To be or Not to be bailed out….that is the question

From Detroit Michigan to Oakville Ontario everyone is talking about the same thing.  Should the government bailout the US auto industry or should the government let them fail?

I’m really torn on this one.  There’s no easy answer.

The Detroit Three (GM, Ford, Chrysler) are quickly running out of cash.  If something doesn’t happen soon one or all of them could be filing for bankruptcy.

Is that a good thing or a bad thing though?

I initially thought it was a good thing.  First, I can’t see giving (actually loaning) these automakers 25 billion dollars and expecting them to magically make everything right.  After all, they got themselves in this mess.  So could we really expect the same leaders, same practices and principles that lead us down this slippery slope to get us out of it?  After all money is not the answer. Something’s got to change and I wonder if they have the ability and willingness to do it on their own.  It’s hard to turn the Titanic around.  Maybe going into bankruptcy would force them to make the tough decisions, force them to make some serious changes in how they do business.

But at the same time what would the ramifications be?  What about my Grandparents that retired from GM or my uncles that work there.  What would that mean to them?

The Center for Automotive Research released an interesting study recently.  If just one of the Detroit three file bankruptcy they estimate nearly 2.5 million people will lose their jobs.  And these just aren’t jobs directly at the automaker.  

aprox 240,000 are direct employees

aprox 800,000 are indirect employees 

aprox 1.4 million are spinoff employees (Which is the group I fall into)

The trickle down effect will be more like a tidal wave.  I don’t even want to think about what will happen if it comes to this.

Sure I want the Detroit three to rethink and restructure how they do business, but I’m thinking that forcing the issue through bankruptcy might be more harmful and costly to our immediate future.  We may never recover from it.

So I’m leaning towards the bailout, realizing they are not going to turn this thing around quickly, but that in the long term it’s probably the best thing for our state, our country and our industry.

These are scary times.  Everyone is worried about their future.  About their jobs.  About tomorrow.

The Rescue Plan…

If you watch or listen to the news, like me you can’t escape talks of the bailout… umm… I mean Rescue plan.  It’s one of those things that I’m getting sick and tired of hearing about, but yet I can’t stop reading articles or listening to people talk about it.

Last night I listened to an interview on NPR that was really good.  Check it out here if interested.  The guest made some good points about the bailout.  I was leaning against the bailout and after listening to these guys talk about it I’m firmly entrenched now, against the plan that was at least.  No idea about the latest rescue plan that’s supposed to be voted on today.  Here are some things I learned that made me think the plan was bad.

1.  Buying the assets of troubled investment banks is a good idea if that’s what we were planning on doing, in fact you can even make money out of it.  But the plan as it was was more of a gift then a buy program.  The example was given of a 10 million dollar loan that is now only valued at 6 million.  If the Treasury department buys the loan at the correct value of 6 million, then there’s nothing wrong with that.  But if the Treasury buys it for what the bank owes 10 million, they are essentially gifting them 4 million dollars and rewarding them for poor judgement and bad investments.

One of the problems I keep hearing about though is that, loans and investments have been so chopped up that it’s really hard for banks to determine there value.

And if I’m a bank and there’s talk of the Treasury department being given a blank check to purchase up bad loans, how willing are you going to be to write down loans and take loses.  If you think the government will give you 10, 9, 8 even 7 million on that loan why make a move and sell it for anything else.

Part of this lock up on Wall Street was created by talks of a bailout and it’s become a self-perpetuating prophecy.

2.  A $700 Billion Bailout or Rescue Plan (Or whatever you want to call it) is not the answer.  It’s like sticking a piece of bubble gum in the cracked dam.  Our system is broken and we need to fix it, not put a band aid on it.  This problem comes down to one word, GREED.  We’re so focused on the names of Business and institutions we forget the problem is really a personal one.  It’s about people like hedge fund managers wanting to make more money then anyone is ever worth.  It’s about CEO’s and their Multi-Million dollar Golden Parachutes. It’s about people and businesses wanting to make short term profits so much that they don’t care about the long term affects.  And truthfully they make so much money, so quickly that they don’t even care.

How do you Rescue that?  How do you rescue us from ourselves?  From our own selfishness and greed.

And I’m so tired of this talk of: Free Market, Capitalism, Big Business –  This is the mess we’re left with.  Because that kind of thinking wants to assume the best about business – but neglects the ugly truth about human nature. If you’re such a proponent of the principles then stand behind them now!  Let the Free Market work itself out.  Let’s see what happens then.  I’m willing to take that risk are you?

With that let me point you to this article…  Very interesting.  It discusses the ultimatum game.  And Yes…  I am the kind of guy that would say screw you if you offered me only the 20%.

And that’s the way I feel about this Bailout…  errrr….  Rescue Plan.  Even though I’m pretty sure the Senate will probably pass the plan their voting on tonight.

A $2,300 Loan

I was reading (here and here) about this $700 Billion, that’s Billion bailout package for Wall street today.  I can’t even begin to get my hands around how huge this thing is (neither can anyone else I think).  This article, equated it to every american citizen giving wallstreet a $2,300 loan.  I don’t know about you but why would I be willing to lone wallstreet any money, especially if there’s no real, tangible benefit in it for me.

I understand it’s not really my money their borrowing, but it’s tax payers money.  This is free money for irresponsible institutions and tax payers not only bear the brunt of their poor decisions, but now we’re going to assume all the risk.

I have half mind to say screw them.  Let them fail.  Let them go under.  That’s what they’d say to me.  If I couldn’t make my car payment, couldn’t pay my mortgage.  Do you think uncle Sam would jump in and bail me out when I’ve overextended myself?  I know they wouldn’t.  The thing that’s scary is that if we do that, if we say screw them, and let them go under what will the ramifications be?  I don’t think anyone knows that, that’s why they’re scared and trying to act quickly.  Worst case, I don’t think it would be anything like the great depression era we experienced in America.  My 401K would continue to drop, housing prices would continue to drop, people would have a hard time getting loans, the more business that went under the more people would lose their job.  It would be hard make no mistake about it- But i’m wondering is that what we need?  Maybe.  Things have been out of whack for a while, maybe there is a need for an adjustment in our economy.  Maybe we need to tear down a lot of our outdated and obsolete models of government and finance and start all over.  I know nothing of Economics though, so who knows.

Here’s a great quote I read…

Is this about to become the greatest heist in history perpetrated in broad daylight and aided by our confused, stupified, lazy and incompetent representatives in government?

One more thing.  I’m a little skeptical of this administration given it’s track record.  They are resorting to the same tactics that got us into the mess in Iraq.  Be afraid, we have to act quickly, trust us.

I’m sorry but I am afraid – afraid of the administration.  I’m afraid that they don’t have the interest of America at heart.  I’m afraid to give Paulson a blank check for $700 Billion and let him have carte blanche choice of what to spend it one.

And I do agree with what some people are saying.  This bailout needs to have a punitive side to it.  If not we’re simply rewarding people/business for poor decisions.  CEO’s should resign – without their golden parachutes.  Salaries should be capped.  Something has to change.  Something has to come out of this.