US Treasury Completes Bailout of General Motors 425
Hugh Pickens DOT Com writes "Jim Puzzanghera writes in the LA Times that the federal government has sold its remaining shares of General Motors stock, ending the controversial $49.5-billion bailout of the automaker begun in late 2008 under former President George W. Bush. Although the GM bailout ended with a $10.5-billion loss for taxpayers, Treasury officials say the goal never was to turn a profit. The rescue prevented further damage to the economy and the potential loss of 1 million jobs says Treasury Secretary Jacob J. Lew. 'This marks one of the final chapters in the administration's efforts to protect the broader economy by providing support to the automobile industry.' At its height, taxpayers had a 60.8% ownership stake in GM. The auto bailout will rank as 'one of the most important interventions, maybe the most important, in U.S. economic history,' says Sean McAlinden, chief economist for the Center for Automotive Research. Without it, 'the upper Midwest would still be a gaping, double-digit unemployment hole in the economy, 600,000 retirees would've lost their pensions.' ... The Cadillac CTS was picked as Motor Trend's car of the year and the Chevrolet Impala was the first U.S. car chosen as the best sedan on the market by Consumer Reports in 20 years. 'We will always be grateful for the second chance extended to us and we are doing our best to make the most of it,' says GM CEO Dan Akerson. 'Today is not dramatically different from the hundreds of preceding days during which we have worked to make GM a company our country can be proud of again.'"
Union Beard (Score:2, Funny)
$10B it's feared
Need a crony scrape
Or the market's a jape
Burma Shave
Corporate Suit (Score:2, Funny)
Corporate Suit
Thinks it's a hoot
$10B in loot
GM still a coot
Burma Shaved
Is it just me, or ... (Score:3)
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It was done in the same manner in which 9/11 was done by terrorists named Al Qaeda, but then the US went and invaded Iraq and outed Saddam Hussein for WMDs that didn't exist.
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Yes, well, after a few years of the economy tanking, it managed to take out GM. The housing crisis and GM tanking were not simultaneous, regardless of your faulty memory. Both Iraq and the bailouts were hotly debated in Congress before being agreed to. Your problem is selective memory and the fact they didn't do what you would have done.
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A lot more than GM ...
http://money.cnn.com/news/storysupplement/economy/bailouttracker/ [cnn.com]
Re:Is it just me, or ... (Score:4, Informative)
The money.cnn.com story you linked to is from November 16, 2009. Here is a link to a story on the same topic from Dec. 3, 2013 http://projects.propublica.org/bailout/list [propublica.org] Notice how the more recent one includes repayment information.
Re:Is it just me, or ... (Score:5, Informative)
it wasn't just GM that had problems, it was just the only one that got bailed out
Ever hear of the finance industry, aka Wall Street? By comparison the GM bailout is lost in the noise. Moreover, there were actual consequences for the company and its management. On Wall Street the CEO's who steered their companies off a cliff (save for the US Treasury and the US Federal Reserve) didn't even lose their jobs. They congratulated themselves for being survivors, and great defenders of the free market. They got bonuses to go with the accolades. Best of all, there were no criminal investigations, despite very strong reasons to conduct them (search on "William K. Black" for details from a banking regulator who got 1000 criminal convictions after the S&L crisis, and thinks this one smells worse).
Re:Is it just me, or ... (Score:5, Insightful)
Theoretically the bailouts were necessary, but the survival of those banks was not.
Re:Is it just me, or ... (Score:4, Insightful)
Actually, GM has had problems since the 70s. It has been a long slow decline. Sadly, no one had the courage to make the radical changes that were needed.
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Oh don't worry. Despite GM being bailed, pensions are down the drain.
Re:Is it just me, or ... (Score:4, Informative)
In more ways than we realize. The bailout of gm actually followed what Romney said, forced bankruptcy then a cash infusion apon restructuring. The bankruptcy negated a lot of pension liability but part of the cash infusion was paid by Canada's pension funds too. If we are taking a loss, i am almost certain they are too.
This also neglects all the pension funds that was looted when all of GM's stock and debt where invalidated as part of the bankruptcy. Detroit is even worse as municiple bonds has always been considered a safe bet as the governing authority can raise taxes to satisfy the debt but with its bankruptcy, it looks like it will be pennies on the dollar if anything is paid out. But detroit is another beast altogether.
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Re:Is it just me, or ... (Score:5, Insightful)
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Because unions were totally the only thing affecting the economy in those 50 years...
Re:Is it just me, or ... (Score:5, Insightful)
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Unions provided higher wages back then.
Unions provided higher wages for a few people back then. The system was unsustainable and inefficient. It was fantastic for the immediate post-war generation in the US. As other countries rebuilt their manufacturing base, we began to see the downside. The 1970s were the transition for all that. 70s cars were absolutely awful in terms of quality.
It's easy to point to a high paying union job and say the union did good. It's harder to point to all the other regul
Re:Is it just me, or ... (Score:4, Insightful)
Well, to be fair, the world has changed but the Unions have not.
Or at least not the tradtional American unions. I can point to other examples where unions have changed and done well.
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The pensions are insured by the government and you can draw social security upon retirement. It isn't as much as you would have gotten if the company didn't go bust, but it's something.
What is terrifying is all of the public employee pensions that are under-funded by municipalities on the brink of bankruptcy. Those pensions are not required to be insured, and often are not. Meanwhile, the unions themselves opted out of social security and the premiums there applied to the pension. Which means pensioners are
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I think... (Score:3, Interesting)
That if GM had collapsed, it would have created a huge vacuum, that would have rapidly been filled with new startups. The automotive industry could have gotten a big injection of "new" and we'd have maybe dozens of Tesla-like automotive companies.
Re:I think... (Score:5, Interesting)
You think so? You don't think the smoking carcass would own all of the patents and make it impossible for a bunch of new startups to get into the industry?
Because in pretty much every other industry patents essentially prevents that from happening.
I'm of the opinion that in many cases, you'd just end up with a huge patent troll which prevents newcomers from entering the market.
There can be no innovation without really deep pockets to cover all of the rent seeking which happens. Because the game has been stacked that way.
Comment removed (Score:5, Interesting)
Re:I think... (Score:5, Insightful)
Which, if history is any indication, will go to the existing companies with deep pockets, and will continue to restrict the market to a couple of huge players -- or one smaller one backed by someone with deep pockets.
A collapse of GM would not magically create a bunch of small startups to fill the void. It would mostly just redistribute among the big players.
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A collapse of GM would not magically create a bunch of small startups to fill the void. It would mostly just redistribute among the big players.
Actually, the collapse of GM, which is something that's been going on since the 1970s, has grown a lot of rival automobile businesses in the US. They're just owned by foreign companies like Toyota [toyota.com] or Mercedes [wikipedia.org].
I don't know that completing the collapse of GM would create a bunch of start ups, but I do know that bailing GM out won't do that.
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GM wasn't bailed out, exactly - it went bankrupt. The shareholders and bondholders of GM lost pretty much everything. The unions and other employees (including executives) are the ones who were bailed out. We just gave them a bunch of money and called it a day.
I guess it depends who you think GM "is". Is it the employees (including executives), or is it the owners?
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As we have seen when other companies with big portfolios have collapsed or sold off their patents, usually its well established companies that pick them up. Look at what happened to the Nortel Networks patents (that were bought by Microsoft and others)
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Because in pretty much every other industry patents essentially prevents that from happening.
I think in the automobile industry, the high up front investment ist a much greater hurdle than any patents.
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IF GM had collapsed then the remains would have been picked over by the other main car manufacturers and you'd have ended up with the brands being owned by VW, Fiat, TATA, etc. Not good for the America.
Although Fiat already has strong links with Chrysler (they basically own it)
Re:I think... (Score:4, Insightful)
Right and lets not forget either that all that manufacturing equipment does not just get set on fire because of bankruptcy. It would have been sold off cheap to those same start ups. Deflation can be a good thing.
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Yes, if you ignore the supplier and dealer networks which would have gone titsup and those are not easily established. Just consider the problems Tesla has right now. Starting a new car company is not easy, it takes years. In the meantime, all the pensioners and workers are SOL.
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It can cost up to $1-6 billion for car companies to come up with a new model ( http://translogic.aolautos.com/2010/07/27/why-does-it-cost-so-much-for-automakers-to-develop-new-models/ [aolautos.com] ) and that is what it costs if you are already a car company and are already making similar cars. If you are a company that has never made a car before then it will cost even more. A lot of foreign car companies only got started because they had help from their governments.
Two things to keep in mind: entering into a new market
You have no idea... (Score:5, Insightful)
That if GM had collapsed, it would have created a huge vacuum, that would have rapidly been filled with new startups.
No it would not have. You clearly have NO idea how much capital is required nor how much infrastructure is needed to build an auto company and the supply chain that goes with it. Furthermore you seem to be forgetting that in 2008 there was ZERO capital available. Nobody could get capital from the banks because there was no liquidity to be had. Your notion that a bunch of startups could even begin to fill the void left by a suddenly missing GM is laughable. Even if we could have magically waived a wand and provided the capital the engineering would take years. It takes many years to even build a very small auto company like Tesla.
GM isn't just an assembly line. It is the keystone in an entire supply chain. GM goes under and so does virtually every Tier 1 supplier as well as Ford and Chrysler. Even the CEO of Toyota admitted publicly that GM being liquidated would have hurt Toyota badly because they depend on many of the same suppliers. My company would have been out of business entirely and we are a Tier 3 supplier to GM. And we would have been just one of thousands of firms that would have collapsed. Even Tesla would likely have collapsed because the supply chain would have imploded. Tesla depends on many of the same suppliers who would now be bankrupt.
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But all that assumes that for some unexplained reason the demand for cars would just dry up.
There seems no reason to think that if GM disappeared that demand for cars would also vanish too. More realistically the slack would just be picked up by the other auto manufacturers who'd see a drastic increase in demand as they filled the void.
There may be a temporary supply shortage as they struggled to meet demand, but this would likely be met quite quickly by established firms simply buying up GM's old plants. I
Re:You have no idea... (Score:4, Informative)
The reason demand suddenly dried up is explained perfectly well - because most people buy cars on credit, and there was a run on the banks (mostly by each other) and thus no money to lend for buying cars. It's the same reason other companies would not have had the capital to step up and take GM's place.
This experiment has been done before, in the 1930s. Sure, the economy recovered eventually, but the cost was catastrophic - not "just" the human cost, but the entirely avoidable decade-long reduction in GDP. We just re-ran the experiment with a different intervention and a much better outcome, except it doesn't seem like we made any fundamental changes to stop it from happening again.
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Right, sure, there's still demand.
And that demand would be fulfilled by Japanese, Korean, or possibly Chinese manufacturers who have their shit together rather than the decaying and bloated corpse that is Detroit. And it most certainly wouldn't be a situation where "startups fill the void".
Buying up GM's old plants? Why the hell would Nissan, Toyota, Kia, or SAIC want old and busted facilities with only wealthy union workers to hire in a state with strong union laws, in a country with a working EPA? Shippi
Re:You have no idea... (Score:4, Insightful)
I've been listening to excuses like this for years. "No, it can't be done..." "No, corporate is too tight with money..." "No, the government doesn't care about us..."
You can shut it. 12 years of the whole neighborhood calling city services to complain about a burned down house and they staunchly refused; in two weeks I had placed phone calls to 5 city offices, my councilwoman, and the mayor, and the house is now scheduled for demolition. People claim security just "makes things too hard" and I build systems that integrate security such that workflows are only affected by minor adjustment and some security administrator gets the job of managing all the big stuff in the background. I've been told time and again that certain tools can't be used because "nobody will buy into that, it's too expensive" or whatever and I've done the analysis and gotten buy-in from parties who stood in staunch opposition just days before.
Stop telling me what can't be done. Go jump off a bridge, we don't need you.
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Re:I think... (Score:4, Interesting)
Instead, we have the same company with the same problems just waiting for the same conditions to happen again. One that screwed some minor unions and dealers that didn't have political backing in the process that no one seems to care about and the media doesn't seem to want to point out.
Why is it that the banks were able to pay back their infusion of cash, but not GM??? Because it's not the economic powerhouse we have all been mislead to believe it is. The 'what if' story is spread as if it is the truth, when in fact it's just what someone wants us to believe to make themselves look good.
I will never buy a GM car again. Thousands of Americans feel the same way. I'm sure at some point our memories will fade, but Toyota, Honda, and Ford all offer fine US made cars so it's going to take a long time.
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but free from the yoke of union blackmail
GM was brought down more by bad quality cars than anything else. Sure, unions didn't help, but unions in Germany are equally strong and their car manufacturers seem to have no problem thriving.
A former manager of GM described the culture as one in which they would merrily spend $100M in an ad campaign for a new car but couldn't get themselves to spend $0.15 in a better rear light bulb which was much needed.
Instead, we have the same company with the same problems just waiting for the same conditions to happen again.
Say what? Management was replaced and contracts were heavily renegotiated and unions lost lots of powe
Re:I think... (Score:5, Insightful)
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So what you're saying is now that GM is independent, they should be broken up so that they can no longer be "too big to (be allowed to) fail."
Re:I think... (Score:5, Insightful)
Try not to take this the wrong way, but I do find this common libertarian faith in capitalism to be very naive. The belief that letting the market decide everything is the best approach is just bizarre to me. It may be a good way of allocating resources efficiently, but it's also a recipe for economic inequality and environmental catastrophe.
If GM had collapsed, it's not just GM that would have disappeared. There were MANY perfectly solvent suppliers that would have also gone out of business. These companies employ millions of people. With no cash flow, they cannot survive until these "new startups" get off the ground. How long do you think it takes to create a car company from scratch?
And what would happen to all of these unemployed workers while all these startups are starting over from scratch? Economists were estimating the unemployment rate would have been around 15%-20% if the entire auto industry was allowed to fail. What effects would this have been on the remainder of the economy?
Any what makes you believe that this vacuum would be filled with startups in the United States? It's much cheaper to start a company in China where you can simply dump your waste in rivers, and where you don't have to worry about stuff like worker safety. It's been reported in National Geographic that 70% of rivers and lakes in China contain water unsuitable for ANIMAL consumption. Our environmental regulations put the United States at an economic disadvantage since Chinese companies effectively don't have to spend money on reducing their pollution. And their workforce is accustomed to living on slave wages, having to work 12 hours a day, 7 days a week to make enough money to survive. And if a worker gets hurt or dies, there's plenty of replacements ready and able.
However, from a pure libertarian perspective, you're essentially right. The market would have adjusted and allocated resources in the most efficient way. The winners would have been factory owners and investors in China, and to a lesser extent workers in China whose wages and working environment would have improved somewhat, but still much lower than that enjoyed by American workers. American workers would have been decimated because from a purely economic viewpoint, they simply cannot compete with cheap labor and lax regulation overseas.
So sorry, but screw your libertarian beliefs if they mean I need to work for slave wages 7 days a week to survive, only to die at a young age due to emphysema or cancer because of pollution.
Not just $10.5 billion.... (Score:5, Interesting)
The government previously forgave $15.4 billion in loans to GM: http://www.reuters.com/article/2009/05/19/gm-bankruptcyplan-idUSN1943363120090519 [reuters.com]
In addition, the government would extend a credit line to the new company and forgive the bulk of the $15.4 billion in emergency loans that the U.S. has already provided to GM, the source said.
The government also made a "special ruling" for companies receiving bailout money... http://online.wsj.com/news/articles/SB10001424052748704462704575590642149103202 [wsj.com]
It [GM] won't have to pay $45.4 billion in taxes on future profits.
Not only is the taxpayer out over $70 billion to bail out GM, but the original bond holders who were illegally robbed are still waiting for their money too.
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I used to be a big backer of the audit the FED movement but the reality is, if we want a fair economy where everyone gets equal treatment the only solution is END THE FED. What are we going to learn from an audit that could possibly matter when they tell us they are effectively printing $85B every month?
What they have been public about since the start of QE is so large in comparison to every reference frame we have, no other theft could amount to much of anything; because its a fiat currency reference is a
Re:Not just $10.5 billion.... (Score:5, Interesting)
Dunning-Kreuger. As D&D players know, there's a reason why INT and WIS are separate stats.
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The thing is, we all interact with the economy - we earn money, we spend money, we pay taxes.
Of course, the BIG problem is we only interact at the microeconomic level. When you start translating things to the macroeconomic level, the rules change significantly. And this is where the disconnect happens. Things th
It is OK. They can print more money. (Score:2, Insightful)
The government can just print more money. Then those dollars go sit in some foreign bank account, so it doesn't affect inflation immediately. Then some electronic currencies appear, make national currencies worthless, and the whole financial world explodes. Then we go back to creating local neighborhood markets, planting food in the backyard, and trading based on barter because no money of any kind is trusted by anyone.
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Not only is the taxpayer out over $70 billion to bail out GM, but the original bond holders who were illegally robbed are still waiting for their money too.
If the government had not stepped in to save GM, how would the bond holders be doing now? I imagine that if GM were liquidated, they would have gotten a few cents on the dollar. So yes, the bond holders got a raw deal, but lots of people got a raw deal during the meltdown of 2008. As the summary points out, the bailout prevented the loss of ~1M jobs and 0.6M people losing their pensions. If the government had not stepped in, most of the rust belt would be in bankruptcy. So all in all, money well spent.
Re:Not just $10.5 billion.... (Score:4, Insightful)
"So yes, the bond holders got a raw deal, but lots of people got a raw deal during the meltdown of 2008."
That does not mean that normal bankruptcy law is appropriately abridged just for one group of beneficiaries. The feds didn't change the law - they just bullied secured bondholders into accepting a lot less than they were entitled to (from a selloff of the assets). It's a horrible precedent.
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Some amount of those 1M jobs would have very quickly been picked back up by other car manufacturers buying GM's assets ...
And Detroit is going to be a shining prosperous city again, instead of America's piece of the third world. Keep dreaming.
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the original bond holders who were illegally robbed are still waiting for their money too
If a company goes bankrupt, bondholders are among the last people to get their debts paid - payroll, suppliers, bank lines-of-credit, and retirees all get paid before bondholders see a dime. That's at least part of why corporate bonds have an interest rate that is higher than a US Treasury: there's always that risk to bonds that is priced into the interest rate. It's also at least part of why bonds issued by successful and established companies have lower interest than bonds issued by no-name companies.
GM d
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Told you so ... (Score:3, Insightful)
" Although the GM bailout ended with a $10.5-billion loss for taxpayers, Treasury officials say the goal never was to turn a profit. The rescue prevented further damage to the economy [...] "
Funny how they don't think throwing 10 billion down a toilet didn't further damage the economy. Even if GM went out of business, which it wouldn't have, someone else would have bought the resources and done something with them. Just flatly stating that 1 million jobs would have been lost is so deceitful.
I also remember telling people over and over how this was going to be a huge loss since GM would never be able to pay it back and every liberal democrat crawled out from under every rock saying that this was going to be a great profit and win. NOW ... now its "Oh, we never meant to make a profit." Yeah, just like if I liked my health care / doctor I could keep it.
Just wait till the 2014 elections ...
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Yeah, we'll vote the other side of The Party in, that's gonna show them. And if that doesn't work, just wait for the 2016 elections when we're gonna vote for yet again the other side. That's gonna show them...
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Just because I don't enjoy shooting or hanging doesn't mean that stoning is such a better option.
Re:GM liquidation would not just affect GM (Score:4, Insightful)
In the real world however a GM liquidation would have destroyed the entire supply chain. GM doesn't exist in a vacuum. Ford would have gone bankrupt as well because they share the same suppliers. Even Toyota would have taken a hit.
Or perhaps GM would have been calmly restructured according to law, but apparently we don't care too much about the rule of law.
Campaign Finance Reform, anyone? (Score:2)
Re:Campaign Finance Reform, anyone? (Score:5, Interesting)
The Evil Corporations[TM] aren't the problem — GM was bailed out against the wish, desires, and the better judgement of executives and bankers nation- (and world-wide). No, the bailing out of the auto-industry profited unions [wsj.com] — not corporations.
Freshly elected Bush, enjoying the support of the his party's majority in Congress, did not bail-out Enron in 2001. Likewise MCI got liquidated in 2006. What made GM and Chrysler different? Unionized work-force — that's what. But blaming "unionocracy" just does not have the same ring to it, does it?
Re:Campaign Finance Reform, anyone? (Score:5, Interesting)
Even Lehman Brothers was allowed to go under as late as September 2008 — under Bush.
Interesting example - because that's exactly what caused Bush and Paulson to panic and start handing out goodies to the rest of the finance industry.
The subsequent TARP was a bow to Congress
Really? The same TARP that was the brainchild of Bush's SecTreas Paulson? The one that congress initially rejected because it was a few pages that basically said give the SecTreas $700B and he pink swears to do the Right Thing with it (the same SecTreas who'd was chairman and CEO of Goldman-Sachs).
the taxpayers recovered 97% of the monies given to the evil "banksters" under the program. Compare to the figures of the auto-bailout
Ok. Auto-bailout: $10.5B. TARP: $24B (read the 2nd paragraph of your own link - that 97% number is very deceptive). For bonus points, discuss how much of the TARP money was paid back because the Fed loaned the banks money at an even lower rate. It doesn't take a financial genius to realize that it makes sense to payoff loan A using the loan B money, if loan B is at a lower rate.
Go back to the auto-bailout (and the subsequent cash-for-clankers fraud). Nothing represented as blatant a wealth-transfer from taxpayers to "workers" (or, indeed, to anyone else) in recent history.
Nice of you to limit transfer of taxpayer's money to only that received by "workers". You conveniently left out bank executives, bank shareholders, highly speculative "investors", etc.
The bottom line is that you are obsessed with how much money "workers" get from taxpayers, regardless of the fact that much more was transferred to people who aren't "workers". Your ideology blinds you to any real concern for the taxpayer's money. You may call yourself a Libertarian, and you may even vote that way, but considering your agenda and your defense of Bush, it's obvious that you're a Republican in libertarian's clothing. A corporatist (not excusing Democrats here) is as far as you can get from a genuine libertarian.
Mission Accomplished! (Score:3)
Well done - maybe next time you could try and break even? (Depending on how you look at it, AIG was a profitable bailout [marketwatch.com], for example.)
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They did NOT say that the goal was to realize a loss, just that profit was not the reason for the acquisition.
It should be noted that the loss realized is probably less than the gross federal revenue of the direct GM employees and supply contractors (parts and services) during that time, not including second tier effects like money spent by the employees or default losses on mortgages owned by fannie/freddy. (figure 200,000 direct and 200,000 immediate contract workers, $60k avg at 10% effective gross tax r
The US Economy (Score:5, Insightful)
Re:The US Economy [Antitrust] (Score:4, Insightful)
The government should not have allowed mergers into just 3 companies anyhow. If there were say 7 or so car companies, then one or two failing wouldn't topple the whole north.
If you let oligopolies form, then you get Too Big To Fail. We still have banks that are Too Big To Fail. Nobody has the guts to slice them up.
Assuming (Score:2)
the numbers of correct, the US could have let GM collapse and give ever person directly affected (1 million people) 50,000$ in a lump sum and we (the people) would probably still have come out ahead.
Something to think about...
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Have you ever heard the phrase "Give a man a fish and he'll eat for a day. Teach a man to fish and he'll eat for a lifetime?" That's exactly what's wrong with your proposal.
Give a man $50,000 and he'll be set for another year - maybe two. But, if instead you use that many to provide him a job, then he'll have a much better chance of being set for a lifetime. A steady source of income is much, much more important than just giving people a short-term amount of money (and $50,000 really isn't a lot of money fo
Why is it...? (Score:2, Interesting)
Why is it that taxpayer money can be used to bail out corporations and banks while not lifting a finger to help "We the People"? _And_ to "forgive" or write-off billions in unpaid debt? I'm shocked the CEO's and corporate officers who drove those companies into the ground haven't been lynched by the citizens of your country.
... which leads me to once again wonder if the bottom 99% in America will ever wake up to discover they have a comment interest and see how powerful they can be when acting together.
Detroit (Score:2)
Like Detroit?
Proud of GM? (Score:2)
A lot of Americans will not be proud of GM no matter what cars they build. They've been instructed not to because of the insidious union operating there.
The unspoken reason (Score:5, Insightful)
We bailed out the automakers for the same reason we subsidize food production - there is a strategic value in being self-sufficient. If there was another world war or a global catastrophe, we'd be fucked if all our cars and trucks and armored vehicles and tanks were manufactured elsewhere. And what's $10 billion compared to the trillions we already throw away to make sure the oil keeps flowing.
Too big to fail == too big (Score:5, Insightful)
The fundamental principle of capitalism is "good* companies succeed, bad companies fail". Without that, capitalism breaks down.
If a company is "too big to fail", that breaks capitalism. No company should ever get to such a position (even if it gets there legitimately), because when it does eventually fail, it's going to do too much damage.
That may not have been easy to see before the economy shit itself, but it was definitely something anyone could see while the bailouts were happening. It should have been MANDATORY for any company that accepted bailout money to be broken up into pieces that were small enough, individually, to fail without destroying the entire economy. The fact that this did not happen means that we're just waiting for them to fail and ask for a bailout again.
That said, I can think of a few situations where such a bailout would been justified. If the company's failure were caused by something truly unpredictable (meteor impact), or if it were not too-big-to-fail beforehand (eg. a military-equipment manufacturer could become essential to the nation if WW3 started up), it could make sense to do a bailout. It's not pure capitalism, but I'm not a pure capitalist. But these bailouts? None of them were at all unpredictable, and most of these companies have been "too big to fail" for longer than I've been alive (and that's not just because I'm young - AIG predates WW2, and GM predates WW1).
* I'm using a non-cynical definition of "good companies" and "bad companies" here - for my purposes, a good company is one that offers a product that is in demand at a price customers can afford while turning a profit (or at least breaking even), while a bad one either offers something nobody wants, cannot do so at a price customers can afford, or can only do those two things by burning through cash.
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That said, I can think of a few situations where such a bailout would been justified. If the company's failure were caused by something truly unpredictable
Like say perhaps all credit disappearing due to the credit suppliers own malfeasance in a completely different industry (mortgage lending)? Or does it have to be a meteor?
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The fundamental principle of capitalism is "good* companies succeed, bad companies fail". Without that, capitalism breaks down.
If a company is "too big to fail", that breaks capitalism. No company should ever get to such a position (even if it gets there legitimately), because when it does eventually fail, it's going to do too much damage.
Teddy Roosevelt knew this. But this was before our current religion of capitalist economics. People actually think that Wall Street is required to keep the economy going, whatever that means. It's pretty bizarre.
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Nature doesnt bailout losers and neither should we (Score:3)
Humans would have turned out rather differently if mother nature had decided to take the kind route and let some of our mutations survive and procreate.
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No, you're wrong.
There is a lot of supporting industry around automobile manufacturing. You can't just put it off to the side like you did. Also, if automobile manufacturing shut down the entire region would be thrown into deep economic turmoil that would spread to completely unrelated sectors.
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Hell, in 1985, West Germany gave East Germany just a few billion Marks. And on that they ran another 5 years. Even with inflation taken into account, those commies were better managers than GM managers obviously are.
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Imagine what a company like Tesla could have done with GM Assets it picked up at pennies on the dollar...
Instead, we got the Chevy Volt [autobeatinsider.com]...
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Almost guaranteed employment? Care to tell that to the rest of the industries gorging on H1 visa people? Other companies would be very leery of touching any but the best of them.
Re:10B net loss? (Score:5, Insightful)
The auto industry has a massive supply chain with dozens of companies involved at each stage from collecting raw materials all the way up to manufacturing finished parts, as well as a massive dealership organization. If any of the major automakers were to just shut down, their own employees would be a drop in the bucket compared to the overall employment effects. Many of those supporting companies would be forced to close altogether.
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It is because we are economic slaves to the elite. Feudalism never died - it only changed form. Instead of being servants to the lords and masters, we are all servants to government.
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You can! All you need to do is create a large business that directly employs hundreds of thousands of people, and millions more indirectly. Once you reach that step, the rest of your plan is a cinch.
Re:Obama (Score:5, Insightful)
Damn Democrats always messing with the free market.
Um, this started under GWB -- it's even in the summary. I doubt it mattered who was in office at the time, as the major parties are basically the same on all but cosmetic issues, but if partisan trolling is your thing at least get it right.
And the birth certificate thing... Really? Still?
Re:Obama (Score:4, Informative)
Damn Democrats always messing with the free market.
Um, this started under GWB
To Tea Party Republicans, GWB was a Democrat.
the major parties are basically the same on all but cosmetic issues
Let's look at the facts [house.gov]:
Democrats: 205 in favor, 20 opposed
Republicans: 32 in favor, 150 opposed
Re:Obama (Score:4, Insightful)
He is a lot like Barrack Obama. The guy who created entirely new sections of government to rule over our freedoms.
They are different.George seemed to have a bit more respect for the people. Nice enough guy I would guess. But they both are responsible for spearheading a campaign to remove freedoms from the people. They both damaged the country. The real difference is that Obama still has time to screw more stuff up.
Re:Obama (Score:4, Insightful)
Which sections of government did Obama create? I'm assuming you meant Homeland Security for Bush.
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½ right. Bush stared the process but Obama finsihed it - and Obama did make some of the decsions.
My biggest grip is that Obama reward the union by putting their claims ahead of the other unsecured borrowers and bullied those who opposed them. If you want to argue that pension benefits should be ahead of unsecured debt that’s fine – please change the bankruptcy law – don’t retroactively change the rules to benefit your constituents.
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So you think that financial entities are more important than people?
Capitalism is great but it has seriously devalued people. We need a little balance here.
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Of course not – but I am not sure what that has to do with anything. If you don’t like the law, change the law. Can you explain why GM pensions are more important than other pensions that held GM debt? Or do you think the President should ignore the law anytime he feels it is inconvenient? Or maybe only sometimes? If so, when can he break the law?
America is a nation of laws, not a kleptocracy where elected officials buy votes by throwing cash at their privileged base. I am exaggerating to poin
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AIG executives got bonuses just after they tanked the economy and received a big bailout because "they had a contract" but the contracts that employees have with GM for their pensions didn't matter?
Re:Obama (Score:4, Insightful)
Of course not, but then again the bond holders also had a contract with GM.
In bankruptcy law there is an order of payment.
Payroll (as you mentioned in the AIG case) and taxes are first,
Secured lien holders are second.
Unsecured lien holders – which includes pension obligations - are third.
Stock holders are last.
Obama jumped the pension obligation ahead of the secured lien holders. There was no legal reason for this and it was wrong.
If you think the order of payment is wrong then get the law changed. Don’t retroactively change the rules because you have political debts to pay off.
Re:Obama (Score:5, Insightful)
The market has been fine since the beginning of human history. Leave it alone
The Free Market saves! The Free Market has no flaws! Trust in the Free Market, and you will be able to buy Paradise(tm) some day!
Market failure is both a hard fact of reality and, apparently, anathema to the dumbest religion in history.
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The market has been fine since the beginning of human history. Leave it alone
The Free Market saves! The Free Market has no flaws! Trust in the Free Market, and you will be able to buy Paradise(tm) some day!
Market failure is both a hard fact of reality and, apparently, anathema to the dumbest religion in history.
The Free Market is about profit and loss. Risk and reward. There is no such thing as "Too big to fail" in the Free Market. GM should have failed. Let it be refactored to be profitable without a big bailout, or even sell off it's assets.
Bailing out companies that make poor decisions because they are "Too big to fail" is crony-capitalism. It allows companies to make poor decisions and get away with them, and promotes brib^H^H^H^HPolitical Contributions.
Re:Obama (Score:5, Insightful)
Considering over $1 TRILLION was spent bailing out the banks and Wall Street, that doesn't seem too bad.
Re:Obama (Score:4, Insightful)
Interesting article in the Guardian this weekend which talks about the failings of capitalism:
http://www.theguardian.com/world/2013/dec/08/david-simon-capitalism-marx-two-americas-wire [theguardian.com]
I think the Pope has it right... we have gone off the cliff worshiping the golden calf.
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Numbers. Specifically, the number of employees who don't have any say in how GM is run, didn't have any say in the decisions that led to it cratering, but who'd end up without jobs, on unemployment and dependent on welfare and food stamps and the like to survive, if GM went out of business. With the state of the economy as it is, the country can't afford that, and so the government acted to prevent it. They can't do that for everyone, though, so when choosing who to bail out and who to let go the impact of