Good Failures
by Jim Camp
Issue 130 - April 22, 2009

“I don’t know the key to success, but the key to failure is trying to please everyone.” That’s pretty good advice from entertainer Bill Cosby who also just happens to hold a PhD in education.

Right now, Congress is trying to please everybody and, since October of last year, has been bailing out businesses when, in fact, the public might have been better served by allowing the laws of bankruptcy to permit the changes necessary to learn from failure.

Every year thousands of new business ventures end in failure. The philosophers of capitalism call it “creative destruction” because, for every failure there is a learning curve that leads to eventual success for those willing to evaluate what went wrong, change habits of management that led to failure, and avoid the previous mistakes.

If Thomas Edison had allowed the countless failures that preceded the invention of the incandescent light bulb, millions might still be using candles. It is instructive, therefore, that Congress has banned the future sale of this great invention in favor of fluorescent bulbs. Never mind the specious reason given, why is Congress interfering in the marketplace? The answer is because it can.

The history of the present financial crisis, one that is centered in the heavily regulated mortgage loan industry, is the direct result of congressional interference that required banks and mortgage loan firms to make, in essence, bad loans. That is to say, by law, they had to make home equity loans to people that all the principles of banking said should not qualify to receive one.

The history of this dates back to the Great Depression of the 1930s and the liberal belief that everyone, including the poor, had “a right” to own a home even if, in too many cases, they could not afford one. The belief, set in law, accelerated in the 1960s to the present time.

The notion that housing prices would always rise or remain at unprecedented peaks led to yet another “bubble” common to all markets. It was, however, the wholly-owned creation of several Congresses.

As a negotiation coach, the fact that the government mandated such loans and then backed them with “government sponsored entities” Fannie Mae and Freddie Mac to buy the loans from the institutions meant that anyone, no matter how unqualified, did not have to negotiate to receive one.

In the past, the process of securing a loan meant not only demonstrating the ability to pay it back, but the ability to negotiate the terms of the loan.

Likewise, when every credit card company is eager to issue cards to anyone and is free to change the terms of the card, the consumer cannot truly receive secure terms and that easy credit encourages consumption beyond one’s means to pay.

The result is now a loss of confidence in our banking system and, as we have seen, the propping up of some businesses that should be allowed to fail.

In the world of free enterprise and free markets, failure can benefit consumers through the lessons it teaches, the innovations it spurs, and the value of the products purchased.

In the world of government, failure can destroy the hopes and dreams of those who put too much trust in elected leaders and then failed to replace those who did not fulfill their constitutional responsibilities.

Jim Camp is CEO of the Camp Negotiation Systems, www.startwithno.com, and the author of two best selling books on the science of negotiation.