that issue (and many others).

    Not only is Wagoner not worth what he’s being paid, he’s not worth even a token $1 a year.

    He (and all the board, as well every manager from middle management up) should be fired IF (a BIG if) we’re going to “salvage” the car companies. I say they ought to be allowed to go into bankruptcy and see if they can come back (without government money).

    If they can’t, close ’em.

  • Cindy D

    I heard some old geysers

    Where, at Yellowstone?

    LOL Clav!

  • We have old geysers here in Texas too LOL. BTW
    Happy (vegetarian/vegan) Thanksgiving…I think that vegetarian power will hold sway more in the future as people realize that the warehousing of pigs, cattle, moose, and fowl is well foul. And is fouling the water and polluting stuff. Some farmers are harvesting the methane from cows to run the farm.

    I am watching for the upteenth time my fav film: JFK Reckless youth. And I noticed on The Mentalist that they have hired the woman who played Jack’s sister…she’s great. In fact when I get around to I am going to it will write an article about how much I love the show and why.

    More later


  • Cindy D

    Happy (vegetarian/vegan) Thanksgiving Heloise!

    Although I doubt I will ever be (re)enlightened enough to do that again. I will give our turkey your condolences.


  • Cindy D

    Happy Thanksgiving to all. As a gift I leave you with this:

    The Real Story of Thanksgiving

  • Oops Jack the eccentric speller strikes again–it’s old geezer (eccentric old person), old geezer not geyser, not even close really.


  • Cindy D

    Yes, but even old geezers sometimes go to Yellowstone to see the old geysers.

  • bliffle

    Well, Clav, doesn’t the egregious employment at GM of a bum like Rick Wagoner demonstrate that there’s a basic flaw in the model of corporate existence? Doesn’t this clearly show that our Laws and regulations of corporations have basic flaws that threaten to destroy not only the corp but the nation as well?

    Wouldn’t it behoove us to discuss these things instead of putting them down with ritual references to Milton Friedman? Shouldn’t Friedman himself be driven from the temple of business and government (along with his nazi shrew wife)?

    Isn’t it time to recognize that unfettered greed is NOT guided by some Invisible Hand to produce the best result, except in the dreamy fantasies of the most deluded acolytes of so-called Free Markets?

    Is it too late to pull back from the disastrous course that 30 years of ritual obescience to private interest has doomed us to?