no third solution

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More Bailout, Pleeze

February 18th, 2009

A few months ago, General Motors’ market cap was about $6B. In November, when I said General Motors will go bankrupt. In December, I said that even with a federal bailout, there’s a chance that the auto manufacturers are still in over their heads. Then what? What if $17.4 Billion isn’t enough?

At some point in time, failure reaches a critical mass that *can’t* be propped up, no amount of money or effort, no matter how Herculean, can save the company(s). It’s possible that we’re living this right now, and if this is true, any diversion of public funds towards assisting this industry is merely throwing good money after bad, and serves to exacerbate and prolong our suffering.

Apparently, $17.4 billion wasn’t enough, because now in addition to cutting more jobs, GM and Chrysler are asking for even more federal money! I’m beginning to see how they plan to “repay” the bailout “loans”:

  1. Borrow money from the government
  2. Borrow more money from the government to pay back principle + interest in (1)
  3. Borrow more money from the government to pay back principle + interest in (2)
  4. Borrow more money from the…

That’s a damn fine framework for success, and wouldn’t you know, the markets noticed! As of the closing bell on February 17, 2009, GM’s market cap has fallen to a paltry $1.3B. The estimations of their worth have again been halved, and they’re asking for an even bigger loan?

General Motors makes 50 vehicle platforms that nobody wants to buy. The problem is oligopoly: she should never have gotten so big as to be the “lifeblood of American manufacturing”. A free market wouldn’t tolerate it. They could never have gotten so big, while at the same time being so lousy!

These loans are never going to be repaid, but even if they are, the money is going back to “the government” and not to you and me, who are the actual lenders.

What happens when April comes around, and General Motors still doesn’t have a viable future? Do they get more money? At what point does the nonsense end? At what point do the politicians recognize and accept the fact that continually taking money from the taxpayers and giving it to companies like General Motors in massive corporate welfare schemes can’t ever work? I previously suggested one way we might save the auto industry:

Get rid of corporate taxes. Also get rid of corporate welfare. That’s a “level playing field” if ever there was one. Get rid of capital gains taxes, while you’re at it. General Motors paid $37 Billion in taxes last year. Eliminate their tax liability for 2008 and forward. If the government gives them $37 billion of their own f*cking money back (I understand this kind of a distinction without a difference), and they still can’t return to profitability, there is absolutely zero reason to give them any of other people’s money.

FSK commented that my proposal should’ve included “get rid of all restrictions that make starting a new car company nearly impossible”. Let’s add that in the mix, too. If starting a new car company was easy, then the Big Three wouldn’t be “the lifeblood” of American manufacturing, and an entire generation of laborers wouldn’t be dependent on a few monopoly companies for employment.

no third solution

Blogging about liberty, anarchy, economics and politics