GM Bailout: Good News For the Economy

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It appears Obama did something right for the economy (not that he will get much credit for it from those who despise him anyway), now that GM has had it's historic IPO. But Obama should not get all the credit, since this was actually started by GWB, who saw the bailout as "necessary for American wokers." So GWB should get credit as well. In fact, the Republican president GW Bush was responsible for almost all the bailouts, but who is really keeping track of the facts? Certainly not the Tea Potters.

That's a nice turn-around story.

GM still has a problem with the outflow of pensions and health care costs to retired workers. Nevertheless, it's funny to hear some people comment that there should be no caps on pay for CEOs, who rake in millions and that senior management should be able to take as much as they can get away with, but regular autoworkers are "overpaid," and need to have their wages and benefits reined in.

I tried to pick up 50 shares of GM stock today, but couldn't get it done with my broker because we got our wires crossed a bit. I should have just done the trade online. I will try again tomorrow unless it opens over my target price.

http://www.msnbc.msn.com/id/40239242/ns/business-autos/

http://www.newsweek.com/2010/11/17/how-gm-ipo-proves-the-tea-party-wrong.html

 

Well, I believe the original bailout Bush proposed was mostly for the financial sector, and Congress padded it with provisions for auto manufacturers and the like - so Bush either had to accept that or veto the whole thing. Now, imagine someone crediting Pelosi for the recovery .

Anyway, good for GM - and if we can take this as a sign, good for the US in general.

 

What born again fiscal conservatives in their post Bush spending binge soberness forget to mention is that companies, like GM, are actually paying back their TARP funds that kept them afloat during the worst of the crisis. Indeed, this bailout has kept a larger part of US manufacturing in existence.

Now on the other hand, it isn't that there is anything that from a free market, free trade perspective (*cough* *wink* *wink*) is per se bad about increasing market shares for Volkswagen, Audi or Mercedes, or from a Japanese perspective, Honda and Toyota.

 

From what I heard, the US Taxpayer actually lost money in that initial offering, but we may be able to recoup it with a later sale of the remaining stock.

Still, the question of success is dependant on what would have happened had we not bailed them out. I think that's one that no one can confidently answer in the long run.

On another note, is there any indication that some of those record profits the corporations have been sitting on went to buy a GM interest? It's pure speculation on my part, but an offering like this doesn't come around every year, and it's something I could easily see major corporations saving up huge war chests to prepare for.

 

Is that so? IMO a couple of things can be spelled out with great certainty: What GM's near bankruptcy did cause were layoffs in Canada, the closure of the Opel plant in Belgium and the wiping out of at least 8,300 jobs in Germany, Spain, Britain and other European countries. Had they crashed entirely it would have been worse. The closure of GM dealerships nationwide could have caused the loss of another 100,000 in the US alone etc. pp.

 

I've heard good things about "Overhaul" by Steve Rattner. The book describes the bailout of GM and Chrysler -- including talking about the reasons the Obama administration actually decided to do it (it wasn't a slam-dunk and the administration debated it for a time).

 

They filed for bankrupcy. Had they not received the infusion of cash, there are only two reasonable outcomes: the company fails, costing tens of thousands of jobs in the US, or it takes a far greater time for the company to recover. I think we can confidently answer that GM would not be the same company it is today had the bailout not occured. Do you not consider that a success?

 

Actually the estimate was several hundred thousand jobs -- perhaps in the millions. There are entire industries devoted to supplying GM with the parts and equipment they need. Not to mention the ancillary industries which provides "stuff" to the employees (insurance, food, etc.).

 

Yes, but would the economy have bounced back more swiftly if that had happened? No bailouts means companies shore up their own fiscal responsability means they avoid future collapses means they don't have to be bailed out. Plus, the field becomes wide open for the auto companies that don't collapse, including fresh facilities to manufacture and employees to hire, all on the cheap (either because they're sold to pay off debt or because they're desperate for any job). I'm not saying it would have been better, I'm just saying there's that possibility.

 

So ... the government moved in and helped business -- which is a fundamental principle of the republican party -- and you're arguing about it? Besides, just looking at the broad picture most jobs created by "the field becoming wide open for auto companies that don't collapse" will be in other countries. It would be just another way to ship jobs overseas which is not really in our (as a country) best interest at all.

 

Exactly.

 

You're asking the equivalent of the question a presumably Republican patient poses to his doctor about his case of typhus: Gee, doc, I am really opposed to all this intervention - would I have recovered without antibiotics? The doctor would probably reply along the line: Well, considering that you had bubonic plague and cholera as well ... *cough* ... but will we ever know with certainty? No, after all, sometimes startling and very improbable things happen in medicine. Does that make taking antibiotics a bad idea?

Point is, since it takes so much less time to destroy than to build ... and figures like that estimated several hundred thousand, perhaps millions of jobs in mind ... it might just have been worthwhile.

As far as I am concerned, there is just no point in revelling in doctrinaire purity at the expense of turning (more?) parts of North America into a post-industrial wasteland. The relocation of manufacturing from the US to overseas has hit a couple of regions hard. It is inconceivable that in the case of something as big as GM it would have been any different.

 

More I suppose it's possible in a strictly theoretical sense, but I find it implausible. A complete restructuring of one's business model, and then the implementation of said business model requires capital. Which, if you're bankrupt, you don't have. So I don't see how, without the infusion of cash, they could have recovered in LESS time than they did by getting bailed out.

Can you put some meat on that skeleton NOG? Or are you just asserting it as a theoretical construct? I would find it more plausible if you actually laid out a plan - even a speculative one - of HOW the recovery could have been quicker without getting the money. The one thing we know is that companies that are bankrupt don't have a lot of capital to work with.

 

Establishing a line of credit, with your investors and vendors is a nightmare once a company goes into it. Look what happened to Circuit City once their vendors would no longer supply inventory on credit. What could they do without a line of credit? But knowing that there is a public backstop adds a lot to a recovery, as in the GM success. The economy is out of recession - "officially." But that does not mean much to those who are still unemployed.

The big problem I still see is the housing market and the foreclosure rates. I still think there is a chance for a double-dip. The housing market cannot recover on its own. There are thousands of houses that are still in foreclosure and flooding the market at rock-bottom prices. If one considers that most families had a large part of their real assets in home equity, and now that that wealth has been wiped out, how is it replaced? The stock market? Buying already overpriced gold? Fat chance.

 

Ah, but if I did survive the plague, cholera, and typhus, I'd have a natural immunity to them, which I wouldn't with antibiotics. Yes, the auto collapse would hurt, a lot, and yes, I see it would take a long time to recover, but might the economy recover to a healthier, more cautious position than it has with the idea of a bailout in every major CEO's mind?

You misunderstand. I wasn't thinking that the bankrupt companies would recover. I was thinking that other companies that didn't go bankrupt (not all auto companies needed the bailout, remember) would buy from the companies that did. And yes, I realize looking back at it that it's a stretch. Even the companies that didn't need a bailout were hurting, and with everything else Congress did, having a lot of cash on hand would probably still look like better idea than investing it.

 

The point that dry and very un-superstitious physician made was that if not for antibiotics the patient would be dead.

Yes, if the patient improbably survived without antibiotics treatment he would sure be a remarkably tough SOB, but alas, the qualifier was 'improbable' for a reason - that outcome would have been exceedingly unlikely in face of these diseases, each of which lethal in their own right, and even more so cumulatively.

It is probably unwise to rely on miracles and the like for your economy.

 

Would you be as interested in hypothesizing this if the president were a Republican?

 

Yes, Susipaisti, I would.

 

Almost all the bailouts were done by a Republican president. But that did not stop Obama from getting "the blame." But in the case of GM it is more success, than it is blame.

It's always amusing when people are willing to see others "take the pain" of losing their jobs, but not so willing to give up their own for the "righteous cause of the free market," especially when it comes to government contracts or subsidies. It's fine when the government funds some jobs, but it sucks when other people get the same (especially union members). I have a friend who works for KBR and is always complaining about the "bailouts." Of course, without the needless government contracts that funds his job (the Iraq War), he would be working at Wal-Mart - and on the "cheap." Oh, did I also say that he has the gall to complain about "government spending?"

 

The stories of happy and unrepentant Republican pols who were recipients of federal subsidies or federal grants and the like while railing against federal overspending and bailouts etc pp are legion. Ironic.

But it is easily understood why - taking these grants and subsidies is normal in the regions they are from and farmers and businesses there do so routinely. And since they are entitled to receive them, they would be fools to reject them. Of course, biting the hand that feeds them, and their voters, would cause a backlash locally, where their next election will be. Now who would want that? So they have it both ways - take it and rail against it.

And never mind that, up to date, Rand Paul is the only Republican who had addressed the 800 pound gorilla in the federal budget - defence spending that makes up 50+% of the federal discretionary spending, and that figure doesn't even include the billions in foreign military aid (state department) and for nuclear weapons (department of energy) or the really secret stuff. No chance of them cutting that.

Not that that would prevent them from blathering about 'fiscal responsibility'.

The obscene part is that they want to cut welfare, social security, health care and social programs. The point is, the amount of money in the federal budget is limited. When not touching defence and related holy cows, the battle for the remaining available money in the budget is a zero sum game. So they want welfare for themselves. Now IMO people who qualify to receive six digit sums in subsidies or grants are not exactly needy. Especially not when compared to 'ordinary working folk' who have a normal job (or two) and need a couple years of work to make that much money, all while struggling to repay their mortgages in a market where the price of their homes keeps falling.