Saving GM may be a key for energy independence

Well Grinch, you're a regular Nouriel Roubini and apparent proof that a man CAN be an island. Most of the rest of us and our jobs, are connected. My position is based on what I believe will be most beneficial or least harmful to our economy. Certainly there are those grasshoppers who do not deserve help but the vast majority who will benefit are worker ants who, like you and me, go to work every day, pay their bills and raise their families.

You must be an atheist (not that I hold that against you), the story is from Aesop.

Yes, RadMod, my "mattress is stuffed with cash", in the form of 5 year CDs and money market accounts, because I saw a good deal of this coming back in Dec 2006 and took steps to insulate myself from the effects. In other words, I acted on my beliefs and made sure my money that I earned from decades of hard work and saving over 40% of my income per year (I did this by living well beneath my means, never wasting what I bought and never buying what I absolutely did not need or really, really want) was protected in what I saw would be an inevitable credit and home price-driven recession. I did not know that it would be this severe, though. But my parents' values taught me to rely on myself, not anyone else, and not let anyone else's values influence me - and they didn't. During the boom times of the 90's, I never invested in a single Internet stock, I never bought anything I could not pay cash for (except a house in 1998 which I paid off completely in 2001), and I never took risks I was not prepared to take. I have always paid off my credit card balance in full every month and have done everything I could to educate myself in how to live frugally but still enjoy what I love to do. That means I can still buy fine wine when I would like to, or take trips if I want to, and it means I never have to worry about my bills or now non-existent mortage - and I've never taken out a home equity loan and never will.

In other words, all my life I have done with a lot less stuff in order to achieve financial independence and freedom from worry, and I've done it. So believe me when I say I'm sorry you're not in my position but it took me many years of hard work, discipline, sacrifice and a strong sense of purpose to get where I am and I make no apologies for my opinions on the Big 3 or any of these other myriad bailouts that will benefit mostly those who are completely undeserving of it, at not only my expense but at the millions of other responsible people.

Even if I AM an atheist, the biblical story of the ant and the grasshopper really rings true. I am an ant, and I am sick of the grasshoppers that want to feed off my own hard work to support them due to their irresponsibility and short-sightedness.

Grinch,

If we had honest measures we'd know that we've been in the thick of a great depression for some time now. Real unemployment is higher than stated because we don't count discouraged workers, people who would work if they could but have quit looking, under employed, We don't count the self employed despite having no work. We only consider GDP and not Net National Worth. How telling would it be to calculate the net loss in value of our homes, retirement portfolios, cash saving, real wages, standard of living, consumer confidence? THOSE are the things that real people in the real economy see and feel.

Relying on the measures we currently use the policy makers will be months late to the party, driving the car with only the rear view mirror. We need to recalculate the definition of recession/depression and find more meaningful ways to measure it.

I won't belabor my views on the automakers, we've had that discussion, but I will say that viewed in this different context, a hard landing via bankruptcy would only exacerbate our problems. What drives our economy isn't supply side policy, it's demand side consumption. The Fed is out of ammo with monetary policy, we need some pragmatic, thoughtful fiscal policy. My hope is that the powers tht be can free themselves of dogma and move forward but frankly the Hank Paulsons and Barney Franks don't seem to be so inclined.

I hope your matress is suffed full with cash, sadly mine is not.

WARNING: Be extremely careful buying gift cards or gift certificates this year - see following link

http://www.chicagotribune.com/business/columnists/chi-tue-consumerland-11-18nov18,0,2998854.column

Excerpt: Year to date, consumers have lost roughly $85 million in gift-card value to bankruptcies, said Brian Riley, a research director at TowerGroup, a financial advisory firm.

"When the economy is cooking, [gift cards] are great. I buy them myself," Riley said. "But when the economy goes south, like it's doing now, you're lending money to people who might have trouble repaying it."

As per my comments below, I think a >10% GDP contraction will occur, which would indicate a technical definition of a depression, and I think the FOMC's estimates today are once again a day late and a dollar short. Guess what that would mean in terms of companies who sold gift cards/certificates going bankrupt? The FOMC is whistling past the graveyard with estimates that unemployment will only reach 7.5% next year - they're way off, just as they were in June as their revised estimates today make crystal clear. These FOMC people don't own crystal balls, and they always err on the side of optimism, so don't get fooled here.

Think I'm being overly pessimistic? Did you SEE what happened to the airline and car rental stocks today, not to mention the financial stocks? They were absolutely crushed.

And now for someone who shares my opinion, except this guy actually works for a Wall Street web site ...

http://www.marketwatch.com/news/story/Well-Great-Depression-2-2011/story.aspx?guid=%7BB28B49B5%2DEFD1%2D4941%2DB57E%2DA2BA1545BA09%7D&dist=SecMostRead

Excerpt: "We see the Great Depression 2."

Bottom line: If you haven't already, PLEASE quit buying stuff you want or that makes you feel good and save your money before you need it, because if you lose your job, it will be too late to save. Also, start focusing on the important things in life and not so much on stupid political crap you can't affect anyway, whether it's Phill Kline, Funkhouser, or even Obama - I only mean that if you're excessively wasting time you really don't have on those people, you're overlooking a fundamentally more important issue - how you will provide for yourself and perhaps your family in what I believe is definitely going to be the worst financial sinkhole since the Great Depression.

It ain't only me, folks. By the way, today I checked the price of the 2 mutual funds I dumped back on Sep. 25th (small, old holdings, the only ones I had in the market), and they have since each declined over 31% since SEPTEMBER 25th, a time when the Wall Street pundits were telling you to hang onto your stocks and not to sell. I was shocked today to see a trader on Fox Business News admit he'd already sold his 401K holdings and to also hear that an executive at Bank of America had also recommended doing that. You need to simply stop listening to what the jackasses on Wall Street are telling you - do what you need to do, though I cannot say you should sell your holdings, since I am also not omniscient. I AM saying that I don't trust Wall Street, the government, the corporations, the credit rating agencies or anyone else now in this environment, and you shouldn't either.

The following are links to sites (if you weren't already aware of them) that have a lot of good market information - I read them every day ...

http://www.europac.net/

http://www.bloomberg.com/

http://www.marketwatch.com/?dist=ctmw

http://www.smartmoney.com/?hpadref=1

http://online.wsj.com/public/us

http://online.barrons.com/public/main

Apart from this article, a panelist on Fox Business News this past Friday mentioned that compared to 2005 and also 2006, Americans are on pace to withdraw almost $500 BILLION dollars less from their home equity ('Mortgage Equity Withdrawal' - the acronym used is MEW) this year.

The following chart shows this dramatic fallout (note - each year has 4 bars, each bar representing the MEW in billions per quarter):

http://4.bp.blogspot.com/_pMscxxELHEg/SOorqFuvg6I/AAAAAAAADho/3m3HtcTpWP4/s1600-h/KennedyMEWQ22008.jpg

So why do you care? Because the MEW was how a lot of homeowners got money for whatever reason - their homes were like ATMs - and now that so many homes are underwater (an estimated 10 million homes out of 41 million homes with a mortgage) and banks are tightening their lending policies, that source of money has been strangulated. And with credit card companies like Amex raising their rates and cutting limits, it is putting severe strain on a lot of Americans. The MEW is proof of how bad things are, and I am getting more and more convinced we will see a technical depression of greater than 10%, no matter what government tries to do. People just borrowed too much money based on inflated and unreal home values, and when those values simply evaporated, so did that money. That resulted in foreclosures, bankruptcies, losses for banks and mortgage holders like Freddie Mac and Fannie Mae, and insurers like AIG who sold credit default swaps based on these mortgages.

http://www.europac.net/externalframeset.asp?from=home&id=14645

Excerpt about the Big 3 bailout:

To Bail or Not to Bail

With the Big Three auto makers now in a plainly visible death spiral, the automotive bailout debate is kicking into overdrive. The disagreement hinges on whether a bailout is necessary to support an important industry or whether the unprofitable dinosaurs of the past should be allowed to fail as America focuses on an information-age, service sector, and alternative energy future.

As usual, both sides have it wrong. The government should let the Big Three fail not because we no longer need an auto industry, but because we desperately do. What we do not need is the bloated, inefficient auto industry that we have today. By allowing the Big Three to fail, their capacity will be turned over to new owners who will be able to acquire the means of production at fire sale prices and hire workers at globally competitive wages. The result will be a more efficient auto industry making cars that people around the world actually want to buy at prices they can afford. Such auto makers could conceivably be profitable and could become the cornerstone of a manufacturing renaissance in the United States. In contrast, Ford, Chrysler and GM are never ending money pits that threaten to swallow a good deal of our economy.

----

More gratis content for the KC Star.

GM 's sudden stewardship of the environment is simply a way to continue to make gas guzzlers thanks to E85 an extremely inefficient fuel. The CAFE standards call for all car companies to achieve an average MPG for all vehicles. I believe the most recent number is 27 MPG. Well if you make the biggest money off of 10 miles per gallon SUV's you would hate to say good bye to them wouldn't you?
The CAFE standards has a loophole, that being that an E85 vehicle operating on E85 miles per gallon are ONLY figured against the actual amount of gasoline in the blend (15%) if you divide 100% fuel by 15% gasoline you get the multiplier to the mpg (666) therefore a gas guzzling 10 MPG SUV is given credit for 66.6 MPG. If you sell one SUV like this you can have 5 vehicles only achieving 20 MPG and this gas guzzling SUV and you average more than 27 MPG overall while not one of their vehicles really met the standard.
GM is not the only one taking advantage of this free ride Ford and Chrysler are too. The big three are heading down the toilet and this is just their hands clinging to the rim.

Lol - actually, I had no choice about my assets (except my home equity) since I only have cash (CDS and money market) and it's nearly impossible to find a bank with these kind of instruments that AREN'T insured. I have no faith in government whatsoever, by the way, but you can be sure if they go under then we're all dead in the short run. Either that or we'll all be speaking Mandarin.

I do like your termite analogy, except my view is that providing taxpayer dollars is simply slapping a couple of coats of paint over the damage and expecting the walls not to collapse.

It seems that we all agree that the auto industry (US Mfgs) needs an overhaul. My position is that, if your house needs new wiring & plumbing you don't need to burn it down. Yours appears to be that the house is invested with termites and that there is nothing worth salvaging. My view is influenced by my concerns for a domino effect throughout the entire economy exascerbating the damage.

You're right that in the long run other manufacturers will take up the slack but like the old adage goes, in the long run we'll all be dead.

I am heartened that you have enough faith in government to have placed most of your assets in government insured securities. There may be hope for you yet.

Just this one thought before I have to get to an appointment: we already have a domestic car industry apart from the Big 3 - it's called Nissan and Toyota which already operate U.S. plants with U.S. workers. It is quite probable that if the Big 3 have to enter into bankruptcy and eventually Chapter 7 (forced liquidation of assets) that the foreign automakers would buy certain assets and retain a lot of workers to build cars to meet demand vacated by the domestic builders.

My point remains that by bailing these inefficient, overpaid and lousy-managed companies out, you are penalizing other car makers who have successfully competed with them, you're penalizing the American taxpayer by propping them up, you're almost certain to lose many billions of dollars, and you're opening the door to every other industry like GE (whose financial arm ALREADY is hat in hand for government money) who will claim that they too are too big to fail. And once the government gets involved in choosing winners or losers, that is called socialism.

Here's proof of what I've been saying:

http://www.bloomberg.com/apps/news?pid=20601109&sid=a6.zX8Uh5DcI&refer=home

Excerpt:

Nov. 14 (Bloomberg) -- A group of companies including Textron Inc., Home Depot Inc. and Honda Motor Co. is pressing the Federal Reserve to expand purchases of commercial paper to include them, two people briefed on the matter said.

The coalition, which also counts Dow Chemical Co. and Nissan Motor Co. as members, wants the Fed to go beyond top-rated paper and buy debt with the second-highest grade, the people said on condition of anonymity. American Electric Power Co. Chief Financial Officer Holly Koeppel said the group is seeking to add more companies and preparing a letter to outline its case.

While accepting lower-grade debt could reduce borrowing costs for a broader group of companies, it would also expose the taxpayer to greater risk. The request is one of a number of attempts to get a share of federal rescues, with industries from automakers to heating-oil retailers seeking funds.

``We are really creating a mindset where no one fails,'' said Adolfo Laurenti, a senior economist at Mesirow Financial Inc. in Chicago.

Second-tier issuers of commercial paper, debt that matures in nine months or less and is a form of IOU for day-to-day expenses such as payrolls and rent, argue they're disadvantaged by the Fed's new Commercial Paper Funding Facility.

---------------------------

According to Fox Business News, the top tier companies pay a little over 1% for their Fed loans, but second tier companies pay over 5%, and the Fed hasn't lent to ANY of these companies so far. So the larger you are, the WAY better you're doing on your loan costs - government picking winners and losers.

It's a slippery slope, and once you plant your foot on it because you want to avert pain today, you'll end up breaking both your legs tomorrow.

p.s. I paid off my mortgage in 2001, have no debt, and of course I and others like me (and renters!) are getting absolutely screwed for being prudent.

Really good discussion. I have to get to a meeting, but a quick comment and maybe more later.

A concern I have about letting capitalism work on GM is that, once the industry goes down, it would be virtually impossible to recreate it domestically. It's one thing to let buggy whip manufacturing die because society has changed and there's no need for buggy whips. It's another thing to let a car company die only to be completely replaced by foreign manufacturers. Do we really want to be completely at the mercy of foreign companies to produce cars?

It raises a question of national security to some extent. But to a greater extent, it goes to the issue of providing a range of types of jobs for our citizens. Can everybody work in information technology? No, some people need manufacturing types of jobs.

So saving a manufacturing company has real advantages.

Not my most thorough post, but I gotta go.

Thanks to all of you for intelligent and civil posts.

Capitalism has been bastardized and has become disfunctional. The government's moves to encourage home ownership turned it into an "enabler" for the bad actors that originted these securitized mortgages and credit default swaps. But many many more jumped on the band wagon before it fell apart, all looking for a fast buck. Adequate regulation and oversight would have given pause. Business is no less guilty of viewing the employees as indentured servants.
If you haven't seen it already you'll be please with David Brooks' column today. If they let GM go down I hope there will be some caution to make it a rolling bankruptcy. I know it's always the little guy that get's it but that doesn't make it right.

My distaste for Rand has turned from admiration when I first read her. I tire of having her refered to by her advocates as it they were reading scripture. Her's is a point of view, nothing more. These days I seem to have adopted Upton Sinclair's POV.

"My argument with a GM bankruptcy is that the victims of avarice will do the penance and the "producers" will escape with their bonuses and golden parachutes."

First, my argument with all other forms of government is that the citizens are viewed as serfs subservient to the government's whim and will. That is why capitalism is far superior to those other forms of government, in that it places the individual above the government. Government is an unfeeling entity populated by the less capable who could not care less about you personally - go to any DMV run by a state government for proof, or any other government-run office. You are a number, they have the power, and that's all she wrote.

Second, this real estate bubble was avoidable to the degree it achieved in that excess government zeal at encouraging those who simply could not afford a house to buy one through various acts dating to 1990. Once government had set the ball in motion, the only logical reaction was for companies to jump in - which is NOT a capitalist free market. Rather, the explicit rules laid down by government caused bad players in the market to take advantage of the inequities in the market (due to those pesky "unforseen consequences") by creating ever-more exotic mortgages and securitizations backed by mortgages. This froth created by the government and even encouraged by President Bush and Greenspan's continual lowering of the interest rates led to a fantastically-unsustainable bubble that is now collapsing around us.

I am a true conservative. I made a conservative decision to withdraw almost completely from a stock market back in 2000 which seemed to me was no longer following free market dictums. And it wasn't, and the result was the Net tech bubble that burst. I instead invested in 5 year CDs and most recently did so in Dec 2006 and Jan 2007, at the height of the interest rates (5.6%). I saw what was coming because the housing market was already beginning to collapse in the most inflated markets like Las Vegas and Florida, and of course it spread nationally. On Sep. 25th of this year, having made my evaluation that we were certainly headed for a very deep recession and probably a technical depression (over 10% contraction in GDP), I sold my remaining legacy IRA mutual funds (1.45% of my holdings, the other holdings in 5 year CDs or FDIC-insured money market funds) and have since watched them decline yet another 28% even though the "wise guys" told me to keep my money in.

Going back to your point about who will suffer - that hasn't changed since time began - the little guy always takes it up the wazoo. That's why Paulson shoveling money to shore up financial institutions who took outrageously bad bets is unconscionable - it is only going to prop up the players who took down our system in the first place. It is only going to prolong our pain, it isn't going to fix the problem.

So what is the problem, you ask? The problem is that the American consumer who has accounted for 2/3rds of the American economy now has no confidence in government, in corporations, in the Fed Reserve Bank, in debt rating agencies, in Wall Street, or any other entity you can think of. We have no confidence, because we have no reason to have any. In this situation, people eventually wise up and stop spending on crap like Ipods, Bluetooth, DVDs, etc - those are discretionary purchases. They will instead save for the proverbial rainy day, and hang onto things a lot longer before upgrading, which especially includes huge ticket items like cars. They also are in fear of losing their jobs, an eminently logical fear, and hence need to save in case they do. I personally know friends who already have. And until the housing market finds a bottom, and the economy has contracted to a rational size, we will continue to experience pain.

As to your point about my over-reliance on Ayn Rand, that's your view, not mine. I simply made the point that the book is resonating here with the unfolding events - I never said Ayn Rand was without flaws or overlooked the fact that not all men who profess to be capitalists are honest and 'good' in a moral sense. There are a lot of lousy people out there in suits screwing people for everything they are worth, but then they are everywhere else as well - just check out China and see how well that system works for everyone. A litmus test for a country is simply this - if you think it is so well run and is a model for humanity, then why are you still HERE?

As a simple exercise, I'd like to know if you know how many millions of Russians were slaughtered and thrown into gulags after the Bolshevik revolution, and what the total body count in the 20th century was under Communist rule in the U.S.S.R.? The reason Ayn Rand's ideas still resonate today is because she DID experience the horror of communism and tried to explain why capitalism was so much better and moral. So Ayn tends to bloviate a bit and have some purple prose - that book still sells a couple hundred thousand copies every year after debuting in 1957. The fundamental beliefs she espoused are real, and are informative for today.

But I never said I'd marry her!!!

As far as your points about structure and rewarding the short-term view - hey, I agree with you. I have hated the fact that the GSEs Fannie Mae and Freddie Mac used bogusly-inflated balance sheets to massively increase the bonuses they paid to executives, and let's not forget the coddled boards that rubber-stamped everything in return for numero uno. That's where proper regulation comes in and is absolutely necessary in capitalism. Lehman Brothers' CEO Dick Fuld is going to be (rightly) the new poster boy for excess money-grubbing power players on Wall Street. I can tell you this - Wall Street is undergoing fundamental seismic shifts in structure and given the uncertain future outlook for their eventual structure and regulation imposed by the government, I wouldn't even dream of putting a dime in the hands of anyone there.

Speaking of oversight and regulation - have you noticed that the oversight and regulation that Congress "insisted upon" and decreed in passing the original $700 billion dollar bailout is actually non-existent? That's right - it's been about 6 weeks since the bill passed and there is absolutely no oversight board reviewing what the Fed is doing under Paulson's direction.

I am furious at what Bush allowed and actively encouraged to happen under his watch, I am furious at the Democrats who blocked GSE regulation at every turn, I am furious at the Republicans for not fighting harder, I am furious at those CEOs who sucked hundreds of millions of equity from their companies, I am furious at the complete failure of the S.E.C. and other government oversight to nip this in the bud when they could have, and I am deadly furious with those who think government, having set this catastrophe in motion with their policies, can now solve the problem.

No. They cannot and will not, but they will feed at the trough, their friends will, the super-rich will who are being bailed out, and we will be left to hold the bag. And to rub salt into the wound, the government will tell us to buy GM's cars because hey, if we don't, we're going to lose our tax dollars that were invested in this dog.

So back to my original post - SCREW GM. And I must note one salient point, Rad - you never disagreed with my main reasons for not bailing out GM, you only said you didn't like the little guy getting hurt. I have to ask you - since when did THAT never happen in the history of mankind in any form of government?

p.s. Yeah, what the hell is up with a Yael posting about Palin getting those kind of hits? I suppose he must know how to press peoples' buttons ...

links supporting my view:

http://www.reuters.com/article/blogBurst/investing?type=hotStocksNews&w1=B7ovpm21IaDoL40ZFnNfGe&w2=B7pJeHult9GszE37UXlSpmUm&src=blogBurst_investingNews&bbPostId=CzCPvaTMX6PZcCz8cP2sgl5IZOBzcv2YvdvhmECzCmrinp5Zqj7&bbParentWidgetId=B7gSUbux1hpbz8uOa7TWsLnV

http://www.reuters.com/article/blogBurst/investing?type=hotStocksNews&w1=B7ovpm21IaDoL40ZFnNfGe&w2=B7pJeHult9GszE37UXlSpmUm&src=blogBurst_investingNews&bbPostId=B2ZqFcJbD0siB6Z2bT6li1HsB5TqTBrCPBgoB81gq7lSlEFf&bbParentWidgetId=B7gSUbux1hpbz8uOa7TWsLnV

One last parting comment before I finish my scotch and hit the sack. This has been, for the most part a reasonable and thoughtful exchange on what I believe to be an important issue. As of this writing it has had 453 readings. Yael posted a Palin string yesterday that had more that 30,000.... WTF?

Why is it Grinch, that folks with your point of view rely so heavily on a romanticized work of fiction to make their point. Ayn Rand wrote "Atlas Shrugged" as a reaction to the privation and injustices she and her family suffered after the Bolshevik revolution. It might be illustrative as a parable but it can't be taken for anything but a sort of propaganda.

Capitalism has served us both well and ill depending on how it's been applied. It can foster innovation or be used to stifle it. I'd argue that some of the most recent "innovations" i.e. securitized mortgages and credit default swaps do not stand as good examples of Rand's utopian capitalism. In fact it demonstrates clearly the chief flaw, left to it's own devices capitalism can be short sighted and destructive. The culture at GM and so many American business has been to think only of short term gain at the peril of the long term good.

The fault isn't so much in the philosophy as in the structure. Our businesses and our markets reward short term thinking and punish the long view. Bonuses aren't paid on the health of the company but rather the stock price. We are reaping what laizze faire unregulated capitaism has sown and we are the worse for it.

I think we're in a situation similar to what Teddy Roosevelt encountered with the trusts. American capitalism has become so myopic, so greedy, so selfish that it has taken to figuratively eating it's young. We need a strong cure to purge these ills before they poison us all.

My argument with a GM bankruptcy is that the victims of avarice will do the penance and the "producers" will escape with their bonuses and golden parachutes.

Very good posts, gentlemen, on both sides.

First, I'd like to point out that my remark about this financial disaster going to be the worst since the Great Depression was actually echoed today by the famously liberal billionaire market manipulator George Soros:

http://www.news.com.au/business/story/0,27753,24650136-14334,00.html

Excerpt:

"Testifying before a US Oversight and Government Reform Committee hearing on the financial crisis, Mr Soros said "a deep recession is now inevitable and the possibility of a depression cannot be ruled out"

Second, the point about the quality of the GM cars improving is absolutely correct - but that is not their problem. Their problem is their business model which has been slow to respond, unlike their competitors. They had more than enough time years ago when they were making money hand over first with SUVs and trucks when oil was around $18 a barrel, but since it takes a number of years to design and engineer a new car, they blew it by not doing so. They actually had a Blue team try to design a small car that could be competitive, though, but they gave up because they couldn't price it competitively due to their high labor union costs. The unions have also crippled them because of their costs relative to their competitors. So what we have here is a company with high labor costs, lousy management and a fatal over-reliance on products no one wants to buy, EXCEPT that they promise THIS time if we get some money we'll build a great car that will surely revive our company.

One question: if that is indeed true, then WHY aren't private equity firms rushing to invest in GM and/or Chrysler? If GM's plans will indeed turn the company profitable, then why do you pay more a Whopper than you do for a share of GM stock and maybe for a Big Mac than a share of Ford stock?

GM owes about $30 billion on a union funding obligation that's due sometime in 2010, and unions who backed Obama are now playing their "you owe us" cards to the Democrats hoping to get bailed out.

I realize there are a lot of 'knock-on' jobs affected, but sometimes there is simply a price to be paid for free markets, and unpleasant though it may be, a lot of people profited for many years when times were good.

If the government does lend money to GM et al, they're going to lose it. One forgets that their competitors are not simply going to stand still, and they will be aggressively competing against them with new models, better financing deals and a stronger capital position. GM will also be re-named "Government Motors", and people like me will avoid them like the plague, since not only is this wrong to reward weak companies for poor performance in the name of saving jobs (thereby penalizing their competitors who could have GAINED jobs due to increased market share), but I have no confidence in a government that couldn't even run their own House of Representatives cafeteria without annually losing millions of dollars. Not only that, but just because GM will finally put out a car that someone might want to buy doesn't mean they WILL - we will still be in a lousy economy and the days of buying a new car every 2 years and trading in the old one, or leasing a car, are going to be long gone. People will begin making correct economic decisions and whether GM likes it or not, they can't (yet) be forced into buying their product.

No, run them through bankruptcy, let them reorganize and re-negotiate the union contracts, and then compete - this mantra of "too big to fail" is toxic for a free market, stifles competition and absolutely kills incentive to invest. And those people who do lose their jobs? Well, a lot of them will find others, begin small businesses or go to work for GM's competitors, for less pay probably but they will have a job. Let me point out something that should be obvious but is getting lost in this wringing of hands - no one owes anyone a job. That's the harsh reality of life, and anyone telling you otherwise cannot be trusted. There never has been 100% employment and there never will, and regardless of whether the Big 3 are saved or not, millions will still lose their jobs because they worked for companies "small enough to fail" or companies without government connections. And those millions will see how lousy companies like GM stayed in business for no good reason other than to save other peoples' jobs, and they will be pissed. And people without jobs will not be buying new cars.

We had hansom cabs and buggy drivers back in the pre-automotive days - hundreds of thousands of jobs were permanently 'lost' when Ford mass-produced the Model T. But those people found other jobs, and life went on. America used to produce all kinds of televisions - how many of those companies are still in business today? Yet somehow America survived. How many icehouses went out of business when the refrigerator became affordable? How many Pony Express riders do you know today? Telegraph operators? Etc, etc, etc. Yet lost in all of this is the FACT that the new industries that drove out the old ones increased everyone's standard of living - we are the envy of the world. So I am sorry, but a business that produces less than 1% of U.S. GDP and is not critical for our national defense has to succeed on its own merits or die on its lack thereof.

It's called capitalism, and it's served us well - let's not abandon our core principles when times are tough because we are nothing without them.

For an excellent though extremely long look at what socialism actually begets, and who loses, I recommend Ayn Rand's "Atlas Shrugged". I am already seeing elements of it playing out now, and I worry like hell that dominoes like the bailouts and a GM bailout, once falling, won't ever stop until we are all working for the government, standing in long lines at bread stores and watching only one channel on TV - the 'G' channel.

Good discussion. I hate it when I see the good points made by people who disagree with me:)

It occurred to me to make a comment about GM products (not to turn this into a car talk forum, but...)

I've owned two Oldsmobile Bravadas, a Chevy Impala and now a new Chevy Silverado 1500. I've also owned Fords, Nissans, Hondas, Toyotas, Lexus (Lexi?), and Acuras.

The GM products are as good as anything I've owned. The reliability of the Impala has been incredible, and the gas mileage was 32 mpg highway with a 3.8 engine. None of the other vehicles came anywhere close to this efficiency, and it's great to drive, though maybe not as stylish as some, especially inside. The Bravadas were sturdy 4 wheel drives that made driving in the snow fun (though not stopping! it was easy to get over confident.)

The gas mileage in the trucks was awful, but they're trucks! The new Silverado gets awful mileage, but it's as good as its foreign competitors in this department, and it is an incredible machine.

Here's my point: American manufacturers, by every measure, have closed the quality gap with foreign vehicles but they suffer an image problem for lousy cars in the 70's and 80's and maybe the early 90's. Just my opinion, but I think American cars are poised to make a comeback. Ford has a 60 mpg car it COULD bring to the U.S. if pressured. (I don't get why they don't.) Chevy has a new 40 mpg car due out next year. Plus the Volt.

Have the American companies made mistakes? Sure. But (and it's just my opinion) they're on the right track. Ordinarily I'd say it's up to them to convince the public they're doin' something' right. But the stakes are huge here, now.

But I also don't disagree with others who say let the market decide. I just think it's a tough call, given the circumstances.

A side point: Kansas, and to some extent Missouri, are poised to become energy producers for the nation. Kansas has lots of wind and plenty of room to grow switchgrass. Missouri has less wind but lots of areas good for switchgrass. The production facilities for switchgrass ethanol would be near the agriculture sources. I just believe we're on the cusp of major changes that require more than a blind reliance on "market forces."

Too many dominos in this stack to let GM go down in a conventional backruptcy. You are right it would be the quickest way to reorganize but I think a structured bailout with the CEO and board of directors falling on their swords (sans any golden parachutes or bonuses) would make for a softer landing free of unintended repercussions for 401k's, retirees, related industries. Besides, would you by a car from a company in bankruptcy? Same for crysler.

Ford on the other hand is the best positioned to survive with a little cash flow and re-jiggering. Their european divisions are doing OK and they could bring modified european cars into the US to fill-in gaps, i.e smaller cars, in their product line. The Ford product line has improved in quality over the past few years and is approaching parity with the Asian manufacturers. With a little restructuring, cash, and help from the UAW they'll do OK.

While I belive that Bush made many mistakes in his second term, he saved the biggest mistake of his eight years for last .....the bailout.

I wholeheartedly agree that GM should not only be allowed to file for bankruptcy, but, in fact, be encouraged to do so......right along with all the financial institutions that the bailout was designed to protect. Rescind the balance of the bailout monies and let the markets take their natural course.

The resulting deep recession would have forced new responsibilities and priorities in Washington rather than what we are facing when Obama's ill thinking team tackles the mess.

A freshly reborn GM would be positioned (for the 1st time in 40 years) to be a viable competitor in the global transportation marketplace and the country would greatly benefit in the long run.

I am also a fervent supporter of your Yael strategy, Grinch.

Grinch, George you're both right and I'd don't want to reward failure either but as many as 10% of all jobs in the US are linked in some way to the automakers. Unless the old curmudgeon has a matress full of cash he and the rest of us will suffer greatly if those jobs are lost. We need to kill the short term thinking that has sacrificed long term viability for short term bonuses. Auto execs, the UAW and all of us need an attitude adjustment. 75% of something is better than 100% of nothing.

I think this is a tad more important than the Camille Paglia and Sarah Palin threads.

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/12/AR2008111202846.html?hpid=topnews

Dear Grinch, you're right that bailouts are a desperate attempt to pick the winners and losers, and I'm really nervous about the ability of government to pick wisely.

On the other hand, I'm also nervous about the prospect of millions of jobs disappearing if the domestic auto manufacturing goes down. I think this is the dilemma the country faces with respect to any bailout.

It goes against my grain to get government involved in business; I'd rather let the market decide the winners and losers. But only a few people (you and a handful of others) are willing to stick to principles even if it risks putting the country not into a tailspin but a nose dive. For this I applaud you. I'm not that set on principle over pragmatism. But you may be right that we're better off letting the losers lose. I wish it were as clear to me as it is to you.

You don't get it, do you? George, you're picking winners and losers in the auto market. Once you give these losers a bailout, said losers having come to this point over DECADES due to poor market choices and high union costs, you will penalize others in the auto market like Nissan and Toyota who have responded correctly to market conditions.

To hell with these companies - let them reorganize in bankruptcy. The real reason this is not desirable is that the unions do not want their contracts renegotiated, and their pay drastically reduced to levels that foreign companies building cars in America are paying. They also are anxiously awaiting a 2010 payout from GM to their healthcare plan, which is not yet fully funded.

In other words, the majority of the money injected into GM will be funnelled to the unions.

I give my word that I will never buy another vehicle made by GM/Ford/Chrysler if they take one dollar from the U.S. taxpayer when they couldn't get one dollar from private capital to invest in their companies.

And for those of you slack-jaws that have no idea what's really happening - this isn't a garden-variety recession. It will be the worst economic condition since the Great Depression and will go on for years, so you'd better wise up, start saving and quit buying crap you don't need.