Monday, November 17, 2008

OBAMA'S FIRST BAD IDEA

To be fair Obama isn't the only one talking about this but he has not only embraced it he is pushing it and even going so far as to try and push the incumbent President into supporting it, which seems more like more political strategy than anything else since, if it succeeds he can take the credit and it fails he can blame Bush.

The idea the idea is to give the Big 3 auto makers the $27 billion bailout they are looking for. It's a bad idea. But one that takes no political courage to embrace since its the politically easy thing to do.

Detroit is claiming they need the money because of the economic crisis. But in case no one has noticed, the same economic crisis exists for Nissan, Honda, Toyota, Volvo and every other foreign auto maker making and selling cars in the US.The real reason for Detroit's economic problems is that they have lost $70 billion in the last 3 years thanks to management that has been responsible for selling cars the public doesn't want because they haven't been as good as the competition's. That has nothing to do with the economic crisis and it's no reason to bail them out and reward their managment for all their lousy work.

But what is even more worrisome is that on the subject of the auto bailout we get more of what we've been getting all along from Obama -- more Obamaspeak which, to me is the product, not of some soaring intellect but a sloppy mind.

Here is one example:

"For the auto industry to completely collapse would be a disaster in this kind of environment"

First, no one has said the auto industry would completely collapse if they didnt get the $27 billion so it's either an example of his not seeing the problem for what it is, or it's more Obamaspeak -- words with nothing behind it. The second part of his statement is almost laughable, that "... the collapse of the auto industry would be a disaster in the kind of environment". What kind of environment would the collapse of the auto industry not be a disaster? Should we wait a few years and then let the industry collapse? No one wants to see the industry collapse and it won't whether they get the $27 billion or not. So it's more words designed to sound smart but are more Alice in Wonderland nonsense from the person who said words matter.

The people who need to be looked out for first and foremost in the auto industry right now are the workers. And for less than half the $27 billion Detroit wants -- $12 billion -- the goverment can guarantee the lifetime pensions of every auto worker at the Big 3. That makes more sense than than throwing $27 billion at auto industry managment who are responsible for years of neglect and making cars that weren't as good as the competiton. Yes, everyone says they learned their lesson and now they are making better cars. But spending $12 billion to make sure the people who had nothing to do with the auto makers losing $70 billion over 3 years have their pension and health care benefits in tact makes more sense.

GM going into bankruptcy is not the worst thing that can happen. Major airlines have done the same and come out of it stronger and more viable. The possibility of Ford and Chrysler having to merge is also a better idea than throwing tens of billions of taxpayer money at management teams that don't deserve it.Yes, if GM had to file for bankruptcy and restructure and Chrysler and Ford merged there would be a loss of jobs, at least temporarily. But the rest of that $27 billion could go to doubling the severance of any auto worker who loses their job, and extending their unemployment benefits to twice their duration giving them ample time to get on their feet or get rehired. And with Detroit producing fewer cars it would almost certainly mean the foreign auto makers employing American auto workers would eventually take up the slack and increase production and over time would be hiring more workers.

At the very least if Detroit was to get a bailout it should come from the original $700 billion from the original bailout bill, not a separate loan. The reason for that is you just cant keep throwing money at everyone. It wont work and wont solve the problems. You start in one place and improve that and then move on from there and not try and solve everything at once.The one thing to be concerned about in an Obama presidency is that he is so used to doing things for strictly political reasons, to try and say something to appeal to everyone ( as he did when his statements about Jerusalem blew up in his face during the primary) that he may try and give something to everyone as a political sop . But the problem is too big and too wide spread for that to be a solution otherwise everyone would be for it.

GM should be allowed to go into bankruptcy and reorganize. Yes it would have a short term negative psychological affect but practically speaking its not a bad thing. GM, Ford and Chrysler mismanagement has caused this problem with years of neglect and not being competitive with foreign auto makers and now they want tax payers to bail them out using the economic crisis as the excuse.

Spending $12 billion to guarantee the pensions and health care of all the autoworkers, and another $15 billion to double the severance and unemployment benefits of those who lose jobs makes more sense than a management bailout. The other thing to keep in mind is that if you throw this money at Detroit management, there is no guarantee people wont lose their jobs anyway.

Forcing GM to downsize, getting rid of management, encouraging a merger between Chrysler and Ford would mean they would produce less but better cars. It also means sales of the foreign auto makers ( all of whom employ American workers in the US) would increase and so would create new jobs there -- jobs that can be filled eventually by auto workers who might be casualties of the downsizing.At the very least, any money going to Detroit should come out of the $700 billion already allocated, not a separate bailout package . But Obama has been pushing for the bailout now and pushing Bush to support it, something Bush has said he wont do.

The one thing to look for, the one big red flag, a marker to throw down now with regards to Obama and the bailout is, if the bailout doesn't happen now and Obama comes to office and doesn't do it himself, its going to be a sign that his seemingly pathological insincerity is real. If he thinks the bailout is a good idea, then let him do it when he comes to office and let the results will be what they will be. But if, after pushing Bush to sign a bailout bill, he doesn't do it himself, then the next 4 years are going to be lost years with Obama doing what he is done his whole political life -- nothing.

13 comments:

susan h said...

I am amazed that everyone I talked to is so thrilled with all Obama's new cabinet style picks. He is so brilliant they tell me. I remind them that he said often the Clintons were the past (trashing them and everything Bill did) and he was the future. But now he can't get enough Clinton people/former Clinton advisors into the White House fast enough. And my friends seem to think it is absolutely great!

Obama still leaves me cold and thank God this empty headed suit will try to surround himself with brainy people, so he says. Oh and by the way, I read Mr. Obama has finally "Thanked" the people of Illinois (myself included) for catapulting him into stardom (this is more than he has managed to say to us in four years besides collecting his paycheck and running for president). I cannot get excited about anything he does nor the DNC or anybody in the party, people I always liked and admired. It is going to be a very long 4-8 years.

Authentic Connecticut Republican said...

It looks like the folks in DC are hell-bent to give the stimulus package another try seeing as the first one didn't have any real effect.

This time it's the car industry.

While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable - so this time let's target unemployment, create AMERICAN jobs and pump up the economy all at one time.


Consider the following:

Manufacturing costs of motor vehicles are 65% labor (i.e.: W-2 income), that's not all direct but due to suppliers. GM alone has over 1300 suppliers. (That's a lot of jobs!)

1 in 10 Americans makes all or part of their income due to the automobile industry.

Money turns over 5 times in a year.
Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
(This isn't magic, it's simply how the economy works.)

Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.

Our own over-zealous government with a virtual alphabet soup of regulatory agencies has been no help either.
Foreign competitors have worked off-shore collectively to meet various US gov't. imposed emission and safety standards, thus dramatically reducing those R&D costs. American car companies are prohibited from that by our FTC.

Make no mistake; it’s no surprise that once again government has been a major part of the problem.

Here's the solution.

Instead of either shipping cases of cash off to car makers; or sending us all another check:

Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that's domestic. (Civic = 70% Ford Explorer=80%)

Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.

This would bail out the car industry without giving them a dime directly
Further it would reduce the overall age of the nation’s cars which would in turn;
increase overall fuel economy
& decrease pollution.

Strengthen the dollar!

Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported ...like gas!


Jobs

Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
That would give the economy good swift kick right where it needs one!

Pays for itself!

Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
What is the income tax on 65,000 anyway?
(Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)


Another Stimulus Package?

I'm sure you'll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV's usually made in Malaysia or some such place.

ainnj said...

Honestly, I haven't a clue on what is going to work and what isn't going to work. Sadly, neither do the top economists and business experts on the planet. I do know however that the people making these bailout decisions in Congress have even less of a clue. They are first and foremost politicians; many never having to even work a cash register, let alone run a business.

My problem with the bailout, such as it is, is rather simple and perhaps it's because I am just rather simpleminded, but I cannot figure out what it actually does besides delay the inevitable.

The bottom line is no one is buying new cars, whether they be American or foreign made. Throwing good money after bad is obviously not a good idea but letting the big 3 tank certainly doesn't sound like such a good idea either, although I tend to doubt that failure in that industry would be any more disastrous than failures in all the other industries that we are going to see. Chains of stores, small business, large business, retail sales, etc. all risk going under and rather rapidly.
People are NOT BUYING! No amount of money put into these companies will get people to buy/invest and until people buy/invest, these companies will continue to fail.

This is not the great depression of the 30s, this is a whole new creature and it's global and it's much bigger than reported and a world war won't fix this one.
New industries perhaps, on a scale not yet seen, may be a part of the answer. Infrastructure type works, badly needed in this country and around the world, may give a bit of stimulus.

I honestly don't think anything Obama and the new administration do or don't do will make much of a difference as far as the economy goes. I do feel however that left unchecked pelosi's and Reid's seemingly knee jerk bailout plans will cause us to sink further into the mud.

Shainzona said...

Hmmmm. Didn't Obama resign from the Senate effective today? That means he has no direct impact on any Congressional votes - he, once again - will lurk in the background, not having to take a real stand on the economic issues that come before Congress between now and his crowning.

He will NEVER take a stance. This time...he just quit the job that would have required him to stand up and be counted.

What a coward!!

democraticjack said...

Lord knows I am no economic genius.
I just wonder why the banks we just bailed out don't loan the money to the Big 3? Is that too simple? Fire away.

sue f said...

Stimulus packages and bail outs clearly don't work for the long haul.
Didn't W give us two stimulus checks? And the economy continued to tube???
Now the poorly managed "bail-out", banks still aren't lending, AIG corporate executives are still mucking it up on "business" trips, people are still being fore-closed.
Why isn't Obie pushing for the Big 3 to re-structure. Isn't that why Chapter 11 exists?
I am very hopeful congress and Bush stand firmly against bailing out the Big 3 and Obie has to take it on himself.
He is very short sighted, putting band-aids on severed arteries. I am eager (or is it anxious? Perhaps I need to check w/ the morons who berated Sarah Palin's semantic choice?) to see Obie take a stand, one way or another- when he will be the where the buck stops. Think it will happen?

sue f said...

Oh- one more thing- Marc- I am anxiously (or is it eagerly, there I go again) awaiting your insight on HRC as SOS?

I for one hate to see her become an international mouth piece for his administration and I firmly believe she will be better seated in the senate, perhaps as majority leader. Or she should take over Ted Kennedy's chair on health and education. But I hate to see her join Noboland.

Marc Rubin said...

"Oh- one more thing- Marc- I am anxiously (or is it eagerly, there I go again) awaiting your insight on HRC as SOS?"

Nothing happens by accident in politics. The question is who leaked that Clinton was being considered for SOS and why? If she did get it that would be a real slap in the face to Richardson who wants this job and wants it badly.
Is it political maneuvering? Did Clinton's camp leak it? Or Obama?

ainnj said...

democraticjack said...

I just wonder why the banks we just bailed out don't loan the money to the Big 3?

November 17, 2008 6:12 PM

****************************

Probably because the Big 3 are already billions, if not trillions, of dollars in debt to those very same banks.

Marc Rubin said...

"democraticjack said...

I just wonder why the banks we just bailed out don't loan the money to the Big 3? "

Trickle down economics doesnt work whether Republicans do it or Democrats do it. The whole reason for the $700 billion bailout to these big banks was just for that purpose -- to loan money and free up the credit markets and what happend? They didnt do it. Just like big businesses didnt do it when they cut taxes on big business and it was supposed to trickle down. Another reason Im against this stupid bailout of the auto makers. Obama and Pelosi just wants to throw money at the problem. The whole bailout thing got rammed through congress because supposedly it had to happen right away to shore up confidence. It was a terrible bill even the second time and look what happened. It did nothing to keep the markets from sliding because no one has confidence it what that bill is supposed to do.

democraticjack said...

Thanks Marc, ainnj. What I see is the first bailouts were a failure because the government failed to place stiff preconditions on them including dispersing the money back into the system. To me it's all been a big sham. It's the finishing touch on Bushco's plan to empty the Treasury.

|Linda said...

I hate to disagree with you, but throwing 27 billion at the Big Three that actually produce something has a better chance of a payoff than throwing over 10 times that, and still growing, down rabbit holes of the credit swap derivatives whose value is yet to be determined.

When a friend of mine became principal of an Ohio middle school 4 years ago, approximately 30 percent of the children were from economically disadvantaged homes. Today that number has risen to 55 percent. If the GM closes the plant, look to anywhere past 80- percent of the children being in poverty. That will escalate home foreclosures, lack of tax revenue, further deterioration of services and schools and a burden on the health care system. Who is going to pay for it..You are.

Yes this will be the Depression of the thirties. The Great Depression was also Global. The Global financial system failed. Bank failures started in Austria, then Germany, spreading throughout Europe then here. Credit dried up, loans defaulted businesses laid off workers, resulting in more defaults and mortgage failures.Some of the economic numbers coming out now have never been this bad since they started keeping numbers.

"Stabilizing the credit markets" will not work if they continue to refuse to lend. It will be the job loss that is the most devastating. The Savings and Loan failed in the 80's, but there was not the threat of incredible job loss through all of the sectors of the economy as there is now.

If you want to see people really pull back their spending...Let the Big Three fail. It will create another panic just like letting Lehman Bros go under.

DancingOpossum said...

I agree, democraticjack. Handing a blank check to those thieves was a massive miscalculation. They could have taken their time and crafted a very tight set of strings to it, but no. So what is the incentive for these financial companies to behave? Zero. In fact, we saw what they did with our money: Spent it on paying dividends to shareholders and partying in Apaculco.

Thanks, Congress.