I found this article and subsequent comments interesting. What do you guys think? Should the government bail out GM, too?
http://caffertyfile.blogs.cnn.com/2008/11/14/is-general-motors-worth-saving/
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12 comments:
We already have a bailout in place. It's called Chapter 11. It would leavce some of GM's creditors short, but GM would remain in place to try and get itself together. There would certainly be a loss of a great number of jobs, but not as many as if they shut down the assembly lines. It's the same track the government should have taken with the investment bankers. If they are forced into Chapter 11 they would have more motivation to clean their own house, and even maybe get rid of their bad decision-makers. NW Airlines has used Chapter 11 at least twice in the past and continued to function for many years.
Hmmm I don't know much about chapter 11 to be honest. But I was watching Jim Cramer, and he said the DOW could drop up to 2,000 points if GM fails. I don't believe in government intervention into the free market, and I think it does much more harm than good. I would rather see GM fail than see it limp its way into the new year and then get bailed out by the libs.
-DC
David Carlson Politics
i agree, they can chapter go chapter 11 and try and get their act together.
i haven't heard a word about the execs taking a paycut or the unions giving concessions to try and make this work. all of a sudden they are in trouble and want to get on the bailout train.
one day soon we are going to wake up and discover that we have turned into france.
Just an interesting note since you mentioned hte execs not taking cuts - Goldman Sachs Executives are taking NO bonuses this year! It was on the front page of the WSJ today.
No Bonuses! Their sacrifice is amazing...
As for GM, I am with Dan. Poorly run businesses disappear in economic downturns. That is actually a healthy thing! If you run your business poorly, the market will replace it with more efficient companies.
Think of the harm the government would do by giving GM the cash. They would be giving the least competitive and poorly run company an unfair advantage in the market. (I would not want to be an employee at Ford, for instance.)
Hundreds of thousands of jobs would NOT be lost. They would be created in industries that matter. Even though the government subsidized the railroad industry, let's be thankful they didn't do it to the extent that we are all forced to use the train for all our travel needs today.
Government "experts" are the least qualified to run our economy. They are nothing more than parasites. Our economy will rebound INSPITE of them. I am concerned that their hands-on approach will only prolong the economic downturn by interfering with the efficiency of the market to destroy and rebuild industries in a proficient way.
I saw a program on GM a couple of years ago. It was centered around workers that were receiving 70 thousand dollars a year to NOT work. Unions have "protected" workers at the expense of the company and the tax payer. Unions are just another parasitical bureaucracy, feeding on the rest of us...
here's an interesting take on executive bonuses.
http://www.creditslips.org/creditslips/2008/09/lehman-2007-bon.html
Lehman 2007 Bonuses?
posted by Adam Levitin
Lehman paid out around $5.7 billion in bonuses in 2007. Are those bonuses safe? Maybe not.
The bonuses might be recoverable as fraudulent transfers---transfers made while insolvent without receiving reasonably equivalent value. (UFTA 5(a)).
Thus, the key question is whether Lehman was solvent when it paid out the bonuses? (The statute of limitations goes back past 2007, fwiw.) On an equity basis, almost assuredly yes, but on a balance sheet basis, that might be a closer call, depending on how things like MBS and CDOs are valued.
If Lehman was not solvent when it paid the bonuses, then I think there's a fraudulent transfer. It's hard to see how a bonus could ever be paid in exchange for reasonably equivalent value, when an employee has already been paid a salary for their efforts. There are various defenses to FTs, but none would seem to apply here at first blush.
Of course, it takes a challenge by a creditor whose claim arose before the bonuses were paid, but per the rule of Moore v. Bay (which I am teaching tomorrow), it only takes one of them, owed a single cent, in order to challenge all the bonuses. The lack of a creditor might protect the bonuses, but as creditors look to carve up what's left of Lehman, the thought of recovering a decent chunk of $5.7 billion is going to look very appealing.
September 14, 2008 at 11:19 PM in Financial Institutions | Comments (14) | Permalink
I know that the auto union bosses are saying that there will be no union concessions with regard to the faltering U.S. auto industry. The benefits paid to union members (especially retired union members) is a sizable portion of what is really hurting the auto industry.
In a nutshell, Chapter 11 bankruptcy allows a company to propose a plan to reorganize itself and pay back protected creditors over time; sometimes reducing protected debt and eliminating unprotected debts. In 'return', the company is legally protected from its creditors.
Again, in a nutshell, Chapter 7 bankruptcy is the liquidation of a company, with the proceeds going to secured or protected creditors. If a creditor doesn't have secured credit, tough beans - no money for you.
I'm personally against bailing out the auto industry, people with bad mortgages, and people who have too much debt. Basically, they got themselves into their 'hot water' and they should figure out how to get out of it.
I think that Americans, in general, have lived so 'high on the hog' for so long, that we can't fathom what it would be like to not be able to purchase what we want or scale back our lives to live within our means. We haven't had to tell ourselves "No" after many years of affluence.
**People, we are going to have to hit bottom eventually. All of this 'bailout' and 'stimulus' stuff is only postponing the inevitable bottom.**
My work has, for all extent and purposes, come to a screeching halt and I wouldn't be surprised if I wasn't working at the beginning of the year. Not a good thought and it won't be easy. But, I also know, based on my belief in the free market, that it is temporary, IF, AND ONLY IF, we get to the bottom. And, if I fall upon hard times, I won't be looking for a bailout from the government.
My gut tells me that, when all of this shakes out, we will be living in a world quite different than we have been accustomed in the past. Some will have a harder time adjusting than others. This goes for industry, as well as the private sector. But, the lessons may be the type that will save us as a country in the long run.
Lessons learned the hard way are sometimes the best lessons learned.
Dane -
"Government "experts" are the least qualified to run our economy. They are nothing more than parasites. Our economy will rebound INSPITE of them. I am concerned that their hands-on approach will only prolong the economic downturn by interfering with the efficiency of the market to destroy and rebuild industries in a proficient way."
*You should be concerned that their hands on approach will only prolong the economic downturn. Ah what a mess we are in! Obama is going to do 'whatever it takes' to 'fix' the economy. Ah...why, in such an advanced day and age (i.m.h.o.), are so many people so ignorant? I hope I'm not coming off as ignorant by saying that, but that's how I feel. I admit I have so much to learn, but I won't deny the fact that the state can't fix the economy.
"I saw a program on GM a couple of years ago. It was centered around workers that were receiving 70 thousand dollars a year to NOT work. Unions have "protected" workers at the expense of the company and the tax payer. Unions are just another parasitical bureaucracy, feeding on the rest of us..."
Exactly why we let the companies fail. I don't believe in the government interfering at all when it comes to unions. We shouldn't prevent them from happening, but we shouldn't force them, of course. So if they can't afford to pay them, and the company is going under, well then it needs to go under! I forget when I heard this but, doesnt it make sense that if these companies fail, there is potential for a number of start ups with fresh ideas and a clean slate to enter the auto industry? I understand that there are huge startup fees, but hey, isn't Richard Branson starting a commercial SPACE FLIGHT company?
And Berta, I love your attitude! The economy is really going down the tube and even if your job was eliminated you aren't complaining and asking for some sort of compensation for the government, but instead realize it will come around again. I'm a little worried myself as I graduate in less than two years. I'm considering prolonging entering the workforce by taking on a double major and staying an extra semester, and plus I'll be able to pick up a minor while i'm at it. So we'll see...it's tough tho for everyone. Job cuts day after day.
Oh and thank you everyone for comenting on the abortion post! It's a tough issue.
David Carlson Politics
I remember a time when I was first married where we lived primarily on what we raised in a garden, and the game we could shoot in the fall. Beef and pork were a luxury. I don't think it would bother me to be in that position again, but I think I may be among a small minority who could live through those rough times without a major mental depression.
Most people have never known anything but affluent times. For them it is going to be extremely difficult. Whether GM and the others get bailed out, or go through Chapter 11, or just go belly up, we are all going to be doing a lot of belt tightening over the next few years. I don't think this is all going to be a short term thing.
I have to agree with "Budsy". Things are going to be a lot different when it all shakes out. In fact, I don't believe will will recognize it as anything we have seen before.
Bubba - You are hardcore. I can only slightly remember the time before we had a computer.
From the BBC:
"US carmakers in new bail-out plea: Ford has asked the US Congress for a $9bn (£6bn) bridging loan in case it gets into financial difficulties.
In return, it pledged to reduce its boss's pay to one dollar a year should it have to use the emergency loan."
http://news.bbc.co.uk/2/hi/business/7761015.stm
"IN CASE"? I would like a million dollars from the government "IN CASE" I get into financial trouble....and I will reduce my pay to one dollar a year, too, if they give it to me.
When did we become a nation of pathetic losers? The boss at Ford should take a pay cut NOW if that is what is best for his company, not use it as some sort of bizarre bargaining chip to coax money out of the government...
The carmakers and the unions have done this to themselves. They need to go the way of the dinosaurs so they can be replaced with something with bigger brains...
Amen, brother!
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