As we ask the Federal government to do more and more for us the temptation for corruption within the Federal government grows. This could be in the form of bribes, kickbacks, illegal campaign contributions, or other malfeasance. It becomes increasingly difficult for politicians to avoid temptation and thus they become entangled in legal (e.g., “pork”) and illegal activities that are unsavory to the average citizen. Note that this is not an “anti-government” position but rather strongly pro-government in the sense of good government.

I have read and taken to heart the position that a failed Detroit will cause economic havoc and I believe it to be essentially correct; however, I feel the threat to the Federal government of a bailout is worse for the country in the long run.

Except for politicians in Michigan and the Rust Belt, this would not be about jobs. This would be about preserving the capital markets and the banking system from further erosion.

If this had occurred during the economic boom of the 1990’s, we could wring our hands for a bit before saying “Thanks GM, it’s been nice knowing ya, now don’t let the door hit you in the ass on the way out.”

However, we are now in the midst of the greatest retraction of the credit markets since the Great Depression. These conditions are not business as usual, but a uniquely difficult time that, if mismanaged, could put the US economy into a very deep toilet. The decisions undertaken during the next couple of years will be critical to the entire future of the country.

A high profile blow out of this sort could present a stiff blow to Wall Street, because it could be perceived as a symbol of the failure of the American corporate system and the stock exchanges that support it. In the worst case scenario, it could spark a flight of capital away from the US as money seeks safer places to play.

Maybe that won’t happen, nobody knows for certain how this would go down. But do you really want to find out? GM is a Dow 30 component, so it is not a trivial matter.

Again, it’s not an either-or. I doubt that a GM bailout would occur without strings attached, because GM generates major operating losses that suggest that the loans would default in no time, something that even Washington wouldn’t want to have happen with their money. If there is a bailout, it probably won’t help the current GM management. (Personally, I sure hope that they dislike it, because they need to go yesterday.)

If it is so true, why don’t you have an exception that actually worked? Not one you think will be true, one that actually was. I can tell you now that it won’t work because what you never know, no matter how well an intervention seemed to work, was whether or not the intervention destroyed the chances for a better outcome. In most cases though, economists will say of most interventions like bail outs, that they really didn’t work. At least not in the long run. PCH101 and I went round and round on the first Chrysler bail out/ loan guaranty. My point was that first, it obviously didn’t work, chrysler is back in trouble in less than 20 years. Second, it’s completely possible we would either have two stronger domestics now (for any number of reasons) had we not backed the loans, or even a new third player that rose from chrysler’s ashes without many of it’s faults. He made good points for the other side, but I was not convinced.

psar,

The problem your amputee friend has can easily be compounded under socialized medicine. In her case, her insurer was most not likely not chosen by her. It was likely chosen by an employer from a list of companies approved by the state not for quality, but for meeting requirements for coverage that may or may not have been something your friend wanted to pay for. Under socialized medicine where you have a single system, you are forced to live with whatever mistakes are in the system at the time.

If you are rich, you can always get out of it. What’s wrong with that? Should people be discouraged from success and frugality by keeping them from spending money on healthcare (as if that were really possible anyway)? In socialized systems, the powerful, influential, and well connected get preferential treatment rather than the rich who may have to go outside the system or country to get the care they desire.

Let’s say we can save your life for three million dollars with a 5% chance of success. Otherwise, you are terminal and no chance. Socialized systems simply say no, or they budget for a few per year for reasons of science. But extremely wealthy people will often just do it. This furthers the science and eventually the price comes down and the success rate goes up. What’s wrong with that? It furthers the science for everyone’s benefit, much more quickly than the a socialized system that may or may not try the procedure at all.

As far as mercenaries go, it’s a tough call. There are situations where contractors have cost advantages, as well as superior flexibility. Overall though, it doesn’t work well. It’s more cost effective to use soldiers who take low pay in cash, and large pay in pride.

The black hole for military dollars you describe is largely due to congressional oversight costing more than it is worth. Anyone involved will admit this. When the Bradley was proposed, it only got funded because the contractor strategically sourced parts from key congressional districts. Not based on value, based on congressional district. Congress is loathe to change the system, as are any of the players because their primary competitive edge is not value or quality or innovation but ability to work with the procurement system. The incentives are all wrong, but a wholly free market won’t meet all the needs. It will not be easy to fix.

I guess I can repeat it again:

“call the cost of GM+Ford+Chrysler failing is X, and 25 billion is much less than X, then it makes sense to spend the 25 billion to possibly avoid the significantly larger X.”

(You can re-read it again for other context.)

Now as far as I am concerned, this is true whether you go to sleep reciting the catechism of the free market, or you are memorizing Marx.

I think that depends on where you experienced it. Socialized medicine can be a good thing when it’s done well, as in Western Europe. It’s done less well in Canada and the UK, primarily because it’s started to drift down the nickel-and-diming path that eventually results in the administration of the service getting more money than the service itself.

Finally, you hit the American model, which is only slightly better than nothing at all. ***

Interestingly, you could do the same with military operations as many propose to do with health care or education: you could (and there’s historical cases of this) subcontract military operations (not just R&D) to private agencies. Ostensibly, individual organizations could offer operational savings by funding their own troops and equipment, which governments or corporations could hire. Certainly, they could do so for less than the black-hole-for-dollars that is defense.

Of course, there’s a word that describes this, and that word is “mercenary”. It’s a word with some ugly connotations.

Of course, the reason you don’t outsource military operations is that, if the for-profit motive becomes a problem, the ugliness of the situation is immediate. With health care it’s only poor people getting sick and dying, not troops demanding protection money–which is acceptable for reasons I find disturbing.

Now, we can pay the military for security, we can pay the health care or education systems for well-being and edification, why not pay off GM (with stipulations noted above) to ensure economic prosperity? I would think that–especially in a country with as weak a social safety net as the US–the individual economic health would be very important. And it’s the economic well-being of a lot of people who would be affected if an automaker and it’s suppliers fall down.

Again, for you, this is ideology, and you’ve got your point. I’ll confess that in many ways it is for me, too. As an avowed leftist, I really dislike corporatism, but I have to be pragmatic and, well, I really dislike not having an income, too. I live in a town where a lot of people work directly or indirectly for General Motors, and in a province where the economy is very dependent on automakers and their dependents.

*** I’m reminded of an American friend of my wife’s who required an amputation because of hemming, hawing and stalling on the part of her insurance company, the hospital and Medicare eventually saw her develop gangrene. In Canada, she’d probably still have her arm; in Sweden or Germany, she’d certainly have. In the US, she would have if she was rich.

Maybe your story is a counterpoint, but, overall, the WHO QoL scores for the US versus the rest of the G8 bear out the virtues of socialized medicine.

I think we should be specific since the ratings I usually hear about are the initial quality ratings. Initial quality is the number of goofs on a product when delivered. i.e. the car won’t start on the dealer’s lot when I first pick it up. Reliability is a whole other issue. That is the car not starting five years later. The American manufacturers aren’t bragging nearly a much about reliability. For me that is a more important measure of how “good” a car is.

I love how you scream ideology, but fail to bring up an exception to the rule, mdf.

Auto’s are not a national security issue, we get our military vehicles from other placecompanies. Besides that, we have the transplants. Ford’s truck factory was building Germany’s trucks in WWII right? Also, failing a bail out, we will still AT LEAST two of the three we have now. They may go through bankruptcy, but they will be there. A bad economy IS bad for security which is why we should NOT try to manage it. Capitalism demands a possible downside to function, socialism guarantees no upside as it’s goal is the status quo. Western socialism will die whenever we stop guaranteeing their security, they will move towards freedom or fail.

Healthcare gets really complicated, but no, it’s not the same, psar. It only demands a lot of regulation because there cannot be a free market in all types of healthcare. If your choice is buy or die, that is not a market choice. That is why you NEED government involvement.

However, there can be a free market in the vast majority of healthcare. Tax and insurance legislation are responsible for much of the healthcare ills we have today. I have lived, and nearly died, with socialized medicine. It’s not a better deal.

I will give up space exploration from the budget easily. However, if you want it, the market is likely not going to provide it for you for decades. NASA, or some government body will still need to study the militarily important stuff. We can’t have other countries grabbing the ultimate high ground.

It’s not ideology to support military spending. You can argue about the amount, but only nuts think we can get by without military spending. I suppose Georgia is wishing they had more to spend on military needs right now. Sort of too late though. You are going to have a hell of a time finding me supporting spending in a way that is partisan. I almost always side on the side of less spending. We could likely spend a lot less on military items if we could somehow make the Congress vote on procurement without knowing what district the stuff will be built in.

First, space exploration like we have been doing at NASA is a proper place for government because the market simply would not do it, the risks demanded so much regulation as to make it a governmnent driven enterprise anyway,

You could make the same argument about health care.

It comes down to “I want the government to spend money on X because I support it, but spending money on Y is socialism/corporatism” where X is defense, space exploration, resource management and such if you bat right; healthcare, education, environmental management, etc if you bat left. Reverse those for Y.

I don’t understand this blind adherence to pure ideology — this is the framework of religion, for hell’s sake. Further, I’m not even sure how it is consistent with your claim that NASA is “the proper place for government because the market simply would not do it”. I mean, if the market won’t do “GM” then why can’t the government? Especially if the consequences of simply standing back and watching all of them implode, and sucking in a significant chunk of the economy with it?

If the “large military applications and implications” of space are sufficient for an argument for NASA, then why can’t the pretty obvious bad effects of an automotive implosion in the US economy be a sufficient ground for some support?

Basically, the cost is negligible compared to the consequences of failure: call the cost of GM+Ford+Chrysler failing is X, and 25 billion is much less than X, then it makes sense to spend the 25 billion to possibly avoid the significantly larger X.

This assumes of course that 25 billion is available, that X is worth the while avoiding (compared to other disasters currenting unfolding), and so on. And as pch101 says, this this shouldn’t be some kind of blank check for GM either; deep structural changes would be part of the deal.

Free market ideology is fine and good, and I would be on your side and say “hands off” … but if it is at odds with common sense, when the outcome is plain and obvious, I suggest application of common sense. Do you need to drop a glass on the floor to figure out if it breaks?

You are confusing yourself with the wrong facts.

First, space exploration like we have been doing at NASA is a proper place for government because the market simply would not do it, the risks demanded so much regulation as to make it a governmnent driven enterprise anyway, and there have been large military applications and implications.

The free market is now getting involved in orbital flight, and it’s time for NASA to stop doing that, and help regulate it. Otherwise, 50 years from now, we will be trying to figure out how to get back to mars again, just like the moon.

Also, Nasa couldn’t do squat without contractors.

Second, the point of having a market is that the cost benefit is incalculable. If we could manage the economy, we wouldn’t have a free market. The truth is that managing the economy always backfires.

If this GM bailout/sell off were to occur as I think that it may, then the current stockholders are going to get creamed. It will be the new investors who make the money, not the current ones. It will be big money players (the investment banks and overseas investors) who profit from this, not the every day citizen who is watching his 401k evaporate.

Realistically, there is not one shred of evidence that would lead a rational person to believe loaning GM $25B or $50B or $100B will turn the company around. Nothing.

That’s wrong. In the right hands and with the appropriate deal structure, GM could be a successful company and worth a fortune.

With the current management team and some of the associated baggage, staying on the current course, it’s going to fail. With new leadership and additional funds put into the right places, it could work.

If my prediction turns out to be true (and I’m not giving this 100% odds), then a GM bailout would not just include guarantees but would also add new management and new investors who put more money into the company. We won’t have Wagoner to kick around anymore, and you’d end up with a leaner, meaner GM with focus and a realistic approach to rebuilding the business.

Irony alert: it was the evil government that financed that. “Even worse” is that the government kept spending money on Mars, even in the face of repeated failures.

Billions of bucks here too.

jkross2: Having GM default on a loan the size they’re discussing would be even more damaging considering it’s not conceivable that said loan can right the GM ship.

Going further on the space probe notion: the entire Mars Observer program cost about a billion 1993 bucks.

From a simple mission perspective, it was a complete loss: it simply disappeared before it entered orbit around Mars.

Economically, though, it wasn’t much of a problem, since most of the people and machinery that went into its production are still here on Earth.

The same kind of argument can be made for any kind of government “bailout”. Simple risk/benefit: we can give GM $25 billion bucks. If the company proceeds to succeed, you win. If, however, the company fails anyways, the failure is only slightly worse than if we simply let it die today. A failed GM-with-Volt is better than a failed GM-without-Volt (this is just one example).

And this denial applies to far more than the subprime issue and with much broader consequences. Our education system is a disaster with effects that will be felt for 50 years even if we fix it today. We’ve trashed our manufacturing capacity and lost skills that won’t be replaced. And the effects of climate change will absolutely trump everything.

Meanwhile back at the ranch large parts of our electorate are keenly focused on issues like prayer in schools and gay marriage and lapel pins. And what are the specific numbers? Eight (?) percent see race as the PRIMARY factor in selecting a president and another 17% (?) see it a as a major factor. And those are just the ones who admit it. A few weeks ago I saw an old interview with Merl Haggard (the singer who recorded “Okie from Muskogee” in the 60’s) comment that “this used to be a great country”. Even he gets it, but most people still don’t. Go ahead and give GM the $50 billion and whatever else they want. It won’t make much difference.

The unwillingness of our government, citizens and institutions to make the really tough decisions is how we got into the subprime mess and why the D2.33 are where they are.

Realistically, there is not one shred of evidence that would lead a rational person to believe loaning GM $25B or $50B or $100B will turn the company around. Nothing.

Your position that having GM go under would further devastate an already shaky economy makes sense. Having GM default on a loan the size they’re discussing would be even more damaging considering it’s not conceivable that said loan can right the GM ship.

GM’s fate has been set for some time – we’re just now understanding the scope of damage.

What will change? Will management or the management culture change? Will Toyota and Honda suddenly become irrelevant? Are the people not buying Detroit products going to suddenly start buying domestic?

Simply go back two years and see what number the GM Death watch was at 2 years ago and add the diffence to the current GM death watch count. Its still coming but it will just take a little longer, we may be up to GM Death Watch 300 or 400 by then but its still coming.

It will be interesting to see what the reaction will be when Cerberus takes the money and later sells Chrysler to a foreign company.

I agree. You sent a couple pieces of machinery all the way to Mars and they landed at exactly the right place at the right time, and are still wandering around gathering info. I don’t know what is holding America back but you should be kicking ass not asking for handouts.

The reality is that at least you have some. Your pension is insured (really partially insured since there are limits). That is more than most of us will ever get. If GM fails, then you will get something.

Ditto for your medical benefits. I’m sorry it sucks, but it sucks for most of us. And like your pension, at least you get more than most Americans.

And blaming us consumers for your problems… that’s low. The sad fact is that your company has lost customers because they sold them crap and they treated them like crap. They lied to us again and again about getting better. So you act surprised when customers gave up?

Any business will tell you that is easier and cheaper to keep a customer than to find a new one. You’ve taken your customers for granted for too long, and you lost them. It is simply going to take decades to win then back. Too bad.

Trust me… no one is taking glee in seeing this. But don’t demand that I accept an inferior product from a company that treats me with contempt. Would you accept the same from any service or product you bought?

In short, your little rant beautifully illustrates the closed minded entitlement attitude that is killing Detroit. I want no part of it.

the fact that its unconstitutional for the US Government to dole out money like this should be the first complaint people have( yes I know the constitution is a dead letter when it comes to restricting what the government can and can’t do) but like, you know, whatever.

“Too big to fail, while the individual is too small to bail”.

The economic engine that is “detroit” is arthritic, due to years of lame management. Labor somehow manages to make BMW, MB and Acura without poor quality scores.

The short answer is it must be dirt cheap to make a car, and to go broke it is due to years of problem solving for today only.

If the banks won’t touch them, then my tax dollars should not either. Bankruptcy is a part of capitalism (unless you are a little guy…see the Bankruptcy Bill of a few years back-Cap One and Amex get their money back, even if you don’t)

This is gonna be interesting, that’s for sure.

EDIT: Yes, I too will call my congressmen and senators to tell them that I don’t want to foot the bill for irresponsible management of a private company.

Besides, we’re probably gonna need a couple of factories to make tanks and planes for what I believe are the upcoming water and oil conflicts with Russia, North Korea, and China.