This was baked into the cake from the beginning. This has never been about anything other than the UAW. A quote of mine from another thread back in December:

naw....Union's exist for this
doing less.. pay us more...
hard to fire Frank for being lazy..
when you taught him the game..
the parasites will nibble until PT is dead..
then stand with sign...

Rika

No, they have simply found a new host (the US Taxpayer).

Exactly, this administration will not allow the UAW to feel any pain and certainly not allow them to be disbanded. Every move Obama will make on this will be centered on protecting the power and existence of the union.

Did you really think that the US govt could stave off a banking system collapse and immediate Depression without spending a significant amount of taxpayer money? Does it really surprise you that, just 6 months after those emergency actions, the govt's books would show a loss on those investments?

I think you, along with many PPOTers and pundits/talking heads/politicians/OpEd writers, have a grossly unrealistic expectation. You don't appreciate how catastrophic the situation would have been had the govt not thrown everything it had at the crisis. And, while complaining about the cost of those acts, you don't consider the cost of an economic collapse, which would be orders more than your lousy $78BN.

In 1942, you probably would have been complaining about how much the war was costing and why aren't we in Berlin yet.

$78BN is a trifle. Seriously. US GDP is appx $14 trillion. Let the country, indeed world, collapse into a four year Depression with 20% decline in GDP, and that's a $11 trillion economic cost in the US alone, in addition to the human cost of unemployment at triple today's rate. That's what we are playing for, not some stupid $78BN.

That logic works both ways. The flip side to that argument is "the problem didn't happen, therefore the solution that was implemented was the best/proper/responsible solution."

E.g., You have a sprained ankle causing you some pain, so I give you a few days of injections that make all the pain go away and you feel great.

Successful, correct?

Yes, until you find out that the injections were heroin and now you have a bit of a habit. Or some other drug that had taken half the life out of your kidneys. Etc.

Your original logic (in your flip side) is correct, but in the corollary to the example you've introduced new information that negates that logic. Knowing the effects of heroin, it would not meet your original "best/proper/responsible solution" criteria (an assumption being that if you are administering heroin, you know its pros and cons). Further, it wasn't really the heroin that fixed my ankle, was it?

I give you points for correct usage of e.g.; nicely done on a board where most can't spell lose correctly.

You would think that knowing the effects of writing blank checks for close to a trillion, with pretty much no oversight, would also not meet a "best/proper/responsible" solution.

I'm not going to argue that, I think you are correct.

John, bear in mind that you're speaking from the basis of theory. There's no precedent for this event, so all actions are based on theory and political motivation:eek:. So how do you KNOW? You speak of staving off disaster, but there's other "experts" who claim we did more harm than good. Who to believe?

As for your comment about 10 hrs/day for 10 years, that certainly qualifies you to speak to the issue. However, don't forget that there were individuals with much more experience than you who have made massive mistakes contributing to our recession.

"Economic collapse", "too big to fail", "catastrophe", they all sound really scary. Scared people tend to believe anyone with a plan. Is that the point?

This whole thing sucks. No investor in their right mind would buy GM shares. They've soaked up investments like a sponge for years and returned nothing but negative cash flows, negative ROE and negative return on investment. Their revenue and income per employee sucks.

- Their 5-year return on assets is -5.53%, versus an automotive industry average of +4.41% and an S&P500 average of +8.31%.
- GM's Return on investment is -8.81% (!!!), versus an industry average of +6.67% and an S&P500 average of 11.27%.
- GM's Revenue per employee is $613K, versus an industry average of $59,982 and and an S&P500 average of $879K.
- GM's income per employee is -$129K versus an industry average of $1,253K and an S&P500 average of $77K.

So, they don't know how to effectively use their existing assets or their people, they can't effectively use money that has intrusted to them, and their performance is dwarfed by other companies in their industry, and the wider market as a whole.

From a fundamental perspective -- Why would I want to invest in GM?

Unfortunately our government has decided that it knows better and went and investment my money in that sink-hole against my will. What's the saying about sending good money after bad???

According to the current GM "Bail-out" plan, willing investors would constitute 1% of shareholders with the US Government owning a controlling interest. GM would literally become a nationalized "Government Motors".

Wrong. There absolutely is precedent, if you understand what happened in the 1930s.

More important, this is not theory and you don't even need to believe in precedent. This is what was actually happening in a few desperate months of 2008.

Think back to after Lehman blew up.

Overnight interbank lending, which virtually every bank depends on to meet daily liquidity demands, went to virtually zero. Banks were hoarding cash, LIBOR was sky high but even at that rate there was no lending.

Commercial paper, which most large corporations depend on for similar short-term liquidity demands, completely dried up. The biggest, most cash-rich corporations (think IBM, etc) were unable to issue CP or had to pay double-digit rates.

Bank lending to corporates froze up. Companies with solid businesses, stable revenue, manageable debt levels, and strong cash flows were suddenly unable to replace or rollover routine debt maturities, placing them on the edge of default and involuntary bankruptcy filings.

Even routine things like letters of credit for exporters froze up. Smaller companies started being unable to ship orders, because banks wouldn't issue a LOC.

Market prices for nearly every asset, other than US Treasuries, collapsed. Solid corporate debt suddenly traded at distressed levels, riskier debt had no bids at all, stock prices began plunging. With existing debt and equity prices in freefall, there was no way to issue new debt or equity, and companies began starving for capital.

Starving companies do what they have to do to survive. Corporate America rushed to cancel purchase orders, stop investments and projects, lay off masses of workers, cut wages and cancel bonuses. Unemployment began rushing upward, and the impact further along the supply chain made it worse.

As market prices collapsed, investors started a run on the markets. Huge sums were pulled from mutual funds, institutional portfolios, hedge funds, very rapidly. Fund managers were forced to liquidate their holdings. When you are forced to liquidate, you don't sell what you want to sell, you sell whatever you can sell. Prices for good equities and debt plunged along with prices for bad equities and debt. As the markets broke down, fear and technical programs triggered more cascades of selling.

Small investors, retirees, 401k holders, etc saw 50% of their net worth evaporate. Some of those people were near retirement, or in retirement, and effectively saw their retirement disappear. Some of them don't have time to earn it back, and many of the rest will hide in cash and won't ever earn it back - a lost generation who will be WalMart greeters until they die.

One particularly critical class of investment funds, money market funds, were pushed to the edge. A few high-profile ones broke the buck, went below $1, as they were forced to liquidate into a plunging market. Others, including perhaps some you own, would have collapsed if the parent banks and fund companies hadn't pumped hundreds of millions into them.

When everyone is liquidating and no one is buying, asset prices get destroyed. Including assets held by banks. Hundreds of banks, from the largest in the US to the smallest, were sliding toward insolvency. Investors saw that, and thus bank stocks were spiraling down. That kind of spiral doesn't just end with a bunch of sad investors - it ends with a failed bank. The FDIC's deposit insurance funds would have been exhausted with just one mega bank failure, and multiple mega banks were headed down.

A run on the banks started to form. Everyone probably knows people who ran to their bank, pulled out their money, and spread it over several other banks. We heard about banks - completely solid ones, in no danger at all - where people were withdrawing all their cash and taking it home in armoured cars or putting it into safety deposit boxes. Remember, if a run on the bank is not stopped, the bank will always collapse, because no bank has more than a small fraction of its customers' deposits in immediately available cash. See "interbank lending" above.

There was more - this is all that I have time to type.

This all happened in a few incredible months. If you get your financial news from the heads on TV and the 4 page business section of the local paper, you do not know what was happening. The US financial system was melting down. Not theory, not prediction - it was actually happening. We had started down the slide and were picking up speed.

What the govt did was remarkable. Desperately rushed, very flawed, lots of mistakes, not fully thought out - certainly. But still remarkable.

Bernanke's Fed stood up and basically declared that it would backstop every critical part of the the financial system that was even remotely in its jurisdiction. It guaranteed money market funds. It raised FDIC deposit insurance. It guaranteed commercial paper. It stepped in to replace the broken interbank lending system. It opened huge lines of credit to other central banks. And those other central banks did many of the same things, in their countries. The Treasury went to Congress, Paulson literally got on his knees in front of Pelosi and got the near-$1TR TARP passed, and Treasury started pumping money into the banks in return for preferred shares. The TARP funds propped up hundreds' of banks' balance sheets and allowed them to avoid insolvency. I've looked at bank balance sheets during 2H08, yes, it was that close.

They succeeded. The US (and global) banking and financial system is still here. Unemployment is 8% not 18% headed to >20%. GDP is down low-single-digits, not double-digits. And the economy and financial system are slowly recovering. LIBOR, CP rates, bond yields, asset prices, macro indicators - if they aren't recovering, they have stabilized/troughed and are starting to tentatively improve. This is a global statement, not just for the US.

Sure, there are many armchair "experts" with 20-20 hindsight who can pick away all day at the decisions of 2H08 and say this or that could have been done differently. Many of them are right, lots could have been done differently. To use a historical analogy, we made awful errors during WW2 as well, but the point is we utimately won.

And there are plenty of "experts" who are saying that we are still in danger, the road ahead is dark and scary, etc. Many of them are right too, we are clearly not out of the woods. It is not VE Day, it is 1942.

But there are very few real experts - meaning, people who are deeply involved every day in the financial markets and know what the hell they are talking about - who think we weren't in a major crisis in 2H08.

Yes, for every idiot idea you can find a idiot talking head to say it, and he might even be a professor somewhere, so if you want to think things were not in fact desperate seven months ago, I guess you can continue believing that. From where I sit, and was sitting during it, that's just flat wrong.

I've mentioned before the parallels between the way the American motor industry is going and what happend to the British motor industry in the 70's. I'm sure I'm not the only one to see striking similarities.

What is happening here to GM is a replay of what happend to BMC (Austin, Morris, MG, Jaguar, Land Rover, Triumph Cars, etc..) under a socialist Labor government back in 1975.

http://en.wikipedia.org/wiki/British_Leyland

See if any of this sounds familiar...

Quote:
"The company became an infamous monument to the industrial turmoil that plagued Britain in the 1970s. At its peak, BLMC owned nearly 40 different manufacturing plants across the country. Even before the merger BMH had included theoretically competing marques which were in fact selling substantially similar "badge engineered" cars. To this was added the competition from yet more, previously LMC marques. Rover competed with Jaguar at the expensive end of the market, and Triumph with its family cars and sports cars against Austin, Morris and MG. The result was a product range which was incoherent and full of duplication. In addition, in consequent attempts to establish British Leyland as a brand in consumers' minds in and outside the UK, print ads and spots were produced, causing confusion rather than attraction for buyers. This, combined with serious industrial relations problems (principally, the company's relations with trade unions; the 1973 oil crisis; the three-day week; high inflation; and ineffectual management meant that BL became an unmanageable and financially crippled behemoth whose bankruptcy in 1975 was assured.


1970s Restructuring
Sir Don Ryder was asked to undertake an enquiry into the position of the company, and his report, The Ryder Report, was presented to the government in April 1975. Following the report's recommendations, the organisation was drastically restructured and the Labour Government (1974–1979) took control by creating a new holding company British Leyland Limited (BL) of which the government was the major shareholder. The company was now organised into the following four divisions..."

Here is another article comparing the two although I will point out that the government take over of BMC/BL happend well before Thatcher and the conservatives came to power...

http://www.articlesbase.com/cars-articles/general-motors-the-american-british-leyland-661414.html

I noticed that the Wikipedia article doesn't mention how much the UK government paid for the company, and what their ROI was. In the end the inevitable happened and most of the brands disappeared anyhow. The only two that come to mind any more are Jag (Formally part of Ford) and Mini (a division of BMW). The rest have either disappeared or moved to China where the brands still have some cache.

Jag and Mini don't really exist as functional companies anymore.

Mini exists only in name, as you point out, it's BMW who owns it. The cars have nothing to do at all with the British minis of the past, other than the name.

Jag is a dead man walking, it hasn't been profitable for years, it has only been able to continue to exist by being funded by another company, such as Ford recently, and Tata currently. Companies buy Jag thinking they can capitalize on the name, but the pool of new buyers is getting smaller, and when Tata is done with Jag, that may be the end of it.

I don't know what the figures were but according to this NYT article...

http://www.nytimes.com/2008/11/18/business/economy/18car.html

...it was in the region of $16.5 billion if you adjusted it for inflation today (I read elsewhere it was one billion pounds sterling then). The bottom line is that the company was horribly mismanaged before and horribly mismanaged after. When the new conservative goverment came in at the start of the 80's Leyland was continued to be bailed out for a while. Then, along with a majority of the other nationalized companies, were sold off to investors, and then sold overseas, before meeting their ultimate demise.

Here is another article from CNN...

http://edition.cnn.com/2008/BUSINESS/11/20/auto.industry.uk/index.html

All of those great automobile manufacturers names are gone, the famous factories closed, and Britain doesn't really have an auto industry of it's own anymore.

Do you really think GM will fair any better?

GM absolutely could, and indeed SHOULD, fair much better than the British car industry did. It could and should be very profitable.

Unfortunately, because of a variety of political reasons, it will not. At least not for the next 4 years. After that, who knows, there may be no real GM left to save.

Among other things, the UAW owns the Obama administration and the Congress, so GM will not be permitted to reorganize itself in a way that can allow real change moving forward.

If somebody was looking for a new "appliance car"...GM may not be a bad place to look. 100,000 miles warranty...

The British auto industry should have been profitable. They had the brands and history behind them and were obviously capable of producing some great and innovative products (think of the original Mini for example). Unfortunately the management of the company was so out of touch with what the consumer wanted (sound familiar?) and the unions pretty much ran the show (sound familiar?). The crap that was produced in the late 70's and early 80's was staggering, both from a design and quality point of view, and the company never really recovered from that image (sound familiar?). The product lines competed against each other and the management had no idea what the cost of doing business actually were. I read stories saying that every MG sports car sold in the US actually cost British Leyland significantly more money that each car sold in the UK made.

I was a bit too young to really understand the politics at the time, but the unions pretty much had the 70's Labor Government eating out of their hands. I do remember all the strikes because we used to have power cuts all the time and it seemed like every week some workers were out on the picket lines for some reason or the other.

It bothers me that I see so many similarities. Like you say, I really don't see it working out well.

The company has to be around for 100,000 miles to make that warranty worth anything though.