Tag Archives: bankruptcy

Government Economy: Ignoring Facts

In our increasingly government-controlled (-manipulated, -throttled, -ridden) economy, we get to see how people who do not believe in the free market expect the engines of American capitalism to run.

It’s not like we haven’t been able to see this before. After all, the 20th century is littered with the corpses of Command and Control Economies.

But this is the first (second: FDR tried really hard too with the alphabet soup of government agencies he successfully wielded to lengthen the Great Depression far beyond what it should’ve been) time we get to see what happens when our own beloved economy is ridden by the government to extremes we’ve not seen before.

Exhibit A is GM. Now bankrupt and after accepting huge loans from the government, the government will shortly own a majority of this company.

And now the revisionist history begins.

Today’s Bloomberg report on the bankruptcy, paragraph 1:

General Motors Corp. won court approval on its first day in bankruptcy to sell assets as soon as next month after collapsing under $172.8 billion in debt and failing to adapt to consumer demands for smaller cars.

All well and good except for one thing: Consumers are not necessarily demanding smaller cars.

Google “best selling cars” and you get a pretty consistent picture: trucks are selling well, and so are full-size sedans. The only compact cars in the top 10 of any list are the Honda Civic and Toyota Corolla, and they’re in the middle of the list. In the worst 10 selling lists are bloated SUVs such as the Hummer. No surprise there.

Green machines (hybrids and ultra-compacts) have always been a lethargic segment of the auto sales and they’ve suffered as much as anybody else with the economic issues.

The Bloomberg article was reworded shortly after initial press this morning and has dropped the bit about demand for small cars. (you can still find the original wording at this splog (spam blog) site that rips headlines to create content for itself. Not actually linking to prevent follow spam: http://itsp.info/index.php/2009/06/02/gm-bankruptcy-judge-approves-asset-sale-on-first-day-bloomberg.html).

One of the major plans of the now government owned GM is to increase production of one of the most lethargic segment of vehicle: ultra-compacts and small hybrids. FromĀ  Bloomberg again:

One idle GM facility in the U.S. will be retooled to make small, fuel-efficient cars as part of an agreement with union workers, GM said May 29.

Now what kind of business is run by making cars for which there currently isn’t a real market?

Especially for a company emerging from bankruptcy, this kind of action is pointless and worse.

Unless the leadership of that company is aware of changing market conditions well beyond the awareness we’ve seen to date, or they know something we don’t.

Unfortunately for what appears to be the deepest desire of most the leadership in the Obama administration: you cannot control demand so long as there is choice.

The only way communist countries control demand is by controlling the entire market. And even when presented with only one option, they still usually get to choose whether or not to take it.

Because the government will very likely own 60% of GM, they will be very interested in one or both of these two options: running the company according to the ideology, and making a return on their investment.

The ideology of the current government makes those two options almost completely exclusive. You cannot control the market and demand in what is still, essentially, a free market.

My prediction: GM will continue hemorhaging money. Lots of money.

Our tax dollars will continue to be poured into the black hole of stagnating demand segments and poorly made vehicles.

Until the price fixing monopolistic unions are torn free and GM is free to hire talent at wages the market supports…

Until GM recognizes the necessity of meeting the market where it is instead of where it ought to be according to some Command Economy wet dream…

Until the free market is allowed to destroy those who do not adapt and innovate…

…We will continue to be force to send good money after bad. And we’ll be told we like it.

Sliding Into Socialism & Smile

Some mornings I wish I didn’t peruse the news. Today was one of those mornings.

The stories were thick of people expecting things from the government, wanting the government to reach down and touch them, trying to get things through misuse of government power and responsibility.

The “big 3” are back in Washington, driving this time apparently for PR purposes, asking for more money. The proposed solutions generally include the government taking some significant stake in the companies. Everything from a “Car Czar” to enforced restructuring (which I would agree with IF I agreed with a bailout at all).

Then there are the world markets. Asian markets are quite happy the US government will step into the big brother mode again and prop up weak parts of the US economy.

And if you bail out the big guy, the little guy wants his piece of the pie too. In a small story blown big, Barack Obama has proven he really does care about the little guy and each individual American by themselves. He says the workers staging a ‘sit-in’ at a Chicago-area manufacturer are “absolutely right” in demanding not just their owed wages and normal severance pay but also pay for accrued vacation as that manufacturer has declared bankruptcy and is currently in liquidation proceedings.

Apparently Bank of America held the business credit lines for the company and refused to offer more credit as it saw the sales of the company plummetting.

The issues here, expounded upon by John and Cisco on the morning show on Chicago’s AM560, are these: What responsibility does BoA have after their own bailout and largess received from the government? And at what point should a bailed-out bank still be able to protect it’s assets by allowing truly faulty companies to fail.

The whole failure and bailout cycle is ferocious in that it is, more often than not, better to allow a company to die naturally than to prop up failed and faulty business models and management/labor relations.

My opinion? Because we’ve already got ourselves into this mess. The workers are justified in expecting a little bit of this themselves, but only what is justly owed. BoA should be admonished to extend enough credit to cover immediate owed wages to the workers with collateral being the amount the bank will recoup from the liquidation of the companies assets (I agree with John and Cisco here).

Jesse Jackson has likened the plight of these workers to that of the blacks during the civil rights movement.

That man has no shame. Willing to sell even his own birthright for another 15 minutes in the spotlight.

And both Obama and Jackson find an ally in the Socialist Worker, the newspaper of the International Socialist Organization.

Socialist Worker has strived to be a source of information like no other, presenting a socialist analysis of the events and forces that have shaped today’s world and sharing the voices of those involved in the many efforts to try to change that world. As a result, SW has always gravitated to the stories of struggle that rarely, if ever, appear in the mainstream media–the coal miners in Kentucky fighting for their rights, the South African workers and students who toppled apartheid, the young women and men who stood up to corporate globalization in the streets of Seattle, the veterans and active-duty soldiers resisting the U.S. war for oil and empire in Iraq.

Strange bed-fellows indeed. Not that it would surprise anybody who bothered researching and learning the truth prior to Election day.

But you can smile, and mean it, and affect more people than you know. If you know me you know I like to smile. A lot. It’s just so much more fun to smile than otherwise.

So when studies are showing that being happy affects more than your immediate circle of acquaintances, but can affect people up to 3 degrees removed from the original happy person, I became very happy.

Are you happier now? It’s because I am. And so are your friends.