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A blog about the economy and the Sacramento-area real estate market.

January 6, 2009
Gottschalks' guardian angel?

   Can Gottschalks be saved?

     A woman from Penn Valley just called me to discuss our story on the financial crisis at Gottschalks in today's paper. She started off by apologizing for not knowing much about business, and then asked me if I recalled the scene in "It's a Wonderful Life" where Jimmy Stewart's character convinces some of the failing bank's customers to withdraw just what they need, instead of taking everything out.

     The gist of this reader's argument was this: If lenders and others would back off a little, and reduce their demands, wouldn't companies like Gottschalks survive? And isn't that better than 60 or so empty storefronts?

    In a sense, this woman has hit on a metaphor for entire economy at a time of recession. This is kind of simplistic, but hear me out: Lenders and other creditors routinely back off, and forgive portions of debts - but only if they believe it's in their interest to do so. This happens all the time in bankruptcy. A creditor will approve a partial repayment from a bankrupt company if it believes the alternative - shutdown and liquidation - would yield even less.

    As for her second question: Isn't saving Gottschalks better than having empty storefronts? That's a little trickier. In a dynamic economy, failing companies give way to entrepreneurs with new (and presumably better) ideas. The buggy manufacturers were replaced by Henry Ford, etc. It's a little Darwinian, and it's no fun for the buggy manufacturers, but that's generally how our system works.

     Of course, in this current economy, the Darwinian process can be especially ugly. Those empty storefronts would likely stay empty for a good long while. And that'd hurt everybody. So believe me, no one's rooting for Gottschalks to go under.

    

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