Owning GM
| Tue May. 26, 2009 8:50 PM PDT
Here's the latest on America's auto industry:
General Motors Corp. and the United Auto Workers have agreed to a new restructuring plan that would give the union a significantly smaller stake in the company than previously envisioned, and leave the U.S. government owning as much as 70% of the car maker.
....The union — concerned about the GMs prospects — sought the lower stake in exchange for preferred shares that provide annual income as well as a $2.5 billion note from GM, said people familiar with the situation.
I know this is only "temporary." I know that the followon problems from a collapse of GM might be devastating. Maybe we have to do this. Maybe there's no choice. But I sure don't like it.
Banks are one thing. They're systemically important in a way no other industry is. When they go broke the government has to either arrange a fire sale or else take them over. But owning a car company? Especially one that's in such bad shape that there's a good chance we'll never be able to re-privatize it? Which means that we'll probably keep it on life support forever because it's politically impossible to shut it down? Jesus. This whole deal just keeps getting worse and worse.
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Comments
What better way to
Submitted by felinecannonball on Tue May. 26, 2009 9:18 PM PDT.
What better way to discourage people from buying Hummers and Suburbans? Think of it as a global warming initiative.
Consider the alternatives...
Submitted by dr2chase (not verified) on Wed May. 27, 2009 3:40 AM PDT.
Hindsight is a wonderful thing. I think the main feature of turning everyone into capitalists over the last thirty years (through their 401-K accounts and pension funds, mostly) has simply been to make most of us hostage to stupidity of the financial classes. Don't forget, they skim a percentage off those funds every year, in good weather and bad. Our fees, their mistakes, our edumacation. That's the problem with educating investors by letting companies fail; there's too many links in the chain, and not enough feedback from the guys paying the bills to the guys making the mistakes.
This whole deal just keeps getting worse and worse.
-KD
I am altering our deal. Pray I don't alter it further.
-Darth Vader
Well, I guess the bright side of this is that we really need a future with fewer cars in it. By having the feds take over most of the domestic industry, we can wind it down in a relatively humane way.
Think of it like this: if we could get health care done correctly (i.e. single payer*) in the next couple of years, then throwing this number of people out of their insurance won't be as big a hit. With the health insurance monkey off their backs, smaller businesses can much more easily mop up a lot more of the new unemployed.
*Yes, I know single payer as such isn't in the plan. However I see the Public Option as a stealth way to sneak it in by default, as a decent Public Option will tame or eliminate the private health insurance companies over time.
public option
Submitted by MarkH on Wed May. 27, 2009 3:30 PM PDT.
A lot depends upon how that public option is set up. Certainly this thread of discussion indicates it should have portability.
Should the government run it completely or
should the government run it, but farm out details to an insurance company or
should government just mandate that insurance companies offer certain kinds of plans which include appealing features?
There's a lot of devil in those details.
It is barely possible that
Submitted by skeptonomist (not verified) on Wed May. 27, 2009 5:00 AM PDT.
It is barely possible that there could be an economy without banks (they are minimal in the Islamic world), but not without productive industry. For years Wall Street has been pushing the line that the US economy must become a "service" economy, meaning that the only people who make money are in the financial industry. Federal economic policy is now run by people who put the financial industry before everything else, and no amount of subsidy for it is too much while any government oversight is unacceptable. Too bad Kevin swallows this line.
What makes you think GM
Submitted by tyronen (not verified) on Wed May. 27, 2009 7:34 AM PDT.
What makes you think GM can't be reprivatized? The issue is only that its production capacity is larger than its market share AND that it has large legacy health care costs. Both of these problems are easier for a publicly owned company to solve than a private one. Afterwards, reprivatization is perfectly feasible.
voodoo masters
Submitted by tpx on Wed May. 27, 2009 7:46 AM PDT.
Zombies unquestionably obey the orders of their voodoo masters. Calling the banks and the automakers zombies is incorrect; Americans are the zombies for allowing their future earnings to be invested in already failed corporations.
Finance v. Industry
Submitted by g. powell on Wed May. 27, 2009 7:56 AM PDT.
I couldn't agree more. I was for nationalizing some of the failed banks, but I'm very uncomfortable with govt ownership of industrial concerns.
In a sense, a government is an insurance company. Taxes are premiums and it protects (or it should) citizens from disaster and hardships in exchange. Social Security, Medicare, Medicaid are all examples of this. And there is the budget and the central bank. The govt is already in the finance business, taking over a bank really isn't a stretch.
But making things is a whole other deal. As that worked anywhere in the world? I can't think of a single example. It had very limited success in the Soviet Union and old-Labor Britain.
from the article: The
Submitted by alex (not verified) on Wed May. 27, 2009 7:57 AM PDT.
from the article: The government's plan also calls for paying off in full GM's secured lenders, banks including Citigroup Inc. and J.P. Morgan Chase & Co. that are owed about $6 billion.
More candy for the banks! As I understand it, secured creditors can demand liquidation if they don't like the terms of a bankruptcy deal. But does anyone in their right mind think that the collateral in today's market is worth anything like 100%?
While they're at it, why not offer to just buy for the original purchase price the homes of everybody who is underwater on their mortgage. Oh, that's right, the rules are different if you're a bank.
If the U.S. wants to take
Submitted by g. powell on Wed May. 27, 2009 8:26 AM PDT.
If the U.S. wants to take over a company, it has an obligation to pay off the secured lenders, otherwise it's just theft. That's another reason to feel uncomfortable about this deal, which I think just fell apart.
g. powell: If the U.S. wants
Submitted by alex (not verified) on Wed May. 27, 2009 9:24 AM PDT.
g. powell: If the U.S. wants to take over a company, it has an obligation to pay off the secured lenders, otherwise it's just theft.
Not if it's offering a deal. As long as the secured creditors are free to reject the deal and go through bankruptcy court instead, then the gov't offering X cents on the dollar is no different than any other party doing so. And what private party in their right mind would offer them full face value? The banks know damn well their security isn't worth a bucket of warm spit in this market, and should be happy to get a fraction of that. Ergo this proposal is yet another sweetheart deal for the banks.
I call BS
Submitted by Govt Skeptic (not verified) on Wed May. 27, 2009 8:34 AM PDT.
"Banks are one thing. They're systemically important in a way no other industry is."
I'm sure there are lots of bankers who agree with you, but I think this is hogwash. I bet I could find a few million auto workers who think that their (former) industry is "systematically important" as well -- if only to them.
Yes, I'm calling you a KoolAid drinker. Banks aren't more important than anything else. From janitors to auto workers to hedge fund managers, we all make this thing happen, one way or another. I don't buy the bullshit that banking is more important -- and hence, bankers as well. I'd entertain that notion if they'd done their jobs correctly and kept us out of this mess, but they didn't. They're as worthless as a bad plumber. Negative value added.
GM could do well
Submitted by J. Frank Parnell on Wed May. 27, 2009 8:45 AM PDT.
I am not as negative as Kevin on GM's future. All the car companies are hurting right now. The good ones are losing money, but had fully developed product lines and cash reserves to carry them through. GM got caught retooling to replace a mediocre product line with new competitive models. Right now people are not buying new cars, but driving their old ones instead. This creates a pent up demand of new cars once the economy improves. If GM's product lines are competitive (and their newest cars have been getting good reviews) there is the potential for them to do quite well.
As to whether the government can oversee an industry, well it depends. But the government did run American industry during WWII, producing all the arms that help crush the Nazi's and the Imperial Japanese Empire. We just need an adequate sense of urgency with a commensurate low level of political grandstanding.
Forget WWII
Submitted by g. powell on Wed May. 27, 2009 9:08 AM PDT.
Govt worked with industry during WW II, it didn't own them. There is a big difference. The govt laid out the production plans and directed resources, private industry implemented them. That distintiction is blurred with ownership.
Also, it's far easier to have a centrally planned economy during wartime, probably impossible to have one for a consumer-oriented economy. The Soviets did a fine job developing and manufacturing military hardware, they were a disaster when it came to the consumer.
Not saying that nationalization of auto companies is sure to be a disaster, just very likely. And not nationalizing the sick banks is not sure sure to be a disaster, just likely.
Obama's got this one backwards, in my humble opinion.
National Security
Submitted by justmy2 (not verified) on Wed May. 27, 2009 8:55 AM PDT.
I tend to agree that this deal is getting worse and worse, but I am yet to hear or see any evaluation of the national security interests the US has in keeping GM running?
Who makes our military vehicles if GM and Chrysler both collapse? Are we going to outsource military vehicle manufacturing? I think not. The last I heard, Jeeps and Hummers were still a pretty big deal in military circles.
Before I sign up for the "what is he thinking crowd", I need to understand the plan for military vehicle production post GM and Chrysler liquidation.
I genuinely don't know. Does someone have link?
No links, but...
Submitted by bob in fla on Wed May. 27, 2009 5:10 PM PDT.
The military does not buy Hummers & Jeeps. The "Humvee" was developed to replace the Jeep as a military vehicle around 1980 & is built by AM General, which was once a part of American Motors.. The Hummer is a civilian version of the Humvee which falls way short of the military specifications - & costs less. GM bought the right to make & sell Hummers from AM General. AFAIK, no auto company builds any vehicles specifically for the US military.
military vehicles impoverishes America
Submitted by tpx on Wed May. 27, 2009 9:16 AM PDT.
Producing military vehicles impoverishes America even more than wasting money propping up failed banks and auto manufacturers.
"Banks are one thing.
Submitted by MBunge (not verified) on Wed May. 27, 2009 9:18 AM PDT.
"Banks are one thing. They're systemically important in a way no other industry is."
That's nonsense. We aren't bailing out the banks because they're "systemically important" but because they got so damn huge they'd drag down the entire economy with them, which is exactly the same thing that would have happened if GM had gone under in the 1950s or 60s.
Mike
systemically important
Submitted by MarkH on Wed May. 27, 2009 3:47 PM PDT.
I think you should understand that they are systemically important precisely because if they fail they pull down many of the other businesses they do business with.
Of course, banks and other financial firms are unique in that they do business with a LOT of different kinds of firms. How much of that is long-term debt depends upon the bank, but there are no other businesses like this. They requires close supervision and protection.
That's one place the Credit Default Swaps come in -- they tie businesses together in long-term relationships where one's failure could damage others.
It appears we need banks, and perhaps other kinds of businesses, to be less dependent on linkages to others. We don't need so many dominoes.
GM
Submitted by Lee Hartmann (not verified) on Wed May. 27, 2009 9:23 AM PDT.
How much do you want to bet that we will spend much, much, much more on bailing out banks than in getting GM back on its feet? The exceptional ``growth'' of the US economy over the last decade relative to Europe is now looking more like the results of the financial bubble; i.e., not real wealth, but just bankster tricks. If GM can get rid of its legacy health costs, as would occur if we have real national health insurance, it has a chance of succeeding, and it would be nice if, once in a while, we actually made something rather than just push paper (or electrons, really) around. Of course, GM did make a lot of stupid mistakes, but the stupidest mistake was probably to be overly generous to its retirees. That's not real capitalism!
Military vehicles
Submitted by Anonymous (not verified) on Wed May. 27, 2009 9:48 AM PDT.
The military Hummer was spun off into a separate company from domestic Hummers, which are now glorified GMC's, which are re-branded Silverados [the logic of retaining GMC escapes me.] Another bright management decision by GM.
Jeeps lost a lot US government contracts when the greedy, cowardly, suckers of management sold Chrysler to Daimler. They were a German company after Daimler told the dumb shills that "merger of equals" was a lie and Bush's courts agreed.
I suppose that is why Fiat is being limited to below 50% ownership.
The future of progressive politics.
Submitted by Chad (not verified) on Wed May. 27, 2009 10:22 AM PDT.
I think this is very bad for progressive politics if it isn't temporary. And it won't be. Republicans are bad. But then they aren't competing against much.
Capitalsm works because it makes people swallow the harsh realities. Obama and the Democratic Party are saying that reality shouldn't be harsh. It doesn't matter that these companies don't have a plan and aren't competitive.
And I almost believed all that the propoganda about the reality based community. We've been making decisions like this for at least 30 years, so maybe it can keep on going. I'm starting to get nervous that one day that all the props and support just won't work.
We have the government we voted for.
We already had the debate over more Reagan Revolution or Change.
Submitted by MarkH on Wed May. 27, 2009 3:51 PM PDT.
If you want to argue for sticking your head in the sand, letting Wall St. suck up all the profit of the country and never fixing health care, then argue for Bush III, but otherwise we're going to go with Obama and try to fix things.
Chad: Capitalsm works
Submitted by alex (not verified) on Wed May. 27, 2009 10:43 AM PDT.
Chad: Capitalsm works because it makes people swallow the harsh realities.
Tell that to the financial genyuses in the White House that are so busy making sweetheart deals for the banks. Compared to that, the gov't owning 70% of GM is hardly worth a mention. It's like complaining that a mass murderer was also in the habit of jaywalking.
systemically important
Submitted by tpx on Wed May. 27, 2009 6:06 PM PDT.
The proof the finance markets are not systemically important is the deregulation of the 80's, 90's and 2000's. Business leaders, bankers, regulators and politicians had no regard for the health of the finance markets for thirty years.
i heard yesterday that gm is
Submitted by health insurance quotes (not verified) on Sat Jul. 11, 2009 8:23 AM PDT.
i heard yesterday that gm is out of bankruptcy. This is a good sign for our economy. We will have to wait and see.
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