So GM wants $18 billion just for itself. Words fail. Or rather, I don't think I can print the words that immediately come to mind. This is a family blog.
Somewhat to my surprise, the political types tell me this polls very badly outside of Michigan--indeed, the New York Times seems to have found some people IN Michigan who think it's not so hot. So overall, the political prospects for a bailout aren't looking so great. Republicans don't carry Michigan, or autoworkers, anyway. They are not going to help out the UAW out of any sense of self-preservation, their base in right-to-work states is going to be livid if they ship tax dollars up to Detroit, and ideologically, few of them think the auto industry should be kept on indefinite life support. I doubt the Senate can move any bailout past a filibuster by outgoing Republicans who are not feeling kind towards the labor movement, and I'm positive they don't have the numbers to override a presidential veto.
GM says it needs $4 billion this month, or it goes into bankruptcy, and the same again in January. Given the electoral math, that puts a pretty high probability on bankruptcy. The White House and Pelosi are engaged in some sort of strange game of chicken, where the White House , says to take the loans from the $25 billion already committed to help the automakers retool for higher CAFE standards, and Pelosi insists on taking it from TARP. Since the White House is probably actively rooting for the crash, this is just posturing. But it seems like pointless posturing; two years from now, no one is going to be able to run, or even fundraise, on the question of CAFE v. TARP.
The real question is whether creditors are willing to ride out uncertainty until the Democrats can craft something. If GM and Chrysler need to draw down more than half of that $25 billion in the next two months, how much float will their creditors be willing to give them until the Democrats can bail them out? And If their burn rate is $4 billion a month, how long will even a Democratic congress be politically able to carry them? I think it's safe to say that their sales are not going to turn around in the next year, and the union's idea of a giveback so far seems to be "just barely enough to stave off bankruptcy for another two months". No one's going to finance them on those terms.
Copyright © 2010 by The Atlantic Monthly Group. All rights reserved.
Well, Megan I hope you're right. Bankruptcy will be painful as hell, but it's the strong medicine needed to force GM to restructure.
They need $4B now or they go bankrupt by the end of the year and there is no way in hell Congress or Bush is getting them that money in the next couple weeks but somehow I don't think they are going to declare bankruptcy. Similarly, O doesn't take office until mid-January and it would take some fast action to get GM their money in the following week but somehow I think GM will still be around.
They must think the taxpayers are idiots.
Somewhat to my surprise, the political types tell me this polls very badly outside of Michigan--indeed, the New York Times seems to have found some people IN Michigan who think it's not so hot.
And how do you think the Wall Street bailout polled outside of The Five Boroughs?
I forgot to add. I bet it didn't poll well yet the Know-it-alls in DC did it anyway. Lead by Your Glorious Leader. Does anyone have any idea, if the Big Three goes kaupt, how many people over 50 will lose their jobs as a result? How is the government going to help them find jobs(Since you well know that people over 50 will have the hardest time finding a job)? What about their retirement that will basically be worthless? Their houses?
It's an incredible game of chicken. Most outsiders think "structured bankruptcy with government support for DIP financing" is the best of a bunch of bad options.
However, if GM continues to refuse to even discuss that option, sooner or later they will either be in Chapter 7 or on full government life support.
This is a family blog!!
I have quick impression for you, who am I:
"Waaaa! I'ma gonna show you pictures of poor auto workers who make crap cars and have health plans and salaries better than any government worker's and demand you pay for dem to live high on the hog some more! Waaa!"
Answer: Joe Klein's conscience
And hey Joe---who says that bailing out one badly means bailing out them all? I personally look more and more skeptically at those first few bailouts and think it was b.s reasoning. Lots of economists were piling on in a panic and I bit down. The Fed was perhaps my biggest reason for signing on--mainly because it seemed to be the only bulkwark against depression. Now, I think we should have let them fail, and that we should rescind the future offers.
GM should fail. The banks should fail. The newspapers should fail. If you can only run a business in good times, you're not running a business, you're running a house of cards.
GM is lying through its teeth. It saw a democratic congress and wants to squeeze blood from it. But the American people are becoming stonier by the minute.
The only poll I have seen is the one mentioned on CNN, and only 61% of Americans opposed it. The Wall Street bailout was opposed by over 90% and passed anyway.
I don't think the bailout will pass before Obama takes office, but it will pass quickly once he does. Republicans don't want to help the UAW, and Democrats are not so keen on passing yet another bailout for business that will have no political cover from a Republican administration. However, Democrats will pass it all on their own if they are forced to.
That's it in a nutshell - bankruptcy is the only solution.
This is not the government's responsibility.
It is surprising that when GM CEO's was in front of Congress a few weeks back he didn't mention this need for $4bn by the end of December. I guess whether he was lying or was stupid doesn't matter now.
IMHO the answer is basically to enter Chap 11, wipe out shareholders and give all the equity to the bondholders and UAW for the post-retirement health plans (I believe the Pension Plan is actually fairly well funded - that is why they issued a ton of bonds around 2003 - pension and health care two different). The UAW can the sell the shares/collect dividends from a company with no debt/no OPEB liability which is presumably of value. There maybe a role for the government to provide the DIP financing ie so that this Chp 11 doesn't go to a Chp 7 and I think since DIP financing is all but unavailable seems you can get this out of the TARP as credit crisis related.
Yesterday the radio was full of Nancy Pelosi saying bankruptcy would hurt everybody, and is "not an option". So the creditors will probably float GM until the next Congress comes in. They've been promised access to the endless federal money stream.
Whay are you so surprised about the $18b? The original number was $25b and GM was very obviously in the worst shape. Not that there shuldn't be outrage, but shouldn't this have been expected.
Then again, your track record (Bush 2004, Iraq, being a complete shill for the financial bailout) shows that you have no idea what outrage is or when is the the appropriate time to feel it.
What about their retirement that will basically be worthless?
No, the pensions are guaranteed by the PBGC but even without that the pension funds are, surprisingly, fairly well funded. The UAW's better-than-Medicare retiree health plan is at risk, but if Medicare is good enough for the rest of us...
So it's the active employees, not the retirees, who are in trouble. But they're in trouble even if GM gets its bailout, because the plan calls for cutting 1/3 of their employees, and there's no way those people are going to get big buyouts (or cushy spots in the job bank).
That should read:
"The original number was $25b for all three and GM was very obviously in the worst shape. Not that there shuldn't be outrage, but shouldn't this have been expected?"
So GM wants $18 billion just for itself. Words fail.
My words are "who expected otherwise?"
Obama and Pelosi have said repeatedly that while the Big 3 need to present a plan, their failure is not an option. That's basically a license to show up with a "plan" written in crayon on a dirty tube sock, full of gimmicky ideas like paying a CEO $1 -- there's a sustainable return to profitability! -- and the Dems won't hesitate to pay back all the union campaign contributions.
Of course they're going to get bailed out, and get bailed out in a big way. It would be suicide for a politician not to support a comparatively small bailout of the automakers while giving the bankers essentially a carte blanche.
Personally, if the money has to go anywhere, I'd rather give it to the UAW than Paulson and his Goldman cronies. Added bonus: it pisses off latte-liberals that hate blue collar America and American automobiles. Fuck 'em!
Politicians are about blurring useful distinctions. They have, with some success, done so with regards to banks vs. auto companies (see Joe Klein).
The 90 percent opposition to the TARP plan was on the first vote. By the end of the week, after the market crash, opposition was more like 50-60%.
In any case, I'd like to believe that, by now, most people don't see a reason to throw good money after bad.
It's possible that Pelosi doesn't believe that the auto companies are salvagable, but doesn't want to be seen letting them collapse. So she's positioning herself to say "I wanted to save you, but Bush wouldn't let me." The Republicans, of course, are the mirror image. It's not that the Republicans are hoping to carry Michigan any time. They just don't want to be caught in the "Drop Dead" mode.
I like how Megan (and most posters here) focuses her ire exclusively almost exclusively on the UAW. To be sure, they own a fare share of the blame, but management criticism in conspicuously absent. Here we have 3 large, failing companies shelling out gigantic compensation packages to management and paying out dividends to stockholders (a ridiculous arrangement for a failing company), all while making historically awful business decisions.
Of course, this doesn't surprise me. Almost nobody here can make any kind of decision without first filtering it through Republican or Democrat lenses.
Pathetic.
As much as it burns my soul to agree with Basic Fact, he did say one perfectly true thing: "If you can only run a business in good times, you're not running a business, you're running a house of cards."
All we've been hearing from the auto companies, including today's Day to Day interview with General Motors Chief Public Relations Officer Jennifer Granholm, is that 'oh, we were perfect, but then bad times came, and it's not our fault!'
Bullshit. If your business can't survive the rough times, it doesn't belong in business. I just hope I'm driving my cheap, safe, and reliable Corolla when I hear the news of your failure, so I can enjoy a chortle.
GM has been losing money for years -- they couldn't even run a business in good times, much less in bad. But give them credit, they're smart. They've survived running a bad business that's turned unsustainable, and then they run to the government to keep them going. I think they thought that through years and years ago. All they had to do was to make sure that they were too big to fail. And the politicians played along with the CAFE standards that increased the losses hugely. GM and the UAW and the dealers and the pols have communally engineered this run on the tax payer for years. Their only miscalculation is that they've timed it badly. They didn't count on the mortgage crisis to happen at the same time. But for that, they'd be bailed out in a heartbeat.
Howl writes:
"Bullshit. If your business can't survive the rough times, it doesn't belong in business. I just hope I'm driving my cheap, safe, and reliable Corolla when I hear the news of your failure, so I can enjoy a chortle."
This is the most idiotic statement I've read today. By that logic, no insurance company should ever be in business, because their whole business model is built on the assumption that they'll never need to pay off all their policies at once. This financial crisis is like a natural disaster, and you can only plan for so much.
Regarding product quality, I don't know where you've been for the last 10 years. The reliability of Toyota and Honda have fallen off significantly, and they're now actually more expensive than comparable American cars (at least the ones I was shopping for recently). Meanwhile, American autos keep getting better, despite huge obstacles, not the least of which are our never-mentioned idiotic trade agreements promoted by the WSJ crew.
So GM wants $18 billion just for itself. Words fail. Or rather, I don't think I can print the words that immediately come to mind. This is a family blog.
But the 100s upon 100s of billions given to the financial industry is A-OK.
I can never understand why you become all outraged with underlip a-quivering and chest a-heaving about something.
Great. Republicans thoughtlessly shovel money to Wall Street. Will Democrats thoughtlessly shovel money to GM? I'm all in favor of government money to people in Michigan to build public works, wind farms, microchips. But not to build the Chevy Volt, which no one needs or wants.
It would be a shame for Obama to begin his tenure by imitating Bush in stupidity, and writing checks to the UAW retirees.
as,
I don't know about you but I've had a bank account for 20+ years now. Over those years I've given the bank money and when I needed the money back they gave it to me - without fail. I can only assume there are millions of Americans like me.
On the other hand, there are millions of Americans who've been left stranded by the side of the road by the Big Three. They were not only left stranded, but they were often forced to pay thousands of dollars to repair the shoddy engineering and craftsman ship of the auto companies/UAW to get back on the road.
That's why I have less of a problem bailing out the banks then I do bailing out the Big Three - a bank has yet to personally f**k me over, the same can't be said of GM.
Staash: "This is the most idiotic statement I've read today. By that logic, no insurance company should ever be in business, because their whole business model is built on the assumption that they'll never need to pay off all their policies at once. This financial crisis is like a natural disaster, and you can only plan for so much."
Probability FAIL.
Paying out every policy (or even half the policies) is a fantastically improbable event. Lets consider a simple example.
If you are insuring against a P=0.01/year event for 1000 independent people, the odds of 1000 payouts is (0.01)^1000 = 10^{-2000}, or a once in 10^2000 year event. For comparison, the universe is about 10^10 years old.
The probability of paying out at least 100 times (10x more than expected) is 0.00026/year; this will happen once every 3800 years.
Recessions are a once in 5-10 years kind of event.
Please, open up a probability book just once in your life.
the pension funds are, surprisingly, fairly well funded
Are you sure about that? Cause that's not the impression I got reading While America Aged.
Staash--- bad times bro, not the Apocalypse, which is what would have to be happening for every single policy to have a claim at the same time.
So GM wants $18 billion just for itself. Words fail. Or rather, I don't think I can print the words that immediately come to mind. This is a family blog."
Yeah. How dare they ask for 1/6 what Citi's criminally inept management got in bailout money.
"Somewhat to my surprise, the political types tell me this polls very badly outside of Michigan"
The Iraq War polled pretty well at the start. How'd that turn out? If Detroit goes under, expect the biggest case of buyer's remorse on the part of Americans since the first sucker to buy a six-pack of New Coke.
"They (Republicans) are not going to help out the UAW out of any sense of self-preservation, their base in right-to-work states is going to be livid if they ship tax dollars up to Detroit"
First, please refer to "right to work" states as what they are, which is ANTI-UNION. Political correctness on the right sounds no less moronic than when it comes from the left.
Second, which "base" are Republicans defending opposing a bailout to GM - Hyundai or BMW? There's a winning campaign slogan - 'Let Detroit fail - Viva la Seoul!'
Finally, has it occurred to you that by supporting bailouts to failed banks and encouraging the closing of factories, you're basically advocating the same policies as Herbert Hoover? They say the army's problem is that they're always trying to win the last war. I think the Republican's problem is they're still trying to create the last Great Depression.
Ninja Zombie:
"If you are insuring against a P=0.01/year event for 1000 independent people, the odds of 1000 payouts is (0.01)^1000 = 10^{-2000}, or a once in 10^2000 year event. For comparison, the universe is about 10^10 years old."
It's really some kind of competition for most idiotic statement of the day here, isn't it?
In the real world, there's no such thing as "independent" events. It's a simplifying assumption that works under most circumstances, except, for instance, huge natural disasters.
Amazing that you don't understand the flaws of trying to mathematically model the real world when that's basically what precipitated this entire crisis.
I am actually really surprised that in all the stories I've read/heard, the support Ford is giving to GM combined with their much stronger position (and it's not just cash, Ford's actually making better cars far as I can tell) is cast as a real plus for the auto bailout. Whereas to me it would seem to trash the GM/Chrysler case: look, there's someone capable of sort of doing this stuff right!
Is that just an effect of Ford relying on the same suppliers as GM, and a feeling that killing GM wil hurt the one maybe current success story out of Detroit? Or is there something else I'm missing?
Right to work sounds about right.
Why the hell should you have to join a union to keep your job?
But I'm pretty comfortable with anti-union too.
Two points:
One: I weary of the perpetual talking point about the financial industry. Yes, the bailouts the auto industry are asking for are smaller. But at what point in your logic did 'well, it was a bad idea before, so let's keep doing it!' gain any intellectual import? The point is to learn from your mistakes, not to repeat them.
Two: the silliness of 'but the American auto industry is sooo much better now! really guys, this time we mean it!' The fact is, consumers don't care. When they're making a financial decision that will affect them for the next years of their lives, they seek security. Do the Big 3 make better cars now? Maybe, but I don't care: I'm not willing to risk the unproven versus the consistent, not when it comes to money that would otherwise pay for my kids' food, or my electric bill. Put it this way: if you had to choose a babysitter for your kids, and one has a long history of safety, good work, and equitable prices; and the other has a history of shoddy work ethic, dangerous practices, and an inflated rate, which would you choose? Would you change your mind just because the latter came to you saying, 'really, please? I've changed this time, I swear! I know I said that before, but this time I mean it!'
Why does everyone compare the bailout of the financial institutions to the bailout of the auto companies?
Anyone notice that there have been almost 100,000 layoffs at the financial institutions? Or that the retirement funds of many of those employees were wiped out along with the stocks of the companies they worked for? That the industry is restructuring and costs are being cut?
They are also cutting bonuses. Now I know that most consider these bonuses extreme, but the fact is that in that industry "bonus" = "salary". I am one who thinks that there is too much securitization and too many overpaid investment bankers, but I also know that cutting bonuses 50% (or more at some places) constitutes an actual restructuring because the payroll is the one big expense these companies have.
So w/ finance there was a bailout (more accurately an effort to stop the system from seizing) and in return the industry is downsizing on a massive scale and cutting the remaining costs as well. With the auto companies the very purpose of the bailout is to keep restructuring from happening.
Are you sure about that? Cause that's not the impression I got..
"GM Pensions Are Fully Funded"
But from the worker's perspective -- especially blue-collar workers, it doesn't really matter, because their pensions are fully guaranteed by the PBGC. Some higher-paid white collar workers would lose part of their pensions if the PBGC took over, but given the funding GM's pensions funds, that looks unlikely.
It's retiree health care that's unaffordable -- specifically UAW retiree health care, since the white collar workers lost their gold-plated plans some time ago and have to rely on Medicare. UAW retirees are soon going to have to do the same, it appears.
Yeah let's let 1.5 million people lose their jobs in the middle of a recession. Real intelligent.
Do you people ever even CONSIDER coming down from your ivory towers to operate in the REAL world?
McArdle and everyone's talking points, "Yeah sure people are going to lose their jobs, and kids are going to go hungry and it's going to suck, but that's tough."
Great. And you wonder why you people are being electorally wiped out at the polls? The Republican Party (and the Libertarians like Megan who are only now beginning to realize that they LONG ago tied themselves to the Republican wheel and it's too late to escape now) are effectively making themselves the minority party for the next 20 years.
It will be at least 2030 before your Party, or what's left of it, manages to win a presidential election again. And it'll probably be 2020 before you control the Congress again.
Ask the Reagan Democrats. They've left your Party in droves. As has the entire center of this country.
Enjoy the wilderness. Vote for letting 2/3 of the auto industry go into Chapter 7? Real brilliant. Are you even aware how many city's economies, across the country in places from California to Florida, are reliant on the American auto industry? The loss of jobs and closure of car dealerships alone, if the Republicans in Congress are actually dumb enough to vote against this, will guarantee the ouster of at least another 1/3 of them in 2010.
Do you guys just enjoy losing or what? And get some kind of macabre, disinterested satisfaction in watching not only people suffer while you disinterestedly put on your worst Ayn Rand impressions or are you actually ROOTING FOR a depression at this point?
Don't think we can reach 10% unemployment? Drive the American auto industry out of business. I guarantee you we'll break 8% without a sweat. And that's assuming a model where Ford DOESN'T go bankrupt.
So it must be nice to live in fantasy, libertarian realm, but the rest of us have to live in the REAL world, where the failure of REAL industries have real consequences. I pray none of you ever do.
If you drive the streets of France you will note that most people drive cars manufactured by 1 of 3 producers; Renault, Citroen and Peugeot. All in all, nearly 7-8 in 10 cars on the roads are produced by those three. Apparently the French care more about the workers in their country than we do. Oh well. Have fun working at Walmart you stupid douchebags.
Staash: "It's really some kind of competition for most idiotic statement of the day here, isn't it?"
You are winning, by far.
"In the real world, there's no such thing as "independent" events. It's a simplifying assumption that works under most circumstances, except, for instance, huge natural disasters."
And insurance companies seeking a profit will only insure against events where this assumption works (or at the very least, charge a large premium due to volatility).
One example where this assumption fails: flood insurance. Certain parts of the country flood regularly, just as recessions happen regularly. Flood insurance is available primarily through the government in those areas.
Your point is nonsense. Any reasonably run insurance company is at risk only from fantastically unlikely events, e.g. 20 million people simultaneously crashing their cars.
The recession is a very reasonable event that GM should have known would happen relatively soon and should have prepared for.
Incidentally, the flaw was not trying to mathematically model the real world. Most human progress comes from doing this. The flaw was doing a bad job of it.
Ahhh the new Feudalism. Soon we can all work for minimum wages and no health benefits just so that we can buy cheaper throw away goods every year. What fun it will be to have little or no job security and be completely beholden to the vicissitudes of the labor market and as skilled labor is replaced by robots we can watch as our shattered pensions are hoovered up by rapacious landlords or banks, only recently propped up off the federal dole.
They came first for the family farmers, And I didn’t speak up because I wasn’t a farmer member;
And then they came for the trade unionists, And I didn’t speak up because I wasn’t a trade unionist;
And then they came for the small business owner, And I didn’t speak up because I wasn’t a small business owner;
And then . . . they came for me . . . And by that time there was no one left to speak up. Although in retrospect, there wasn't much to get from me either.
The financial bailouts were a bad idea. There, I said it. Again.
John, 1.5 million people are not going to lose there jobs, poof, because GM goes bankrupt. Many airlines have gone bankrupt, and the all workers did not lose their jobs. Bankruptcy is a tool to restructure a company that can't pay its bills; often times, people get 1/2 of what they got before. It allows businesses to reneg on contracts they can't afford and have inventory sold off.
Yes, if allowed to go bankrupt, many people will either lose jobs or have pay/benefit cuts. Not 1.5 million. Sections of GM are profitable or can be profitable, but GM is run by incompetant monkeys who can't trade on the enormous goodwill that "buy american" still holds on the car buying public, especially anyone over 40. GM could learn to be Wal-mart and Toyota and get its crap together--by reducing inventories, get products to market swiftly and with little overhead; but so long as we are beholden to a bunch of idiot gearheads in Michigan, GM won't evolve.
Look, if I could go back, those banks the US just bailed out would fail with no bailout. Like I said, the Fed had me bamboozled.
But throwing good money after bad here is a rotten idea. Citi should be allowed to fail. The American people need to make a stand here: just say no to saving jobs that aren't working.
Yes, Mambo, ""rapacious landlords or banks" are just like Nazis. Good metaphor.
basic fact,
you are really a silly billy.
Staash:
One more thing. If a every possible disaster happens that manages to bankrupt swaths of insurance companies, I think that collecting on the money due will be low on the to-do list. Because most like, millions of people would be dead,or without water, food, or access to hospitals, and would be sick and alone without any means to support themselves or communication. I think our priority would be establishing order again and getting communication and supplies running--probably martial law, not capitalism, would have to be imposed for the emergency.
Remember Katrina?
And Mambo, you are farting retarded.
Basic,
how'd you like to get together. I think we might have something special going here.....kind of like a salt and peppa thing. Ya know.
This is really getting off track. Mambo and basic fact, can you get a room already?
Ninja Zombie writes:
"Your point is nonsense. Any reasonably run insurance company is at risk only from fantastically unlikely events, e.g. 20 million people simultaneously crashing their cars."
So, "reasonably run" insurance companies are the ones that aren't found to be post-facto insolvent after taking on excessive risk due to events that they failed to anticipate? I'd call them "fortunate" instead.
I also think you're fantastically optimistic about the type of stuff that would need to happen to sink just about any insurance company.
"The recession is a very reasonable event that GM should have known would happen relatively soon and should have prepared for.
You can say the same for Lehman, et al. Yet, these are I-banks that have been in business for over a century and have attracted the country's best and brightest. If they couldn't anticipate or react to this, why would you expect Detroit to?
"Incidentally, the flaw was not trying to mathematically model the real world. Most human progress comes from doing this. The flaw was doing a bad job of it."
You're parsing here, but I agree. I'll also add that the flaw wasn't just doing a bad job of it, but thinking that you're doing a good job of it while throwing caution to the wind.
basic fact: - ironic choice for user-name
Look, unlike the airlines, or the financial sector, the Big 3 sit on top of MASSIVE supply chains of other businesses that depend heavily on the Big 3 as customers... a huge part of the US manufacturing industry (and that of Canada and Mexico) relies on automotives. Even manufacturers of products that would seem peripherally related - tool & die, upholstery, electrical systems - rely heavily on auto parts manufacturers related to the Big 3 as their primary customers.
If you've ever worked in the auto industry, you'd know just how complex and integrated these cars are in terms of their components, and just how many different manufacturers and plants contribute to them.
The point is that ALL auto companies, not just the Big 3, are reporting 30-40% sales declines 2007-2008 - this includes Nissan and Toyota. Japanese companies are reporting similar sales declines in their home markets, and falling sales are being seen in China.
So *obviously* there's too much capacity for sales *right now*. The problem is, if you just eliminate companies, they won't be around anymore when sales increase again. European and Japanese companies may survive - they'll be bailed out by their home governments... and to some extent, that will mean the survival of factories in the US and Canada that assemble their vehicles. But when the rebound comes, the members of the Big 3 will either be severely damaged or extinct.
Look, whether you go Chapter 11, bailout, no bailout, government takeover, or don't do anything and let the market sort things out - those are debatable points. But ignoring the facts about where we are now, and union issues and mismanagement of the past are only part of the story. We're in a crisis, and we don't have time for people to just look at parts that are convenient for their ideological points or to reinforce their past biases. Just like McArdle wanted people to look at all dimensions of the financial bailout, I don't think it's asking too much for her and other commenters to look at all the dimensions of this situation.
I've never been propositioned by a liberal moron before. Oh wait, I have been to San Francisco.
Between your conserative stupidity and my liberal moronic tude, I think we'd make a great team. And by the way...I'm a girl, but I think that works for you because with the latent homosexual fear reaction your given out I think its time for you to come out of the closet lover boy.
I really don't understand what's with the excessive confidence in insurance companies around here. Are all of you actuaries or something?
I really don't see how one can think the insurance companies are immune from insolvency save the Apocalypse, yet a "recession" can destroy all the big I-banks. Maybe someone can explain this for me?
Staash,
Well...it all worked out for the best now that AIG is being renamed America's International Group
Why does the image of Ms McArdle 'outraged with underlip a-quivering and chest a-heaving ' summon up such naughty thoughts? [sigh]
I don't think Megan blames the UAW exclusively: her previous posts have excoriated Detroit managment as well.
The Detroit automakers are almost certainly doomed in their current forms, and they well merit their doom. But the present financial circumstances make it difficult to imagine the sort of lending that would enable genuine restructuring. I suspect all would go down in the wreck. The effect of Detroit's collapse on the equities market would also be... insalubrious.
So, yes, I'm willing to spend several billion dollars to keep them afloat a little while longer, just so they might go bankrupt in less apocalyptic times.
By the way... the $1 CEO salary worked wonders for Apple. But somehow I suspect, pace Tom Friedman, there is no Steve Jobs out there for GM.
Bahrad:
Oh, please, I've heard this song and dance before. "This industry is unique, all these other industries depend on it, if it goes under, they do too." For crying out loud, that's what we heard with the finance sector, and that's what we'll hear from the next industry that comes to congress, hat in hand, for a handout if we give detroit this bailout. This is justa cry for protectionism from a company that can't admit its own failings.
Like I said, all the contracts the Big 3 have are not going poof. Some will be dropped, some will have their payments cut, and some will be sustained. That's what bankruptcy is for--to see what is salvageable and what is not. And those companies who supply GM? Toyota, et al. need products too. And they have American plants.
"The problem is, if you just eliminate companies, they won't be around anymore when sales increase again....But when the rebound comes, the members of the Big 3 will either be severely damaged or extinct."
---That is EXACTLY the point. The big 3 have long dominated the American market while at the same time being subject to the government always willing to bail them out. This has stifled competition---how can you compete with a government-subsidized-but-for-profit business for a necessary product?
If the Big 3 go down because they don't get their handouts, its because they deserve to. And you know what happens? A well run company springs up, one with good products at good prices with a good business model--one that won't fail in tough times.
Now, I hear you on the foreign car companies being bailed out by their home governments---that is a bad thing, because its not capitalism, its socialism. I think in those cases, the US would be justified in taxing cars from companies that received their countries' bailouts at a per-car equivalent rate to their bailouts. It may sound protectionistic (especially from a free marketer), but its actually a tit-for-tat, because the foreign nations are essentially being protectionist in saving only those products from their own country.
Simply because there is a crisis, Bahrad, doesn't mean we panic. We did that in the financial markets, and look where we are now. Saving crappy companies because they are "too large to fail" is a stupid, stupid idea.
Bahrad writes: "Just like McArdle wanted people to look at all dimensions of the financial bailout, I don't think it's asking too much for her and other commenters to look at all the dimensions of this situation."
Fundamentally this bailout isn't going to come down what's best for the economy, it's going to come down to "What's in it for me?"; that's why you can't separate the bank bailout from any other ones we might see.
Politics as usual, and it's naive to think that we're going to get past that any time soon.
Things I'm sick and tired of hearing from auto industry boosters who spend their days whining for a big three bailout.
1) "American cars aren't crap any more, their quality has really gone up in the last few years."
Yeah, so what. What the Hell was Detroit doing between say 1973 and the year 2000? The Japanese started kicking Detroit's ass on quality back in the 1970s. What did Detroit do about it? Did they try and make better cars? Did they sit down and say "Hey, why are the Japanese kicking our asses?" No, they pissed and moaned and whined and in the early 1980s got the government to place import quotas on Japanese cars. What did the Japanese do about this? Well the Japanese looked at that situation and said "Hey, if we can only import X number of cars into the United States then we're going to make sure that we make as much money as we can on each one of those cars, so they created their luxury brands, Acura from Honda, Infiniti from Nissan and Lexus from Toyota, and cannibalized Detroit's high end and took market share from Mercedes and BMW as well.
So come on big three boosters, tell us why it is that it took Detroit over 30 years to start building cars that could compete with the Japanese on quality? As far as I can see Detroit, and I use this to mean management and labor, did nothing except bitch, moan, whine and fan the flames of anti-Asian racism and beat Chinese guys to death.
2) "We bailed out the big banks. I don't see why we can't bail out Detroit. If you're against bailing out the big three you must be an evil capitalist who masturbates to Atlas Shrugged and thinks that bailing out the big banks is OK."
Yeah right. Did your mothers ever introduce you to the concept of "two wrongs don't make a right". FYI, I was against bailing out the banks, as were a lot of other people who have been debating this bailout on this forum and others. I was writing letters, actual hard copy letters, not e-mail, to my senators, congressman and anyone else I could to oppose that piece of crap and I'm still angry about it. Just because we pissed a bunch of money down the rat hole that is Wall Street doesn't mean that pissing a bunch of money down the rat hole that is Detroit is a good idea. Wall Street didn't deserve a bail out and neither does Detroit.
Oh, and could one of you big three boosters, any of you, John, Staash, Joe Klein's conscience, any of you please delineate your bailout plan for the big three? Come on, you guys are so smart, tell us how the big three are going to use our money to "reinvent" themselves (Yet again. If I had a dollar for every article I've seen talking about how the big three are "reinventing" themselves that I've seen in the last 25 years I'd go buy myself a new Acura)? Tell us how the big three are going to deal with the fact that they've got car lots all over the country that are jammed full of SUVs and big trucks that aren't selling. Tell us how the big three are going to deal with the fact that they've spent years gearing up to produce cars that nobody wants to buy any more. Explain how Detroit is going to rebuild the trust of the American consumers, consumers who work just as hard as any member of the UAW, whom they spent three decades crapping on by selling them lousy products, and then, when those consumers had enough and bought Japanese cars, accused those consumers of being traitors because they weren't "buying American.".
Oh, and I'd like to know where the bailouts stop? Who else do we bail out? Which industries are deserving of large quantities of our money for producing crappy products and treating their customers like garbage and which aren't?
Staash:
I don't think the recession would've destroyed these I-banks. They just leveraged their freindships in washington to extract sweeter deals than bankruptcy would have--tough times, not destroyed.
"I-banks that have been in business for over a century and have attracted the country's best and brightest. If they couldn't anticipate or react to this, why would you expect Detroit to?"
---Staash, they might have been smart, but not emotionally smart/secure. Warren Buffet has joked that he's not very smart, but he's confident/secure in what he knows, and knows how to say no to himself when he sees danger signs. The bankers could have anticipated this fall, but were more concentrated on making money--fatally flawed by avarice, if you will. The old line about a second-rate intelligence and a first-rate temperment comes to mind.
This financial crisis is not like a giant natrual disaster, Staash. It is part of the boom/bust cycle of economics, and is more like a regular hurricane season or living on a falut line. If you live in hurricane country or earthquake country, you know that sooner or later its coming. So the smart man builds a hurricane-safe home, gets a generator and chainsaw prepared, gasses up his car, and saves him some plywood and a weeks worth of food come July.
You don't go rebuilding the stupid guy's structurally unsafe house for him when it gets blown down year after year; you tell him to move to New York, and give him somesupplies if he gets hurt. Bankruptcy is those supplies.
GM/Lehmen knew the storms were coming and acted like an idiot living in a glass teepee on the Outer Banks in August.
Stash: "So, "reasonably run" insurance companies are the ones that aren't found to be post-facto insolvent after taking on excessive risk due to events that they failed to anticipate? I'd call them "fortunate" instead."
No, the "reasonably run" companies are the ones that insure against events which occur independently.
Can you even conceive of an event that will lead to the simultaneous crash of every car insured by GEICO?
"You can say the same for Lehman, et al."
I do say the same for Lehman. They gambled on the good times continuing forever and lost. For that, they deserve to die, just like Detroit.
(Though in all fairness, Detroit would have lost even if the good times did continue. All the recession is doing is moving their death forward a few years.)
I have this odd feeling that if all insurance policies came due at once, the US dollars they were paid out in would no longer have value except as kindling or toilet paper. Although the radioactive mutants and rampaging Road Warrior biker gangs in this imaginary all-policies-due-at-once world might be kind of interesting. From a distance at least.
If only the automakers would follow the advice of Megan and her army of armchair management consultants everything would turn out just fine. So easy to fix from the outside, ain't it?
Of course, I am being generous to Megan -- not sure she has advice, or even a point. She's like an old lady who drives by a billboard for a new flavor of gum and says "Oh look, a new flavor of gum."
The UAW has made some interesting concessions in the last few days, which they should get some credit for considering management could be saved from the contract more or less unilaterally. I don't expect workers to get any credit in these comments, however, as well all know exactly what medicine THOSE PEOPLE need.
PS Are you all enjoying your hi-tech kitchen appliances? Funny how only other people buy things they don't need.
Easy solution, guys and gals (although it will leave our local resident thiev... er, socialists ultimately forlorn).
Just buy value and quality, and let the rest languish. Ultimately, although at the cost of us American taxpayers, the Big 3 will die, and the Hondas and Toyotas will continue giving good wages to our honest workers in right-to-work states. Hell, we might even get a new American automaker that can stand up to the UAW! Oh, the novelty!
The honest workers--those with real skills to offer--will find reemployment. Those without skills, only protected by union contracts, won't. Sounds like a win-win to me.
I find it terribly amusing that those same groups that set up Michigan to be in such a precarious industrial position are the same ones to whine the most when that position gives way. Try finding a 'prevailing wage' with your actual skills. Hah!
The market will ultimately prevail.
The UAW has made some interesting concessions in the last few days, which they should get some credit for
They offered to delay -- not end -- payments to their health care plan, and to make it slightly cheaper to lay off union workers.
Nothing terribly interesting about that. If they'd put massive cuts in wages and health care payments on the table, well, that would be something. But their actual proposal is meaningless. It just pushes off GM's bankruptcy a few months longer.
The burn rate isn't 4 billion. It's about half that in the current market. (Car sales are down about 30% at the moment) But there's a huge bond payment coming due that takes it up to 4 billion.
mr/ms. fact:
"Oh, please, I've heard this song and dance before. "This industry is unique, all these other industries depend on it, if it goes under, they do too." For crying out loud, that's what we heard with the finance sector, and that's what we'll hear from the next industry that comes to congress, hat in hand, for a handout if we give detroit this bailout. This is justa cry for protectionism from a company that can't admit its own failings."
But the problem is that the auto industry IS special... I did all of one summer internship at a small auto parts company and managed to figure that out. There is absolutely no final assembled product that puts that many components together AND gets sold to a mass audience. Your only other ones like that are things like airplanes, missile launching systems, tractors, etc., which are not exactly "consumer items". And a lot of suppliers for those products depend on the automotive industry for large chunks of their revenue and profits, and they would lose a ton of economies of scale if they were to lose the Big 3's ability to sop up extra capacity.
Look, my point is, the automotive sector is very large and complex, and it's not just the "automotive" part of it that worries me either. It's all the other manufacturing industries that would get pulled down by losing it as well. And it's not like the US has that much of a manufacturing sector to spare.
Does this mean we should do a bailout? At best, I'm undecided. I would like to see us provide bridge loans that would give GM & Ford 6-12 months of maneuvering room to fix their brand structures, trim down their product lines, eliminate spare capacity, renegotiate labor deals, and blow up their dealer structure without formally going into some kind of bankruptcy prediction. Maybe give Chrysler some room to find a buyer as well, but I don't think they can cut it as an independent manufacturer unless they seriously change their business model to look more like a niche producer (and those are getting bought up these days anyway).
"If the Big 3 go down because they don't get their handouts, its because they deserve to. And you know what happens? A well run company springs up, one with good products at good prices with a good business model--one that won't fail in tough times."
One can dream, but again, we're talking about incredibly complex supply chains and distribution systems here... Look at the problems Tesla is having getting off the ground.
I'm the last person who's a Big 3 booster. But I am really worried about the effects a total failure would have on our economy. We're not going to be able to impose tariffs to counter bailouts of foreign companies - the WTO is very good at preventing tariffs and very bad at dealing with carefully structured subsidies. But what we can do is make sure that our solution to our manufacturer's problems is smarter than the one that the Europeans and Japanese are going to come up with.
And hey, if any one or all of the Big 3 can't reorganize - that's life. But we need to give them space, because what we have now - a massive credit crisis that followed months of record-high oil prices - IS an extraordinary circumstance, and if you're ever going to have an emergency bailout of an industry, now would be the time to do it.
So if the Terrible Triplets go bankrupt, never again will a car part be ordered from the US supply chain? I think that is preposterous. Spare parts will be needed, and there will remain exactly the same demand for new vehicles. Those workers and factories will not suddenly be forever stilled. A bankrupt GM will continue to order parts, build cars, and sell product. It will reorganize itself, shed the parts that suck money, and concentrate on the parts that make money. That *has* to be good for the US; it is *bad* if GM takes precious capital from profitable companies and their workers and give it to management and labor that have squandered opportunity after opportunity.
The boosters try to present the argument as if the bailout will save the domestics. It's not a save the big 3 vs. kill the big three decision. Its a delay the death of the big vs. kill them now decision. There is no saving GM as we know it today unless you plan keeping GM on the government teat forever.
Will their death cause massive problems? You bet your ass it will. Will tossing them 25, 30, 50 billion save them? No. Chrysler has been internally destroyed by Cerebrus and Daimler. It's a zombie with no future. Cerebrus has 100 billion dollars in annual revenue, but they won't tap their own cash to keep the company up. That tells you everything you need to know re: Chrysler.
GMs turnaround plan is weak bullshit that doesn't go far enough. Until Rick Waggoners head is on a pike and the rest of GM's management is living in fear of a pink slip, they will NEVER go far enough to fix the company. They are too tied down by so many people who want their slice of the pie. Keep in mind GM hasn't had a profitable year since 2004, when gas was cheap and SUV's ruled the roads. It simply cannot survive at its current market share as constituted. The corporate culture @ GM is full on Gotterdamerung, Hitler in his bunker denial mode right now, and the bailout is their last miracle weapon to stop what will happen.
Ford has a chance of not even needing the money (its the only one that won't be bankrupt by Christmas if nature is allowed to take its course). They are the only one whom a loan would work for.
If the government wants to try to soften the blow to the economy, they should let Chrysler die (and hope its 10% share goes to GM and Ford), do a prepack chapter 11 for GM, and give Ford a bit of credit. Even that does not ensure the survival of GM, but at this point its the only shot they have. The consequences will be dire, but there is no way to avoid them. Giving Chrysler and GM cash will merely let them outrun the Furies a few more months.
Given that $18B is an order of magnitude greater than GM's current market cap, and that GM has promised tens of billions to the UAW already, let me propose a simpler and cheaper solution, one that formalizes the state of GM's current true ownership.
For ~$2B, the government can buy out all current GM shareholders and then simply hand total ownership (and responsibility) to the UAW. Good bye, good luck, and let us know if you produce a decent affordable car.
Yes, yes, it's likely that my proposal would result in the death of GM, but I don't think that's avoidable any more and this would be both cheaper and more entertaining.
So let me get this straight:
If we have a bailout, the Big 3 will avoid bankruptcy and reorganize - on the taxpayer's dime.
If we don't have a bailout, the Big 3 go Chap 11 ... and re-organize, only at no cost to us taxpayers (but at a mighty big expense to billionaires like Kerkorian, hedge funds like Cerberus, and foreigners like Daimler and the SWF's that invest in US equity)
Why, exactly do I, a taxpayer, want to pay for a re-org and bail out billionaires and foreigners?
Also: Yes, foreign governments will bail out their automakers, who will then sell cars in the US.
If the German and Japanese taxpayer want to subsidize my automobility, I'm not going to complain.
Japanese automakers don't need to be bailed out.
They are still profitable (though much less profitable).
The domestics are getting croaked because they were already in ICU when this hit.
There's a reason why I outgrew Ayn Rand when I turned 17... It's easy being a libertarian. It's always someone else's fault - the government for spending money recklessly. Foreigners for messing up the economy with intervention. Unions for asking for too much pay and benefits. Management for agreeing.
Action, inaction, doesn't matter - whatever consequences ensue, you can blame on some other mucking about that violated the shiny clean principles of free commerce.
Real solutions to real problems are messy. There are downsides to going the Chapter 11 route. There are downsides to the bailout. There are downsides to doing nothing. There is no "no-cost" option. There is no option that will cost the taxpayer nothing, at least not in the system we have, as opposed to the system you wish we had. There is no option that won't lead to a lot of people being hurt and leave a lot of people poorer and more miserable. That may or may not be a consideration - I know that a lot of libertarians rationalize their empathy away, so fine.
Set that aside, let's look at economic self-interest: If you have a truly messed up situation in terms of credit, commodity prices that have whipsawed to unprecedented amounts, and that has led to a 40% drop in sales that is NEUTRAL to past management practices (in the sense that it has affected everyone from Toyota to GM to Chrysler to one degree or another). This is just as much an emergency as anything else that's been going on. Is it better to take the risk that Chapter 11 won't disrupt a whole industry (and require government loan guarantees anyway to avoid Chapter 7, given where we're at)? Is it better to let the companies fail and concede that companies subsidized by foreign governments should take over the industry? You just might be able to avoid that kind of massive disruption in an economy that is already brittle - of course you might not, but then that means we're talking about massive failures outside of just the Big 3.
Oh Bahrad, you're living in what we call the reality-based community. We're an empire now. Or were.... uh
The main point is that when UAW workers do something more economically productive with their time like investment banking or econo-blogging, we'll all be Pareto optimal in our sniznouse.
The main point is that when UAW workers do something more economically productive with their time like investment banking or econo-blogging
They could stay home staring at the television all day and it would be economically more productive than being paid large sums of money to make cars nobody wants to buy.
So, yes, either investment banking or blogging -- or competitive flower arranging, or ultimate frisbee playing -- would be an improvement.
thanks for the blog - your articles are always insightful.
for more on the car front see
http://missmarketcrash.blogspot.com/2008/12/from-fairtrade-to-sharetrade.html
kind regards,
Missmarketcrash
Re: The real question is whether creditors are willing to ride out uncertainty until the Democrats can craft something.
My guess is the creditors won't have much choice. should anyone try to take GM to court for being delinquent on any loan or bill payments the matter could easily be delayed until Obama takes office with the new Congress-- a matter of a few weeks now, in cluding a major holday.
There is no option that won't lead to a lot of people being hurt and leave a lot of people poorer and more miserable.
That's true, and I don't think anybody's disputing that. The question is what is the least bad option. The Detroit automakers have been inexorably losing market-share for not just years, but decades. And given that and given the far larger pile of cash that GM burned through in recent years (during non-recessionary times!), does anybody really believe that $18B would be enough to turn GM into a lean, efficient, profitable, growing company? If not, how many tens of billions would be enough? Is there any amount that would do it?
Look at what GM and the UAW have proposed so far -- GM has proposed selling Hummer and Saab (but who would buy them?) They've proposed making Pontiac a 'specialty brand' (what does that really mean?). They've proposed shrinking their dealer network marginally (which will still leave them with more dealers than Ford has now and 2X more than Toyota -- and they've not said how they would accomplish this). And the UAW? The UAW has proposed 'suspending' the jobs bank (not eliminating it) and 'delaying' the VEBA payments (not reducing or eliminating them). All in all, it's a big pile o' nothing -- they still don't get it.
People who are pushing chapter 11 are doing so because then (and apparently only then) would GM and the UAW be forced to do what they must -- shed brands, shed dealers, shed unaffordable jobs banks, retiree health plans, and restrictive work rules. Chapter 11 might produce a viable company in the end -- providing $18B in exchange for GM's and the UAW's vague, half-empty promises of restructuring just won't.
Damage from acid rain
It is a lot in the exhaust gas etc. of smoking and the car that go out of sulfur dioxide, two oxidation, and the factory chimney where it causes acid rain.
Because leaves is lost every year and the conifer is leafed for the tree with broad leaves that puts forth a new leaf for years how many, the damage from acid rain is large. To tell the truth, it is likely to be gnawed at the forest that looks normal by acid rain in the face. The tree gradually beaten up says, "Acid shock" destruction on suddenly witheringly starting with the cold wave and the typhoon, etc. , begin .."Make to the bleached white bone".. worth, and a large scale.
Calcium and the magnesium contained in the soil are important nourishment not to be able to lack in the growth of the plant. However, these nourishment flows out reacting with the acid when the soil is made acid. The growth of the plant stops in the soil of poor nutrition, and the resistance to illness becomes weak, and a decrease in the amount of the harvest of farm products is caused.
*Extinction of aquatic life
A little water of normal lakes and marshes is in the alkaline state. However, if acid rain flows into lakes and marshes, water becomes sour. The salmon and the mass die out, and it risks, and most living things die out agreeing in pH5 or less in pH5.5 including a strong eel the extinction in pH6 of the prawn, the crab, and shellfishes when this advances fast.
Aluminum and mercury influence the cause that the living thing dies by the acidification of water by the loss of salinity in the inside of the body, and the acidification of the soil and these influence the person because of the poisoning that begins to melt.
Bahrad:
"One can dream, but again, we're talking about incredibly complex supply chains and distribution systems here... Look at the problems Tesla is having getting off the ground."
----Oh, boo-hoo, you heard about one car company somewhere that isn't coming out like gangbusters, and is trying to get a brand-new type of product into the market. Oh why oh why won't every american just buy this new untested product and make tesla a winner?
Come on, Bahrad, you know better. Tesla is struggling, therefore, it'll never happen? That's crap thinking, and you know it. This is the kind of crap that makes people go "oh no, retail stores are going to fail, no one's buying anything....well, except Wal-Mart. but they don't count, they're evil rednecks who only think about delivering low prices to consumers. How dare they consider customers their number 1 priority!"
Bahrad, you also seem upset that everyone here's so pro-Ch. 11 without considering alternatives, but you admit you don't know what is best. No one wants GM to go Ch. 11, but that's the best option availabl.e
"But the problem is that the auto industry IS special... I did all of one summer internship at a small auto parts company and managed to figure that out."
---Oh God, are you really saying that because you had a summer internship, you *know* just how extra special cars are? That's pure B.S., and you know it. It isn't more special than an airline or a computer company or retail. It's a business, and GM is a company in that business. If people truly need the product, a good company will rise up and take its place. Period.
Perhaps if GM weren't riddled with these crappy costs, they'd be making money. Simply because a lot of people are involved in a worthless venture doesn't mean you save it.
Here is a good link that describes why letting GM go bankrupt is a bad idea.
http://emptywheel.firedoglake.com/2008/12/04/supplier-shock-explained-in-simple-terms-for-matt-yglesias/
did anyone mention that the foreign automakers who do business in "right to work" states here receive a lot of support from their home governments--Japan and Germany? Or that the workers in those countries have universal healthcare? Or that they are far more "socialist" than the Democrats here will ever be?
Just a thought for the "honest" workers in "right to work" states who depend on foreign companies for their well being--those companies wouldn't exist or be able to build plants in the U.S. were it not for government support in their home countries. It was "socialism" that brought you your jobs.
I haven't visited this site in ages, and now I remember why. 2X4 McArdle's selective outrage is always bemusing, as is that expressed by her glibertarian sycophants. Nary a peep during the travesties of the last eight years, unless it was to express that the issue was one she didn't understand and hadn't thought about. But now, she could express words but they'd be unprintable. Just remarkable. But what else would one expect from a pseudo economist?
Allan Snyder:
You're wrong.
Socialism is a government taking over or subsidizing an industry for the purported benefit of its own citizens. When Japan/Germany does it for the benefit of foreigners in a foreign nations, its not socialism, its capitalism, because its not my taxes that are paying me and my countrymen, but Japan/Germany's.
If I were from Japan/Germany, I would be hopping mad my taxes were supporting another country's industry. But hey, not my problem.
This message brought to you by logic: give some to a liberal today!
I think there are two main reasons the Republicans oppose extending low cost loans to the American Auto industry:
1. They want them to go under so Obama inherits an even bigger stinking mess than is already going to happen; and,
2. They simply want to kill off as many union jobs as possible.
Neither reason is honorable.
Bahrad - Libertarians are probably less likely to see it as "always someone else's fault" than people who want heavy government intervention.
dantonj - The main reasons for opposition to the bailout are the direct and much larger indirect cost of the bailout. The direct costs of bailing out the automakers are at least $25bil, maybe more, for now, and likely more down the line. The indirect costs are hundreds of billions of investment going down the drain with continued losses, and also growing socialism in America.
I think there are 2 main reasons dantonj supports auto bailouts:
1. He believes failing businesses that produce crap and don't work should helped up by those evil rich people.
2. He ate lead paint chips as a child.
Neither is a valid reason.
dantonj, that kind of "supply chain" argument can be made with any large business---and those do fail, and the economy recovers and is fine. A bankrupted business is bad for the economy, but worse is sustaining a crappy business that can't do its job correctly.
Repeat: ANY LARGE BUSINESS THAT FAILS HAS A SUPPLY CHAIN EFFECT. THE SUPPLY CHAIN WILL SURVIVE. THERE ARE OTHER CAR COMPANIES AND MECHANICAL DEVICES THAT NEED CAR PARTS.
And also, bankruptcy does not end a business. It reorganizes it.
You liberals and your sky is falling mentality. Can't see the forest for the trees.
I notice people seem to be avoiding the national security issues involved in killing off the American Auto Industry.
It would have been virtually impossible for the U.S. to win WWII without having an industrial base and being able to convert auto factories to support the war effort. I seem to recall that quite a few planes and tanks and jeeps etc.... were made by the auto industry to support the war effort.
But, I doubt there is anything whatsoever that will change the Detroit haters minds. Heaven forbid that the Government would help out a national industry during the worst, quickest, economic downturn since the Great Depression.
Hmmm.... AIG is now flush with cash. Maybe GM, Ford and Chrysler should ask them for a loan.
Basic Fact: It's "socialism"(and I use that term in the very broad McCain/Palin way) that allows those businesses to exist and provide employment for all those "rugged individualists" in this country. My only point was, the folks in "right to work" states can thank socialism in other countries for their jobs. The companies wouldn't exist without government support.
Feel free to continue your stream of mindless ad hominem attacks, I guess you're impressing somebody.
And also, bankruptcy does not end a business. It reorganizes it.
Bankruptcies sometimes result in reorganizations or sales to other companies, but other times it results in liquidation and the end of a business.
This has been another addition of "Give a Republican a Clue". If this represents their brain trust, enjoy your status as a permanent minority regional party.
Dantonj, that argument is outdated and irrelevant. Can you imagine a scenario where the US is in a long-term war involving the rapid and mass destruction of tanks, planes, and jeeps?
It will never happen again. A conflict of such intensity and scale would involve nuclear weapons before it involved mass industrial mobilization. We're not fighting WWII again.
If you guys would cut out the partisan assumptions, slurs, and threats for a second, we might have a more useful discussion.
I voted for Obama, live in Ohio, and am generally skeptically progressive. And I still think this bailout is a terrible idea.
Am I against mass unemployment? Of course not.
Do I want to "break unions"? Not really.
Was the bank bailout a great idea? Not sure, but it's definitely imperfect.
But I'm also adult enough to realize that it's a bad idea to keep throwing money down a hole.
I'm sophisticated enough to realize that paying unemployment, retraining, and whatever other benefits is more efficient and sensible than over-paying people to make products that nobody wants to buy. "Preserving jobs," IN AND OF ITSELF, is not a worthy end. If it was, we'd have a lot more blacksmiths, coopers, and cobblers.
According to Allan Snyder all car companies are unprofitable and only exist because of Government support.
No wonder he thinks that bankruptcy will end American automaking. There's no money in the business and thus no one would want it.
Allan Snyder:
"The companies wouldn't exist without government support."
-----Really. Toyota couldn't exist without the support fo the government of Japan. Ever. In the financial sense.
"My only point was, the folks in "right to work" states can thank socialism in other countries for their jobs."
---No, they can thank individual companies like toyota for relocating in their cheaper, more efficient states. Last time I checked, toyota, not japan, built plants in the south. but hey, thanks for playing!
"Bankruptcies sometimes result in reorganizations or sales to other companies, but other times it results in liquidation and the end of a business."
-----yes, but total liquidation is last ditch and very rare. Parts get sold off, contracts get cancelled, but you libs think its going poof in a cloud of smoke tomorrow. Nope. wrong again, liberals.
"Feel free to continue your stream of mindless ad hominem attacks, I guess you're impressing somebody."
--Thank you, you knobby-kneed wussy little moron commie jerk. Everyone is now duly impressed.
"This has been another addition of "Give a Republican a Clue"."
---Not a Republican. Wrong again.
"If this represents their brain trust, enjoy your status as a permanent minority regional party."
---Definite Obamessiah supporter. Already talking like a KosKid, and so early in his posting!
This message brought to you by liberalism: killing off babies and businesses since 1917.
Foreign car plants built in "right-to-work" southern states were done so with massive state subsidies including 20 year tax holidays, free to the manufacturer infrastructure improvements and other amenities. But hey - at least they're not a bunch of socialists relying on the government to prop them up.
Nathan, you do know that a tax holiday is the opposite of socialism, right? Socialism is about subsidizing a business, not removing restrictions. Taxes are restrictions on businesses.
A tax holiday is not a subsidy, precisely because a tax is a regulation; when you remove regulations, voila, you are doing the opposite of whata socialistic state would do, which is to tax all people more and give the money directly to a struggling business.
For you to say that not taxing=socialism is ludicrous.
But feel free to ignore that at your ACLU meeting tonight.
Lets create a new compact. Lets eliminate the income tax on anyone making less than150,000 a year. Lets create a stepped rate going up from there where every additional 100,000 in income would be taxed at a marginal additional 5% rate capped at the current top rate. In exchange, lets eliminate the deductability of interest expenses for corporations and individuals (including mortgage interest). Lets also eliminate depreciation of real estate more than 1 time for each property (retroactively) and then eliminate accelerated depreciation. Buildings should be depreciated over 100 years or more. Real estate gains based on increases in ambient land value would be treated as ordinary income while improvement gains would be taxed as capital gains and no rollover of capital gains would be allowed.
Local governments sweetening the pot to attract business is pretty standard operation procedure.
And please provide some backup to the statement that Toyota could not exist w/o government support. That's a news to me.
P.S. Nobody ever praised the Soviet car industry, yet somehow or another they were cranking out ridiculous amounts of vastly superior tanks (vs. U.S. ones), and they were a piss poor rural society that had spent twenty years being run by commies for gods sake. GM didn't win the war.
I'll take your word on that, toxic, but a gun to your head can be a huge motivator.
Everyone posting here ought to be required to divulge whether they voted in the 2000 and 2004 presidential races and for whom. It would make discounting their glibertarianism all the easier.
I've seen a lot of comments about how nobody want's to buy Detroit's cars.
Since sales for both Toyota and Honda are down by over 30%, I guess that means nobody wants to buy their cars either.
One of the big problems is that because of the credit crunch, people are finding it very difficult to get car loans. If you can't get a car loan, you can't buy a car.
The government is eager to give money to the banks, but the banks still aren't lending. Maybe they should try giving some money to GMAC and other auto financing companies.
Really. Toyota couldn't exist without the support fo the government of Japan. Ever. In the financial sense.
Sure they could, but I highly doubt they'd be building factories here, employing rugged individualists in the U.S. Can you prove that they would be able to survive and grow without the support? Didn't think so. That would involve a thoughtful, well-researched reply, and you've proven that you're incapable of that.
yes, but total liquidation is last ditch and very rare.
how rare? got some numbers on that?
Parts get sold off, contracts get cancelled, but you libs think its going poof in a cloud of smoke tomorrow.
I didn't say that, but strawmen and adhoms go hand in hand for folks like you.
Thank you, you knobby-kneed wussy little moron commie jerk. Everyone is now duly impressed.
I'll let you guess exactly what we're impressed with.
Not a Republican. Wrong again.
let's see--angry? yep. unhinged? yep. thoughtless namecalling? you betcha! mindless repeating of right-wing talking points? also!
If it looks like a duck...
This message brought to you by liberalism: killing off babies and businesses since 1917.
See: mindless repeating of right-wing talking points, supra. I can see why Sarah Palin is your hero, she appears to be your intellectual superior.
Yes because a vote for Kerry or Gore tells us all you need to know about whether or not we should bailout a company that has for 30 years gradually slid down the path of failure and done little to prevent it.
On another note, remember all the democrats wanting to raise various standards for efficiency/mileage/emissions on the carmakers and republicans going nuts that it was bad for business (and potentially unnecessary)?
The dems said the repubs were protecting the auto fat cats. Now we have dems saying we have to pay for these fat cats. Why?
Because changing manufacturing standards is another way of giving a kickback to unions, with the added plus of possibly helping the environment.
Now we have more kickbacks to the unions that are supposedly necessary because of: poor management, democrats forcing expensive standards on car makers, greedy unions, greedy management.
I don't see why a kickback is needed. The key (but not only) reason why the dems want to do this is simply because the UAW will loose a lot of money as its employees wages are either cut or suddenly disappear.
dantonj: "If you can't get a car loan, you can't buy a car."
----Ding ding ding! We have a winner in the "stupid liberal comment of the hour" contest.
Do you know how you buy a car, liberals? YOU SAVE UP THE MONEY AND BUY IT.
People who buy cars with car loans deserve the idiocy they've borrowed themselves into.
"Since sales for both Toyota and Honda are down by over 30%, I guess that means nobody wants to buy their cars either."
---That is correct, because, yes, business does go down in a bad economy. But Toyota and Honda are still afloat, right? And they're still making sales, right? So they don't fail in a bad economy--unlike crappy GM.
Basic Fact is an uber angry person. I wonder what it is that makes him so angry. Perhaps he is unhappy that his girlfriend, who gained 150 pounds over the last 3 years, finally threw in the towel on his sorry ass and dumped him for a smarter guy. Perhaps his latest lottery ticket failed to pay off.....again! Maybe he was diagnosed with schistosomiasis and needs advanced medical treatment, or maybe he's just one of those stupid negative douchebags that decides to make everyone else miserable. Anyone else have a guess?
Not paying taxes for twenty years is stretching the definition of a "tax break". Alabama's individual taxpayers and businesses not in the car assembly business are picking up the tab for the state's services - including the give-aways to the car industry. Sounds to me like Alabama's non-car-making tax payers are getting hosed. I fail to see how this supports a free-market libertarian conservative argument against a bailout of GM.
But Toyota and Honda are still afloat, right? And they're still making sales, right? So they don't fail in a bad economy--unlike crappy GM.
Toyota and Honda don't fail in a crappy economy because their government back home provides them with a lot of support, unlike crappy GM. Sorry to bring your phoney libertarian world view crumbling down.
Allan Snyder:
"Sure they could, but I highly doubt they'd be building factories here, employing rugged individualists in the U.S. Can you prove that they would be able to survive and grow without the support?"
---Wait, wait, wait. Are you ACTUALLY saying that a Toyota/etc. would never build a factor here or expand overseas? Because Wal-Mart and Nike are using U.S. subsidies to build stores and manufacturing plants abroad. Really.
And despite making this ridiculous assertion WITH NO PROOF, you expect ME to prove YOU wrong. Um, dude, the onus is on you to prove that no foreign company would succeed or try to outsource work to a cheaper U.S. State. Last time I checked, businesses try to make stuff cheaply, and outsourcing offshore is the new black.
"yes, but total liquidation is last ditch and very rare.
how rare? got some numbers on that?"
----Touche, I don't. I could talk about my experiences working in a bankruptcy court, but they're not provable here on a message board. But I do know about how many airlines wentbankrupt that turned themselves around. I do know bankruptcy was created to prevent a business from completely going defunct--to freeze creditors, shed parts of the company, and all in all do things that, without bankruptcy, would be called illegal or would be impossible. If the entire point of a system is to smooth out extreme business problems and prevent defunctness, it would tend to show defunctness being rare.
"I didn't say that, but strawmen and adhoms go hand in hand for folks like you."
---I'm sorry, then why the resistance to bankruptcy then? If you know only the bad crap in the business is getting shed, why do I need to send GM, a business, MY MONEY?
"I'll let you guess exactly what we're impressed with."
---My stunning insights into your insipidty.
"let's see--angry? yep. unhinged? yep. thoughtless namecalling? you betcha!...
If it looks like a duck..."
-----It's a pro-abortion Obamamessiah follower? Seriously, dude, I think you're confusing right or conservative or libertarian leaning won issues with republicanism.
"See: mindless repeating of right-wing talking points, supra. I can see why Sarah Palin is your hero, she appears to be your intellectual superior."
-----For someone so concerned with strawmen, you seem to like building them yourself. Kindly point out where I called Sarah Palin my hero. And I'll thank you to know my insults are completely original, AFAIK. But great minds do think alike.
Liberals: fighting facts with dogma for the last 100 years.
Wow, we got a whole mess of stupid people in the interim. Saddle up boys, we got a wrangle a stampede of stupid here from Allan Snyder and Nathan:
Allan Snyder:
"Toyota and Honda don't fail in a crappy economy because their government back home provides them with a lot of support, unlike crappy GM. Sorry to bring your phoney libertarian world view crumbling down."
-----1. Proof, please.
2. They don't fail because THEY ARE GOOD AT BUSINESS. They don't make dumb mistakes. Heck, Toyota's system is famous for being so streamlined and efficient. Taken from American companies, btw.
3. If it a foreign business is only saved by the bell of uber-government support, then we should enact a protectionist import tax on all their cars. That would be fair, because it is essentially what they are doing on U.S. car companies that do not get government bailouts. That's fair trade and not a subsidy. However, if those same companies build here, then the tax gets taken off, because now the foreign governments are subsidizing our workers. I think I said this before.
Nathan:
"Not paying taxes for twenty years is stretching the definition of a "tax break". Alabama's individual taxpayers and businesses not in the car assembly business are picking up the tab for the state's services - including the give-aways to the car industry. Sounds to me like Alabama's non-car-making tax payers are getting hosed. I fail to see how this supports a free-market libertarian conservative argument against a bailout of GM."
----Wrong, wrong, wrong. You assume that paying the government is required, and therefore anyone escaping a tax is receiving a subsidy. You fail to understand that the government, in enacting a tax, is taking your money away from you, not taking their own property.
You have no proof that "Alabama's individual taxpayers and businesses not in the car assembly business are picking up the tab for the state's services" unless they got hosed with a tax hike.
As I understand it, nothing like that happened---individuals and businesses paid the same rates as before. The increasing of taxes for a tax break for others would be an offset, not a break; you have presented no evidence that this happened.
You assume that somehow the car industries created all these problems that only overtaxing others could solve, and the governemt was magically "owed" this money because of the new business. Your slavery to the idea of taxes=good blinds you to this reality.
However long freedom from a certain tax lasts, it is still a break. NYC was famous under Giuliani for its sales tax-free shopping weekends. A tax break for 50 years is the government denying is not a subsidy, it still is abreak, even though it might outlive you.
A tax break is one very strong definition fo a conservative. The longer, the better.
Basic Fact,
We get it. You are a very very very smart guy, perhaps the smartest guy on the web. Your knowledge of economics is astounding and your prose is breathtakingly beautiful and enlightening. Now please do us all a favor and crawl back into that hole you crawled out of and die.
Shorter knoobler:
"Stop writing, you are making us look bad."
I love it whent he enemy begs you to stop fighting.
---George Patton (ok I made that up, but it sounds like something he would have said)
It seems to me the real enemy here is unwillingness to make a commitment on the part of "official" Washington.
We have now a somewhat detailed plan for what the automakers want to do with the money they want to get. Why couldn't every member of the current House and Senate, plus every new member starting in January, plus Obama and Bush go on record with approving or disapproving of the plan?
Clearly the Dems are more likely to support a bailout and the Repubs are less likely. So suppose we knew that the bailout wouldn't pass the current Congress and/or Senate and/or would get vetoed by Bush. But it would pass after 1/20, and would be signed by Obama. In that case, GM and Chrysler would certainly be able to get bridge loans based on the commitments they got from "incoming" Washington.
Of course there is a price to be paid for this commitment, just as there is a prize to be won. The price is election losses if your position turns out to be wrong; the prize is election wins if you were right. So if the bailout turns out to have been a good idea, supporters will win; opponents will lose. Or vice versa if the bailout is a loser.
What do you think?
I just want to thank Basic_Fact. Because of him, I know have someone to point to when I'm accused, as I frequently am, of being the "rudest dude on the internet" (or some equivalent concept).
I still enjoy his posts though. This one made me burst out laughing:
Ding ding ding! We have a winner in the "stupid liberal comment of the hour" contest.
Do you know how you buy a car, liberals? YOU SAVE UP THE MONEY AND BUY IT.
no...its more like the annoyance of a mosquito flitting around your car when you drive. You just want it the hell out of there. It ain't adding any value.
I realize I should tell it all more slant, but honestly I can't, I leave that up to others.
You're welcome.
They don't fail because THEY ARE GOOD AT BUSINESS. They don't make dumb mistakes.
It's official, BF doesn't have a clue. Were you alive in the 1990s? Never mind, I can see you're providing valuable entertainment to the rest, although you don't realize they're laughing at you.
It's official, Allan Snyder doesn't have a clue. Any bump in a business is a failure that requires a bailout, according to him.
A down turn is different from being a comapny with 4 straight years of epic fail on your books.
No, Allan, I don't think Toyota is perfect and has never made mistakes. To say so would be the kind fo all or nothing thinking you're so famous of here.
Basic Fact,
"You assume that paying the government is required, and therefore anyone escaping a tax is receiving a subsidy. You fail to understand that the government, in enacting a tax, is taking your money away from you, not taking their own property."
Even in a state like Alabama with the most regressive tax system in the country, someone has to pay the cops and pave the roads. I assume you drive your car on a paved road - I assume when someone breaks into your house, you call the cops and afterwards hope the thief goes to court and later to prison. Someone has to pay for that and if the richest business in town isn't paying their share, I'm paying extra for it and it pisses me off.
"Libertarian" definition: the guy who stands around with his thumb up his ass watching two other guys move a couch up a flight of stairs.
for BF, its more like watching his 300 pound girlfriend eat a bag of cheetos and then taking out his anger on the rest of us. Its sad....sad i tell you!
for BF, its more like watching his 300 pound girlfriend eat a bag of cheetos and then taking out his anger on the rest of us. Its sad....sad i tell you!
Any bump in a business is a failure that requires a bailout, according to him.
No, that would be according to your strawman. Getting your butt kicked by American automakers for a decade because you didn't foresee the SUV boom is a tad more than a blip. Regardless of the long term gain, they didn't want to lose out on that huge part of the market for so long, and they definitely had a huge amount of government assistance to weather the storm.
Anyhow, it's become abundantly clear to everyone that "Basic Fact" is nothing more than the most ironic name ever.
did anyone mention that the foreign automakers who do business in "right to work" states here receive a lot of support from their home governments--Japan and Germany? Or that the workers in those countries have universal healthcare?
Japan doesn't have universal healthcare; they have employer-provided healthcare, same as us. I'm not sure what the situation is in Germany.
As for your complaint that Toyota and Honda are subsidized by their government, what of it? If the Japanese taxpayers want to spend their money helping me buy a Japanese car, good for them. That's a stupid decision on their part, but since I'm the one getting the money I say "fantastic".
But it doesn't make me interested in spending MY money to help someone buy a shitty American car.
Okay, I want to take over for Basic_Fact for a second.
@Allan_Snyder: Getting your butt kicked by American automakers for a decade because you didn't foresee the SUV boom is a tad more than a blip.
So, let me get this straight: Betting all your chips on gasoline being ultra-cheap forever, with no hedge against rising prices, so you can make short term profits, and even then, not using those profits to sustainably fix your crippling legacy cost problems...
...is evidence of wisdom? The mind of a liberal for you!
Hint: Toyota was never in danger of bankruptcy for not joining the herds, for the simply reason that they're not stupid enough to keep ballooning unfunded obligations on their books for decades.
***
How'd I do?
@Nathan
Someone has to pay for that and if the richest business in town isn't paying their share, I'm paying extra for it and it pisses me off.
If I make a widget and the parts, labor, and overhead cost me $2, I'll sell it for $3 and make a profit. What do you think I'll do if a government comes along and taxes me at a rate roughly equal to $.25 per widget? Do you think I'm going to cut my profit by $.25? No, I'm going to raise my price to offset the difference.
Do you honestly belive that when a government taxes a business, that the business doesn't pass that cost to you and everyone else in higher prices?
Please tell me you don't honestly believe that...
I mean, you seem fairly intelligent so it would devastate me to find out that you're that much of a moron.
Nickolas
Nickolas,
What you've pointed to is actuall known as the biggest lie in economics. Costs don't matter (except in monopoly or oligopoly situations) the only factors that matter are supply and demand. If demand for the product is too low, prices fall whether people can produce the product at a profit or not. Therefore higher prices really cannot be passed on to you and me...and that makes you the moron....not Nathan.
Nathan:
"Even in a state like Alabama with the most regressive tax system in the country, someone has to pay the cops and pave the roads. I assume you drive your car on a paved road - I assume when someone breaks into your house, you call the cops and afterwards hope the thief goes to court and later to prison. Someone has to pay for that and if the richest business in town isn't paying their share, I'm paying extra for it and it pisses me off."
-------Um, "their share?" As I asked, did the taxes go up on other people when the tax break was enacted? In which case Nathan, then I agree it wouldn't be a tax break, but a mere offset/burden shift. But you haven't provided any proof of that happening here.
You have also presented no evidence that somehow the presence of the new plants suddenly caused roads to collapse and crime to increase in Alabama. Heck, usually higher employment leads to less crime, so your argument is counter-intuitive. And any new workers who came to Alabama were still subject to the same individual income and sales taxes.
You give yourself away with your statement: "someone has to pay for that and if the richest business in town isn't paying their share, I'm paying extra for it and it pisses me off." You seem to assume that that any rich business must pay taxes, and has a moral obligation to, regardless of the law.
If you're arguing that the tax break should have gone to indviduals or on sales taxes as opposed to the large business creating hundreds of new jobs, I would be willing to hear your argument. But you're crying that somehow the business created problems and higher taxes on others where you have presented no evidence and it seems counterintuitive.
Until you show otherwise, it was a business tax break that created jobs and improved Alabama's economy. Supply-side conservative economic success story 101.
And I just have to say to Allan Snyder:
"Getting your butt kicked by American automakers for a decade because you didn't foresee the SUV boom is a tad more than a blip."
---So Toyota was getting its butt kicked when it grew to the world's largest car maker? Weird.
I guess, to Snyder, growth for a business=bad times=need a bailout. No wonder he thinks GM needs his $$$--no matter what happens, business is bad!
Silas, very good, but its not me. You're far too nice.
@Economist...
ROFL...
By your logic, if there is demand for a widget at $3, but not at $3.25, and the $.25 is the result of a tax, then I have a problem with demand, not with the tax. What you're saying is that when I go out of business it wasn't the tax that killed me, but the lack of demand?
No wonder we're in this mess.
Nickolas
I must say, Nathan, another way of stating my case was, absent you presenting evidence to the contrary, that the taxes on you in Alabama were the same whether the tax break was offered to the car companies or not. Crying about "fair share" is whistling dixie. Like I said, if you think the break should have gone to indviduals and on sales tax or on other businesses, I'm all ears. But other than those things, you've got no ammo on this issue.
P.S. A liberal: someone who sees a problem, assumes only his brain can fix it, steals someone else's money to fix it, gives the job to someone unqualified to do it, walks away, and then wonders why it never got fixed; finally, takes someone else's money again and launches a study to figure out why the problem isn't fixed.
Conservative: starts a company that fixes the problem. Moves to Tahiti.
Nickolas,
That's exactly it. As long as there is an alternative product, costs cannot be pushed through to the consumer. Its known as the "cost-push illusion". So yes, if you are assessed a tax and that tax makes your costs go above the break even point, then you are stuck selling your product at a loss. This has been pretty well studied.
BF....please move to Tahiti. And get off of food stamps while you are at it .
Tondolejo,
I can't, Economist just taxed me into bankruptcy. Like Obama promised he would do for the coal industry. But its ok.
OBAMA.
YES WE CAN!
CHANGE! HOPE! KOOL-AID!
Basic Fact,
I'm not clear on your logical non-sequiter. All I stated is that you cannot push costs back onto consumers if they won't pay the difference...and economic theory shows how they won't pay the difference if they can get the same thing for cheaper; just as people will not pay more for a GM car (even though their labor cost are higher)and the fact that GM would love to push this additional cost onto their customers. This is not an indictment of tax policy, nor is it an endorsement of leaving Detroit out to dry. It is merely a "basic fact" about economics that clowns like you will never understand because you are too damn stupid.
Allan Snyder: Getting your butt kicked by American automakers for a decade because you didn't foresee the SUV boom is a tad more than a blip.
As Silas noted, that was a stupid, short-sighted strategy that ignored the fact that low gas prices are unsustainable (and was an attempt to game CAFE standards).
Of course, we could keep GM and its brilliant SUV strategy profitable forever. In fact, George Bush was working on it -- "remake" (i.e. control) the middle east and its oil with American military might. Seems like a great idea, no?
Economist:
Nikolas was stating that a government can tax a business with adequate demand right into bankruptcy. Which I am agreeing with. If tomorrow the government enacted a $1000-per-bag tax on Cheetos directly (i.e. not a sales tax, but at the plant directly), Cheetos would go out of business.
Cheetos could try 3 things 1) eat the cost themselves; 2) make really cheap cheetos; or 3) raise prices. 2 is out of the question, considering their currently priced under $5; it could do 3, and demand would fall (unless people pay $1005 for a bag); or it could not raise prices, and lose money hand over fist. The government has thus taxed a business out of business.
did anyone notice that $2.99 gas for 3 years deal a car maker offered this summer? Immediately after seeing that, I realized this crap about "permanent" high gas prices was a myth. Why? A company had obviosuly done a ton of research and was betting on prices coming down well below that well within 3 years for a majority of the time---and some insurance guys had to sign off on that deal.
And now we're below $2.00 a gallon. Jeez, its almost like the market worked here.
Economist: "As long as there is an alternative product."
1. Big assumption there, and probably wrong: if taxes apply uniformly to a product, then all the companies will be bankrupted by a high enough tax.
2. In the case of energy, where it is a necessity and the only options Obama has threatened to tax out of existence, what will happen then?
Nickolas is talking about a situation that doesn't exist with respect to the auto industry. It is a fairy tale which he is using to try to buttress a false assumption...just as you are attempting to do. Sales taxes on various parts of the auto supply chain would simply make all autos relatively more expensive which is what happens in Europe. Tax policy there also shapes what kinds of cars are made (small cars due to higher gas prices in part due to higher gas taxes). There are also situations where the governments provide Most favored nation access to their local markets in an attempt to keep out competition. Therefore when you go to Germany you seem primarily German cars on the roads and in France mostly French ones. The United States, the creme de la creme export market is such because we are alone among nations in actually allowing local governments to undercut our own workers. One can argue that this is desireable because of the lower prices and better quality products that we get, but the flipside is that we end up undercutting our blue collar workforce whose quality of life decreases. These are simply economic facts. You who have a rudimentary (I would say fairly retarded) understanding of basic economics are way out of your league and should quit while you are behind.
Economist:
"Sales taxes on various parts of the auto supply chain would simply make all autos relatively more expensive which is what happens in Europe."
v.
Economist:
"Therefore higher prices really cannot be passed on to you and me."
-----Ladies and gentlemen and Allan Snyder, witness direct contradiction from a moron from the Obamanomics school.
Game. Set. Match.
Basic Fact,
Again, a logical non-sequiter. what I said was "As long as there is an alternative product, costs cannot be pushed through to the consumer. Its known as the "cost-push illusion". If all cars are taxed then the price can be pushed higher because there are no alternatives (that is the assumption that you failed to get). If on the other hand, there are alternatives (untaxed ones) then the price cannot be pushed on because there are alternatives at a lower price. This is purely theory of course. In the real world, [a place that has little use for dopes like you] people have all kinds of reasons for paying more for something of inferior or equal quality (its kind of subjective isn't it). In any case, since your simplistic mind cannot contemplate a world where everything isn't black and white I suggest you go back to your drawing board and contribute your 250th rejoinder of the day. By the way, could that be because you like sitting home in your underpants?
Economist:
1. I caught you in a loigical contradiction and now you're trying to weasel. Deal with it, boy.
2. "By the way, could that be because you like sitting home in your underpants?"
---No comment about sitting in Mom's basement, too? Disappointing.
3. "If all cars are taxed then the price can be pushed higher because there are no alternatives (that is the assumption that you failed to get)."
---No, moron, because, based on your own precious supply/demand graph, they cannot all continually be pushed higher. Demand will fall. Remember this summer, when people stopped driving? Yeah, demand kind of fell, didn't boy?
4. At this point, I have no idea how you can possible say that a business will not try to pass off higher costs on the public even if the costs aren't uniform, or that taxes alone cannot put someone out of business.
I would say we should call Megan et al's bluff and let 'em burn, just to prove the point, and if we're wrong about the consequences, great. Except if we're right, Megan would just claim that the resulting suffering was necessary to teach coddled manufacturing workers and the rest of us by proxy some unspecified economic lesson. So I say bail away.
What I think is hilarious is that Congress is going to end up laying out more than they would have because of their insistence on an unrealistic plan that no one thinks is really going to make the companies more solvent long term. They tried to get tough and the Big 3 just came back with a bigger number. Talk about getting your ass handed to you. There is some merit to the argument for having more private-sector types in Congress, esp. among the Dems, I'd say.
FUCK G.M.
And these are the Morons that invented the Hummer!
So, let me get this straight: Betting all your chips on gasoline being ultra-cheap forever, with no hedge against rising prices, so you can make short term profits, and even then, not using those profits to sustainably fix your crippling legacy cost problems...
...is evidence of wisdom? The mind of a liberal for you!
No, it's you completely missing my point, along with your fellow intellectual lightweight, the feces-throwing monkey, Basic Ed.
The point was, that Japanese automakers got caught flatfooted during the SUV boom, regardless of the long term sense it made, and you can bet your ass the Japanese government was going to stand behind them if things got too bad--because they've always received more assistance from their government than U.S. automakers get from ours.
And the fact of the matter is, that they've succeeded with a huge amount of government assistance, and they've expanded with plants in this country, and the Americans who work for them are direct beneficiaries of what you call "socialism".
Of course Toyota could still succeed in a pure capitalistic system with no government assistance or favoritism whatsoever, even though no such system exists on earth, but they didn't. I've got reality on my side, you've got a faux libertarian wet dream.
Now, you can return to flinging poo.
AIG got $125 billion. No problem since none of which will go niggers.
Governments and conglemorate corporations are so in bed together in Asia that something like this isn't likely to happen in the first place. (That and their comparatively more efficient economic model) Some Asian governments enjoy broad powers to implement whatever changes they see fit, whether peole like it or not. It's not like here, where achieving benefit deferment by union is considered a huge step forward.
If Barack Obama IS a socialist, he's gotta work hard to emulate countries like Japan and Korea, where big business and government are just about lovers. They know exactly when and how to stifle competition so certain companies can remain porfitable. Of course, mini economic crisis still hits Asia all the time.
Bottom line : If they faced sour situation, Japan will probably FORCE toyota to make changes. No bailouts without it. Some CEOs, workers, designers, and even union workers will have the courage to resign, for having shamed their entire nation. (Suicide is sometimes a sad possiblity).
Here in America, they'll do the same song and dance where they defer blame, try to please everyone, and accept chippy little compromises that does nothing.
Quite the scare tactic: We'll go bankrupt in two months unless you give us $8 billion. I'd really like to just wait that one out, like you said, Megan. You're right--not even the hard-left illuminati are going to fork over $4 billion a MONTH to save that hemorrhaging whale of a company. Well, maybe Pelosi.
Allan Snydyer:
"The point was, that Japanese automakers got caught flatfooted during the SUV boom, regardless of the long term sense it made,"
----The mind of a liberal. Following a business plan that makes long term financial sense is idiotic if you lose in the short term.
Toyota wasn't caught "flatfooted," it just refused to focus on a fad. It made some SUVs but refused to focus more than its estimate market share on the products, realizing the ebb and flow of gas prices.
"and you can bet your ass the Japanese government was going to stand behind them if things got too bad"
---Little chance of that happening, because, as you so implicitly admitted, moron, Toyota was never going to get "that bad" because they were focused long term in becoming the world's largest car company. Which they are now.
"And the fact of the matter is, that they've succeeded with a huge amount of government assistance, and they've expanded with plants in this country, and the Americans who work for them are direct beneficiaries of what you call "socialism"."
---No, indirect, and it wouldn't be socialism from my point of view. If a country gets into a market and sells to people in other markets, it isn't socialism. It's socialism to those within the country--because Japanese citizens are now paying for American jobs. From an American standpoint, its capitalism. And thank you for proving that in a socialistic state, the people get screwed. ;)
Whether its a French company or the French government selling nuclear power, from a consumer's point of view in America, it's a non-governmental entity entering the market. I may think that the French government is hurting itself and the global economy long term with this tactic, but my quibble with socialism there is about human welfare and value judgments. I'm screwing the French people.
unless you're proposing that American companies be subsidized for the benefit of foreigners.
"Of course Toyota could still succeed in a pure capitalistic system with no government assistance or favoritism whatsoever,"
---Hooray! A left winger finally going back on his marxist dialogue and embraces logic. The lion lays down with the lamb!
"even though no such system exists on earth, but they didn't. I've got reality on my side, you've got a faux libertarian wet dream."
---right. you have two options, Allan:
1. Your sweeping generalizations about how the governments of other nations are "socializing" Toyota, et al. are wrong--you offer no proof; or
2. The governments of those countries are hosing their citizens for the benefit of Americans.
In either case, brain drain, capitalism wins.
"Now, you can return to flinging poo."
---We have plenty, after it all just came out of your mouth.
Liberalism: making crap that doesn't work since FDR.
29000 car dealers take a hell of a chunk, too, but they can't be touched because of state franchise laws.
Hell, wipe them out. It would save a ton of money in the chain for the buyer. I'd just as soon buy my car at Costco.
And what's wrong with a whopping big recession or depression for once? It would teach some salubrious lessons that have long been forgotten except by some really old people no one listens to.
I'm 49. I recognized that the US economy was a potential train wreck in the late 70s and have been preparing my whole adult life for this moment.
I've done without fancy cars, fancy clothes, trips, gadgets, huge houses, etc., all while my age cohort has borrowed and spent and spent and spent and taken on gigantic risk. I've saved and invested prudently.
Now, when the price of everything may come down to a point where I will get the fire sale of a lifetime, the one I have been anticipating for 30 years, the goddamn government steps in and prevents me?
On top of that, I get to have my taxes raised a hell of a lot and my wealth confiscated to hand it to people much stupider and less prescient than I?
When that $800,000 house down the street gets to $100,000, I'd like to buy it, without the Feds propping it back up and thwarting me.
When the hell do I get rewarded for my foresight?
Wow. Quite a rollicking discussion. Just a reminder for anyone who is interested that the full text of the document GM submitted to the Administration and Congress, along with other materials, can be found at http://gmfactsandfiction.com/
It is an eye-opener, and a good response, I think, to those who argue that GM is not intent on continuing to put its house in order.
My question for you, Mr. Tom Wilkinson at GM, is why wasn't GM "putting its house in order" in 1974?
Or 1975?
Or 1976?
Or 1977?
Or 1978?
Or 1979?
Or 1980?
Or 1981?
Or 1982?
Or 1983?
Or 1984?
Or 1985?
Or 1986?
Or 1987?
Or 1988?
Or 1989?
Or 1990?
Or 1991?
Or 1992?
Or 1993?
Or 1994?
Or 1995?
Or 1996?
Or 1997?
Or 1998?
Or 1999?
Or 2000?
Or 2001?
Or 2002?
Or 2003?
Or 2004?
Or 2005?
Or 2006?
Or 2007?
But NOW you are going to do things differently? Just have taxpayers give you tens of billions of dollars and the problems will go away?
You think we are all GODDAMN IDIOTS?
Chester -- If you look at the annual reports for those years, the fact is that GM had some very good years. The company has struggled with a couple of things that many American industries have struggled with (many of them unsuccessfully, by the way):
-- Reduced market share as American has thrown its borders open to imports. (BTW -- We are the only industial country other than Britian to do so.);
-- Promises for pensions and other retiree benefits made during richer years, promises the companies have been reluctant to walk away from. (Would you have us unilaterially cancel health coverage for hundreds of thousands of ordinary older Americans?);
-- The "crime" of building products that affluent customers wanted to buy, larger trucks and SUVs, a boom fueled by energy policies that sought to keep fuel prices as low as possible. Note that Toyota and Nissan have large truck plans standing idle. They, too, we caught by the rapid rise in fuel prices.
Automakers are high fixed cost businesses in a globally competitive industry, and any economist can tell you that such businesses cannot easily survive an almost instantaneous 35 percent drop in demand. Some of our import competitors have stronger balance sheets or pre-existing mechanisms for government support, but that is only buying them time. They are facing the same train wreck we are if this level of demand decline persists, which is why other countries are looking at the same sort of interim support we are asking for.
Tom Wilkinson at GM:
I really don't feel like doing the research right now, but would love to know how much money GM has made since the beginning, in toto.
I suspect it's been nothing but a gigantic destroyer of capital overall. Tens of billions, no doubt, that in the hands of someone competent would have built a colossus.
GM is not a profit-making capitalist company. It's a failing benefits plan for UAW employees and retirees that frantically tries to sell cars on the side, losing money on each, while trying to make it up in volume.
You say you are asking for "interim support." That's not true. It's obvious to anyone who can subtract that this money will never be paid back unless GM is RADICALLY restructured immediately. Like TODAY. Selling a couple of planes and cutting the salary of the boss to $1 ain't gonna do it.
You won't agree to bankruptcy and the unions have hardly budged and the retirees won't give anything up and the dealers are all protected by 50 sets of stupid state franchise laws.
GM bet the company a few years ago on SUVs and Hummers and giant trucks. The non-Detroit car companies did not. You lost, they won.
In a time where we are all having to worry about the future, I really don't feel like taking many more thousands of dollars of MY MONEY and pissing it down a hole so that your employees and retirees can have better health care than my parents do.
I can see why the reluctance to walk away from these: they are the main political ammunition - besides the nebulous "bad effects on the economy" - behind asking for a bailout. After all, who wants to refuse "hundreds of thousands of ordinary older Americans?" That's some excellent political leverage!
But, yes. As a taxpayer I would have you cancel all the perqs/benefits/coverage before I would want to send my tax dollars to pay for someone else's benefits that are far better than my own.
Now here's where I have to agree. Take a look at the top 10 best selling cars for November '08, smack in the middle of the "American cars suck" and gas-price-shock tirades:
#7 - Dodge Ram
#2 - Chevy Silverado
#1 - Ford F-150
Yeah, nobody wants to buy an American car or SUV anymore....
As a stockholder, I just hope the big three take the opportunity that this drastic situation provides to make some great directional changes that they may not have had the political capital to make before.
Chester -- If you are not willing to do the research, then how are you qualified to weigh in on one of the most critical and complex economic issues of our generation?
GM, the other carmakers, and credible third parties have made a ton of information available. If you can't or won't avial yourself to this information, then what is your opinion based on?
Tom Wilkinson at GM:
Why don't I do more research on GM's woes? Because I have a GODDAMN PRODUCTIVE JOB, at which I have to work to make money to pay taxes to give to you.
More arrogance from a GM guy. That will help a lot with the people you are asking to pay the bill; keep it up. How about this bit of research, per Yahoo?:
GM Total Stockholder equity as of 3/31/08
-$41,043,000,000
GM Total Stockholder equity as of 6/30/08:
-$56,970,000,000
$16,000,000,000 deterioration in 3 months! Yeah, that's sustainable.
So let's cut the boss's pay to $1.
That's what my "opinion is based on." Jesus H. Christ on a stick.
One last point -- both the GM plan and news coverage indicate that Rick Wagoner and the board have agreed to work for $1 a year.
I am not trying to be antagonistic. But on an issue this critical, I think we have some right to ask that our critics do their homework.
Tom_Wilkinson_at_GM: Is it too much to ask that *YOU* do your reasearch before shilling for the failingest of all failing companies?
During ANY of your cited years in which GM ~somehow~ managed to be hugely profitable, they could have set up a sustainable, honorable plan to remove legacy costs from their balance sheet. Say, pay some third party to take over the benefits and pensions. Instead, they chose to throw it off as (undeserved) bonuses and dividends.
It's no different than if I took out a *business* loan and treated it as pure profit, then complained about my durn uncompetitive legacy interest costs.
And now, GM has the audacity to suggest becoming a holding company so that, even while owning other foreign profitable companies, and while *owing* compensation to workers who have already provided the work in exchange for that compensation, they can cut of their gangrenous North American limb. Thus stiffing honest workers while they continue to live high on the hog!
If I were in that position, I'd be too ashamed to show my face in public.
Silas -- We did exactly what you suggest when we worked with the UAW to set up a VEBA for hourly retiree health care expenses. We had a solid plan for funding the VEBA until the credit crisis drove sales (and our revenues) off a cliff. Also note that, despite all of the challenges GM has faced, our U.S. pension funds are fully funded. Finally, without profits from overseas operations like those in China, GM's situation would be even worse.
GM and the UAW have, together, done better than any other "old economy" business I can think of. Think of electronics, textiles, steel, etc. Mostly gone overseas. We have done some dumb things, but maintaining a constructive relationship with the UAW is not one.
The reason why GM is begging for money right now is because the economy is in dire staits. Toyota and Honda, two car companies that according to our blog host makes cars people want to buy just annouced sales declines of over 30% last month.
They are in deep do do if this economy does not turn around within a year. Toyota will be requesting a bailout from the Diet within that time frame. This has less to do with management that with the global economy at large. When you are producing millions of cars that are going unsold- you have problems.
You've done better than any other "old economy" business? Really? I work in a steel mill. We're still here, thanks for asking. I don't recall my company, US Steel, asking for a bailout either.
If hundreds of thousands are going to lose their jobs (including suppliers) they will not be finding employment any time soon.
Therefore they will be on government assistance.
The taxpayers are going to be paying for this regardless. That is why I support a bailout with conditions attached.
dantonj - re : "Since sales for both Toyota and Honda are down by over 30%, I guess that means nobody wants to buy their cars either."
The problem with "the big three", isn't just that they (like many companies) are suffering from the current economic downturn, but that they where not profitable even before it. And that unprofitability wasn't just some temporary thing, but a chronic problem.
re: "It would have been virtually impossible for the U.S. to win WWII without having an industrial base and being able to convert auto factories to support the war effort."
The industrial base isn't just car makers. Also not bailing out the car companies doesn't imply no cars being produced in the US, or even no cars being produced in the US by American owned companies.
And modern tanks, jet fighters etc. is more complex and specialized than WWII era military equipment. A factory that produced tractors, trucks or even cars could be converted to produce Shermans in a somewhat reasonable length of time. Now it would take much longer, likely not significantly less than creating the factories from scratch.
For years I cussed GM (and the US auto companies in general) because of the quality of their products, and because every year they would give the union whatever they wanted, then raise their prices and go merrily on their way. I would say to anyone that would listen that SOMEDAY they were going to get their "comeuppance,"
Well, that day has arrived, and I find that under they present circumstances I can't support the collapse of the American auto industry. I don't believe that the people who just say to let them go realize the impact that this would have on an already weakened economy. Look around you at the dealers im your community and the many people that depend on them for a living. Expand your vision to include all of the ancilary business that feed off of them. I don't believe that those that are so ready to let them go and remember what tough times were like. I am 80, and I can remember!
Brian,
I totally agree. Has anyone priced out the cost of simply throwing out of work not just the employees of the Big 3, but also of their suppliers, dealers, and ancillary businesses (restaurants near plants etc.) that depend on them at a time when the economy just shed 3 million jobs.
I suspect that 1-2 years of unemployment comp., medicaid, food stamps, student loans, pension guaranty payments etc. for these folks would making the bailout look like a pocket change.
Further, in terms of economic efficiency, how is it efficient for a million or two people to be idle under the economy recovers? Will the lost purchasing power of this army of unemploymed cause further damage?
You're right Glorious. You got tariffs ratcheted up instead.
But I guess that's not government intervention, is it? Oh... It is? My bad.
Jim Moseley - To a large extent the collapse of the American auto industry has already happened. They chronically can't produce cars profitably.
To the extent there is anything left to save - No bailout doesn't mean total collapse of what's left. Bankruptcy and reorganization is what's needed (and will be needed even with the bailout, unless you plan for regualar repeats of the bailout)
Look around you at the dealers im your community
American's aren't going to stop buying cars if you don't bail out GM, Ford, and Chrysler.