Bailouts Can Get Innovative. Banks, Autos…What's Next? How about Adult Entertainment?

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by: Idris Mootee

2009 will be a year of free money for industries. As banks, cities and the auto industry apply to the federal government for a bailout, expect to see more industries joining the queue for government bailouts. We see public schools are trying to get some of this government money.

Miami-Dade Schools chief Alberto Carvalho called on the federal government to consider a bailout for the nation’s public schools. The question for him is at time when we’re continuing the bailout of key industries; at what point do we have a bailout of public education? Carvalho said the state tax shortfall could mean an additional $65 million reduction in spending for the Miami-Dade school system, the nation’s fourth largest. The district has already cut $289 million from its $5.5 billion budget and was expecting another $36 million cut.

Currently Florida already ranks in the bottom quarter in terms of spending per student nationally (US Census). This cut will definitely push Florida schools to the limit. So what determines which industries to receive bailouts and which not? I guess the difference is if the Florida school system goes down the drain, it will make no difference to the US economy the next 12 months. If we have AIG or Citicorp fail, then we have a systemic failure in our financial systems. Everybody goes down. So school system goes down, we’ll be ok???

Take another example. Hustler publisher Larry Flynt and Girls Gone Wild CEO Joe Francis is asking Congress for $5 billion for a bailout of the adult entertainment industry. I am not kidding. The industry is relatively small, fragmented, and unaccustomed to outside investment, the U.S. porn industry is some­what buffered from today’s credit crunch, but it is not without problems. Video sales have been falling by 15% a year since 05, and online content doesn’t deliver the returns it used to, now that Websites such as RedTube and Zivity basically offering free porn. Struggling companies need money for R&D, talent development and those that are thriving in a brutal market need funding for growth. Disruption is happening both upstream and downstream as the industry becoming democratized.

Their rationale is with all this economic misery and people losing their homes and life savings, sex is the farthest thing from their mind, so it’s time for Congress to rejuvenate the sexual appetite of America (ah demand generation). According to Francis: "Congress seems willing to help shore up our nation’s most important businesses; we feel we deserve the same consideration."

Jaguar Land Rover (owned by India’s Tata Motors is also looking for government bailout.  The Sunday Times that it was seeking £1bn in state assistance. Every single auto company will follow suit?

Bailout is never a good idea. Whether it is for the Big Three or the Land Rover of the world. It will do nothing but reward bad management by corporate bureaucrats and incompetent union bosses that pushed for unrealistic contractual commitments. Most important, though, is that a bailout would be bad for the long-term health of the auto industry. It would discriminate against the 110,000+ Americans who have highly-coveted jobs building cars for Toyota, BMW and other auto companies that happen to be headquartered in other nations. They have demonstrated that it is possible to build cars in North America and make money. They need to take the bullet and restructure for the long term.

Outdated business models, poorly designed products and incompetent management do not deserve further investments, doesn’t matter what industry, porn or auto should be treated the same.

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