Priceless

One of our readers, Jim, is strongly in favor of the auto industry bailout.  He pointed me to this article at Time Magazine:

On Monday, an auto industry consulting firm, Planning Perspectives Inc., reported that 68% of participants in a survey of executives for industry suppliers said their companies would have to downsize if General Motors declared bankruptcy, while 12% said their businesses would likely close or would definitely do so. In the Midwest alone, some 275,000 jobs would be lost as a result of a GM bankruptcy. “If they go into bankruptcy, it’s going to have a catastrophic effect on businesses across the board,” says John W. Henke Jr., president of PPI, based in Birmingham, Mich.

There will certainly be a large wave of financial pain felt by many people if these companies fail now. Michigan will likely be one of the hardest hit states in the country if the Big Three fail, and as a former resident of the state, I would hate to see it happen. So many companies are intrinsically tied to the health of the automobile manufacturers, it’s almost terrifying to think of what would happen to those communities if the companies died overnight.

We saw a similar event happen with Flint, Michigan when General Motors pulled out of that city decades ago. That city went into a spiraling decay from which it has never fully recovered.  Crime went through the roof, real estate prices plummeted, and whole communities were abandoned.  This was because the company made the decision to abandon those factories which weren’t profitable enough to maintain.

Nearly 60,000 GM jobs were cut in Flint from the 1980’s to the 1990’s, resulting in massive unemployment.  The loss of the factory jobs led to lower demand for local suppliers, restaurants, and entertainment venues.  Only in the last couple of years has Flint started to recover in terms of lower crime and population growth.  It took roughly 25 years to accomplish this.

Today, we face the prospect of the entire U.S. automotive industry failing.  If this occurs, we will see a very similar story play out in many large U.S. cities.  But, the question shouldn’t be “how much taxpayer money should we hand them?”

There’s a whole slew of questions that need to come out of this situation:

• How did all 3 companies end up in an “imminent failure” position after only a couple of consecutive years of financial losses (shortly after record profits in the late 1990’s)?
• How much restructuring did they do when profits began their decline a few years ago? Why didn’t it work?
• How much of their current losses are attributable to excessive salaries (both at the corporate executive level and at the grunt labor level)?
• Which overseas divisions remain profitable, and what are the major factors which differ there?
• What government regulations are costing the companies the most money to live up to?  Can they be modified to achieve profitability?
• How far will a taxpayer-funded gamble of $25-40 billion really go since GM managed to lose $38.7 billion in 2007 alone (granted, some of that was just a “paper loss”, but…)?
• What have each of them done in the last week to reduce costs in their organizations?
• Why hasn’t fuel efficiency changed dramatically since the Ford Model T (which could get up to 21 mpg)?
• What guarantees do we have that they won’t just close down the U.S. factories anyway and increase foreign production once they have the money?  After all, most of the screaming politicians don’t care about these companies.  They just care about getting votes from the workers and receiving UAW endorsements.
• What’s the criteria that we’re going to use for the “Too Big to Fail” slogan to apply?  10,000 employees? 100,000?
• Should the government have stepped in to prevent the closing of the factories in Flint in the 80’s? Or, was that type of “failure” okay because it was a private-sector business decision?

There are countless more questions to ask, but the “solution” will still be to just hand over more taxpayer money.  We’ll consider it an “investment”, since there are immediate social and economic consequences whenever a large employer shuts down completely.

What are the long term consequences of these actions, though?  How much are we, the taxpayers, willing to give away before actually letting these companies die?  Will we nationalize the auto industry like we did with the banks?  Are there any lines left to be drawn?

I’m interested in your feedback.  Leave a comment below, or sign up for our newsletter.

City of Lansing Michigan’s Mayor, Virg Bernero, has some muddled thinking on how the auto industry should be dealt with regarding bailout money.  He doesn’t seem to understand that the money comes from the people.

Here is his email address:  mayor@ci.lansing.mi.us

Feel free to correct him

Here is a youtube video courtesy of the Campaign for Liberty in which Peter Schiff attempts to inform Virg on a few key issues.

From the Associated Press:

Stock intended to eventually earn taxpayers a profit as part of the Bush administration’s massive bank bailout has lost a third of its value — about $9 billion — in barely one month, according to an Associated Press analysis. Shares in virtually every bank that received federal money have remained below the prices the government negotiated.

“We’re not day traders, and we’re not looking for a return tomorrow” said Neel Kashkari, the director of Treasury’s Office of Financial Stability…

Of course you’re not day traders.  You are thieves that didn’t bother to listen to the public when we told you NOT to bailout the banks with our money.  You’re also terrible business people.  Making bad investments is one thing.  Making bad investments with other people’s money is something else entirely.

As an example, let’s say that someone were to give me $3,000 to protect them and for the general welfare of their family for a few weeks.  Now, an appropriate use of that money would be something like installing some sort of security system in their home (e.g., a local police force) or ensuring that they have enough food to survive.  What’s entirely inappropriate would be something like me taking that money and buying 10,000 rotten eggs with the hope that the eggs will get better with time.

Well, the U.S. Federal Government has just spent a few billion of our collective money on spoiling eggs.  If they aren’t “day traders”, then they should stay the hell away from the stock market.  We the people gave our government very explicit authorities in the Constitution.  Under no circumstances did we give them the authority to take our money and throw it at failing companies with no regard for the risks involved.

From the guy who brought us Monopoly, Bailout Edition, comes the top “10 Better Ways to Use the Bailout Money”:

Watching the news lately has made me fear for my wallet. It seems that almost every day brings America an exciting new round of recession-edition Monopoly, in which Henry Paulson gives yet another mismanaged company a Get Out of Bankruptcy Free card, then argues that the player using the car gamepiece is “too big to fail.”

 
There’s an excellent Chance that all this money is coming out of the national Community Chest
 

There are many who believe that the debt-laden avalanche of clusterfucks we call “bailouts” will not only fail to fix our current economic situation, but will actually make it worse, and make the coming recession longer. As someone who thinks that blindly handing trillions of dollars to companies that can’t make money is kind of like blindly handing trillions of Nintendo Wiis to quadriplegics, I happen to be one of those aforementioned “many.” So if propping up a bunch of fundamentally flawed companies will make things worse, what could we do with the money that would be more effective?

I’m so happy you asked….

Read the full top 10 list here.

At least people are paying attention, I suppose…

NEW YORK – “Bailout” and “change” were crowned on Monday as the words of 2008 after a year in which a huge financial crisis hit the United States and Barack Obama celebrated a historic victory as the first U.S. black president.
 
Merriam-Webster Inc., the publisher of a leading U.S. dictionary, said “bailout” — meaning “a rescue from financial distress” — was the word that received the highest intensity of lookups over the shortest period of time.

John Morse, publisher of Merriam-Webster Inc., said this was not surprising given that the word ubiquitously featured in discussions of the presidency and fiscal policy.

He said the presidential campaign also produced voluminous hits for words like “vet,” which ranked second in the 2008 list, “bipartisan,” “misogyny,” and the word used to describe both candidates on the Republican ticket, “maverick.”

He said one of biggest event-related words of the year was “socialism” which came third in the list of the 10 top lookup requests.

Courtesy of Reuters.

I still think that the government might have angered fewer people if they had simply renamed their proposal to something like the “Save the Children Act of 2008″.  Then, nearly every member of Congress would have never even read the legislation.  They would have all been cheerleaders for it and lambasted those who actually took the time to read the bill.

This way, the media wouldn’t have picked up on the story, and John Q. Public wouldn’t be so upset about corporate executives receiving billions of their taxpayer dollars.  All Congress needs is a better P.R. campaign to make us entirely ignorant of their theft policies.

Rob from the poor and give to the rich seems like an interesting plot for a movie… maybe starring a mysterious figure who runs around the woods in tights…