Paulson, Bernanke, and Congress on the Bailout: Incompetence All Around

Speaking of incompetence

Who is in charge of our sovereignty? Talk about incompetence.

See these videos of illegal aliens pouring across the border every day and night. Taken by hidden cameras.

www.borderinvasionpics.com

Chapter 11: A "bailout" by another name?

Chapter 11 might work out for GM. But it would take an engaged Administration -- not the current one -- to make it work.

With Chapter 11, GM could "right-size" its dealerships down to a more appropriate number. GM could also conceivably shed its pension obligations, but those would most likely end up being assumed by the PBGC and therefore tantamount to a taxpayer bailout.

Contrary to punitive rhetoric making the rounds, GM is no longer on a "$70 per hour" assembly-line pay schedule. That's because in the last two years GM has received Japanese-type concessions (new workers' pay, HMO-class health coverage). That may improve with Chapter 11 as many older, more expensive workers opt for retirement over pay cuts.

The biggest problems with Chapter 11 are that GM's suppliers would fold and GM's customer base would dissolve in the face of warranty support uncertainties. That's where the federal government would have to intercede.

I think GM (maybe not so much Chrysler) is getting a bad rap about making "unwanted" vehicles. Every other vehicle I rub elbows with on the road these days is an SUV/tank, which the public up until now has embraced more wholeheartedly than Priuses. GM's passenger cars are pretty good these days -- ahead of German cars in reliability/defects, and closing in on the Japanese. Maybe a presidential peptalk to the nation might go a little ways to encourage the nation to take a second look at that Caddy or Buick before they jump into a Lexus or Camry.

GM Bailout

What I think we'll get is a prepackaged Ch. 11 with the US as the reorg lender, with a seat at the head of the table. The political price will be that a trustee is appointed, management goes to the guillotine after the Marie Antoinette moment with the private jet, and the UAW takes some kind of haircut -- how big depends on Obama's cojones. There will be plant shutdowns, a major combout of the dealer network, and probably nameplates will disappear. First day orders will protect key suppliers and will set aside a reserve for present and future warranty claims. The UAW and creditors will be fobbed off with stock or options in the reorganized company that will only be worth anything if the reorganization works. The result will be a company downsized to fit its 20% US market share

The big 3

My father spent his entire career as a research engineer at Ford Motor Co., and neither he, nor I, have many illusions about the US auto industry. Given the current state of the economy, however, letting any of the big 3 go into Chapter 7 bankruptcy is unthinkable, bordering on criminally insane. It seems to me that the government could hold off, let one (or all) of these companies enter Chapter 11, and then directly provide or arrange financing if banks were unwilling to lend at that time. This seems like an obvious alternative to me, and I suspect that the fact that nobody is suggesting it means I'm missing some critical factor. Does anybody know what that would be?

History

The dollar cost of the War on Poverty was $6 trillion, the social cost was much greater. We lost that war.

During the last year of the Clinton presidency, the NASDAQ took a $2-1/2 trillion hit, the DOW peaked and started down, and other markets soon followed. The total loss of the NASDAQ was $4 trillion before it moved back up again, and there were much greater losses in other markets. But the recovery went well, and the economy strengthened.

The trigger event for the current crisis was the toxic mortgages developed under relaxed lending rules starting under Carter's Community Reinvestment Act and the further relaxation of those rules during the Clinton Administration. Then Senators Dodd and Obama and Rep Frank and others blocked mortgage reform efforts by the Bush Administration, until we came to this pass. The suddenness of the mortgage collapse and the prospect of a Marxist president panicked the markets, and the worldwide loss is orders of magnitude greater than the trillion dollars or so at risk due to the mortgage problem.

The last time a Republican presided over a loss of similar scale was President Hoover, but Hoover's problem was lack of knowledge of the economy and markets, not Marxist ideology. FDR exhibited the same lack of knowledge, and made things worse.

I wish the Democrats would stay out of things they know nothing about.

Winning the Lotto!

There's something a lot more lucrative in this country then winning a 100 million in the powerball or big game lottos. That's being a failed CEO of a fortune 500 company. You get paid millions in salary, millions in perks, and tens of millinos in bonuses while you drive your company into the ground. And CEOs of faltering companies unfailingly lay off workers to try and stem the tide of their mismanagement. Then when its clear to everyone that they've failed they aren't really fired....they're given tens of millions or even a hundred million dollars to go away. I believe in capitalism, but paying capitalism is suppose to reward bad performance and failure with zilch. What we have in America today is an unaccountable corporate oligarchy with CEOs and their crony's stealing from their shareholders. My faith will be restored in capitalism when I see CEO's fired for their failures without a penny, losing their homes, and forced to take jobs a Wallmart like the rest of the employees they failed and laid off.

Do yesterday's solutions fit today's model?

Bernanke may know more about the 1930s Depression than anyone else on the planet, but are today's circumstances and problems analogous to those existing in the 1930s?

In both Vietnam & Iraq some of our early problems resulted from the fact our military commanders were trained & experienced in tactics used to fight the last war, but the situations they faced were significantly different.

Bailout

Bailing out the Big Three will only postpone the inevitable, the demise of the Big Three's manufacturing operations in the U.S. and Canada. Given their huge legacy costs, there's no way the Big Three can profitably compete with the non-union auto manufacturers, and there's no way the UAW will accept the draconian wage and benefits cuts necessary to put the Big Three on the same playing field as their non-union competitors. Both GM and Ford are earning billions on their foreign operations, but losing even greater billions on their U.S. and Canada operations. Like many other U.S. manufacturers who have closed their U.S. factories and moved production elsewhere, the Big Three will do the same. It's just a matter of time.

paulson

Why the rush? Why rely on a few opinions.

We need an intensive study of the economic scenario by experienced professors who can share studies and options.

We need more itemized accounts of expenditures and projected expenditures.

"Incompetence" doesn't begin to cover it

Paulson insisted to Congress: (1)I need $700B, (2)I need it to buy bad paper, and (3)I need it RIGHT NOW!"

Over the past month, (1) and (2) have been shown to be false, yet Barone wants to cut Paulson some slack because of (3)?

Possessing a day-trader's mentality, Paulson figured that, by throwing $700B at Wall Street, a stock market collapse could be avoided or postponed. Guess what -- the collapse STARTED the minute his bailout was finally approved.

Detroit is, at least, making something we can see and use. What do we have to show for that $75B ransom (apparently not enough) paid to AIG? I wonder how a visitor from 2000 would react to the proposition that we'd rather spend $25B for two months in Iraq (Iraq?) than prevent General Motors from falling on its sword.

Incredible!