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GM (Government Motors)

June 02, 2009 By: Phred Category: Uncategorized

General Motors declared bankruptcy yesterday morning. This move had been much anticipated and probably didnt surprise anyone.

Presidents Bush and Obama gave General Motors billions of dollars to help it avoid bankruptcy, yet the inevitable still happened. No matter what your stance on bailouts and government interventions are, you probably agree that this money was wasted.  If you support bailouts and nationalizations, then you would probably argue that the money was wasted because the government could have and should have) bailed out and taken over GM six months ago.  If you are opposed to bailouts and nationalizations, then you would be opposed to any and all government assistance for GM.  More money will be wasted on GM in the future.

According to the Washington Post“During the GM bankruptcy, the United States aims to raise its investment in the company to $50 billion, take a majority stake in it and name most of its directors, giving the government unprecedented control over one of the nation’s largest manufacturers.”

I dont think that you can seriously deny that the United States is no longer a Capitalist Nation.  We have now officially morphed into a socialist country.  Yesterday was another sad day for Capitalists who again were forced to watch while the government continued to destroy this once great Nation.

President Obama and other supporters of these interventions have promised that they will be temporary.  I dont believe this and neither should you.  Thomas Sowell says that “nothing is so permanent as a temporary government program.”  Historically this has proven again and again to be true.  There are still programs in effect from the Great Depression which were said to be temporary at the time.  A 3% excise tax on phone use was enacted as a temporary measure in 1898 to help pay for the Spanish-American War.  This “temporary” tax lasted 108 years until it was finally ended in 2006.

Government programs, actions, and interventions tend not to end.  It is important to oppose them as they happen, while these actions are still fresh in the minds of the public.  If the government does not sell its stake in General Motors within the next few years the vast majority of people will cease to care, opposition will subside, and the government will continue to control General Motors forever (or at least for quite a long time).

Even if our government sells its stake in General Motors within the next few years, there will still be a tendency for future administrations to use Presidents Bush and Obama’s actions as precedents for future interventions and nationalizations.

President Obama told NBC’s Brian Williams that the government would be taking a controlling stake in General Motors. He also said that he essentially had no choice but to do so.

But, President Obama did have a choice.  A liquidation bankruptcy of GM might have caused temporary stress for the economy, but this stress would have been temporary and would have smoothed out in the long run.  Under a liquidation bankruptcy, General Motors would have been broken into pieces and sold off piece by piece to the highest bidder.  Every brand name, factory, patent, and all real estate owned by GM would have been sold off.  The money recovered from these sales would have gone to pay as much of the money owed to GM bondholders–who  to the company in good faith–as possible.

The brand names would have been sold–probably to existing car companies, although they possibly would have been sold to venture capitalists who were looking to start a new car company.  The factories would have been sold to new owners (or the same venture capitalists) who would either continue to make cars in them or would refit them for some other kind of production.  GM’s patents would have fetched lucrative amounts of money at auction.  Purchasing these patents at a discounted auction price could have helped move other automakers years forward in their research and development, saving them billions of dollars.  For example, GM was years ahead of the competition in developing fuel cell cars.

The auction process might have been stressful while it was being sorted out, but it would have been an efficient way to deal with General Motors.  Instead, our government has pledged to loan GM an additional $50,000,000,000 [$50 billion].  However, GM owes creditors $172,800,000,000 [$172.8 billion], meaning that the government’s invenstment will be unlikely to stop at $50,000,000,000 [$50 billion], just as AIG’s initial $85,000,000,000 [$85 billion] bailout ended up doubling.

You can argue that government control of General Motors will save American jobs, although this argument is tenuous at best. General Motors is losing money for several reasons including: their cars are not up to par with those of Honda, Toyota, Nissan, and Ford, their union contracts force them to pay their current and former workers much more money than similar workers at Honda, Toyota, and Nissan, and they have been slower to innovate than have their Asian rivals.

Toyota, Honda, and Nissan have been continually building more and more of their cars in America, while General Motors, Chrysler, and Ford have been building less. Last November, I wrote an article detailing my opposition to all bailouts, but said that if the government had to bailout auto companies, I would rather it bailout the successful ones (ie Toyota and Honda).  At least this way money would be flowing to innovative companies who have a chance of paying back the loans, rather than to sluggish companies who refuse to adapt and will be unlikely to repay any loans.

The United States government now has a controlling stake in General Motors and a very large stake in Chrysler.  General Motors, the world’s second largest automaker, is now owned by the United States government (with a minority stake being held by the UAW).  Chrysler is now owned by the UAW (with a sizable minority stake being held by the US government).  Additionally, a significant percentage of Nissan is owned by the French government (the French government owns 15.7% of Renault which owns 44.4% of Nissan).  This is not fair to Ford, Honda, and Toyota. These three companies have to compete with three large automakers who are owned by large and powerful governments who have made it a matter of public policy to ensure that the automakers they own do not disappear.  As a Ford stockholder, I’m pretty mad that a company that I have invested in (because I believe in its products and its management) now has to compete with a powerful government which can print money to pump into Ford’s competitors as it sees fit.  Additionally, the US government also had the right to increase regulations on the auto industry which can hurt Ford and benefit its government owned competitors.

As unfair as this is to Ford’s shareholders, this is extremely unfair to the taxpayers who will have to foot the bill for these bailouts.  The tens of billions of dollars in additional funding for GM are not the whole picture.  American consumers will have to pay thousands more for their cars in the future due to the inefficiencies being created by the government bailiuts.  The United States government is keeping car companies in business which have no business being in business.  It is also mandating that certain GM models now be produced in America, rather than in foreign countries.  While this may sound like a good thing in an economy that is hemorrhaging jobs, it is not.  GM has chosen to produce cars overseas becaue it is cheaper to do so.  Simply put, forcing GM to produce cars here will raise the cost of those cars and will make American consumers poorer.

Americanly Yours,

Phred Barnet

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President Obama’s Theft Of Chrysler

May 11, 2009 By: Phred Category: Uncategorized

We all knew it would happen. Chrysler has declared bankruptcy. Big surprise.

The government has announced that Chrysler wont be paying back the $7,200,000,000 [7.2 billion] in aid that it received. $3,200,000,000 [3.2 billion] of that money was given to Chrysler just last week–its hard to believe that the administration was ever planning on getting this money back.

But, in yet another case of the government not learning its lesson, it has actually pledged to “loan” Chrysler another $4,700,000,000 [4.7 billion]!  And on top of this, Chrysler is planning on asking for an additional $1,500,000,000!

What is going on here?

The government has received an 8% in the bankrupt company–which it claims is compensation for the taxpayers for risking taxpayer money.  The whole company isnt worth the amount of money that the government has loaned to Chrysler!  Chrysler is bad news and has been for years.  Did you know that Diamler AG actually paid Cerberus nearly $700,000,000 for Cerberus to take over the company in 2007?

Heres an idea, how about you compensate us by not wasting our money on bailouts!

But it gets worse.  President Obama’s administration has allegedly “strong armed” Chrysler’s investors to force them into agreeing to a deal.

Form Businessinsider.com:

“The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking “end justifies the means” group they have ever encountered.  Another characterized Obama was “the most dangerous smooth talker on the planet- and I knew Kissinger.”  Both were voters for Obama in the last election.

One participant in negotiations said that the administration’s tactic was to present what one described as a  “madman theory of the presidency” in which the President is someone to be feared because he was willing to do anything to get his way. The person said this threat was taken very seriously by his firm.”

The Wall-Street Journal reports a similar story–and also reports the lack of media coverage about this.

Basically, many bondholders have agreed (willingly or after being forced) to give  up their claims.  Many of their positions in Chrysler’s debt have been wiped out because of this deal.  These bondholders were individuals, companies, and pension funds who loaned Chrysler money, risking their own wealth to help Chrysler through a bad situation.  If Chrysler’s bankruptcy is accepted by the judge, these lenders will lose the money they loaned Chrysler.   This is nothing more than the government stealing money from one group and handing it to another.

In the future, lenders will think twice about loaning money to aid struggling businesses, especially if there is a chance that the government will cancel their loans.

And that group that got the handout just happens to be the UAW.  Under the administration’s plan, restructuring, the UAW now owns 55% of Chrysler.  The US and Canadian governments also own large stakes in the company.  The UAW endorsed President Obama and actively encouraged its members to vote for him.

But what sunk Chrysler in the first place?  If you guessed the UAW, you guessed correctly.  According to Chrysler’s own numbers from 2007, their average worker cost the company $75.86 per hour.  Around the same time, Toyota’s workers were costing the company about $40 per hour.

President Obama’s administration stole money from bondholders and equity from Chrysler’s investors and gave it to the UAW.  This is thievery and should be condemned as such in the strongest terms possible.

Americanly Yours,

Phred Barnet

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