Column: Corporate bailouts are for pussies

(Above: The people who work in this building do not know what they are doing. Photo by sachab/flickr.)

In 2002 Joe Donatelli Inc., relocated from Washington to Los Angeles. Donatelli left the stable East Coast sportswriting market for the West Coast’s unpredictable entertainment market. In order to pay the bills while its sole employee took comedy classes and wrote and performed in sketch shows, the plucky company of one contracted its services as a freelance writer. Because Donatelli Inc., lacked deep capital reserves, and the clients who hired him paid little, Donatelli spent all of its capital reserves in less than one year and found itself thousands of dollars in debt.

What did it do?
– Unlike Bear Stearns, a financial company with vast resources and an impeccable reputation, Donatelli did not agree to make itself party to a government-backed bailout involving the Federal Reserve Bank of New York and JPMorgan Chase. Donatelli had enjoyed a long business relationship with Chase, through use of its credit cards, but never once did Donatelli consider selling itself to the financial giant for pennies on the dollar.
– Unlike Lehman Brothers, a global finances firm that was once worth $639 billion, Donatelli did not file for Chapter 11 Bankruptcy. According to the federal government, “a chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.” The courts are required to charge a $1,000 case filing fee and $39 miscellaneous fee. Donatelli lacked both. The company also was quite sure the government would put most of the $39 “miscellaneous fee” toward the new field house on campus, instead of the student health center where it was so desperately needed.
– Unlike the American International Group, an insurance company that Forbes ranked the world’s 18th-largest, Donatelli did not agree to be purchased by the federal government for $85 billion. Its market value was significantly less – estimated in the double-digit thousands – but the CEO would not have ceded control of his enterprise to the government at any price, unlike some financial barons.

When Donatelli Inc., ran out of money, it folded up shop, took a job at a small company, acquired more capital, quit that company after three years and reentered the freelance market.

Donatelli Inc., version 2.0 made three important choices. It stayed out of debt. It did not invest in real estate. It invested profits back into its business instead of, for example, eating chicken wings every night for dinner, something its CEO would have liked to do. The company also made a strategic decision to focus on one service – writing.

Behind all of these decisions was the knowledge that no one would rescue the company if it failed. 
Donatelli Inc., has its up-and-down months and years, but the company survives. Bear Stearns, Lehman Brothers and American International Group, as we knew them just one year ago, do not.