Are we going to bust the unions if we bail out the automotive industry? Aren’t these the same fucking unions that threatened a strike and some did a few years back? Yeah our company is working in the red but fuck it 27-28$ an hour and just “okay” benefits are just not enough.
I see no reason to keep any company afloat, let alone one that will be right back in the red.
With bubble-era loan terms, many foreclosures are a bailout for the (former) homeowner. Suppose Fred buys a house with a no-money-down interest-only ARM for $400k, assuming the house will appreciate and he’ll be able to sell it at a profit soon. The bank pays the seller $400k on Fred’s behalf. Then Fred pays the mortgage for a year, but stops when the house drops to $300k. The bank forecloses and sells the house for $300k, so the bank is out $100k (the year’s worth of interest payments will easily get eaten up by costs the bank incurs in selling the house). Fred walks away with tarnished credit but having avoided a $100k loss. The bank and Fred were partners in a speculation that went sour, and the bank took the haircut.
It happens that way all the time now. This guy has made a blog out of finding particularly egregious examples.
It’s important to understand this because the real victims of this mess are, as the OP put it, the “fiscally sane”. If you are a renter, or a homeowner who bought conservatively, you’ll now be pitching in to cover the losses of speculators like Fred and his bank.
What is really maddening is that on Monday, I sold a big chunk of a mutual fund because I didn’t want to be exposed to the bad housing loans. But on Thursday, the government in effect said, “Tough titty - we’re buying the bad loans with your tax money, so you’re in the game now whether you like it or not.”
But the government lent Chrysler money on terms that it never could have obtained in the private credit market, due to Chrysler’s shaky condition. The difference between what Chrysler would have paid a bank for that loan and what it paid the government represents a huge government subsidy that was never recovered.
No doubt, you’ll hear people saying the same thing about AIG. But the reality is that the government didn’t charge AIG the risk premium that any private lender would have. Factoring that into the equation, I highly doubt the government will make money. After all, every private lender looked at the terms AIG could meet and said, “No thanks.”
Whether it is better overall to have saved AIG is one question, but the idea that the government is going to make a profit or even break even in an accounting sense is just not realistic.
I’m not an economist, and I’m hardly a markets-first ideologue, but even I’m a little weirded out by the idea of prohibiting short-selling. It smacks of the idea that buying stocks is somehow morally superior to selling stocks, and that way lies madness, as far as I can tell.
rues, you asked how short selling was ever okay. Let me turn it around, by way of illustration: how was long selling ever okay? Short selling is, essentially, borrowing stock to buy money, instead of borrowing money to buy stock. Is it okay to spend borrowed money, i.e. money you don’t own, to buy stock, speculating that you can sell the stock later at a higher price? And if it is, how is short selling different?
I’m confused. You say that the government charging a lower rate than the private market is a loss. But if the money paid back to the government exceeds the money the government paid out then the government made money. The money (or subsidy) the gov put into Chrysler was recovered and then some, so they got the subsidy back and made money.
The government is not a business out to maximize profits. Its intervention in the private sector is to prop up the economy. So while a private business would regard a lower interest rate as a loss of revenues (but not necessarily a loss on their balance sheet) why should the federal government take that attitude?
Actually, I had it slightly wrong - the government provided loan guarantees to Chrysler, not an actual loan. Those guarantees never led to a government payout.
However, when deciding whether another Chrysler-style bailout would be wise, you have to look at the expected returns, not the actual returns. The expected returns from Chrysler were negative, which is why they couldn’t get a loan without the guarantees.
I’m not saying they should. However, as far as the overall economic effects, don’t you think Ford and GM would have shaped up a lot quicker had Chrysler been allowed to fail? Instead, they spent the 1980s building crapmobiles and getting creamed by Japan, from which they still have not recovered.
Thank you for the clarification.
But that ignores the goal of the fed stepping in: it’s not to get a positive return on their investment, but a meta-goal of propping up the economy. Financial returns, if any, are secondary.
I can’t argue with this, except to say it’s stated with hindsight. You can’t say the exact shape a company will take in the mid to long term, and the same can be said for the economy. You can however try and influence that shape, which is what the fed is doing and has done (questions about its success rate I’ll leave to others).
I’m kinda skeptical about these blame the democrats/republicans disputes.
However, here’s some snippets from an article from 5 years ago:
Of course you don’t, you’re not a politician. And whilst I agree that the UAW could use a good smackdown, we absolutely must have domestic auto producers. Period. Paragraph. It is a matter of national security that we have that kind of large scale industry here and loyal (well, as “loyal” as a corporation can be) to the US government.
Yeah, yeah, yeah, I know, I know, the Japanese and Germans are our friends now, and the odds of us having to go to war with them in the future are slim, but suppose something happens to the supply lines of parts from Japan or Germany to the US? The delay in getting the parts will cost lives, possibly tens of thousands of lives. Nor could we exactly whip up replacement components overnight using US based suppliers.
Scrapping the Big Three, and starting a new car company isn’t exactly cheap, either. It cost GM $5 billion in the late 1980s to start Saturn, even if you went with non-union labor (difficult in some areas of the country, but not impossible), what with inflation, you’re still looking at around the same amount of money, plus a 5 (or so) year lead time from when you start the company, till the first vehicle rolls off the production line.
This is the stupidest thing I’ve read…all week or so. No wonder your country is fucked, if people actually think fucking cars are a matter of national security.
$5 billion to make cars? You realise you’re spending north of a trillion dollars to bail out banks? I think if Japan+South Korea+Europe magically become enemies you can afford $5 billion to make cars :rolleyes:
And a lack of new cars will cost lives? God this drivel is painful.
Americans really need mandatory economics in school, it would solve so many problems.
I guess your ass is posting this, because no one who’d actually studied anything could actually say something so stupid. You do realize, don’t you, that during WWII the US converted all its automotive plants over to weapons manufacturing. The assembly lines which once turned out Fords, Chevys, etc. began turning out tanks, airplanes, components for ships, and well, every fucking kind of thing you can imagine a country might need for war. (Including the odd automobile for use as a “staff car” by officers.)
So, it is not the cars themselves that are important, but the factories and skilled personnel who build them. Shut down the factories, and the tooling will be scrapped or sold overseas, the skilled workers will die off, or lose their edge. The number of manufacturing jobs in the US has been declining for some time, and the number of skilled workers who can fill those jobs has also been declining.
And, if you’d actually bothered to read what I wrote, I specifically stated that I couldn’t foresee Japan and Germany becoming our enemies, but I could well imagine supply lines becoming disrupted, and delaying parts being shipped to the US. I speak from a bit of experience here. On 9/11, I was working for a sat phone company, a few days after that we got a call from one of the intelligence agencies needing a specialized mount for a sat phone antenna. They absolutely had to have it, problem was, there weren’t any in the US or Canada (I know, our largest supplier was a Canadian based operation). The only place we could find the mounts was in South Africa, even though it was needed for the US government, there was no way we (or anyone else) could get the mounts into the country in less than a month, the guys in the intelligence agency couldn’t wait that long. Luckily for them, I happened to be in school to be a machinist at that time, so I got to spend the next week at school building the mounts, so that they could be shipped out before the ones in South Africa made it to the US. Maybe somebody’s alive today because of me, maybe not. I don’t know, but I do know the value of having a local manufacturing base when the shit hits the fan.
I assume Tuckerfan is referring to the situation during World War II when companies like Ford devoted their manufacturing output to military production. As an example, one of Ford’s plants manufactured up to 14 B-24 bombers per day.
I’m not sure how easily modern manufacturing plants could be converted to produce an entirely different product like that, and I don’t feel that it justifies rolling over for a union for a failing industry, but his opinion is not without merit.
I’d be extremely surprised, with current specialisation, if they can be converted any quicker than new ones being built.
Not that it’s relevant really, no ones going to endanger the US anytime soon. It might be worth a discussion in 30 years, but for now it’s daft. There’s just zero chance of anyone remotely challenging the US in the foreseeable future. And that’s assuming the potential challengers would have any interest in war, which they wouldn’t.
No one is going to attack the US. Ever. This whole discussion is silly. The only dangers the US faces are internal and economic, neither of which planes and tanks are going to help with.
What situation is the US going to need planes and tanks* in? Can you come up with one, even with a 0.0000000000001% chance of happening? 'cause I can’t.
*more than they already have and are capable of making, that is.
And even if you were right somehow, subsidising the utterly moronic Ford/GM etc is about the worst way to accomplish what you want anyway.
No one? Ever? Tell me, has the US managed to shutdown Al Qaeda yet? What do you think is going to happen when the Chinese economy is finally free of its dependency on the US? The Chinese don’t exactly bother making even the token human rights efforts that the US does, and the Chinese economy is going to be demanding a lot of the world’s resources in the very near future. Resources like metal and food, which are already skyrocketing in price because of China’s insatiable demands. Those are the kinds of things which wars are fought over.
Well, Sherlock, in case you haven’t noticed, there’s been a number of stories in the news about US forces not having the equipment that they need now. Biggest goddamned mistake Shrub made after 9/11 was not putting this country on a “war footing” and devoting our might towards Afghanistan. Instead, he told everyone to “shop as usual and avoid panic buying,” thus, some seven years after 9/11, we’re still fighting in a pissant little backwater country, when we should have had the matter firmly put to rest a long time ago. Rolling into Iraq only added to the problems we’re having.
You’ll note that earlier I said the UAW should be bitchslapped, they’re as much to blame for the mess that the Big Three are in, as is the management, but in WWII, the government forced the UAW to shut the hell up and get to work. Nobody in the auto industry got a raise, or even fully paid for all the overtime they worked during the war.
As for converting a plant vs building a new one, its much faster to convert a plant than build a new one. It takes well over a year to build a large manufacturing facility, while an existing plant can be converted over to at least partial military use in hours. The machines which build parts for pick up trucks can build parts for tanks, planes, boats, etc., in many cases all you need is a copy of the software program and if you’ve got the materials on hand, you can start churning parts out. Hell, even just shifting the painting operations over to another facility can be a big help. As for cost, well, when people take a war seriously, they don’t give a shit about costs.
I get what you’re saying Tuckerfan as an aside I should also make clear that with bailouts the CEO and management pay should be slashed as well. I realized it sounded like all the problems laid at the unions feet. That is not the case and I should have made sure to swipe the fat cats as well.
The bigggggest problem I have is until the housing market hits bottom loans will still be hard to come by. So the bailouts as a whole are a silly prop doomed to failure. No bank wants to give a loan for $300,000 on a house that is only worth $200,000. They did that before, and look at them now.
So the U.S. still requires domestic automobile production as a matter of national security to protect against a future mass-scale land invasion by the Chinese and/or Al-Qaeda, a scenario in which then-current military capabilities would not be adequate and General Motors will need to start spraypainting APCs instead of Suburban SUVs to protect the American way of life?
Al Qaeda can’t be defeated with tanks and bombers. None of America’s enemies, current - or future IMO - can be.
Even if China disentangles it’s economy, and it’s nowhere close to doing so, I find it inconceivable they will ever attack the US. There’s simply no benefit. Worst case is another sort of Cold War, with economic control being the number one battleground. Again, something that tanks and bombers aren’t going to help you with.
Do you really think China is going to invade the mainland US? And do what? Occupy it with millions of soldiers while guerrillas pick them off? What on earth is the point?
I suppose the world could change in the future, where some sort of conventional war for the US is actually conceivable, but there should be plenty of time to deal with that if it ever looks possible.
This is not over. By the reaction of the markets this week, people seem to believe that the US Government can somehow create a Golem that can eat garbage and crap hot, juicy cheeseburgers. First of all, there is no avoiding the eventual markdown of all these loans, and second, the bailout is not a done deal. The government can barely manage to deliver the mail, so who thinks it’s going to get us out of this mess? Previous crises have involved isolated sectors or companies that could be rescued by small-scale, temporary measures, but this time it is systemic.
Who said anything about a “mass scale invasion of the US”? You’ll note that the US hasn’t been involved in a war on its soil in a very long time, but no one would say that we’ve been at peace in all that time.