Wednesday, December 03, 2008
The Detroit Three CEOs have now groveled to Congress twice, this time with more dire predictions for the future of the world if their companies are "allowed to fail," as if it were all just out of their control. So far, though, no sale:
One day before the chiefs of the auto companies return to Capitol Hill to make their urgent cases for loans, Sen. Harry Reid, D-Nev., said the money was unlikely to come from the Wall Street rescue fund.
"I just don't think we have the votes to do that now," Reid told The Associated Press in an interview.
I must say, if the Congress actually refuses to fund the Detroit Three in their current configuration I will be delightfully flabbergasted. My admittedly frail faith in government to do the right thing once in a blue moon will have been bailed out.
I really can't feel sorry for these fat cats while I see people struggling to make their house payments & trying to feed their famlies. When the gov't. does feel sorry and bails their companys out of hock it'll be back to business as before - fast private jets zooming them here and there...big USD bonuses, etc. I've heard that country & western song too many times before!
I suspect the Senators have looked at the line of supplicants, the depth of their bank account and the current ire of the taxpaying voters and concluded that more of this is a career limiting move better nipped in the bud.
We need to have someone make a stirring defence of bankruptcy as a mechanism developed over the ages to deal exactly with a situation like this. There is no reason to believe we will come up with a better solution off the cuff in the middle of a crisis.
That is not to say that people won't get hurt or suffer; only that there is an established mechanism to minimize those problems under the circumstances as equitably as possible. Where is Milton Friedman when we really need him?
Where, exactly, were all the DC bailout wimps when the southern (mostly) textile companies started tanking? Everybody is all up in arms about the auto industry having to go bankrupt, but the only ones I remember complaining about the textile industry were southern pols.
My state,SC, lost another 1,000 jobs last month. The small town of Whitemire is losing 570 jobs from a sock factory.
Not that many, but that's the only manufacturing company in the whole town of 1,500 people.
I've asked this before, but it still is pertinent so I'll bore you and raise the question again. The treasury just invested $350 Billion in equity into banks. Leveraged at 10:1, a conservative level for banks, that's $3.5 Trillion in new lending capacity. I realize there are losses that this "equity" was intended to help absorb, but one wonders why the banks can't use some small fraction of all that money to make some loans?
Sprinkle in some old-fashioned new equity, add in some of the billions the banks are supposed to be lending, and et voila! $35 Billion in new financing for the middling three!
What's missing from this picture? Government guarantees or private entrepreneurs willing to invest some equity in these plug-uglies? It's obviously the latter, and the Congress should shy away from any deal until there is someone willing to step forward and put their own money in junior to the government money.
The Big Three don't want to face business reality. They have to downsize and shed legacy obligations to survive. They're not financeable until they do. Even then, you'd do better buying Toyota stock.
The Big Three should have been working a serious government supported "pre-packaged" solution from the beginning ... if only as a lever to force the UAW and dealers to make concessions. They need a real plan to deal with what will certainly be severely depressed US auto sales for the next few years ... but a real plan would require radical surgery. Instead they're pushing a plan that will likely result in the US paying out $100B or more to carry them over the next couple of years.