Bailout of the big 3, is it really such a bad thing?

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WishingWealth
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Post by WishingWealth »

We (the open mind type) are all Keynesian now:
Richard Posner joins the crowd.
I guess he'll be another one who will be crossed out of your catechism and sent for a visit to your buddy Torquemada*.

I've linked to that article before but here it is again.

http://www.tnr.com/article/how-i-became ... n?page=0,0
How I Became a Keynesian
Second Thoughts in the Middle of a Crisis
...
Although there are other heresies in The General Theory, along with puzzles, opacities, loose ends, confusions, errors, exaggerations, and anachronisms galore, they do not detract from the book's relevance to our present troubles. Economists may have forgotten The General Theory and moved on, but economics has not outgrown it, or the informal mode of argument that it exemplifies, which can illuminate nooks and crannies that are closed to mathematics. Keynes's masterpiece is many things, but "outdated" it is not. So I will let a contrite Gregory Mankiw, writing in November 2008 in The New York Times, amid a collapsing economy, have the last word: "If you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes. Although Keynes died more than a half-century ago, his diagnosis of recessions and depressions remains the foundation of modern macroeconomics. His insights go a long way toward explaining the challenges we now confront. . . . Keynes wrote, ‘Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slave of some defunct economist.' In 2008, no defunct economist is more prominent than Keynes himself."
WW

* or from other posts in Lounge, it seems you won't even need to delegate the task of making him recant.
worthy
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Post by worthy »

Judge Posner, whose garralousness is often mistaken for genius, has been at the heart of the Chicago School for decades and barely acknowledges the Austrian theories, even though its adherents were the only ones long predicting the current economic bustup and the only ones providing a theory that explains the orgins and course of economic cycles.

Now that $23 trillion in potential stimulus has been unleashed with little to show for it, the Keynesians can only shout, "more, more, faster, faster." What a theory!
"Every decent man is ashamed of the government he lives under." H.L.Mencken
worthy
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Post by worthy »

Cash for Clunkers. What an astounding success story!
"Every decent man is ashamed of the government he lives under." H.L.Mencken
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Post by Mike Schimek »

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Post by brucecohen »

Car czar Steven Rattner's account of the GM/Chrysler bailouts
Everyone knew Detroit's reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.

For example, under the previous administration's loan agreements, Treasury was to approve every GM transaction of more than $100 million that was outside of the normal course. From my first day at Treasury, PowerPoint decks would arrive from GM (we quickly concluded that no decision seemed to be made at GM without one) requesting approvals. We were appalled by the absence of sound analysis provided to justify these expenditures.
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Post by CROCKD »

The GM Culture of Big Auto continues.

OPEL STORM
"We will get the taxpayers' money back," the Economy Minister vowed in Berlin.
In other words, Magna and friends were leading a Europe-wide restructuring that GM, at the time, was incapable of leading itself.
There is no shortage of skepticism about Opel's turnaround plans under GM. Ferdinand Dudenhoeffer, the director of Germany's Centre for Automotive Research at the University of Duisburg-Essen, thinks Opel may become legally insolvent. GM, he notes, is still a ward of the U.S. and Canadian governments.
"GM runs Opel from a conference room in Detroit. They have no feeling for the products in Europe."

He also thinks GM should not count on the European governments to hand over the €3-billion - €1.5-billion less than Magna requested - it says it needs to restructure Opel.
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chiaroscuro
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Re: Bailout of the big 3, is it really such a bad thing?

Post by chiaroscuro »

"GM got a total of $52 billion from the U.S. government and $9.5 billion from the Canadian and Ontario governments as it went through bankruptcy protection last year. At first the entire amount of U.S. aid was considered a loan as the government tried to keep GM from going under and pulling the fragile economy into a depression. But during bankruptcy, the U.S. government reduced the loan portion to $6.7 billion and converted the rest to company stock, while the Canadian governments held $1.4 billion in loans. Those loans were repaid Tuesday, five years ahead of schedule. The automaker hopes to repay the remaining $45.3 billion to the U.S. government and $8.1 billion to Canada via a public stock offering, perhaps later this year. The U.S. government now owns 61 percent of the company and Canada owns roughly 12 percent".

There was A LOT of incestuous bashing of this company and the different government sectors who made this bailout on this thread. A lot of that hyperbole has been proven wrong with time. I wonder if any of the many who were quick to deride what happened then might now say they were mistaken or at least partially mistaken about their overblown predictions and especially on the macro level, this was the right decision.

Bottom line, in the middle of what some call, initially a more horrific economic crash then the initial stages of the great depression, the government did the right thing to stop a further implosion of the economy, and they did this against the howls of the free marketers who had sunk us down that very deep hole. This looks to have worked and what most certainly would have been another great depression without government intervention, has instead turned into a recession.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by marty123 »

Good to know about the $8.1B, but can you explain to me what the following means?
chiaroscuro wrote:[The automaker hopes to repay the remaining $45.3 billion to the U.S. government and $8.1 billion to Canada via a public stock offering, perhaps later this year. The U.S. government now owns 61 percent of the company and Canada owns roughly 12 percent".
An IPO would dilute the shareholders out of an amount equivalent to the IPO funds being raised. Might as well just split shares, call it a "refund" and call it quit :roll:

Does that instead mean that the IPO will be used to buy back the US and Canada government shares? If so, is it a bit optimistic to think that the company's market cap is $73 billion dollars? ($53.4B /73%). Unless I'm missing something, the governments are probably out about $35 to 50 billion on this investment.
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Mike Schimek
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Re: Bailout of the big 3, is it really such a bad thing?

Post by Mike Schimek »

http://newsmax.com/InsideCover/charles- ... /id/356756
Sen. Chuck Grassley is asking Treasury Secretary Tim Geithner to justify those claims. According to the Iowa Republican, GM has repaid its TARP (taxpayer-funded bailout) loans using other TARP funds.
“It looks like [GM’s] announcement is really just an elaborate TARP money shuffle,” Grassley said in an April 22 letter to Treasury Secretary Geithner. “The repayment dollars haven’t come from GM selling cars but, instead, from a TARP account at the Treasury Department.”
Barofsky testified before the Senate Finance Committee this week that the funds GM used to repay its TARP debt are not coming from GM earnings.

“Instead, GM seems to be using TARP funds from an escrow account at Treasury to make the debt repayments,” Grassley said. The senator noted that according to Barafsky's testimony, "Treasury had supervisory authority over GM’s use of these TARP escrow funds."
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Re: Bailout of the big 3, is it really such a bad thing?

Post by OhGreatGuru »

But during bankruptcy, the U.S. government reduced the loan portion to $6.7 billion and converted the rest to company stock, while the Canadian governments held $1.4 billion in loans. Those loans were repaid Tuesday, five years ahead of schedule. The automaker hopes to repay the remaining $45.3 billion to the U.S. government and $8.1 billion to Canada via a public stock offering, perhaps later this year.

While I'm happy for GM, it seems a bit disingenuous for the CEO to be running a multi-national ad campaign claiming that they have paid back the loans in full, when we are still on the hook for 85% of our original 'loan" in the form of stock. Does anyone know what our $8.1 B in stock is worth today?
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Re: Bailout of the big 3, is it really such a bad thing?

Post by Shurville »

OhGreatGuru wrote:But during bankruptcy, the U.S. government reduced the loan portion to $6.7 billion and converted the rest to company stock, while the Canadian governments held $1.4 billion in loans. Those loans were repaid Tuesday, five years ahead of schedule. The automaker hopes to repay the remaining $45.3 billion to the U.S. government and $8.1 billion to Canada via a public stock offering, perhaps later this year.

While I'm happy for GM, it seems a bit disingenuous for the CEO to be running a multi-national ad campaign claiming that they have paid back the loans in full, when we are still on the hook for 85% of our original 'loan" in the form of stock. Does anyone know what our $8.1 B in stock is worth today?
I am sick of those Ads with the CEO Ed (someone) who when first confirmed as boss said he knew nothing about car business.And now he is telling me all about the car biz!
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Re: Bailout of the big 3, is it really such a bad thing?

Post by Mike Schimek »

http://finance.yahoo.com/news/Treasury- ... et=&ccode=
The Treasury Department said Monday it will lose $1.6 billion on a loan made to Chrysler in early 2009. Taxpayer losses from bailing out Chrysler and General Motors are expected to rise as high as $34 billion, congressional auditors have said.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by chiaroscuro »

"Many people thought this bail-out (and a smaller one involving Chrysler, an even sicker firm) unwise. Governments have historically been lousy stewards of industry. Lovers of free markets (including The Economist) feared that Mr Obama might use GM as a political tool: perhaps favouring the unions who donate to Democrats or forcing the firm to build smaller, greener cars than consumers want to buy. The label “Government Motors” quickly stuck, evoking images of clunky committee-built cars that burned banknotes instead of petrol—all run by what Sarah Palin might call the socialist-in-chief. Yet the doomsayers were wrong".

http://www.economist.com/node/16846494

Again to my original question, was the bailout really such a bad thing? 33 pages of FWF bashing later any of you arm chair quarterbacks want to recant? Perhaps you were slightly wrong? As mentioned previously things didn't look to good back then and multiple collapses in the auto industry at that particular time would have been very grim for the US economy.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by Chuck »

chiaroscuro wrote:"Many people thought this bail-out (and a smaller one involving Chrysler, an even sicker firm) unwise. Governments have historically been lousy stewards of industry. Lovers of free markets (including The Economist) feared that Mr Obama might use GM as a political tool: perhaps favouring the unions who donate to Democrats or forcing the firm to build smaller, greener cars than consumers want to buy. The label “Government Motors” quickly stuck, evoking images of clunky committee-built cars that burned banknotes instead of petrol—all run by what Sarah Palin might call the socialist-in-chief. Yet the doomsayers were wrong".

http://www.economist.com/node/16846494

Again to my original question, was the bailout really such a bad thing? 33 pages of FWF bashing later any of you arm chair quarterbacks want to recant? Perhaps you were slightly wrong? As mentioned previously things didn't look to good back then and multiple collapses in the auto industry at that particular time would have been very grim for the US economy.
Looking at the thread just above this, note that quote about taxpayer losses "could rise as high as $34 billion". I'll agree this was a good thing when I see that final number, which won't be known until after the company goes back private I presume. The economist doesn't seem to mention that issue. You'd be surprised at how many companies could be made profitable in the short term with a $50 billion influx of taxpayer funds.

Even if the price tag to the public is not horrendous, I still don't like the message this kind of thing sends to execs of big corporations. Which is: don't worry about risk, take on as much risk as you want if it has the potential to make you rich. If it all goes bad, the government (taxpayer) will pick up the pieces as you invoke your golden parachute.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by squid »

chiaroscuro wrote:Many people on this board have ranted at the possible bailout of GM, Ford, and Chrysler. This is what I have heard on the radio. If one of the big three folds 2.4 million jobs (direct and indirect employment) will have to be cut in the near term with many of those cuts probably being permanent. If all three go under, 3 million jobs will be permanently lost. Now that would be catastrophic for the US at the moment. I have also heard on the radio that these companies are having great difficulty getting financing, after all we are in credit crisis. So the question that has to be asked is, are loan guarantees really a net negative for the US economy in this current environment?
Two were allowed to go under, were reorganized under terms favourable to their survival and the government's chances to get cash returned. Under those terms, I am happy enough with the results. If the government just shovelled funds to them pre bankruptcy, I would imagine they would have still gone bankrupt as the necessary reorganization in bankruptcy would not be accomplished, and all that funding would be wasted. So I still think your original post is asinine.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by mac1214 »

A lot of American cars are being sold in China, which is good news. One thing I notice is that living in a large city, there are Audi, Mercedes, Mini, Nissan, Porsche, etc., but it's rare to see a GM or Ford dealership in the city. This isn't good because downtown car sales are cars in $30-$60,000 range, which are high profit and American car companies aren't getting their share. Which indicates that their cars aren't being taken seriously by the performance crowd.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by kcowan »

chiaroscuro wrote:...
Again to my original question, was the bailout really such a bad thing? 33 pages of FWF bashing later any of you arm chair quarterbacks want to recant? Perhaps you were slightly wrong? As mentioned previously things didn't look to good back then and multiple collapses in the auto industry at that particular time would have been very grim for the US economy.
I am a believer in doing the right long term thing. In the case of GM and Chrysler, that would be letting market forces decide (but then I don't live in Oshawa, Oakville or Windsor).

Any evaluation of the "goodness" of the action has to account for all the help they get. Like the $50 billion. Like preferrential tendering.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by chiaroscuro »

GM had 4.7 billion in earnings in 2010. There are many of you who were oh so certain in your predictions....will any of you man up and eat crow?

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Re: Bailout of the big 3, is it really such a bad thing?

Post by mac1214 »

Who knows if the bailout was good or bad, only time will tell. Ontario is sporting a $22 billion defict and the U.S. is over a trillion, so $4.7 billion profit doesn't seem so big. 5 years from now it could be a $4.7 billion loss. Volkswagen posted a $9.7 billion profit this year. Although buying GM stock at about $3/share wouldn't have been the dumbest move, looking back, since it's about $30 now. All 3 American automakers should be proud of how they've turned things around, better products, better made and their future seems a lot brighter.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by Shurville »

mac1214 wrote:. Although buying GM stock at about $3/share wouldn't have been the dumbest move, looking back, since it's about $30 now.
WTF?
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Re: Bailout of the big 3, is it really such a bad thing?

Post by newguy »

Shurville wrote:
mac1214 wrote:. Although buying GM stock at about $3/share wouldn't have been the dumbest move, looking back, since it's about $30 now.
WTF?
My Air Canada stock is doing pretty good, owned it since it went public. :lol:

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Re: Bailout of the big 3, is it really such a bad thing?

Post by ghariton »

An opportunity lost.

Not only are the automobile manufacturers in Canada recalling laid-off workers, GM says it is hiring 350 new workers. The former is all right, I guess. After all, it can be hard to retrain if you are in your forties or fifties and have forgotten how to learn. But to bring new people into an industry with little to no long-term prospects?

The world in general, and North America in particular, has over-capacity in car manufacturing. And some developing countries are adding capacity, making things worse. So while the market in developing countries may be booming, it is increasingly unlikely that it will be served fby us.

How about the continental market in North America? Well, as Bylo has posted on another thread, people seem to have learned a lesson from the current recession, and are keeping durables longer. I would guess that will affect automobiles as well. Finally, if we are at all serious about global warming/pollution/energy security, we will be driving less -- a lot less. And we may even wean ourselves off those SUVs that are still the most profitable product for North American car manufacturers.

So we have saved an industry which, if not dying, has serious long-term problems. Not only that, we are encouraging people to go work there, thereby setting up the need for further bailouts down the road.

Well done.:roll:

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Re: Bailout of the big 3, is it really such a bad thing?

Post by Shurville »

ghariton wrote:An opportunity lost................
car manufacturers.

So we have saved an industry which, if not dying, has serious long-term problems. Not only that, we are encouraging people to go work there, thereby setting up the need for further bailouts down the road.

Well done.:roll:

George
I agree. I may be uninformed about Nortel but I would have been much more enthusiastic about tax dollars going there rather than into 3 foreign owned car assemblers who will by necessity move more and more production/jobs out of NA anyway.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by chiaroscuro »

ghariton wrote:An opportunity lost.
Yes George liquidate farmers, liquidate stocks, liquidate gm...wait that's Andrew Mellon a libertarian hero. He did what you wanted, he did not waste that opportunity and he let things crash in front of him. He got it all wrong didn't he. Obama did the opposite this time around and we didn't go into depression. If ever there was a clearer signal that libertarianism is an idea that is naive this would be it.
ghariton wrote:So we have saved an industry which, if not dying, has serious long-term problems. Not only that, we are encouraging people to go work there, thereby setting up the need for further bailouts down the road.
Doesn't GM have a majority of it's business outside of the US..with a lot of new business in the markets of India and China? GM and growth?!?? You argue stagnation....are your beliefs rooted back in the 80's and 90's?

Do you like the taste of crow because you were one of many who said this wouldn't work and contrary to what you still state, you are wrong.
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Re: Bailout of the big 3, is it really such a bad thing?

Post by newguy »

chiaroscuro wrote:Do you like the taste of crow because you were one of many who said this wouldn't work and contrary to what you still state, you are wrong.
It will never work. Let's pretend I actually believe accountants and GM has made a profit. Since the government made all the rules for them It's pretty obvious they would be able to at least make pretend profits. But what's the point? If they didn't make cars, Ford or some other company would and they'd pay taxes. GM doesn't pay taxes, and probably never will, one of the perks to being friends with Obama. For the US government to break even on their 'investment', most estimates say GM will have to trade around $55, good luck.

The question isn't whether a government supported company can make a profit, it's whether the government should be deciding which companies to support.

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