GM Posts Record Profits

General Discussion
21

ok4450 -

It’s a common misconception that GM got another loan to pay back their first loan. In reality, after bankruptcy, they had the loans and the government converted the rest to equity (shares of stock). When debt is converted to equity, the cash that borrowed is then freed up without the expectation of being paid back. Rather, the lender recovers their money by selling the stock.

The catch is that in GM’s case, the government put in a few stipulations. Not all of the cash that represented the equity portion was available for GM’s use. By the bankruptcy agreement, a large portion (around $14 billion, IIRC) was to be held in escrow and would not be available for GM to use unless they met certain conditions, one of which was paying back the $9.5 billion converted to loans. GM’s financial position improved much faster than expected, and when they realized that they weren’t going to be in a pinch for cash, they were able to pull cash from what they had on hand, pay back the loan, and get access to the escrow money. In effect, they actually increased their available cash, but many people misinterpreted things to say that they received money from some source other than the $49.5 billion in total bailouts provided by Bush (~$13.5 billion) and Obama (~$36 billion).

22

MikeInNH - agreed again.

:slight_smile:

I dislike the emphasis on trading instead of investing. That’s one reason why I like the way JM Smucker set up their stock. When you buy the stock, you get 1 vote per share. However, after you’ve held the stock for at least 4 years, you get 10 votes per share. The emphasis in their own governance is put on long term investors. Not long term as in the 1 year that the government defines, but a reasonable length of time.

23

GM does not control the federal government. The Feds own a great deal of stock and will eventually sell it. When it is all sold, we can start tallying up profits and losses. My main concern is not the company so much as the employees. How many of them would be employed today if Chrysler and GM had gone under? What about their suppliers? You can (and will) say that it would not have been that bad, but how do you know? You don’t and can’t know. (Neither can I.) We do not live in a 100% capitalist society because it was found to be too harsh. Rockefeller, Carnegie, and a few other ultra-successful businessmen were controlling their markets and would have controlled a lot more if allowed to. Is that what you want? I like a predominantly capitalist system, but it has to have limits. These limits should also include compassion for neighbors that are faced with huge problems that they did not bring upon themselves.

24

The problem is NOT about the current employees…The problem is what’s going to happen NEXT time??? Has GM and Chryco changed?? Will they keep making the same mistakes and have to be bailed out AGAIN in 10 years. We now set the precedent of bailing out LARGE corporations who screw up. So there is ZERO incentive to change.

25

Eraser, I’ll take your word on it but without being privy to the backroom dealing I’ll say that I flat don’t know with 100% certainty. My opinion is based on what I read in periodicals because TV news has long become a thing of the past for me.

I’d liken the GM bailout to loaning a neighbor a 1000 dollars, being paid a few hundred back, and then hearing from the neighbors that he’s telling the world everything is squared up. To make it even worse, the neighbor is out dining well while still owing someone a large chunk of that grand.

Being extremely skeptical and cynical, and not a gambler in the slightest degree, I’d wager good money that this auto bailout thing is going to rear its ugly head again in the future along with the possibility of the taxpayers covering failed pension plans and whatnot.

26

At the risk of being in the minority with a couple of you, listening to the rest of you guys rail over the bailout given by the government and how GM should have been allowed to fail, completely neglects the ripple effect of one of the largest manufacturers we have. If you think the economy is slow comming back now, you guys lack imagination on how slow it would be with the auto industry so involved. Everyone has a hindsight opinion when the economy has at least stopped free fall and began to turn around. Austerity is not the way out of a deep recession…look at Europe. All of our manufacturing base, regardless of how incompetent they were managed plays a part in our national security and their employees need to be protected.

While some vote our conservative, penny pinching ethics, continue railing about govt. expenditures while we all collect our social security checks and take advantage of Medicare when no private insurance company would touch us at our advanced ages for anything less then a ransom, and no stock market investment will ever have the necessary security. Hopefully there will be enough liberal minded future focused citizens who will keep our security in tact and protect our own industries regardless of how many times many of us rail AGAINST our own self interest.

27

RANT WARNING:

Running through the discussion is something of a pet peeve of mine, and it has to do with how screwed up our mainstream and conventional ways of talking about things are. (That’s a nod to: "yes, I do know what everyone believes to be the “truth”). This pet peeve of mine is also, I believe, underneath of what dagosa has to say.

As you all know, we conventionally trace the roots of out “free market” values back to Adam Smith’s argument in The Wealth of Nations. Its a beautiful and elegant argument that says that if you simply allow everyone to pursue their own rational self-interests without controls (laissez-faire) we will naturally end up with the “beautiful world.” Its beautiful for two reasons. One is that it embodies these great values about maximum freedom for all people. (This is why laissez-faire philosophies are called “Liberal.” The linguistic root is about “liberation” - i.e. freedom). The other is that, even regardless of values, everyone gets wealthy and fat anyway because for every unmet “demand” (or need) there is this “incentive” to “supply.” The famous old “law” kicks in and everyone gets wealthy and fat and our value on freedom is met at the same time. Pretty.

However, what happened about a century after Smith is that the entire game changed, and it did NOT change in a way that Smith would have thought good. In other words, his pretty little - IN THEORY - argument about the world ceased to have any hope of being based in any actual reality.

To keep it short, one MUST be able to make a distinction between three different kinds of things: 1) market economies; 2) capitalist market economies; 3) corporate capitalist market economies. It is perfectly possible to have market economies that are NOT capitalist - sorry they are not synonymous. It is also perfectly possible to have capitalism without corporations. It would be best to stop equating contemporary corporate capitalism with “free markets” - its not. And it just muddies everything up and no one can make sense out of anything.

The global economy is a corporate capitalist one. It has its roots in changes made to the legal system in the U.S. during the 19th century. (The “global” part largely goes back to about 1500). Those legal changes are what has made our current global economy what it is. And it is ONLY a QUASI-market economy. More market in name than in fact.

Now, once you have the corporate form as we know it now, free markets are impossible. Any other belief is pure fiction and folly. This is especially so when it is is very large and complex global economy. Something is going to regulate markets no matter what. And, in fact, if something does not regulate then nothing will work at all.

If you want to live with some starry-eyed notion of “free markets” as if this refers to something real then you are thinking of a world that hasn’t been possible for a good 150-200 years. This is not a statement about “values.” My “values” are squarely with the sentiments that go with Smith’s vision. But the values or principles are irrelevant because they have no bearing on the reality of the global political economy.

In terms of why regulation is inevitable: lets say we “live the dream” and just do away with government entirely. (Ok - keep the military if you want, but you’ll still need an IRS to pay for it). Given the kinds of corporations that the law allows, the economy will be regulated by very large corporations that operate as monopolies or cartel-like oligopolies. There will be limited or no “free competition” to produce the beautiful world of Adam Smith. This is what corporations do. Serious, long-term, sustained profits for share-holders (the primary legal obligation of every corporation) are best gained, not by producing the best of the best of the best to meet “needs” of consumers, but by the pursuit of market control. That is has always been the strategy of the corporate form.

But more to the point, laissez-faire logic only works when people are actually able to act as rational actors. Rational decisions require excellent information about costs and benefits. Once businesses become huge and global and corporate, and once products become wildly complex, both in what they are and how they are produced and distributed, rationality breaks down. Even if our fictional ideal “consumers” could gain access to all of the information they need to be rational, they couldn’t possibly process it. States (among other things) provide basic regulatory structures to handle uncertainties.

Does anyone seriously expect me to go to the grocery store to buy oranges and while I’m there figure out where they were grown, and by whom, and under what circumstance? Am I to ask the produce clerk about the type and volume of pesticides used in their production? Am I then to leave the grocery store to go to the library to find out what those things are and what their effects might be so that I might make my rational decision? If I don’t trust the information from the grocery store clerk shall I travel to the farm? Shall I perform my own chemical tests to ensure that I know the circumstances under which these oranges were produced?

Shall the cashier at the grocery store take my debit card and validate the actual value that lies under it? Shall s/he trace the “supposed” balance to the bank? And then trace that back to its “real” value basis? Sorry, but by the time we’re all done making our “self interested rational decisions” in the global-corporate-capitalist QUASI-market economy, we’ve either starved to death or returned to subsistence agriculture (which means NOT markets, or capitalist markets, or corporate capitalist markets).

When people blame the state for this or that or complain about what it does or its regulations of activities against some fictional “free market,” all they are doing is being really choosy about what kinds of state actions in the economy they are ok with. Its true that you can’t have a state without an economy to pay for it. But you also can’t have a corporate-capitalist-QUASI-market economy without a state that provides the basic conditions for it.

There is no way in which it makes any sense at all to think of “politics” (government) on the one hand and “economics” (businesses) on the other. The only thing that is ever possible is a “political-economy.” Trying to keep the two things separate is like trying to separate out the ingredients of cake batter. It is impossible and makes no sense.

So…anyway none of that provides any specific argument regarding what should or should not have been done with GM. All I can say is that the entire debate about it, whether here or on larger national fronts in politics and media, makes absolutely no sense to me whatsoever. We live in one world. We talk about a completely different and fictional one that we pretend we (could?) live in.

28

“GM does not control the federal government.”

Actually, it does, as long as a certain person needs to appear union friendly to get re-elected.

I see only bright days and sunshine ahead for GM when the additional subsidies for the Chevy Volt kick in.

29

Littlemouse…even though “to keep it short” was followed by much additional, it was well done and well worth reading.
I agree. To separate the govt. out of our lives, whether it be in the auto or any other major industry is not only futile, but against our own well being. Personal freedom and security in our own private lives and ability to practice free enterprise exist today thanks in large part to the Monroe Doctrine and a host of other govt. interventions since.

30

You appear to have confused me with someone who knows what you’re talking about, but I will take “I agree” when I can get it.

31

Cig, do I take you to mean that you believe the bailout was in the best interest of the economy?
Can I infer from that that you believe it was an appropriate use of tax dollars?
Is that one of the functions of taxation; to provide capital to failing private enterprises that are important to the president’s reelection?
Or do you believe the bailout was entirely altruistic?

Your post was a good one, however on the subject of the GM bailout specifically the aforementioned questions are really “where the rubber meets the road”.

32

Well, MB, to me its just not that simple. Liberalism - of the general type that is founded on the principle of rational and free individuals pursuing their own interests - has an unavoidable flaw in it. (Well, it has many many flaws but we’ll stick with this one). We all know this one. The unavoidable flaw is that anytime any actor exercises his/her own individuals rights s/he stands a good chance of interfering with the ability of others to exercise their rights. Thus, there is really no such thing as a serious philosophy that is literally laissez-faire to the hilt. (That’s how you get the famous Hobbesian war of all against all). Anyone steeped in Liberal assumptions who thinks seriously about it for more than about 30 seconds will arrive at the notion that it is perfectly reasonable to have a representative government to oversee these kinds of things. The rights of individual actors to do as they please ought to be limited to protect the rights of all. The state thus has a role in attempting to maximize a “public good.”

So the real question we live in isn’t should the state be involved in the economy or not? Whether people consciously recognize it or not, everyone accepts all sorts of state activity vis a vis the economy. Its the only way large market economies are feasible at all.

So, rubber on the road, should the state have loaned money to GM and bought GM stock? Well, I don’t know. First, neither you nor I nor anyone else truly know what the outcomes would have been had GM been left to flounder and possibly fail. (I can tell you that anyone who is from generations of auto workers in & around Michigan would have a very distinctive idea about it). Was it the thing that created the greatest good for the greatest number? I have no idea. Nor do you. Nor does anyone else. And we will never know.

But second, if private organizations (with the blessings of the Supreme Court) can pretend to be legal “persons” and do stuff like loan money to other organizations and buy their stock, why shouldn’t public organizations be able to do the same? Is it a free market or not? There is an obvious difference since you have no choice but to be “invested” in the public organizations. But lets not pretend that corporate investment provides some bastion of free choice either. But given that we are citizens with our money in there, am I unhappy that the feds loaned money to and bought stock in GM? Not really. I never actually thought of it as money “given” anyway. But I also don’t assume we live in a real market economy either.

Aside from that, humongous piles of tax money are very regularly pumped out every single day in the interests of maintaining economic activity. Active state involvement in the support of business is actually much more the norm throughout U.S. history than is any kind of “hands off” laissez-faire thing. The dreamy laissez-faire stories we tell ourselves about out storied past are half-truths.

Now on the subject of connecting those activities to presidents and reelections, I’m guessing you’re implying that the whole “episode” was just an abuse of power by Obama to buy votes or something? That spin on things is just politics. Of all of the massive “bailout” activity that occurred through the latter 2000’s only a tiny proportion of it took place under Obama. The GM deal, in particular, had already been constructed and was ready to go when he stepped in. But more to the point, neither Bush nor Obama initiated, planned, or orchestrated any of it. In fact, the actual complexity of global finance and other corporate activities is so intense that you would be hard pressed to actually identify all of this with any kind of individual. If you wanted to pick ONE person though you might look at Ben Bernanke. But even that is cherry picking from a huge and complex mess of machinery.

33

Re: your first issue, the role of government in private enterprise, manipulating and regulating it for the “public good”. Clearly it’s pervasive. I personally don’t believe that in the long run it serves the “public good”, nor do I believe that it’s what this country was founded on. The Bill Of Rights is a restrictive document. It’s full of “shall not”, without a single “shall”. It was designed to restrict the role of government and prevent runaway government, not to enable government intervention in markets. We’ve clearly strayed far from that. The use of tax dollars in the manner of the GM bailout breaks new ground in that direction.

Goverment has a role in the market, a prohibitive and punitive one, and that’s to protect the individual from the unscrupulous. The bailout do not fall into that category. And it certainly did not protect the interests of the taxpayers. We didn’t have a surplus to spare. We’ll now have to pay the interest on the bonds that were sold to finance that debt.

I wholeheartedly agree that each of our perspectives is shaped by our respective life experiences. I can see it in the debate. It was also shaped by our upbringing, and even the regional differences in where we each grew up. And debating the differences is healthy. I would not want to live in a country where we could not do so. The thing that made my dad’s generation truely the greatest generation was that they fought, suffered, and died to preserve our right to disagree as vehemantly as we want. And it warms my heart that we can do this and do it with respect. I give thanks to our forefathers.

As to the question of entities have legal status to buy and sell interests in other entities, and/or to loan them money, give them money, or back loans, there’s one major difference between that and the government doing it: the government is doing it with OUR money. Laws are and should be in place to protect public funds from risk on the principle that taxation is not for investment but for public services. The theory applies across municipalities, states, and even the federal government.

You are correct that I’m implying that there was an abuse of power in the use of taxpayer funds and that there was a political element to the bailout. And Cash For Clunkers. And the tax credits for purchasers of hybrids. I should add that terms like “tecpayer funds” and “tax dollars” create an impression that this money comes from somewhere other than us. It doesn’t. It comes from us. When we think of it as our money, I think our perception of the legitimacy of its use changes.

The TARP architect was clearly Ben Bernanke, in partnership with Henry Paulson. I’m unsure who the architect of the GM bailout was. Perhaps Ben & Henry? Perhaps Geitner had a hand?

34

MB, a pleasure to spar as always, but it obviously all gets too complicated for a car discussion board. Just to try to close out on my end - since I’m not retired and should actually be working instead -

As a point of agreement, though it may not be obvious, at the level of philosophy and values I am all about the same things that you are. However, my assessment of how the world actually works makes that picture unrealistic.

So, remaining points of disagreement. First, for the actions of one actor to negatively affect another without their participation or consent absolutely does not require anyone to be unscrupulous. Each person can act in good faith and with the best of intentions, and it will still cause problems for others. So it still requires some form of “group” level oversight. The values themselves cannot be realized without it, even if some of those things appear to run contrary to the values. Second, the largest reason that out ideal values and philosophies are impossible to approximate in current times is the kind of private corporations that we allow to exist. It it they who have actually brought into existence the form of the state as we know it. Thus, the thwarting of those great values is a matter of “political-economy” - not simply a matter of politics. As long as we have the kinds of corporations that we do, I will always beg the state to protect me from being trampled. Once we get rid of the kinds of corporations that our laws allow, I will be first in line to dismantle much of the government. That way I don’t have to be trampled by any kind of gigantic organization.

35

“Each person can act in good faith and with the best of intentions, and it will still cause problems for others.”

How very true. The difference IMHO comes from disagreements about what the function of government should be as well as what’s in the best interests of the country. I recently watched as speaker on PBS (a lawyer with a liberal nonprofit “policy” group, can’t remember the name) repeatedly using the words “public solution” in regards to a number of different issues including the economy. Clearly that’s a perspective with which I disagree. She used the words to describe government internetion and regulatory oversight of everything from interest rates to insurance.

I think too that we have divergent opinions on how the current situation came to be. The phrase “the kind of private corporations that we allow to exist” to me is a flag. We don’t “allow” any type of corporation to exist. We as individuals have the RIGHT to incorporate. It’s a right, not a privilege. It’s when the government begins to try to create an industry compliant with their social “vision” that problems begin to grow and emerge. The Consumer Reiinvestment Act, for example, and its supporting legislation, were what set financial instituions on the path of creating high-risk home loan. “Low Doc” amd “No Doc” loans were the final conclusion of the push to force financial institutions to provide mortgages to unqualified buyers, and “bundled” loans became the final financial product. The devastation of the housing industry was the result.

My perspective is that the corporations are not the ones trampling our rights. The government is.

And with that, I too will allow this thread to come to a close.
As always, it has been a true pleasure. You’re a worthy opponent.

36

The “taxpayers” are not really involved in this…it’s all borrowed money, or money that was simple created out of thin air…It will never be paid back, there is no one to pay it to…When you and I borrow money, it’s one thing, when the U.S. Government borrows money it’s a COMPLETELY different thing…They will never pay a penny of it back, it’s just a matter of bookkeeping and moving zeros around…

37

That’s the perception that I find difficult to understand…and too convenient to use. “Money” may have changed its media and gone from printed paper to elactronic transactions. but it all originates as the fruit of labor. That money ultimately comes from us. The taxpayers. In taxes.

38

Ok MB, I tried to resist but I can’t! On the subject of corporations and what is “allowed”, once again you are talking about principles but I am talking about very real and concrete facts about the world. The corporation is a legal entity. It is an actual thing in the world, defined by laws with legal rights and obligations and duties. Neither the laws nor the corporations existed a mere 150 years ago.

Throughout the course of the 19th and early 20th century a whole new set of laws were laid down, many by Supreme Court decisions, that allowed a specific set of rights and duties for a whole new category of “persons” - but “persons” that are only legal fictions and exist only on paper (corporations). These things can acquire debt, own property, enter into contracts, etc. So the fact is that they are “allowed” to exist in very specific ways, and that is what I refer to. Most of the founding fathers would not have approved. They lived in a world where corporations needed specific and limited charters for very specific reasons - fear of concentrated economic power. If you go back through late 18th and early 19th century of the US you will find that those most worried about maintaining out freedoms were - in fact - much more afraid of corporations than the state.

And…if you do some actual and real history about the growth of the feds, you’ll almost always find the growth of federal regulatory activity going hand in hand with lots of regular, everyday citizens trying to protect themselves from being trampled by exactly those forms of concentrated economic power. When I say the large state follows form the large corporation, that is also just a statement about historical change.

Anyway…sorry that I couldn’t resist. I surely would enjoy an occasional brandy and cigar by a nice fire. As long as we didn’t aggravate that ticker :wink:

39

Wow, I think I agree with Cig. There is no black and white book that says what government should spend money on in the interest of the public. It is a judgement call and thats why we send them to DC. Yes, I think it would have been a terrible mistake to throw thousands of people out of work, not to mention the suppliers, when it was not necessary. Yes GM had and has problems. So do a lot of other organizations.

Our former Minnesota governor used to like to call people lemings that just blindly follow what the talk pundits spew. Large corporations would love to have no unions or no government to restrict them. Don’t think that would be in the interest of the general public. And for those so against unions, if you really think that an assembly line worker will be able to negotiate effectively alone, that’s an illusion.

Just one story. In our town some years ago, an international manufacturer came to town and set up shop. The whole company was union and paid union scale. At that time they paid about a dollar more per hour than the other manufacturers and major employers in town that had controled the market for years. One day five of the owners went to see the new plant manager for a secret meeting telling him that we don’t pay that much here and you need to reduce your wages. To his credit the plant manager threw them out telling them that he would pay what he thought they were worth and they could pay what they thought they were worth. That’s how it actually works in a small town.

40

“Neither the laws nor the corporations existed a mere 150 years ago.”

Um, yeah, but, except corporations predate the founding of this country.

Bing, that was a funny story. Totally believable. Give Boss Hogg my best. Squeal like a pig if necessary. Don’t forget to wake Otis up and kick him out of the cell. While you’re up can you ask Sara to get me Sam Drucker at the General Store?