Bailout of Detroit - Was it worth it?

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#1

Well, it looks like the jury is in, and the GM bailout paid off. The government made more money on the deal than it spent, and GM seems to be doing better. Although I was skeptical, and at the time, I thought GM deserved to die, I guess I was wrong.








#2

Lucky != Smart


#3

What makes you think it was luck?

Even though I was against the bailout at the time, and even though a lot of jobs were lost when GM downsized, I think a lot more people would have lost their jobs if the government hadn’t done something, and preventing that from happening seems pretty smart to me, even if the success was luck-driven.


#4

I don’t know. I’m in that category of people who is pretty darned sure about the “dominoes” - its not only banks that are too big to fail. And its not that they’re literally too big to let them fail. Just too big to let them fail if you don’t want fairly widespread and serious economic disaster. It was a damage containment move.

I am more inclined to look at the legal structure we have in the U.S. that allows corporations to operate as they do - and become too big to fail. But that is an old thing laid down through the 19th century and continuing to today.

The other thing I was thinking was weird at the time was basically that the state pretty much bought a company. We all might have thought - well that was a stupid purchase. But if we’re so big on capitalist market economics, I can’t see why the state can’t also buy & sell economic assets. Its strange…that people find it so strange. Drowning companies get bought up and resurrected all of the time. Of course, I’ll admit that the difference is that if you own stock in an organization buying up a drowning organization and you don’t like the move you can always pull your money out. Its not an insignificant difference, but people still seem to operate with the notion that the state buying things is odd. Well, its a market. Why not?

Anyway, I was never all that worried about the money b/c I didn’t see it all ending in some huge amount of money literally “spent.” I didn’t know whether or not we’d break even on the investment but I never saw it as the “spending” of XX billions of dollars.

If you don’t like things like this then jump on board with a total overhaul of corporate law in the U.S. Make them what they used to be - a way for people to legally pool up their money to do things that couldn’t be done otherwise, but limit their scope of operations and allow it to go on only if everybody wins in the end (the “public good”).

If anyone wants to revisit the “roots” of “America” and how things have gone awry look at what became of the corporation, not the state.


#5

My feeling is that the infastructure needed to mass produce automobiles has a significant lead time to complete and to put GM in to what I consider a "mothballed’ condition would not have been a good decision. I do think it is true that some other group of investors probably would have picked GM up but it was not in the countries best interest to let GM degrade so as that the new owner would need to do alot of “fixing up” (like what happens to forclosed homes) before GM could have been put back to work.

I base my feelings on the belief that it is in general good for the country to have a working,producing,hopefuly profit making automotive industry, and having GM a part of this would also be good for the country.


#6

The governments of the US and Canada have NOT YET recovered all the money they sunk into GM. The initial IPO will only cover about half the total. If the second IPO for the rest fetches $60 per share or so, then all will be paid back.

The initial loan that was repaid, and what the GM CEO bragged about on TV was only a fraction of the total.

Was it worthwhile? Go back to a long thread of about a year ago. There was a valid argument for a bailout to keep the parts supply industry intact. Canada is a very large parts supplier to the Big 3, as well as local Japanese plants. That was one of the reasons the Canadian government went along to the tune of 12% of the total bailout for Chrysler and GM.

If Crysler and GM had been allowed to go under, most of the parts manufacturing would have migrated to developing countries, and the state of Michigan might have gone bankrupt (it almost did) requiring further federal assistance.

Temperary bailouts make sense, but there is doubt that, in the long run, Chrysler will make it, even with Fiat, which needed Italian government help to stay alive. Chrysler will likely die a natural death, like American Motors, and its slow demise will be compensated for by increased US manufacturing by Hyundai, Kia, and other foreign companies.

There was a time when Renault of France, and Volkswagen, as well as Porsche were in said shape, and needed some form of government help to get out of the hole.


#7

“Chrysler will likely die a natural death…”

I agree that they are the most likely to fail permanently. But not before they give Fiat a dealer network to sell their Fiat and Alfa Romeo cars. I doubt that all Chrysler and Dodge dealers will be needed, and Jeep will probably hang on.


#8

“worth it” has a lot more to be assessed than whether the stock yielded a profit or not. A better question is,even if it did not all get apid back, what would have happened, and how much would it have cost us all, if these large institutions were alllowed to fail, leaving tens of thousands directly unemployed, plus all of the suppliers and the cities that relied on the industry.


#9

The government has not been paid back yet in spite of the TV commercials from Obama’s appointed head of GM.
Financial analysts recently stated that GM’s stock price would have to hit 133 dollars a share before there would even be a hint of this money being paid back.

Until one has the mountain of paperwork and a bus chock full of accountants to pore over it not one of us in the unwashed masses really knows what’s really going on with that deal.

Another area of skepticism is the rash of millionaires, including Warren Buffett, who are demanding the government tax them more. Please. Does anybody really buy into that?
You don’t think that every single one of these guys has a small building full of lawyers/accountants who are beating that tax code to death to avoid paying every single dime while they are stating this?


#10

You have to remember that its not like the US Government had a choice, ultimately, in bailing out GM. If they didn’t bail them out, then there would be many thousands of people without jobs all across the US, Canada, Mexico, and other countries.

If you thought all of the hooting and hollering during this past election cycle was, imagine how much worse it would have been if there were tens of thousands of additional people who would have been screaming about how the government turned their backs on them, and let them all lose their jobs.

So, you get to choose:

Big Government that does its best to help the many, or;
Small Government that forces you to fend for yourself, and suffer because the people at the top of the food chain where you work were greedy idiots, and caused the downfall of your company over many, many years.

All you and I care about at the bottom of the corporate ladder is a secure, well paying job. The people at the top of that same ladder only care about their salary perks, and bonuses made from your blood and sweat. The politicians only care about retaining their power, so that you will vote for them and their friends, so that they can keep their free perks paid for by me and you.

The stockholders who supply funding for companies only care about ever increasing profits, and dividends, and not a rats @ss about the company itself, nor about you as the worker, or even so much about the upper management, as long as there is profit for them to gather up.

So, pick your poison.
Blame the workers, or blame the managers, or blame the politicians, or blame the stock holders. Someone’s responsible for everything that happens, and all these people are always in the middle of it.

BC.


#11

It was worth it to me not to see Made in China, written in Spanish also.


#12

There was no “Bailout”… GM was allowed to declare bankruptcy under special terms. The stock and bond holders were wiped out, nobody got “bailed out” except maybe the UAW’s pension fund…The government ended up owning and operating the company, all the old GM executives and Board of Directors were GONE. Uncle Sam has now sold it’s controlling interest and has put $37 Billion back in the Treasury, leaving the management he appointed in place…

This action prevented one of the industrial cornerstones of our economy from being cut up and sold for scrap…It saved 216,000 jobs. The Chevy Cruz factory just added a third shift. Nice job Mr. President, congratulations…


#13

I try to be realistic in my Monday morning quarterbacking and 49 to 48 win is still a win. Obama has done better than I had imagined. We could be standing in bread lines.


#14

“Obama has done better than I had imagined”

Before the free-for-all starts and we get into ridiculous things about “socialism” (did I say ridiculous yet?), I’d just mention that the feds were in serious bailout mode long before Obama took office. What’s funny now is that critics like to make out huge federal involvement in these things as Obama-ism. Bush already had that ball rolling - all the way.

In fact, its neither Obama nor Bush. If you want to know who’s most influential back there its Ben Bernanke - appointed by Bush; kept on by Obama. I think our entire philosophy (on what we call “left” (as if we had one) AND “right”) is completely screwed up so I don’t tend to think Bernanke is leading us anywhere good. But he knows more than most living humans about the G.D. and I simply don’t have the serious knowledge I would need to second guess the technical moves.

Anyway…the point is that for those who may decide to pursue it, there would be little genuine in turning this into an Obama bashing ritual. (Rod’s comment notwithstanding, the Obama loving rituals are much farther and fewer between these days so there’s no need to try to head that off).


#15

It could turn out OK. My wish is that pickup trucks could be made the same size that they used to be made. We used to get by on 15" tires and our 4WD trucks could still plow snow. They were much heavier in those days but most pickups still have about six hundred pounds that they don’t need. It’s mostly excess sheet metal. Does anybody want two extra miles per gallon? These new full size trucks all seem to be monstrous to me.


#16

Not true. Stock was not deemed worthless, there was no bankruptcy. In fact it’s value has rebounded nicely.


#17

You can thank Dodge and its customers for that trend of making pickup trucks into small Tractors. The others followed where the money went.

BC.


#18

That’s the “NEW”. GM stock…The old stock is worthless…

Key word “Bankruptcy”


#19

My propensity to pragmatism is somewhat extreme,(I don’t have a 3/4 in combination wrench in my tool box). And from my point of view it would appear that the posturing and pandering of politicians to the extremes on the right and left leaves no room for practical answers. But we seem to get what we deserve from politicians. In my neck of the woods a semi-literate who carries the Tea Party flag, shouting pro gun and anti-abortion rhetoric will win against an intelligent candidate who is open to reasonable debate on issues. And the bloated pickups with outrageous engines are all the rage here.


#20

Sounds like you live in my neighborhood.