$700 Billion Bailout

[Balta1701]

Next up will be the steel and auto parts companies. To everyone who didn't want to buy a US car, you pretty much just did, except you aren't getting the car out of it.

"Too big to fail".

[bigruss]

Im taking macroeconomics at u of i, and its my first econ class ever, so im still learning alot about the whole system and everything.

 

But, what I really want to know (because im getting this impression lately), is if all this money is actually helping us, or just keeping us afloat for while until we eventually fall into a depression?

 

It seems like we place a bunch of money in one sector, than another demands money to stay afloat, and then another, looks like the system is just crashing and will sooner or later anyways.

[NorthSideSox72]

Im taking macroeconomics at u of i, and its my first econ class ever, so im still learning alot about the whole system and everything.

 

But, what I really want to know (because im getting this impression lately), is if all this money is actually helping us, or just keeping us afloat for while until we eventually fall into a depression?

 

It seems like we place a bunch of money in one sector, than another demands money to stay afloat, and then another, looks like the system is just crashing and will sooner or later anyways.

The idea is (not necessarily agreeing) that this money isn't just going to the financial sector. Its money that should, directly and indirectly, flow through to all sorts of individuals and businesses by way of credit and loans.

 

[mr_genius]

At least all those poor souls will still get their hefty bonuses. That's all that matters. I'm willing to toss in a few more trillion, if thats what it takes to keep em happy.

 

http://www.cbsnews.com/stories/2008/11/12/...in4595179.shtml

 

"All of the money is to go into new loans," Frank points out. "None of it is to go into compensation of any kind for the employees."

 

The sad thing is he probably actaully believes this would happen. Barney, there is no chance you rube.

 

I think I'll post a detailed evalution of the failed bailout in a few days. I'll explalin why it was destined to fail.

[Cknolls]

Didn't they already pass the $25 billion one a couple weeks ago, before the Auto industry came back and said they needed $50 billion more?

 

 

I believe this is in addition to that one. That one being administered through Dep't. of Energy.

[mr_genius]

Whoa, I guess Palson is saying the Treasury has abondoned many aspects of the original bailout. At least they are being flexible. No real details yet from what I can tell about any change in direction. Definitely something to follow.

[Balta1701]

I think it's official...the means of production are now completely publicly owned.

- General Electric Co. said the U.S. government agreed to insure as much as $139 billion in debt for lending arm GE Capital Corp., the second time in a month it has turned to a federal program designed to help companies during a global credit crunch.

 

Granting GE Capital, which isn’t a bank, access to a new Federal Deposit Insurance Corp. program may reassure investors and help the unit compete with banks that already have government protection behind their debt, said Russell Wilkerson, a spokesman for the Fairfield, Connecticut-based company. Coverage would be for about $139 billion, or 125 percent of total senior unsecured debt outstanding as of Sept. 30 and maturing by June 30.

 

“Inclusion in this program will allow us to source our debt competitively with other participating financial institutions,” Wilkerson said. GE sent investors an e-mail about the program today and posted the letter on its Web site. “Our participation is a positive development for our investors.”

 

GE’s finance businesses are able to seek FDIC debt coverage because its GE Capital subsidiary also owns a federal savings bank and an industrial loan company, both of which already qualify. GE last month started using a new Federal Reserve program designed to revive demand for commercial paper amid the global crisis.

[NorthSideSox72]

Whoa, I guess Palson is saying the Treasury has abondoned many aspects of the original bailout. At least they are being flexible. No real details yet from what I can tell about any change in direction. Definitely something to follow.

I linked this a page or two ago in here.

 

[Balta1701]

Good work Congress. I'm sure we can totally trust this administration to administer the money effectively. Why, they haven't made a single mistake in 8 years, just ask them.

In the six weeks since lawmakers approved the Treasury's massive bailout of financial firms, the government has poured money into the country's largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

 

Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

 

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

 

"It's a mess," said Eric M. Thorson, the Treasury Department's inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. "I don't think anyone understands right now how we're going to do proper oversight of this thing."

[southsider2k5]

"Too big to fail".

 

http://newsbusters.org/blogs/tom-blumer/20...costs-uaws-conc

 

AP's Auto Bailout Coverage Nearly Ignores Excessive Labor Costs, Omits UAW's Concessions Refusal

Photo of Tom Blumer.

By Tom Blumer (Bio | Archive)

November 13, 2008 - 10:25 ET

 

Wednesday evening's dour Associated Press report by Tom Krisher and Ken Thomas on the proposed bailouts of General Motors, Ford, and Chrysler acted as if their fates will determine the viability of the entire US auto industry, and waited until the 15th paragraph to name the primary reason why the companies are where they are financially. Beyond that, the AP report did not mention that United Auto Workers has flatly ruled out union contract concessions.

 

Here is how the AP's report began, followed by selected other paragraphs, including the one (of over 30) that mentioned labor costs (bolds after headline are mine):

Story Continues Below Ad ↓

 

Failure of auto industry could set off catastrophe

Advocates: Collapse of US auto industry could set off catastrophic chain reaction

 

Advocates for the nation's automakers are warning that the collapse of the Big Three -- or even just General Motors -- could set off a catastrophic chain reaction in the economy, eliminating up to 3 million jobs and depriving governments of more than $150 billion in tax revenue.

 

Industry supporters are offering such grim predictions as Congress weighs whether to bail out the nation's largest automakers, which are struggling to survive the steepest economic slide in decades.

 

"We've got to do this because the cost of inaction is so high to communities, to workers, to companies," said Sen. Sherrod Brown, a Democrat from Ohio.

 

..... Even if just GM collapsed, the failure could bring down the other two companies -- and even the U.S. operations of foreign automakers -- as parts suppliers run out of money and shut down.

 

..... Opponents of the idea say government money will just delay the inevitable demise of companies that are on death's doorstep because of years of mismanagement and labor costs that are far higher than their global competitors.

 

"How is this money going to make a positive difference in creating a new competitiveness?" asked Sen. Jeff Sessions, an Alabama Republican.

 

Sessions and others also fear that opening the treasury to automakers will invite more industries to plead for federal help.

 

..... Sessions and others say Chapter 11 might be a better option than government loans.

 

..... Automakers say they are poised to rebound because they have been restructuring for years -- shedding jobs, consolidating engineering and design, and making plants more efficient.

 

But they can't claim to have done much about labor costs, because they haven't.

 

Here are three key values in a chart shown Monday at Carpe Diem (HT Small Dead Animals):

 

Total Compensation Per Hour, 2007-2008 (includes wages and all benefits):

Big Three automakers — $73.08

Toyota — $48.00

All workers — $28.48

 

In 30-plus paragraphs, the AP reporters "somehow" failed to tell readers about UAW President Ron Gettelfinger's refusal last week to give an inch on labor costs, as reported by Dow Jones at CNNMoney.com:

 

The prospect of concessions from the union came up during a meeting involving executives of Detroit's Big Three auto makers and Democratic Congressional lawmakers on Capitol Hill Thursday. But UAW President Ron Gettelfinger made clear that concessions were out of the question, union lobbyist Alan Reuther said in an interview with Dow Jones Newswires Friday.

 

"Workers and retirees have already made significant sacrifices," said Reuther, paraphrasing remarks that Gettelfinger made to House Speaker Nancy Pelosi, D- Calif., and others in the meeting, including renegotiated contracts. "We feel we've already stepped up."

 

Translation: Taxpayers are just supposed to accept the UAW-imposed cost structure as it exists, even though those being bailed out earn $44.60 an hour more in wages and benefits than other working families.

 

What an outrage. The AP's failure to mention the UAW's stand is journalistically negligent.

 

As an e-mailer said in a post at Michelle Malkin's blog earlier this morning:

 

The Big 3 has a cancer that needs to be removed. It doesn’t take a rocket scientist to understand why they cannot compete profitability (sic). They have parity on supply costs, materials, and energy with Honda and Toyota. So why can’t they compete? It is clearly the cost of labor.

 

There are several other howlers in the AP report, the most obvious of which is that the whole industry will somehow collapse if the Big 3 fail. I don't want to minimize the difficulties posed by the dislocations within the industry and among its suppliers, but as long as consumers need and want cars, there will be companies who will make them -- and there are plenty of others who make very good ones.

 

Cross-posted at BizzyBlog.com.

 

—Tom Blumer is president of a training and development company in Mason, Ohio, and is a contributing editor to NewsBusters

[NorthSideSox72]

http://newsbusters.org/blogs/tom-blumer/20...costs-uaws-conc

What is idiotic about the unions refusing to negotiate is that if the company(ies) fail, and go bankrupt, the union contracts go fully out the window anyway. Then they will get far, far less. They are taking a huge gamble with people's careers and lives.

 

I for one think that bankruptcy may actually be better, in the long run, for GM and possible the others as well. They would come out the other end as stronger, more competitive enterprises.

 

[southsider2k5]

What is idiotic about the unions refusing to negotiate is that if the company(ies) fail, and go bankrupt, the union contracts go fully out the window anyway. Then they will get far, far less. They are taking a huge gamble with people's careers and lives.

 

I for one think that bankruptcy may actually be better, in the long run, for GM and possible the others as well. They would come out the other end as stronger, more competitive enterprises.

 

I know the popular boogeyman to blame the auto company's is the lack of research and development over the last decade or so, but when you are talking about an extra $50,000 of compensation PER EMPLOYEE over what Toyota is paying, there is pretty much no money left over for things like R&D. That extra compensation forced the US automakers to pour all of their resources into the high returns of SUVs and trucks, because they don't make any money on cars. When oil prices went crazy, the Big Three was toast. This handicap is a direct result of the unions.

[Cknolls]

I know the popular boogeyman to blame the auto company's is the lack of research and development over the last decade or so, but when you are talking about an extra $50,000 of compensation PER EMPLOYEE over what Toyota is paying, there is pretty much no money left over for things like R&D. That extra compensation forced the US automakers to pour all of their resources into the high returns of SUVs and trucks, because they don't make any money on cars. When oil prices went crazy, the Big Three was toast. This handicap is a direct result of the unions.

 

 

By Michelle Malkin • November 13, 2008 08:55 AM

 

Didn’t have time to post an alert beforehand, but I did a brief segment on Fox& Friends this morning on the mega-auto bailout. Reader Alan e-mailed about his experience in the industry:

 

Dear Michelle,

 

Thank you for taking the time to read my comments. I worked in the Automotive Industry for most of my career as a supplier to GM, Ford, Chrysler, Honda of America, Toyota, Nissan, and BMW.

 

You were exactly right with your comments on Fox & Friends this morning. The UAW has handcuffed GM, Ford, and Chrysler with unreasonable and unrealistic burdens. Their balance sheets will never improve until they shed this weight.

 

There is another aspect affecting their business and is not being talked about in the media very much.

 

Having dealt directly with all current domestic automobile manufacturers, there is a distinct difference in how the Big 3 do business with their suppliers as compared to Honda, Toyota, and other foreign automotive assemblers. Toyota, Honda, and Nissan in particular want to make sure they are entering a partnership that insures financial success to all parties.

 

GM’s business practices generally lead to no profit, tremendous oversight by their internal supplier quality watchdogs, who demand unrealistic expectations, and extremely slow payment in the reimbursement of tooling costs to start new programs. It is not unusual to see reimbursement for tooling costs years after the program has started.

 

Their business practices are not a tax payer problem, but a terrible management problem. It was a noble idea for the Federal Government to lend them $25 billion to help. It is now known 4 X’s that amount will not cure the root cause of the problem., but only buy them 4 X’s the amount of time.

 

When a cancer is identified inside a person, it is immediately removed if possible. The Big 3 has a cancer that needs to be removed. It doesn’t take a rocket scientist to understand why they cannot compete profitability. They have parity on supply costs, materials, and energy with Honda and Toyota. So why can’t they compete? It is clearly the cost of labor.

 

A few years ago I was in Warren Assembly, in (Warren, County, (sic) [Macomb County,] Michigan. Two plants side by side make the Ford Focus and the Ford Expedition. As you drive from [Dearborn] to Warren County, every abandoned shopping center parking lot was full of vehicles. A friend of mine was then the HR Manager for Ford Truck and I asked him why they were still building.

 

His answer astounded me. UAW Labor is paid company wages whether they work or not. America has to wake up concerning this. Until we can get organizations like the UAW to understand the only missing ingredient to creating a level playing field is getting the cost of labor to a realistic level, domestic car makers will never be successful.

 

[Balta1701]

What is idiotic about the unions refusing to negotiate is that if the company(ies) fail, and go bankrupt, the union contracts go fully out the window anyway. Then they will get far, far less. They are taking a huge gamble with people's careers and lives.

 

I for one think that bankruptcy may actually be better, in the long run, for GM and possible the others as well. They would come out the other end as stronger, more competitive enterprises.

My thinking is fairly simple. If bankruptcy isn't a good solution for GM and they require a bailout...then either there is something terribly wrong with our bankruptcy system or there is something terribly wrong with how large we've allowed these companies to get.

[lostfan]

What would happen if we let the auto companies be bought out by Japanese companies and they ran their operations here?

[southsider2k5]

By Michelle Malkin � November 13, 2008 08:55 AM

 

Didn�t have time to post an alert beforehand, but I did a brief segment on Fox& Friends this morning on the mega-auto bailout. Reader Alan e-mailed about his experience in the industry:

 

Dear Michelle,

 

Thank you for taking the time to read my comments. I worked in the Automotive Industry for most of my career as a supplier to GM, Ford, Chrysler, Honda of America, Toyota, Nissan, and BMW.

 

You were exactly right with your comments on Fox & Friends this morning. The UAW has handcuffed GM, Ford, and Chrysler with unreasonable and unrealistic burdens. Their balance sheets will never improve until they shed this weight.

 

There is another aspect affecting their business and is not being talked about in the media very much.

 

Having dealt directly with all current domestic automobile manufacturers, there is a distinct difference in how the Big 3 do business with their suppliers as compared to Honda, Toyota, and other foreign automotive assemblers. Toyota, Honda, and Nissan in particular want to make sure they are entering a partnership that insures financial success to all parties.

 

GM�s business practices generally lead to no profit, tremendous oversight by their internal supplier quality watchdogs, who demand unrealistic expectations, and extremely slow payment in the reimbursement of tooling costs to start new programs. It is not unusual to see reimbursement for tooling costs years after the program has started.

 

Their business practices are not a tax payer problem, but a terrible management problem. It was a noble idea for the Federal Government to lend them $25 billion to help. It is now known 4 X�s that amount will not cure the root cause of the problem., but only buy them 4 X�s the amount of time.

 

When a cancer is identified inside a person, it is immediately removed if possible. The Big 3 has a cancer that needs to be removed. It doesn�t take a rocket scientist to understand why they cannot compete profitability. They have parity on supply costs, materials, and energy with Honda and Toyota. So why can�t they compete? It is clearly the cost of labor.

 

A few years ago I was in Warren Assembly, in (Warren, County, (sic) [Macomb County,] Michigan. Two plants side by side make the Ford Focus and the Ford Expedition. As you drive from [Dearborn] to Warren County, every abandoned shopping center parking lot was full of vehicles. A friend of mine was then the HR Manager for Ford Truck and I asked him why they were still building.

 

His answer astounded me. UAW Labor is paid company wages whether they work or not. America has to wake up concerning this. Until we can get organizations like the UAW to understand the only missing ingredient to creating a level playing field is getting the cost of labor to a realistic level, domestic car makers will never be successful.

 

The funny part is that AIG is getting such grief in the media about a $400,000 get away, when it would take exactly 8 autoworkers, not even getting fired, but just taking the wages of their Toyota counterparts to make up that same money that AIG wasted, yet no one is even talking about the payroll as a source of their problems. We are talking about 123,000 employees times $50,000 is $6,150,000,000 in extra costs! We hear about a CEO taking home an extra $10 million in compensation, but six BILLION dollars is only mentioned on the blogs? Come on.

[Balta1701]

My thinking is fairly simple. If bankruptcy isn't a good solution for GM and they require a bailout...then either there is something terribly wrong with our bankruptcy system or there is something terribly wrong with how large we've allowed these companies to get.

To answer my own question here, I at least am giving an argument about why Chapter 11 simply might not be possible in the current lending environment.

One reason for the casual support for letting GM fail is the assumption that bankruptcy would be no big deal: As USA Today editorialized recently, "Bankruptcy need not mean that the company disappears." But, while it's worked out that way for the airlines, among others, it's unlikely a GM business failure would play out in the same fashion. In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can't build cars without parts, and it can't get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

 

That's why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation. The company would close its doors, immediately throwing more than 100,000 people out of work. And, according to experts, the damage would spread quickly.

In other words...if the first bailout had done it's job, we wouldn't need to bail out GM. But if that bailout was constructed in such a way that it did not force lending to resume, we may well have to bail out GM because GM won't be able to finance its way through Chapter 11.

[lostfan]

The funny part is that AIG is getting such grief in the media about a $400,000 get away, when it would take exactly 8 autoworkers, not even getting fired, but just taking the wages of their Toyota counterparts to make up that same money that AIG wasted, yet no one is even talking about the payroll as a source of their problems. We are talking about 123,000 employees times $50,000 is $6,150,000,000 in extra costs! We hear about a CEO taking home an extra $10 million in compensation, but six BILLION dollars is only mentioned on the blogs? Come on.

This actually is one of the set-ups into arguing in favor of universal healthcare.

[southsider2k5]

To answer my own question here, I at least am giving an argument about why Chapter 11 simply might not be possible in the current lending environment.

In other words...if the first bailout had done it's job, we wouldn't need to bail out GM. But if that bailout was constructed in such a way that it did not force lending to resume, we may well have to bail out GM because GM won't be able to finance its way through Chapter 11.

 

As I demonstrated earlier, if they had lent that money out, a lot of banks would have still failed. They wouldn't have been around to lend anything anyway.

[Disco72]

What would happen if we let the auto companies be bought out by Japanese companies and they ran their operations here?

 

You are assuming the Japanese companies would want them. The Daimler-Chrystler merger was a disaster (I know, that was a German company), but it showed that clashes in corporate culture, business practices (e.g., the relationship with suppliers mentioned earlier in this thread), and national cultures can create an unworkable situation.

[NorthSideSox72]

You are assuming the Japanese companies would want them. The Daimler-Chrystler merger was a disaster (I know, that was a German company), but it showed that clashes in corporate culture, business practices (e.g., the relationship with suppliers mentioned earlier in this thread), and national cultures can create an unworkable situation.

I think what you might see, is Japanese companies bying certain, specific car lines from the American companies. This helps the American companies get an in flux of cash and a reduction in size, and the Japanese companies can pick and choose car lines to adopt that fit a missing cog.

 

[Rex Kickass]

You are assuming the Japanese companies would want them. The Daimler-Chrystler merger was a disaster (I know, that was a German company), but it showed that clashes in corporate culture, business practices (e.g., the relationship with suppliers mentioned earlier in this thread), and national cultures can create an unworkable situation.

 

DCX failed for a number of reasons that had more to do with the reality of what they were doing not matching up with what they were saying. Poor choices in US marketing didn't help. Trying to make Mercedes a more mid-scale product just damaged the brand and the designs felt without any passion whatsoever. Failure to invest in Chrysler's lines and create a real identity for the companies have hurt them significantly. Beyond that, Daimler had its own major problems in the European market and for a while in the mid 2000's, Chrysler was the main financial engine of DCX. Benz didn't have its own house in order when it tried to merge things together.

 

Impatient shareholders and poor upfront leadership doomed DCX, not culture.

[lostfan]

You are assuming the Japanese companies would want them. The Daimler-Chrystler merger was a disaster (I know, that was a German company), but it showed that clashes in corporate culture, business practices (e.g., the relationship with suppliers mentioned earlier in this thread), and national cultures can create an unworkable situation.

Corporate culture being s***ty management clashing with non-s***ty management?

[Balta1701]

This is actually amazingly good news. Dr. Warren in particular is a very strong anti-bank, pro-consumer advocate. I have difficulty thinking of a better choice than her.

Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) on Friday named their three members of a five-person oversight panel that will monitor Treasury's Wall Street rescue plan and regularly report back to Congress.

 

Treasury's inspector general told the Washington Post earlier this week that oversight of the program is "a mess" - even though the administration has already committed $290 billion of the first $350 billion pledged.

 

Pelosi named Richard H. Neiman, superintendent of Banks in New York. Reid appointed Elizabeth Warren of Harvard Law School. And the two leaders jointly appointed Damon Silvers, AFL-CIO Associate General Counsel.

 

Senate Minority Leader Mitch McConnell (R-Ky.) and House Minority Leader John A. Boehner (R-Ohio) each nominate one member of the oversight board, which will deliver monthly reports to Congress on the impact of the program, the transparency of its record-keeping and the effectiveness it has on "mitigating foreclosures and maxmizing taxpayer benefits.

[Disco72]

DCX failed for a number of reasons that had more to do with the reality of what they were doing not matching up with what they were saying. Poor choices in US marketing didn't help. Trying to make Mercedes a more mid-scale product just damaged the brand and the designs felt without any passion whatsoever. Failure to invest in Chrysler's lines and create a real identity for the companies have hurt them significantly. Beyond that, Daimler had its own major problems in the European market and for a while in the mid 2000's, Chrysler was the main financial engine of DCX. Benz didn't have its own house in order when it tried to merge things together.

 

Impatient shareholders and poor upfront leadership doomed DCX, not culture.

 

Well said, but culture clash definitely played a role. Those on the inside agree that these companies never worked well together. However, your analysis is also right on the money.

 

Corporate culture being s***ty management clashing with non-s***ty management?

 

lol - also true!