They would not be liquidated, not a chance.

12/12/2008 1:50:02 PM

With regards to cash flow, in bankruptcy there is something called Debtor-In-Possession financing. It's normally pretty lucrative for the investors. If investors don't step up with DIP financing, then maybe the Obama administration will. And even if GM files for bankruptcy here, Opel and other viable operations abroad will continue because their finances are somewhat independent.

GM is clearly headed for bankruptcy. We can postpone it, or we can let them go now. It might make sense to let them go into bankruptcy now because Chapter 11 is the only way they can do the kind of massive restructuring that'll give them any chance at survival in the future.

12/12/2008 1:50:09 PM

Pegging hopes on a private sector financial bailout in these economic times is short sighted on your part. Especially considering very few banks in a position to get that kind of funding together would actually risk it.

Especially since, as I've already stated, when the government bailed out chrysler the last time it made money off the deal.

This isn't free money, this would be an interest accruing loan.

As for liquidation, yes, they will be. Nobody in the history of automotive companies anywhere has made it to bankruptcy and come out of it without being bought by someone else.

Nobody is going to buy GM.

[Edited on December 12, 2008 at 2:00 PM. Reason : >.<]

12/12/2008 1:59:38 PM

I will respond to this thread in it's entirety.


NO

12/12/2008 2:08:34 PM

^^ You just don't get it. GM is already bankrupt. The nail in the coffin was when GMAC didn't qualify for TARP loans. Whether we bail them out or not, they are not fiscally solvent and won't be until they radically restructure, shedding brands and contracts. The only way to do that is through bankruptcy.

So now the only question is, when do we allow them to slide into bankruptcy? Do we let it happen now, or do we let it happen 5 years from now after lending them $30 Billion to limp along?

12/12/2008 2:16:55 PM

If you bothered reading the thread, the gist of my argument isn't that they should be saved for national pride, its that they shouldn't be allowed to completely bankrupt now.

Five years from now, when the US economy has already restructured from the current downturn, is much more viable option. Though, of course, that assumes that GM won't be able to save itself.

You hadn't noticed, most likely, but GM did have profitable divisions in a revived Cadillac and Chevrolet with several more attractive models coming down the pipeline.

In fact, the only hopeless case here is Chrysler.

Also you keep ignoring that past history which tells the story of the last time we did this: the Government got its money back (early, with interest).

[Edited on December 12, 2008 at 2:48 PM. Reason : >.<]

12/12/2008 2:47:36 PM

Its also slightly ironic that you guys want the big three to fail when nearly every foreign car company operating in the US has a statement from its government guaranteeing loans in the case of financial trouble.

What was that about free market economics?

12/12/2008 2:51:56 PM

A lot of those in government that want to give the Big 3 bailouts also want to have a say in what products they develop and how they run things (I believe this is how Obama feels). I'm strongly against the gov't having ANY input whatsoever.

12/12/2008 2:54:07 PM

^^We can only control our country. Looking back on the past 100 years, it's probably pretty good we did not blindly follow other countries.

12/12/2008 2:59:14 PM

Bailouts are not a solution, they are merely a stall tactic. The ramifications will be far worse than if we just let them file and liquidate the old-fashioned way. Granted, Michigan will be fucked, but if the question is either Michigan or America, American wins. I say we clear cut the forest and let the fire burn itself to death, and then re-plant and re-cultivate a new generation of trees.

12/12/2008 3:16:27 PM

WHY IS "NOW" NOT THE TIME FOR THEM TO CRASH?????

I really don't how understand this argument supports a company bailout.

Because letting the big-3 close will put people of jobs in the middle of a recession, potentially compounding existing problems????? Okay. I can understand why that would be a problem. But that isn't a reason to bailout the company. That's a reason to help displaced workers.

According to the Economic Policy Institute, the very WORSE case scenario is that 778,000 people in auto-related industries would lose their jobs if the "Big 3" shuts down.
http://www.epi.org/briefingpapers/227/bp227.pdf

Now, if we're really worried about the consequences of 778,000 people losing their jobs, why don't we improve unemployment benefits???? It would cost $23.3 billion the US government to pay these guys $30,000 to sit on their ass for a year while they looked for new jobs (not much less than what I make).

This is actually LESS money than what Auto Makers were initially asking for. BAM! FIXED IT!

And mind you that is worse case scenario. Obviously not everyone will lose their jobs just because they go Chapter 11. Of course, this isn't about helping workers in general. It's about helping the UAW and shareholders. IOW: INTEREST GROUPS. Motherfucking politics dictating economic policy.

[Edited on December 12, 2008 at 3:46 PM. Reason : ``]

12/12/2008 3:27:26 PM

Quote :

"Now, if we're really worried about the consequences of 778,000 people losing their jobs, why don't we improve unemployment benefits???? It would cost $23.3 billion the US government to pay these guys $30,000 to sit on their ass for a year while they looked for new jobs (not much less than what I make). This is actually LESS money than what Auto Makers were initially asking for. BAM! FIXED IT!"

WTF. You're not serious with this BS are you?

12/12/2008 5:44:18 PM

Quote :

"Five years from now, when the US economy has already restructured from the current downturn"

government involvement tends to prevent restructuring.

12/12/2008 9:46:47 PM

Quote :

" (CNN) -- At this hour Friday, Congress is still fighting over whether to give the automakers $14 billion to try to prevent General Motors and Chrysler from going bankrupt. This is after dragging the CEO's of these companies to Capitol Hill, raking them over the coals, publicly humiliating them and demanding a detailed plan from them on just how this money will be spent. And by the way, I think they should have been raked over the coals. They should account for how taxpayers' money will be spent. But boy, wouldn't it be nice to see a little bit of equivalency for the big banks? Do you think anyone has asked the bank managers if they fly in private jets? Why aren't they being held to the same standard, in particular Citigroup, once the country's largest bank? Citi was on the verge of going under largely because its managers made some really dumb decisions. And yet, with little or no debate, Citi got a check for $45 billion, more than three times what the automakers were offered. You remember Robert Rubin, the former treasury secretary? He is one of the head honchos of Citi. Was he called to Capitol Hill, raked over the coals, publicly humiliated and made to account for how those dollars would be spent? Has he been asked whether he flies by private jet? Nope. No calls for his resignation. Now, I'm not arguing Citi shouldn't have gotten the money. Frankly, Citi's survival may be more important to the economy as a whole, as some have argued. But we damn sure ought to be holding all of these companies and all the managers who have screwed up these companies to the same standards. They are all asking for a government handout. They are all asking for your tax dollars. They all need to be held accountable. The opinions expressed in this commentary are solely those of Campbell Brown."

12/12/2008 9:47:36 PM

^ and they should all go without pay and $10 million dollar golden parachutes

12/12/2008 9:49:57 PM

god i hate campbell brown

12/12/2008 9:52:32 PM

Quote :

"WTF. You're not serious with this BS are you? "

Yah, why would we support people while they're looking for new jobs.
It makes much more sense to spare corporate execs the full consequences of bad business decisisons.

DUUURRRRRR

12/13/2008 12:23:20 AM

12/13/2008 2:21:00 AM

^^ I have no problem with the idea of supporting people who are trying to find a job, but it should be minimal support. Increasing unemployment benefits is NOT going to help the economy. People already take advantage of that system enough as it is. Hell, there are people talking about taking advantage of unemployment on TWW right now...message_topic.aspx?topic=551880

12/13/2008 10:45:13 AM

In the event of a recession I would support extending unemployment benefits (say from 3months to six). I firmly accept that recessions tend to break labor markets, so unemployment benefits are a good idea during recessions as they actually act to correct a real market failure. However, the rest of the time they tend to waste resources through perverse incentives and mis-allocate workers.

12/13/2008 12:53:45 PM

Increasing unemployment benefits act as a disincentive to find work. See Britian 1950's--->1990's.

Makes more sense to prevent the failure of an entire industry at once rather then using the same or more amount of money to pay people not to work.

12/13/2008 2:35:39 PM

So you want to run around bailling out every firm that is having trouble? Or do you just mean the big ones? What do you think that does to incentives in the marketplace? If big firms are assured a bailout every recession then they will be reckless and the constant weeding out of only small firms will shift the market mix towards large firms, even if lots of smaller firms would be more efficient.

Remember: If one large firm goes out of business then prices will rise and all the small firms' balance sheets will improve. If instead the poorly run large firm gets bailled out just because there is a recession then it will keep producing, driving down prices, and bankrupting a legion of smaller competting firms. And as small firms tend to be more labor intensive, you are shifting harm away from capital and dumping it on labor, driving up unemployment benefits.

[Edited on December 13, 2008 at 6:17 PM. Reason : .,.]

12/13/2008 6:14:19 PM

Quote :

" Okay, but again - assume the problems are intractable. We bail them out, it buys them three years. Suddenly they're back asking for another bailout. "

Well, how long does it take for us to elect a Republican congress? Two years? Four?

Like I said, a few times now, the issue here is politics. It's easy to "undo" a bail out. You just stop bailing them out and go the bankruptcy route. I am skeptical that it will be so easy to dismantle an entitlements program aimed at "displaced" workers; as we've seen in this nation, welfare tends to take on a life of its own.

12/13/2008 6:38:35 PM

Quote :

"Or do you just mean the big ones? What do you think that does to incentives in the marketplace?"

I don't think the bail outs will affect incentives in the marketplace; they are in fact the result of pre-existing expectations that people have. I am no longer convinced that TARP created a moral hazard, for example; rather than being reflective of our own political culture.

In other words: it's not like this bail-out would reflect some seismic shift in government practice. We've been bailing these idiots out for years. The real moral hazard will be if we put into place broad-based entitlements programs for "displaced" individuals who, by and large, were very often members of the unions that dragged the automotive industry down.

12/13/2008 6:48:03 PM

Quote :

"Increasing unemployment benefits act as a disincentive to find work. See Britian 1950's--->1990's. Makes more sense to prevent the failure of an entire industry at once rather then using the same or more amount of money to pay people not to work. "

Yes, expanding unemployment benefits encourages joblessness. But we still have them because they help stabalize the economy during recessions. And it isn't like your alternative is without unwanted micro considerations. What's the historty of bailouts and moral hazard, friend? Ohhh yah.

Expanding unemployment benefits also has the benefit of not encouraging rent-seeking behavior.

Clearly, if your only argument for bailing out these comapnies is that it will cost a lot of people a lot of jobs in a recession, there are much more direct and cheaper ways to address this concern.

12/13/2008 8:05:48 PM

I think they can afford to survive on less than $60 a hr that a good chunk of them make....I mean...geez....this is Michigan, $60 a hr?!?!?! They should cut it in half...better something than nothing...and they would still be living well in Michigan.

12/13/2008 9:26:25 PM

12/14/2008 12:17:27 AM

oh stfu i mean REALLY...how much is the bailout going to cost you? 15 billion total...from tax payers...whopty fucking do...they took out 700 billion...at this point, if the DIDNT bail out the car companies, WHAT KINDA SHIT WOULD THAT HAVE BEEN???? they are gonna bail out everyone else and not the car companies? gimmie a fucking break...everyone and their mom knew in this kinda "econimic turmioil" they couldnt let the car companies fail

USE UR FUCKING HEAD...this shit cant get fixed over night, and a bailout wont fix it...but i you bailout everyone else you cant just fucking NOT bailout the car companies too

they wanted 34 bil...we fucking jewed them down to 15 bill + whatever obama will give them...sounds like a win win to me...god...its not HARD...our economy sucks and we cant afford to have so many new people being unemployed...get a fucking clue....

[Edited on December 14, 2008 at 5:45 AM. Reason : .]

12/14/2008 5:44:01 AM

^you're acting like a fucking idiot with that post. Plenty of experts have stated that it'll take at least 100 billion to turn those automakers around. Think $14 billion will it? Get your head out of your ass.

12/14/2008 8:58:33 AM

^^ so because the government has already overstepped it's bounds and given away tax payer money to failing businesses we should continue to do so?

12/14/2008 9:39:16 AM

why wouldn't we? that wouldnt be very fair imo

^^prob the same "experts" that said the iraq war would only cost 50-60 billion

12/14/2008 8:44:31 PM

why wouldn't we? not doing so wouldnt be very fair imo

^^prob the same "experts" that said the iraq war would only cost 50-60 billion lol

12/14/2008 8:48:05 PM

Seems fair to me. You waste your money, you find yourself in bankruptcy court, just like 90% of everyone else.

Is it your assertion that because they obsenely underestimated the cost of the Iraq war, that they will turn around and dramatically overestimate the cost of the bailout?

12/14/2008 9:24:13 PM

http://www.nytimes.com/2008/12/16/business/worldbusiness/16japan.html?ref=business

Japans production output drops.

I'm confident America/Americans could weather an economic slowdown, but it's easy to forget other countries are affected by this as well. Could the asian countries that depend on us buying their good make it through so easily?

12/15/2008 12:12:18 AM

China has not yet demonstrated its staying power in the face of poor economic outcomes. However, the rest of Asia certainly has, as this will not be their first downturn.

12/15/2008 1:51:26 AM

Quote :

" Yes, expanding unemployment benefits encourages joblessness. But we still have them because they help stabalize the economy during recessions. And it isn't like your alternative is without unwanted micro considerations. What's the historty of bailouts and moral hazard, friend? Ohhh yah. Expanding unemployment benefits also has the benefit of not encouraging rent-seeking behavior. Clearly, if your only argument for bailing out these comapnies is that it will cost a lot of people a lot of jobs in a recession, there are much more direct and cheaper ways to address this concern. "

Socks

I've already told you the history of bailouts quite a bit. Let me tell you again since you clearly can't read: We bailed out chrysler, made money off the deal. Chrysler came out of that bailout and paid uncle sam back early. The man who led that turn around at Chrysler is Bob Lutz and was leading the same kind of turnaround at GM, where he's vice chairman currently.

I also want to know what exactly your cheaper and direct ways are. You're essentially arguing that the government pay workers not to work, hows that remotely better then keeping a manufacturing base intact in a country whose economy is fast becoming based on not producing anything?

Furthermore, while chrysler is going to fail or be torn apart regardless, both GM and Ford have substantial products in the pipeline and currently out that are actually quite good. In fact, GM was in the midst of a pretty impressive turnaround before GMAC broke the bank, pun intended.

Dude I don't really even know why I bother arguing with people that don't take the time to research anything and just type based on their incorrect, gut instincts.

12/15/2008 3:30:07 AM

if by bob lutz, you mean lee iacocca

bob lutz joined chrysler long after the loans had been paid back

12/15/2008 3:56:43 AM

SandSanta,

Quote :

"I've already told you the history of bailouts quite a bit. Let me tell you again since you clearly can't read: We bailed out chrysler, made money off the deal. Chrysler came out of that bailout and paid uncle sam back early. The man who led that turn around at Chrysler is Bob Lutz and was leading the same kind of turnaround at GM, where he's vice chairman currently. "

Yah, the bail out with Chrysler worked out so well that they only waited a couple of decades before having to beg for MORE federal dollars. Money even you say wont help the company survive. Everything worked out great!!!!

There is more to the economics of bailouts than how quickly the company pays back the loan (maybe if they were such a good credit risk, the private sector would have loaned them the money back then, nahhh).

For example, by keeping them from bearing the full brunt of bad business decisions you only encourage future bad decisions down the road because they think they can just come back for more bail out money (this is called Moral Hazard). OH BUT THAT WOULD NEVER HAPPEN!!! NOT AGAIN, ANYWAYS. NOT AFTER THIS TIME!!! hahaha

Quote :

"I also want to know what exactly your cheaper and direct ways are. You're essentially arguing that the government pay workers not to work, hows that remotely better then keeping a manufacturing base intact in a country whose economy is fast becoming based on not producing anything?"

If paying people unemployment benefits REALLY offends you, why not give them government jobs????? Hell, let's go full-blown New Deal. Get them digging ditches, picking up litter off the side of the road, planting trees, etc. Rebuild that infrastructure everyone worries about. Put 'em to work!

At $30,000 a year, it's STILL cheaper to employ these 780,000 people at government make-work jobs than the initial Big-3 bail-out request. PLUS you avoid all the problems of rent-seeking and moral hazard (rent seeking = companies wasting productive resources trying to get bailout money like Tesla is doing).

But the the reality is that this isn't about getting people jobs. This is about protecting stockholders and helping union special interests.

Of course, maybe we don't have the "political will" to re-create a modern CCC. I mean the bailout is so popular, we don't even need to consider other options!! ahhahahahahah

Yah, let's not you or I talk about this any more. We'll both just get on each others nerves. I had a very negative week last week, so I'm happy to agree to disagree on this one.

[Edited on December 15, 2008 at 9:26 AM. Reason : ``]

12/15/2008 9:18:26 AM

Quote :

"Yah, the bail out with Chrysler worked out so well that they waited several decades for begging for more federal dollars. You even now say that their failure is inevitable! Everything worked out great!!!!"

Yes, because bad companies never go good and vice versa.

Quote :

"There is more to the economics of bailouts than how quickly the company pays back the loan (maybe if they were such a good credit risk, the private sector would have loaned them the money back then, nahhh)."

Yes, because getting lots of money during a credit crunch is just sooooooo easy to do.

Quote :

"At $30,000 a year, it's STILL cheaper to employ these 780,000 people at government make-work jobs than the initial bail-out request"

So if we let the a large portion of the manufacturing base of the country collapse in the middle of the worst recession in decades, we'd expect to only support all 780,000 for one year. One year? Really? Man, you're such a forward thinker and your ideas are so refreshing. Can I subscribe to your blog?

12/15/2008 9:25:34 AM

^ There was no credit crunch in the late '70s (when Chrysler was first bailed out, which is what I was talking about in that sentence), friend. Google it.

And that's right. 780,000 jobs are all that will be lost in the auto industry (GM + Chrysler + Ford + parts suppliers + etc) if the big 3 close (that's according to the Economic Policy Institute).

If you want to add more job loses, then what you're thinking of is that there would be a multiplier effect that would effect other industries as a result of people losing their jobs in the auto industry. For example, I lose my job at GM, I can't buy groceries, sales drop at WonderBread Co., they lay-off people who now cant afford things, and so on and so forth.

By giving ex-auto industry folks new jobs with the government we help mitigate those consequences. They wont be eliminated, but they won't be eliminated even if GM and the others stay open with government loans. The automakers will still have to reduce production and lay people off (which they are already doing even though all 3 companies remain open).

Maybe the government should start buying cars too!!!!

[Edited on December 15, 2008 at 9:38 AM. Reason : ``]

12/15/2008 9:30:00 AM

Sorry, I glossed over this point

Quote :

"back then"

I usually just assume it's drivel you're posting and don't read all of it.

Quote :

"If you want to add more job loses, then what you're thinking of is that there would be a multiplier effect as a result of people losing their jobs. I lose my job at GM, I can't buy groceries, sales drop at WonderBread Co., they lay-off people who now cant afford things, and so on and so forth. "

Looks like you glossed over my point. Specifically, you're comparing the cost of the 25-50 billion they need to the cost of each employee at 30k per year. This

1) Assumes this is a the proper cost when the reality is you pulled it out of your ass
and
2) Assumes they'll only be unemployed for 1 year or working on government programs for one year - during a horrible recession.

You're leaving out so many other costs associated with your plan that it really isn't worth attempting to go into at this point. You're idea isn't even half baked.

12/15/2008 9:39:40 AM

^ So your argument is that "there is a possibility that 780,000 wont be able to find work after 1 year, so we have to ensure they never ever lose their jobs!!" Seems a bit odd. Not only is that very unlikely, but it's just the game of life son. The government can't guarantee everyone a job for the rest of their lives nor can it guarantee that no one will suffer economic woes. When it tries, it fails.

On a personal note, my mom works at the Blue Ridge Paper mill in West NC. If her plant closed, I guarantee you that no one would be swooping in to bail her out. So excuse me if I don't cry over the prospect of these folks not finding a job after 1 whole year of government make-work employment (how long do you think it takes to find a job anyways?).

And yes, I really do think the economy will pick up after a year and that the vast majority of these people would be able to find a job in the private sector. So I think comparing the $25 billion of bailout money to one year of employing these folks is at least reasonable. Why? Because the deepest US recession in Post-WWII history did not even last 1 year (from July '81 to Nov '82). The current recession has already lasted longer, but has not been as a deep. The FED and Tres have been working hard to ease the credit crunch, we have already seen one stimulus package and can expect to see a bigger one next year. So I don't know why we should expect the sky to fall tomorrow.
http://en.wikipedia.org/wiki/Early_1980s_recession

And if you really think that this is Great Depression Level bad (years of double digit unemployment reaching as high 25%), then the original $25 billion request was probably way too small anyways. Unless you think that amount of money would really 3 huge companies weather a decade of depressed auto sales.

[Edited on December 15, 2008 at 10:13 AM. Reason : ``]

12/15/2008 9:51:07 AM

Quote :

"So your argument is that "there is a possibility that 780,000 wont be able to find work after 1 year, so we have to ensure they never ever lose their jobs!!"

My arguments were regarding your stupid plan of paying them 30k per year compared to the requested bailout money.

Quote :

"The government can't guarantee everyone a job or guarantee that no one will suffer economic woes."

You suggested just that for the auto workers.

Quote :

"And we have not even come close to how bad it was then."

We are already 1 year into our recession now with unemployment - U3 unemployment - accelerating. The 3 month Libor is still above 2% when it should be 1/10th that under normal conditions. The longer the credit markets stay frozen the slower the recovery. The longer companies have to teeter on the edge of bankruptcy without the economy turning around, the more of them will get pushed over the edge waiting for a life line. It's getting worse and by the end of it will be worse than the early 80s recession.

12/15/2008 10:08:17 AM

^
In case you missed it...

Quote :

"The current recession has already lasted longer, but has not been as a deep. The FED and Tres have been working hard to ease the credit crunch, we have already seen one stimulus package and can expect to see a bigger one next year. So I don't know why we should expect the sky to fall tomorrow."

If we really expect the economy to head for the deepest recession since WW2 (in spite of the govts best efforts), will $25 billion save the Big-3??? Really?!?!

Quote :

"It's getting worse and by the end of it will be worse than the early 80s recession."

Wow, can I read your blog???

[Edited on December 15, 2008 at 10:20 AM. Reason : ``]

12/15/2008 10:17:10 AM

it is amazing that these companies are in trouble considering that a car is a necessity in 99% of the country

if they are too big to fail, then this is a failure of the sherman anti-trust act

12/15/2008 10:23:44 AM

Nothing is too big to fail, including planet earth.

12/15/2008 10:47:06 AM

^ someone hasn't seen "The Day The Earth Stood Still."


"Your planet!?" "Planet earth can live without you."

bad quotes frum memory.

12/15/2008 11:05:52 AM

I'm not saying planet earth will leave orbit or explode, but when it comes to sustaining life... it too is not "too big to fail."

12/15/2008 11:08:50 AM

Actually, it is too big to fail. Afterall, a full nuclear war would not even wipe out all land mammals. Not even a giant meteor would wipe out all bacterial life. And as long as bacteria survive, it is only a matter of time before multi-cell life reclaims the sea and land.

12/15/2008 11:41:18 AM

We cannot rule out the possibility of earth being too big to fail. To me, it doesn't make any sense to assume that life on planet earth cannot cease to exist. Going into the details of what may cause such a disaster to occur would require its own thread. Regardless, that is my belief, nothing is too big to fail.

12/15/2008 11:56:15 AM