Reason 67: Government should not bail out corporations

When you are a large corporation that is having difficulty, one of the things you must considered is marketing. There is a time you need to spend money to make money.

You could cut your entire marketing budget, cancel all of the advertising, lay off the graphics staff that make the pretty brochures, and hope. Then pray. But that tactic could easily lead potential customers to think you are out of business.

When the government finances the rebirth of a company on the verge of bankruptcy with cash grants, favorable loan terms or guaranteed financing, corporations soon deal with the wrath of the people. The people who have funded your rebirth expect you not to mess up.

Perception is reality for companies like Citigroup, who kept plans in place to buy a new jet (since canceled I think) and Bank of America, who sponsored a large event at this year’s Super Bowl in Tampa. Brian Ross from ABC News investigates.

The event – known as the NFL Experience – was 850,000 square feet of sports games and interactive entertainment attractions for football fans and was blanketed in Bank of America logos and marketing calls to sign up for football-themed banking products.

The bank staunchly defended its sponsorship, saying it was a “business proposition” and part of its “growth strategy.”

Critics blasted the spending as a serious abuse of taxpayer money.

Here is the problem. What if buying the jet was the right thing to do? What if selling the two smaller jets and buying the new jet reduced costs for Citigroup by $5 million per year?

What if sponsoring the NFL Experience (at an undetermined cost) brought Bank of America more business and, in turn, BOA got a solid return on the investment? Good for the company. Good for the shareholders. Good for the government since they would get paid back quicker.

Hence we discover another problem with government funded bailouts. The perception of the people who see this type of “frivolous” spending could ensure the companies don’t move forward with decisions that could be the right move.