Are Corporate Bailouts Just Glorified Payday Loans?

Another day, another government bailout. It all began in mid-September when Wall Street giant Lehman Brothers filed for bankruptcy protection. The collapse of such a venerable company catalyzed widespread panic and became an ominous foreshadowing of the fiascos to come. If Wall Street were an enormous Jenga tower, then Lehman Brothers was the tile whose removal caused the tower to tumble. Shortly after, the federal government had to step in to take over mortgage titans Fannie Mae and Freddie Mac, and then the insurance industry began to implode. AIG got a bailout. A $700 billion Wall Street bailout was next. Most recently, lawmakers attempted to pass bailout legislation for U.S. automakers, as General Motors and Chrysler both teeter on the brink of bankruptcy.

Given these facts, it’s no wonder the average American looks at this debacle of a situation and views it with bewilderment and probably a bit of resentment. By and large, these corporations did this to themselves. Corruption, avarice, and poor planning account for about 90% of these companies’ woes. Despite the corporations’ roles in their own implosions, the government still swoops in to dole out billions and billions of dollars in undeserved, taxpayer-funded bailouts. In essence, the government has rewarded corporate irresponsibility. These corporations believed they were invincible, and just when reality was about to disabuse them of that notion, the government comes in to save the day. Which brings us to our main contention: these bailouts are nothing more than glorified payday loans but with less accountability attached.

Fortune 500 Company or Payday Loan Junkie?

If the bailout is just a payday loan with a little lipstick slapped on it, then that makes the recipients of the bailout payday loan junkies. To prove the comparison valid, let’s review some characteristics of chronic payday loan users and see how they differ from the behavior and attributes of the floundering corporations:

• Overspending. The common denominator among payday loan addicts of all kinds is that they overspend, plain and simple. They spend money they don’t have and overextend themselves until the cash runs out. Does this ring any bells? Mortgage lenders insisted on issuing loans to people with low incomes and bad credit so they could buy more house than they could really afford. The lenders were essentially handing out money that didn’t really exist, hoping the appreciation of housing values would balance it all out in the end. They overreached, and now they need a government-subsidized payday loan to offset their profligate spending.
• Poor planning. Payday loan junkies are notorious for their lack of planning. Everyone gets surprised by financial crises once in a while, but they key is to prepare for these emergencies. Hoping that you will never hit a financial rough patch and that everything will go exactly as planned is an unrealistic fantasy. Drawing the analogy to Wall Street, mortgage lenders banked on climbing housing values to issue loans to people they knew weren’t in a position to repay them. The housing market tanked, and banks were caught unprepared. Similarly, U.S. automakers continued to make mammoth, gas-guzzling SUV’s, assuming that consumer demand for such vehicles would never attenuate and that gas prices would never rise. They failed to recognize important economic, environmental, and consumer trends, and now they need a payday loan bailout, too.
• Money mismanagement. Borrowers who have a chronic need for payday loans probably are not using the loans to pay for essentials like utilities and groceries, at least not exclusively. More often than not, payday loan junkies will look to cash advances at the drop of a hat for what is basically discretionary spending. For example, a payday loan addict might take out an advance between paychecks to go barhopping and out to eat with friends over the weekend. However, this irresponsibility and mismanagement of money is not endemic to payday loan consumers—beleaguered corporations seem to have the exact same problem. In an egregious display of excess and lack of contrition, AIG officials proceeded to spend $440,000 of money they didn’t have on a lavish corporate retreat at a beach resort in Dana Point, California, just one week after receiving their government-subsidized payday loan.
• Greed. It’s hard to control the urge to splurge on a new TV, a shopping spree at the mall, or expensive dinners out on the town. A lack of self-control mixed with a little avarice is a lethal combination, and payday loan junkies are the result. When it comes to unsecured debt, greed is almost always a factor. So did greed have a hand in the woes of America’s corporations? Well, mortgage lenders passed out adjustable-rate home loans like candy to poor credit risks, which makes no sense and is extremely risky, so why would they do such a thing? The answer is commission. Banks would make enormous commissions on the loans that caused the mortgage crisis and later had a hand in the overall financial crisis. Similarly, many corporations who received a bailout are now being investigated for shady accounting practices. In other words, they were cooking the books in order to keep stock prices up, keep those bonuses coming in, and keep those multi-million-dollar executive salaries on the rise. Bottom line: they did it out of greed.

The Lowest of the Low

The bailouts do differ from payday loans in one important way—they have virtually no accountability attached to them. At least payday loan junkies will eventually face a day of reckoning when they will either have to pay up or face a collection agency and credit damage. But with Wall Street, there is no such accountability. They essentially received a free, taxpayer-subsidized payday loan. The term “payday loan,” then, is probably a misnomer; a more fitting description would be that Wall Street received a taxpayer payday.

Additionally, even payday loan junkies are probably a cut above some of the corporations that received a bailout because at least they don’t engage in treachery and deceit (for the most part). AIG, Lehman Brothers, Freddie Mac, and Fannie Mae are just a few of the corporations under FBI investigation for accounting fraud, insider trading, and falsified disclosures. These companies misrepresented their assets, failed to disclose the true value of mortgage-related securities, and hopped in bed with a few politicians, financially speaking, to ensure that the government would continue to turn a blind eye to their wrongdoing. And, in spite of all that corruption, they still enjoy the safety net that only a no-strings-attached payday loan bailout can bring. This is where even a payday loan junkie can claim the high road. Payday loan addicts may overspend and chronically fail to plan, but at least they’re not out to deceive a nation. Corporate America, you are payday loan junkies of the worst kind.