Why a GM Bankruptcy Would Be a Disaster

[I spent the winter writing songs about getting better]

http://www.businessweek.com/lifestyle/content/may2009/bw20090521_006557.htm?chan=top+news_top+news+index+-+temp_top+story

[Beet]

Yes, I do believe bailing out GM would be the best economic policy, but unfortunately, most Americans do not agree. Their innate sense of fairness tells them that GM should be allowed to fail.

And no matter how sound an economic policy is, if it lacks political support, it will be seriously hampered. In 1933 for example, FDR had total political support for his actions. Watch the video of his inauguration speech-- the loudest cheers came at the moment after he politely promised to side-step the Constitution and ask for emergency powers. Swedish authorities, when evaluating the success of their own much lauded bank bailout of 1992, regarded the unified political support of both parties are critical to the success of their actions.

Right now there is very little political support for continuing to support the automakers, and little political support for any government actions whatsoever, except possibly of the very populist type that the current team of Tim "Masters Degree in International Economics and East Asian Studies" Geithner and his superiors at the NEC are not inclined to undertake at the moment. *Sigh*

[opebo]

Yes, I do believe bailing out GM would be the best economic policy, but unfortunately, most Americans do not agree. Their innate sense of fairness tells them that GM should be allowed to fail.

And no matter how sound an economic policy is, if it lacks political support, it will be seriously hampered. In 1933 for example, FDR had total political support for his actions. Watch the video of his inauguration speech-- the loudest cheers came at the moment after he politely promised to side-step the Constitution and ask for emergency powers. Swedish authorities, when evaluating the success of their own much lauded bank bailout of 1992, regarded the unified political support of both parties are critical to the success of their actions.

Right now there is very little political support for continuing to support the automakers, and little political support for any government actions whatsoever, except possibly of the very populist type that the current team of Tim "Masters Degree in International Economics and East Asian Studies" Geithner and his superiors at the NEC are not inclined to undertake at the moment. *Sigh*

Yes, both Americans 'innate sense of fairness', and their master's unwillingness to do the necessary are symptoms, obviously, of the same disease that caused the whole problem in the first place. 

[Fmr. Pres. Duke]

If GM cannot come up with a plan that would make them profitable again, then why keep throwing money at them? We are already at record levels of debt. GM has not been profitable for years!

[opebo]

If GM cannot come up with a plan that would make them profitable again, then why keep throwing money at them? We are already at record levels of debt. GM has not been profitable for years!

It used to be quite profitable when the country was run in a reasonable fashion - that is, in the 1960s and 1970s.  The blame for General Motors troubles falls to the same people who are to blame for impoverishing the american worker.  It was all planned, Dirty Duke.

My vote is for not only continuing to throw money at them, but to continue to throw money at the other victims, and then to remake the entire country upon the model of, say, 1969.

[Marokai Backbeat]

Obama operates on what is popular and easy, not what is hard and necessary.

In regards to this, though, I'm pretty worried considering that I live in Ohio.

[Rowan]

Obama operates on what is popular and easy, not what is hard and necessary.

Wow, I totally agree with you.

[Marokai Backbeat]

Obama operates on what is popular and easy, not what is hard and necessary.

Wow, I totally agree with you.

I'm sure we disagree on what is necessary, though.

[Sam Spade]

Bankruptcy doesn't necessarily kill off all the suppliers, etc. immediately (except for those in bad shape)

But I suspect over time it will.

It's a big issue.  Same goes with Chrysler, but seriously, if Chrysler was my only outlet for business, I would have closed up shop ages ago.

Fiat is quickly discovering that Chrysler isn't worth jack.

[Torie]

The article points out that folks lack confidence in GM being around to service their cars, so purchasing them is a risky scheme. No doubt that is correct. But why would one have such confidence if what is keeping the company afloat is government money? In both instances, that hardly gives one confidence for the long term.

In any event, the only possible "solution" for GM, and it may not be enough, is if it sheds all of its debt and health care and pension obligations, and absent creditor willingness to throw in the towel, the only way to do that is through bankruptcy.

Also, wouldn't the government just writing checks to GM be more of a creditor bailout than anything else?  Who would be in favor of that?

[opebo]

But why would one have such confidence if what is keeping the company afloat is government money? In both instances, that hardly gives one confidence for the long term.

Well obviously government money is more secure than any other kind (technically there is no other kind, but leaving that aside).  For example, it is a lot more reasonable to rely on Social Security than 'investments', as we have recently seen.

In any event, the only possible "solution" for GM, and it may not be enough, is if it sheds all of its debt and health care and pension obligations, and absent creditor willingness to throw in the towel, the only way to do that is through bankruptcy.

That's a poor solution.  Like all your right-wing solutions, it relies on impoverishment of the american worker for 'success'.  Obviously this is not unnecessary.  These are all political choices, and I would prefer that health car and pension obligations similar to those provided by the UAW simply be extended to all americans.  If you want a 'level playing field', why does it have to be the one that maximizes human misery?

[Torie]

But why would one have such confidence if what is keeping the company afloat is government money? In both instances, that hardly gives one confidence for the long term.

Well obviously government money is more secure than any other kind (technically there is no other kind, but leaving that aside).  For example, it is a lot more reasonable to rely on Social Security than 'investments', as we have recently seen.

In any event, the only possible "solution" for GM, and it may not be enough, is if it sheds all of its debt and health care and pension obligations, and absent creditor willingness to throw in the towel, the only way to do that is through bankruptcy.

That's a poor solution.  Like all your right-wing solutions, it relies on impoverishment of the american worker for 'success'.  Obviously this is not unnecessary.  These are all political choices, and I would prefer that health car and pension obligations similar to those provided by the UAW simply be extended to all americans.  If you want a 'level playing field', why does it have to be the one that maximizes human misery?

Opebo, you favor of course the government just taking over GM's pension and health care obligations (and perhaps of every other company in America, I don't know). I understand that.  But why would you want to say, bail out myself, if I owned a million dollars of GM's debt as a creditor, or say of some hedge fund? That is what would be happening if the government just kept writing checks. The only way to get rid of such debt is through bankruptcy. It is unconstitutional as you know for the government to just seize the assets of a private party.

[Rowan]

But why would one have such confidence if what is keeping the company afloat is government money? In both instances, that hardly gives one confidence for the long term.

Well obviously government money is more secure than any other kind (technically there is no other kind, but leaving that aside).  For example, it is a lot more reasonable to rely on Social Security than 'investments', as we have recently seen.

In any event, the only possible "solution" for GM, and it may not be enough, is if it sheds all of its debt and health care and pension obligations, and absent creditor willingness to throw in the towel, the only way to do that is through bankruptcy.

That's a poor solution.  Like all your right-wing solutions, it relies on impoverishment of the american worker for 'success'.  Obviously this is not unnecessary.  These are all political choices, and I would prefer that health car and pension obligations similar to those provided by the UAW simply be extended to all americans.  If you want a 'level playing field', why does it have to be the one that maximizes human misery?

It is unconstitutional as you know for the government to just seize the assets of a private party.

Don't underestimate Obama.

[opebo]

Opebo, you favor of course the government just taking over GM's pension and health care obligations (and perhaps of every other company in America, I don't know). I understand that.  But why would you want to say, bail out myself, if I owned a million dollars of GM's debt as a creditor, or say of some hedge fund? That is what would be happening if the government just kept writing checks. The only way to get rid of such debt is through bankruptcy. It is unconstitutional as you know for the government to just seize the assets of a private party.

Alas, it may be unconstitutional, though I find that a bit debatable.  However I would be happy to give the creditors some chits in order to nationalize GM.

[Sam Spade]

This probably seals the deal on a GM bankruptcy.

http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSN2648146320090526

[12th Doctor]

This probably seals the deal on a GM bankruptcy.

http://www.reuters.com/article/rbssConsumerGoodsAndRetailNews/idUSN2648146320090526

Let this be a lesson to all idiots... this is what will happen to your company if you run one of the worst business models in the Free World.

Good riddance.  Ford is doing it right.

[12th Doctor]

Which I predicted they would, BTW, which is why my Ford stock has tripled in value, since I bought it at its all time low.

[12th Doctor]

Sorry if that sounds arrogant, but back when I had alot of money to throw around, in 2003, I had a bunch of really "wacky" investment ideas that everyone talked me out of, like, for instance, investing in Starbucks, which doubled during the time I wanted to invest and the time I would have sold, or buying a brick of gold, and just sitting on it... which was my other "crazy" idea.

Makes me happy that I finally followed through on one of those ideas that people tried to talk me out of, and it worked.

No, mutual funds were where it was at.  So while I could have nearly doubled the money I had, it slowly drained away while making a whopping 5% gain in the mutual funds market.  Stop the presses!

[??????????]

GM hardly made a product worth buying anyhow.

[Nym90]

It's amusing to see the conservatives trashing the US automakers now.....maybe it's just a Michigan thing, but growing up here it was always the conservatives who were all patriotic about supporting the Big 3, while liberals were more likely to drive Japanese cars and be called treasonous for it.

[2952-0-0]

I am now a shareholder in both GM and Chrysler, and so are most people on this board.

Let's organize a trip to the next Shareholder AGMs and do a little chatting with the executives! Any takers?

[??????????]

It's amusing to see the conservatives trashing the US automakers now.....maybe it's just a Michigan thing, but growing up here it was always the conservatives who were all patriotic about supporting the Big 3, while liberals were more likely to drive Japanese cars and be called treasonous for it.

Now? Hmm, I grew up in a Ford family. I've seen all the problems GM has, so, no, just no.

[Nym90]

It's amusing to see the conservatives trashing the US automakers now.....maybe it's just a Michigan thing, but growing up here it was always the conservatives who were all patriotic about supporting the Big 3, while liberals were more likely to drive Japanese cars and be called treasonous for it.

Now? Hmm, I grew up in a Ford family. I've seen all the problems GM has, so, no, just no.

Yeah, I've always been a Ford man, too, and I agree many of GM's products are inferior to Ford's.

But driving a Japanese car would generally make one the subject of racist attacks (they were usually referred to as "rice burners", among many other far less polite terms) back in the day. My grandfather despised Japanese cars, in large part due to the fact that he was a WWII vet who fought in the Pacific.

The idea of buying American cars out of a sense of patriotic loyalty to one's country seems to have fallen by the wayside. I do feel it makes sense to get the best product for the money regardless of where it's made, but I also do think American cars have improved a lot through the years and represent overall a better value. They are cheaper to purchase and repair even if they do break down slightly more (though that depends a lot more on how well they are maintained than anything) and the differences in performance and efficiency seem to be minimal at best.

I think the biggest knock against the Big 3 is their failure to innovate and adapt to changing market conditions....the foreign automakers have always been far better in this regard.

[opebo]

...buying a brick of gold, and just sitting on it...

That sounds uncomfortable.

Anyway, you people seem to know nothing about cars or economics.  Prior to the late 1990s there was no question that General Motors products were far, far superior to Ford's, and I personally believe they are still somewhat superior.  Btw, how is Ford's 'business model', or that of Toyota for that matter, any different from that of General Motors?  Make cars; sell cars.  That's the business model.

What has caused General Motor's troubles are two factors - 1) a depression caused by the State, and 2) reduction in car purchasers standard of living, also caused by the State.   It is quite reasonable for the State to try to ameliorate the damage that has been caused politically, now that more sensible heads are in charge.

[Rowan]

Thanks UAW, thanks a lot.