The Economy, stupid

[NorthSideSox72]

So, the Obama administration, adding to the Waggoner departure, are basically pushing GM and Chrysler towards a controled bankruptcy or bankruptcy-like reorganization, in addition to executive changes.

 

Good. Glad to see them going this direction.

 

[mr_genius]

So, the Obama administration, adding to the Waggoner departure, are basically pushing GM and Chrysler towards a controled bankruptcy or bankruptcy-like reorganization, in addition to executive changes.

 

Good. Glad to see them going this direction.

 

It does show a disturbing (at best) lack of vision within the Obama administration. The first step should have been a controlled restructuring; not blindly giving out billions upon billions upon billions to the auto companies.

[bmags]

I asked this when this first started... do you think the campaign contributions will stop? No. And 80%+ goes to Democrats.

 

well obviously they have a huge majority and the president who the hell would give to the republicans?

[Balta1701]

It does show a disturbing (at best) lack of vision within the Obama administration. The first step should have been a controlled restructuring; not blindly giving out billions upon billions upon billions to the auto companies.

Am I missing something or wasn't the first step done in December?

[mr_genius]

Am I missing something or wasn't the first step done in December?

 

GW Bush gave out the original billions, the first African-American GW Bush completely supports these billions in bailouts. Actually, I believe the first African-American GW Bush had a big meeting with the original GW Bush and told him he REALLY wanted the auto bailout to go trough. If I remember correctly, you also completely supported all the auto bailouts.

 

http://www.reuters.com/article/vcCandidate...E4AB8T620081112

 

Since his election last week, Barack Obama has largely avoided getting entangled in resolving issues now that will face him later as president, except for one big item: Bailing out the U.S. auto industry....

 

... Obama, a Democrat who had solid support of labor unions during his presidential campaign, has come out firmly in favor of the auto bailout, raising the issue at a news conference last Friday and again in talks with Republican President George W. Bush on Monday

Edited March 30, 2009 by mr_genius

[Balta1701]

GW Bush gave out the original billions, the first African-American GW Bush completely supports these billions in bailouts. Actually, I believe the first African-American GW Bush had a big meeting with the original GW Bush and told him he REALLY wanted the auto bailout to go trough. If I remember correctly, you also completely supported all the auto bailouts.

 

http://www.reuters.com/article/vcCandidate...E4AB8T620081112

And frankly, I still do. The industry can not be allowed to fail now.

 

Simply saying that the first step should have been a restructuring rather than giving them money ignores the fact that their sales had fallen off so dramatically that they couldn't have made it through December without government help. It was still the right move, and it's a vastly more efficient jobs program than dumping money down the banks' bottomless pit.

[mr_genius]

And frankly, I still do. The industry can not be allowed to fail now.

 

Simply saying that the first step should have been a restructuring rather than giving them money ignores the fact that their sales had fallen off so dramatically that they couldn't have made it through December without government help. It was still the right move, and it's a vastly more efficient jobs program than dumping money down the banks' bottomless pit.

 

No, it really isn't any more efficient to dump endless billions into the auto industry. This is faulty logic: that because the bank bailout was a bad idea, all other bad ideas are indeed good.

 

Before the auto industry got any money they should have been restructured. It's completely unsustainable to feed trillions in deficit spending to prop up these failed corporations.

 

It has now been proven that the auto bailouts were a failure and the wrong move.

 

[NorthSideSox72]

No, it really isn't any more efficient to dump endless billions into the auto industry. This is faulty logic: that because the bank bailout was a bad idea, all other bad ideas are indeed good.

 

Before the auto industry got any money they should have been restructured. It's completely unsustainable to feed trillions in deficit spending to prop up these failed corporations.

 

It has now been proven that the auto bailouts were a failure and the wrong move.

You really had to do both, if you want the industry to survive.

 

[Balta1701]

It's completely unsustainable to feed trillions in deficit spending to prop up these failed corporations.

$30 billion = multiple trillions?

 

If sustaining 5+ million jobs nationwide and really avoiding a depression only costs a few tens of billions of dollars, it's a good move. If it costs nearly a trillion to keep the financial industry afloat, then you've got a point.

[mr_genius]

You really had to do both, if you want the industry to survive.

 

Restructure first, then loans if needed. There wasn't the political will to make that move. Now, it has to be done because it has been realized that there is no other solution.

[Balta1701]

On a different topic...here's one last gift from the former president. He couldn't privatize social security, so he did the next best thing, and stuck the pension benefit guarantee money in the stock market. What could go wrong? After all, the stock market loves Republicans and would never go down under one of them.

Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

 

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

 

The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.

 

No statistics on the fund's subsequent performance were released.

 

Nonetheless, analysts expressed concern that large portions of the trust fund might have been lost at a time when many private pension plans are suffering major losses. The guarantee fund would be the only way to cover the plans if their companies go into bankruptcy.

 

"The truth is, this could be huge," said Zvi Bodie, a Boston University finance professor who in 2002 advised the agency to rely almost entirely on bonds. "This has the potential to be another several hundred billion dollars. If the auto companies go under, they have huge unfunded liabilities" in pension plans that would be passed on to the agency.

 

In addition, Peter Orszag, head of the White House Office of Management and Budget, has "serious concerns" about the agency, according to an Obama administration spokesman.

 

Last year, as director of the Congressional Budget Office, Orszag expressed alarm that the agency was "investing a greater share of its assets in risky securities," which he said would make it "more likely to experience a decline in the value of its portfolio during an economic downturn the point at which it is most likely to have to assume responsibility for a larger number of underfunded pension plans."

 

However, Charles E.F. Millard, the former agency director who implemented the strategy until the Bush administration departed on Jan. 20, dismissed such concerns. Millard, a former managing director of Lehman Brothers, said flatly that "the new investment policy is not riskier than the old one."

I really love how the same names keep turning up here. The guy doing this move...former guy at Lehman brothers.

[mr_genius]

$30 billion = multiple trillions?

 

If sustaining 5+ million jobs nationwide and really avoiding a depression only costs a few tens of billions of dollars, it's a good move. If it costs nearly a trillion to keep the financial industry afloat, then you've got a point.

 

ah of course

 

avoid the 'great depression' fear mongering. Balta, you do realize that was the EXACT argument in favor of writing a blank check for trillions to the banks? if anything this deficit spending will end up destroying our economy. Obama is saving nothing in terms of jobs. Unemployment is raising, his stimulus plan will be a bust. We could easily see 15% national unemployment in 2 years.

Edited March 31, 2009 by mr_genius

[Balta1701]

ah of course

 

avoid the 'great depression' fear mongering. Balta, you do realize that was the EXACT argument in favor of writing a blank check for trillions to the banks? if anything this deficit spending will end up destroy our economy. Obama is saving nothing in terms of jobs. Unemployment is raising, his stimulus plan will be a bust. We could see 15% national unemployment in 2 years.

Actually, it's really quite remarkable how effective the deficit spending has been at avoiding the fall that happened when the credit markets seized up in 1929. And we will see 15% unemployment if we simply let the auto industry fail.

 

And another note, I said "Depression", not "Great depression". There is a specific technical economic definition of a depression. It's unemployment over 10% for a certain amount of time or unemployment hitting 12% period. If you instantly in one fell swoop put everyone out of work who is currently in the auto industry, that is mathematically unavoidable, because so many millions of people work directly or indirectly for that industry.

[mr_genius]

Actually, it's really quite remarkable how effective the deficit spending has been at avoiding the fall that happened when the credit markets seized up in 1929. And we will see 15% unemployment if we simply let the auto industry fail.

 

all it's doing is creating more problems than it's solving. you notice other countries aren't going along with this madness that Obama is subjecting our economy to. the Obama economic plan is an outright disaster.

[Balta1701]

all it's doing is creating more problems than it's solving. you notice other countries aren't going along with this madness that Obama is subjecting our economy to. the Obama economic plan is an outright disaster.

And in this case, they are wrong. (Wait a second, did you just tell me I was wrong because of something Old Europe was choosing to do? I thought Old Europe was wrong in everything. I'm so confused. )

[mr_genius]

And in this case, they are wrong. (Wait a second, did you just tell me I was wrong because of something Old Europe was choosing to do? I thought Old Europe was wrong in everything. I'm so confused. )

 

Nope, Olde Timey Europe is right. Even france. Balta, you know you want to agree with France. You have too. It's part of the contract you signed to be a 'progressive'.

 

 

 

[Balta1701]

On another note, did anyone here post Taibbi's response to the NYT op-ed by one of the AIG bonus guys last week? It's priceless. Getting this response is almost worth the price of a couple of those bonuses.

[Balta1701]

One more. Gibbs today gets asked about whether or not having the White House step in to fire the head of GM while failing to do so with the banks is actually acting to increase the entropy of the universe. His response is gold.

Robert Gibbs had to know it was coming. The press briefing on Monday was sure to focus on an apparent double standard from the administration when it came to the auto industry and financial sector bailouts.

 

But when asked to explain the disparity -- such as GM's CEO Rick Wagoner being forced to step down while bank CEOs remain in their perches -- the Obama administration press secretary seemed to struggle for words.

 

Was there a double standard? Read Gibbs' answer for yourself:

 

"Understand that we have taken and are prepared to take extraordinary steps to help the auto industry get it back up on its feet, to put it on a firmer ground, and see it return to a stronger position, to support the companies, the workers and communities they are in," he replied. "I think if you look at, I think this question was asked over the course of the last 12 hours. The original agreements contemplated a March 31 deadline whereby you would either give additional assistance or call the loan. So what I think what the president and his task force are doing is taking the steps forward to help these companies. At the same time [we are] expecting a plan for viability in the future. I would also say that the decisions that are made on any entity receiving assistance is done in a way that we think will stabilize the economy, create jobs, in some cases it is to protect jobs, and have to a have manufacturing base, like with GM, Chrysler and others. It is to get lending moving again. But I think that this administration is rightly matching and balancing the notion for responsibility, at the same time understanding that we want to be a partner in ensuring strong and viable auto industries moving forward."

 

Say what?

 

Some members of the press in the room snickered. One reporter muttered under his breath: "that made absolutely no sense." Luckily for Gibbs, and those who wanted answers, he was given another bite of the apple. Responding to a question on the sacrifice that mid-westerners were being asked to make, he noted that Obama himself had traveled to those hard-hit towns and was acutely aware of their despair. Gibbs himself said he had spent the night before on the phone with Michigan Gov. Jennifer Granholm.

 

But his remarks still seemed defined by vagaries. Gibbs dismissed one question as "general and somewhat non-specific." But when asked later if he wanted questions about individual banks, he said he didn't have specifics. Pressed repeatedly to explain why Wagoner was told to go but bank CEOs were not -- or, for that matter, why labor contracts for auto-workers were reworked when it was deemed illegal to revamp bonus contracts for AIG execs -- he declared a "hesitancy" to "look at every entity the same way."

[StrangeSox]

Restructure first, then loans if needed. There wasn't the political will to make that move. Now, it has to be done because it has been realized that there is no other solution.

 

It was my understanding that they couldn't survive long enough to restructure without the loans. GM and Chrysler were looking at weeks, not months.

[StrangeSox]

Nope, Olde Timey Europe is right. Even france. Balta, you know you want to agree with France. You have too. It's part of the contract you signed to be a 'progressive'.

 

 

What?

 

http://www.prlog.org/10183069-french-gover...ry-bailout.html

 

The French bailed out their auto industry.

[southsider2k5]

$30 billion = multiple trillions?

 

If sustaining 5+ million jobs nationwide and really avoiding a depression only costs a few tens of billions of dollars, it's a good move. If it costs nearly a trillion to keep the financial industry afloat, then you've got a point.

 

You do realize that banking affects pretty much every single job in the entire country, right? Because if the banks don't exist, who exactly is going to support industries, like I don't know, the automotive industry? Who underwrites their bonds, who makes the loans for their customers to buy new cars? Who extends credit for meeting payroll? If you really want a nationwide depression, let the banks go under. Heck with just the lending freeze up that is happening now, projects are stopping all over the country because businesses can't get loans. I know right here in Chicago, the Spire is a one hundred foot hole in the ground, because no one will lend them money to pay workers to keep working. That is happening all over the place.

 

The other major problem with your theory is that the auto industry isn't going to be saved by government loans. Their underlying problem is their cost structure, and their overwealming debt. Banks problems right now are undercapitalization caused by falling asset values, combined with laws that don't make any sense for banks. The only way to stop them from going under is by putting capital on the books.

 

These are two completely different situations. It is disengenuous to pretend otherwise.

[NorthSideSox72]

It was my understanding that they couldn't survive long enough to restructure without the loans. GM and Chrysler were looking at weeks, not months.

This is correct, as I understood it.

 

Now, if you want to let the industry die, let GM and/or Chrysler just cease to exist, then fine. There is an argument to be made there, oddly enough.

 

But if you want to avoid a very steep unemployment crash, you need to slow the fall of these guys a bit. You put GM and Chrysler on life support, for the time being. Now I don't know if the amount of life support they got was more than needed - maybe it was - but they needed something. Then, you analyze the situation, and take action. This is exactly what the Obama administration has done here, and I applaud their efforts. I've not like many things I've seen from Obama so far, but on this, so far, he's generally getting it right.

 

Let's see how these companies look in about a year. Chrysler may still need to die, or be broken up or something, but that needs to be done in a controlled way. I think GM can survive with a clean slate.

 

And by the way, here is an idea. The unions need these companies to survive, as much as that is possible. So how about they take a stake in the game? Let them be part of the investments and financing, and align their people's needs with the good fortunes of the company. The unions have a lot of reserves and the ability to finance. Use it.

 

[NorthSideSox72]

You do realize that banking affects pretty much every single job in the entire country, right? Because if the banks don't exist, who exactly is going to support industries, like I don't know, the automotive industry? Who underwrites their bonds, who makes the loans for their customers to buy new cars? Who extends credit for meeting payroll? If you really want a nationwide depression, let the banks go under. Heck with just the lending freeze up that is happening now, projects are stopping all over the country because businesses can't get loans. I know right here in Chicago, the Spire is a one hundred foot hole in the ground, because no one will lend them money to pay workers to keep working. That is happening all over the place.

 

The other major problem with your theory is that the auto industry isn't going to be saved by government loans. Their underlying problem is their cost structure, and their overwealming debt. Banks problems right now are undercapitalization caused by falling asset values, combined with laws that don't make any sense for banks. The only way to stop them from going under is by putting capital on the books.

 

These are two completely different situations. It is disengenuous to pretend otherwise.

Well, government backed loans at least will need to be part of the equation to save them. Ideally, after or with a controlled bankruptcy as they are proposing (and as people here have said for months).

 

[southsider2k5]

Well, government backed loans at least will need to be part of the equation to save them. Ideally, after or with a controlled bankruptcy as they are proposing (and as people here have said for months).

 

I don't mind the loans as a part of controled program to get rid of costs. They have been negotiating for years to try to do this, and they haven't gotten anywhere meaningful, as they are still on the verge of liquidation. It is going to take a 3rd party to go in there and make the real choices, and fix things. That third party is a bankruptcy court. The automotive business model as we know it is history. Its gone to the same place as the old Steel Mills. Any money thrown at the auto industry without really changing the cost structure is wasted.

 

Ideally I would love to see the root cause of the banking collapse addressed in the same immediate fashion, with the suspension of Sarbane's Oxley, and a complete change in the way we regulate the entire financial sector, but I am not going to hold my breath in either situation.

[lostfan]

all it's doing is creating more problems than it's solving. you notice other countries aren't going along with this madness that Obama is subjecting our economy to. the Obama economic plan is an outright disaster.

The Fed supported it too - of course that depends on your own opinion of the Fed though.