I want my bailout money…


Published in: on January 21, 2009 at 11:39 pm  Leave a Comment  
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The Fed Creating Another Bubble



Published in: on December 20, 2008 at 1:43 pm  Leave a Comment  
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Duck Tales Inflation Lesson


The Big Three Losers



Published in: on December 6, 2008 at 11:16 am  Leave a Comment  
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If there wasn’t a Bailout…

This article has been out for a while but I believe this Professor Jeffrey A. Miron from Harvard explains well what would have happened if there wasn’t a bailout in the banking system. Disclaimer: since this was written the bailout has changed a lot and some of this doesn’t apply, but the point I want you to take from this is the idea of the government buying the bank’s assets. He is talking about the government buying up the bad assets. Here it is from CNN:

“If banks were fundamentally sound but temporarily in need of cash, they could sell stock on their own to private investors. Few investors now want bank stock, however, because they cannot tell which banks are merely illiquid — short of cash for new loans because their assets are temporarily sellable only at fire-sale prices — and which are fundamentally insolvent — short of cash and holding assets whose fundamental values are less than the bank’s liabilities.

This lack of transparency is a crucial impediment to new investment, and therefore to new lending.

Government injection of cash, however, does little to improve transparency. A bank with complicated, depreciated assets is in much the same position after the government gives it cash as it was before, since outside investors will still have limited information about the solvency of any individual bank.

Perhaps the new cash will spur the sale of bad assets, or nudge banks to reveal their balance sheets, but that is far from obvious. Banks, moreover, might remain cautious even with this increased liquidity simply because of uncertainty about the economy. Thus it is hard to know whether cash injections will actually spur bank lending.

In any event, government ownership of banks has frightening long-term implications, whether or not it alleviates the credit crunch.

Government ownership means that political forces will determine who wins and who loses in the banking sector. The government, for example, will push banks to aid borrowers with poor credit histories, to subsidize politically connected industries, and to lend in the districts of powerful members of Congress. All of this is horrible for economic efficiency.

Government pressure will be difficult for banks to resist, since the government can both threaten to withdraw its ownership stake or promise further injections whenever it wants to modify bank behavior. Banks will respond by accommodating government objectives in exchange for continued financial support. This is crony capitalism, pure and simple. iReport.com: What do you think about the bailout?

Government ownership of banks will not be a temporary expedient. Politicians can swear they will unwind the government’s position once “economic conditions improve,” but no one can enforce this promise. The temptation to use banks as a political tool will be permanent, not temporary, so government ownership will continue for decades, or forever.”

This is a scary future for our country. The rest is here.


Published in: on December 3, 2008 at 7:18 pm  Leave a Comment  
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Fred Thompson on the Bailout


Steel vs. Auto: Let them fail and they will succeed…

For years, the steel industry has been struggling without government help to stay afloat against a foreign competitor that is more efficient. In order for a company to survive they must reorganize and become efficient. This is what the auto industry needs to do. Here is more information from the International Herald Tribune:

“If they were allowed to go under, their partisans warned, the consequences would ripple through the economy at a cost too high to bear. The old saying, “As steel goes, so goes the nation,” was as much a threat as a boast.

The Detroit automakers are using the same argument as they seek a $25 billion bailout from Congress. “What happens in the automotive industry affects each and every one of us,” a General Motors Web site declares, warning that the consequences of a shutdown would be “devastating.”

The steel industry was beginning its long stumble when it turned to Washington for help in the late 1970s. The Carter administration responded by committing $300 million in loan guarantees to five struggling companies. Nearly a third of the funds went to help Wisconsin Steel, a Chicago outfit that had been around since the 1870s.

Thanks to a strike at a key customer, Wisconsin Steel promptly went under. The company locked its gates one winter day without even bothering to notify its 3,000 employees that their wages were history.

So was most of the government’s money.

Despite this fiasco, Jimmy Carter’s successors tried to deliver on demands for relief. In 1984, Ronald Reagan imposed import quotas to stem the tide of cheap foreign steel. In 1999, Bill Clinton guaranteed $1 billion in loans to beleaguered producers, and the following year imposed punitive tariffs on some imports.

It was never enough, particularly after the rise of low-cost mini-mills. By late 2001, their industry reeling, the steel makers wanted more from Washington: further protection from imports, pressure on other countries to reduce their steel-making capacity, and billions of taxpayer dollars to relieve the burden of their employees’ retirement costs.

They got a temporary tariff from President George W. Bush, but not much more. And so the steel industry – what was left of it – shuddered and collapsed.”

This example is an important read through of what could happen and what will probably happen if we bail out these auto companies. Now, without government help, the steel industry is back. Taxpayers do not need to throw money for companies that are going to fail just because there are a lot of jobs.

Companies can only survive downturns only by changing and restructuring. They must become more competitive to be efficient. Free money doesn’t make anyone efficient. It won’t make your teenager efficient and it won’t make a business efficient.

The rest is here.


Paulson’s Turkey Bailout



Published in: on November 30, 2008 at 3:49 pm  Leave a Comment  
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Making the Automakers…

As everyone has heard, the big three, GM Ford and Chrysler, have came out and begged the U.S. Congress to give them bailout money. Most of America and Congress rejects it. The Speaker even told them to come back with a plan. Here are some interesting facts from their begging found in the WSJ:

“General Motors Corp., Ford Motor Co. and Chrysler LLC may go back to Washington and urge Congress to take measures to spur consumer demand, in addition to providing the $25 billion in loans the auto companies seek.

“There is no way any car company can make money at the current demand level,” said a key executive at a Big Three auto maker. “The government has to get credit flowing so that the market goes back to at least 14 million to 15 million [vehicles]…. We can figure out how to survive at that level.”

On Monday, Sen. Charles Schumer (D., N.Y.) plans to send a letter urging the Federal Reserve to make financing available for the auto companies’ lending arms, which would allow them to offer more auto loans, a spokesman for the senator said. The letter will also ask the Treasury to speed approval of GMAC LLC’s request to become a bank holding company.”

There is no way any car company can make money at the current demand level is the dumbest thing I have ever heard. If this was true that means no one would be demanding a new car. That is obviously not true so they are obviously pulling it out of their behind. They basically want the taxpayers to feed the money to make them buy their cars. Toyota seems to be doing fine.

The worse part is the last paragraph, where it says that they want to be a bank holding company. Other than getting free bailout out money, why does a car company need to be a bank holding company? PCCapitalist’s joke of giving every person a car and having them pay for it through taxes is becoming true.

It is a scary day in America.


Published in: on November 28, 2008 at 1:37 pm  Leave a Comment  
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Mitt Romney on the Auto Industry Bailout

Former Governor and Presidential candidate Mitt Romney, who was also a son of an auto executive, gives his opinion on the auto industry bailout. From The New York Times:

“IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.

The new management must work with labor leaders to see that the enmity between labor and management comes to an end. This division is a holdover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, said to my father, “Getting more and more pay for less and less work is a dead-end street.”

The rest can be found here.

This is a very good opinion piece from someone who is in politics but keeps a business mind in it. I couldn’t agree more. He also mentioned that this is what his father did when their company was in trouble.

This is not a profound finding! Every company that is successful offers new and innovative things. If they do not someone will come in and make something newer and more innovative. Some examples are Apple and their iPod, before this they were struggling due to the powerhouse Microsoft. McDonald’s at first only offered burgers and you couldn’t change anything. They soon offered a choice for you to have whatever you want on your burger. Now they are innovating with new coffee and healthy choices. Without these innovations both Apple and McDonald’s would have gone out of business.

Why should the auto industry be treated any different? I would imagine there would be a lot of jobs lost if these companies failed too.


Thanks to a loyal reader for this story.
Published in: on November 19, 2008 at 5:59 pm  Leave a Comment  
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