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Friday, December 17, 2010

Airlines and the Free Market

I guarantee that there will be another financial crisis within the next 20 years because of banks over leveraging themselves and using complex derivatives that make their companies barely solvent but create enormous profits. The reasons is the bailout. The government basically wrote a check, and with the Dodd banking bill ordered a whole new check book, telling Wall St. that the idea of voters losing jobs is so unpalatable, we will retroactively guarantee all your idiotic choices. Now, I fully recognize that TARP get us from another Great Depression, except the auto bailout portion (their problem is shitty products no one wants being produced by overpaid union employees no one wants), but it doesn't mean I have to like it or it's the best way. If we had let the market engine churn, weak firms would have gone under, strong firms and individuals with capital would have scooped up their assets, and much stronger firms with better risk tolerances would have emerged. Instead, we gave Wall St. carte blanche because they know what the deal is.

Now, I am not just making these bold predictions from nothing like I normally do with sports. I flew to South Carolina tonight, it was supposed to be this afternoon but that will all fit in quite nicely to my allegory. The airlines are the worst businesses in the world. They have a service in incredible demand, rapid transit, and have managed to make it so unpleasant and burdensome, the free nips of Dewars I got on my flight made me ecstatic. I forgot about the 4 hour delay, the 3 dollar bag of potato chips, no WiFi (yeah not even pay for WiFi, LaGuardia is awful) and the fact I was flying on the Wright bros. original design because they have me .37 cents worth of Scotch. I would let the hippies tell me "I told you so" if high speed rail could be a viable alternative. Our expectations are so low, getting in on time is a laudable accomplishment. No other industry is like that, and very few are as unionized or control so many votes.

The airline industry operates under a business model which builds in a 15 year government bailout. The airlines know no politician will be attached to letting 70,000 people lose their jobs so they charge us $25 to bring a bag. I'm sorry, but what would you like me to do, wear all my cloths through security? (I might if the TSA keeps getting handsy) Their pricing scheme is terrible. Every other industry with expiring goods discounts them as their expiration draws near. Not airlines. They get insanely expensive to feel seats they will have to eat if you don't buy that ticket. They don't charge $15 for milk expiring tomorrow for a reason. And forget any sort of brand loyalty. I am a Delta skymiles member and I get treated like everyone else. Hey, I took the 4 minutes to fill out the form online, at least give me some plastic wings.

Wall St. had adopted the same type of toxic business model. Rack up huge profits using techniques Helen Keller could see our stupid, and when shit hits the fan, use your golden parachute to jump out of the flaming plane Uncle Sam is now piloting. I am not trying to say Wall St. is bad. It is home to some of the smartest people in the world, especially when it comes to using money to develop and expand companies. But you've added a new X factor. The rich benefactor. If all your risks were backed, you would keep taking bigger bets. We're institutionalizing a terrible habit across the board of saying choose any business model and instead of the market dictating your success, the government will bail you out when you fall flat on your face. If we don't stem the tide with the auto and financial sectors going forward, we're going to start bragging about the free lollipops even though the bank lost all our money.

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