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  • Morning Bell: The Perpetual Bailout Machine

    Failure is a part of U.S. business culture. That is why Americans feel extremely comfortable buying tickets from bankrupt airlines, electronics from bankrupt retailers, and apartments from bankrupt builders. To paraphrase a popular bumper sticker: bankruptcy happens. Bankruptcy does not have to be the end for any business. Instead bankruptcy, under Chapter 11, offers court-supervised protection from creditors so that a business can reorganize itself into a new successful form. The larger and more complicated a company is, however, the more preparation it must do before it can enter Chapter 11. In fact the executives of businesses facing tough economic times have a fiduciary duty to their shareholders and creditors to develop a bankruptcy plan. Only the most irresponsible executives would shirk this duty, and only the most conniving would do so knowingly as part of an effort to blackmail the American taxpayer. Enter General Motors CEO Rick Wagoner.

    Testifying before Congress yesterday, Wagoner admitted that GM has “put virtually all effort into avoiding” bankruptcy and has not worked out a detailed contingency plan. By contrast, Chrysler CEO Robert Nardelli said his company has “looked at all aspects” of a potential bankruptcy filing and has “gone through advisers to help us think this through.” The Wall Street Journal reports:

    Because of its refusal to make plans for a bankruptcy, GM is “courting a Lehman-like situation,” said a person familiar with the matter. Lehman Brothers, the storied investment bank, collapsed into a court-protected reorganization unprepared to remain in business. “They are on the train tracks and won’t get off them,” the person said.

    In other words, by willfully failing to plan, Wagoner is trying to maximize the pain a GM bankruptcy would cause so that Congress is forced to act. Giving in to Wagoner’s cynical game of chicken would be a disaster for the economy. If the possibility of a federal bailout did not exist, Wagoner would have no choice but to spend the last months acting responsibly and preparing for GM’s bankruptcy. Moral hazard is the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk. By granting GM its desired bailout, the federal government would only encourage other CEOs to act as irresponsibly as Wagoner.

    When examining most patents, the United States Patent and Trademark Office requires only a written description of an invention and its uses. But any applicant claiming to have invented a perpetual motion machine must also submit a working model for examination. If Congress, or the Obama Administration, grants GM its bailout, they will have created a perpetual bailout machine, one that prompts every troubled industry in the country to abandon its fiduciary duty to plan for the worst and, instead, come to Washington demanding a handout.

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    36 Responses to Morning Bell: The Perpetual Bailout Machine

    1. Virgil Bierschwale, says:

      I think you're missing his main point here.

      If he goes bankrupt, there is no doubt in any of our minds that he will most likely lose his job.

      He does not care that the reason that he can't sell cars is because of the fact that he has done his part to put the American consumer out of business even though the American consumer accounts for 70 % of his business.

      His only care is that he keep his job and to hell with the rest of us.

      Virgil
      http://www.KeepAmericaAtWork.com

    2. ROBERT DAVIS says:

      REPUBLICANS HAVE A GREAT OPPORTUNITY TO SHOW AMERICANS THAT THEY WILL NOT TAKE TAXES FROM HARDWORKING AMERICANS AND GIVE BAIL OUTS TO COMPANIES PAYING OVER $70 AN HOUR TO THEIR WORKERS. LET THEM GO INTO CHAPTER 11 REORGANIZATION TO GET ANY FEDERAL FUNDS. THEN I SUPPORT FEDERAL FUNDS PROVIDED A JUDGE CANCELS OUT ALL THOSE STUPID CONTRACTS THEY SIGNED. OTHERWISE LET THEM GO UNDER. IT CAN SET AMERICAN AUTOMAKING AHEAD 50 YEARS!!

    3. James L. Frobase, Ti says:

      Mitt Romney said it best this morning on Fox News and in his Editorial–The auto industry must re-orgnize around the elimination of thousands of dollars per vehicle of union-mandated baggage. Government assistance might be appropriate in this function. Otherwise we may lose the enormous technological and manufacturing capacity of these great companies. That loss could be catastrophic in wartimes. This is, indeed, a double edged sword.

      James L.Frobase, retired business owner

    4. Walt in El Paso, TX says:

      With the liberals in control, everyone will be at the tax payers table for hand outs. This is how it will be for the next four years. High taxes and high inflation and a weak military for the rest of us.

    5. Gail in Cartersville says:

      Where does it end. GM, Ford & Chrysler should all go under if they won't entertain filing a Chapter 11 restructuring of their businesses. They are asking the American taxpayer to bail them out, but that won't really solve their problems. Cut the executive's fat salaries, flying their private jets, and even the salaries of their workers. That's their bailout plain and simple. These automakers have gotten themselves into their own mess by being greedy and not planning ahead, especially when it comes to producing fuel efficient automobiles. They were advised to do this at least 5-10 years ago, but no they wanted to sell gas hog SUV's instead. WHATEVER WE DO DON'T MAKE THE AMERICAN PUBLIC PAY FOR THEIR MISTAKES AND GREED BY PROVIDING THEM BAILOUT MONEY.

    6. Evan from Anchorag says:

      In 1990 I drove a great little 4 seater GM car that got 45 to 60 miles per gallon, the Geo Metro. I rented it twice while in Hawaii. If you Goggle Geo Metro you will see that many people loved the car, just not enough to keep production going. It was discontinued in 2001 I think. Everybody wanted an SUV. Remember, they couldn't make SUV fast enough for demand just a few years ago.

    7. Ireland, Alabama says:

      I don’t want to bailout the greedy auto workers for cars I cannot afford to buy. The union’s greed is part of the problem and the unions sit happily in the front pocket of the Dockers of the democrats. These union members as all union members who supported the democrats by electing them to office, now they are the ones demand the democrats pay up. When the Union worker who is paid $71.00 an hour is trying to tell us, who earn minimum wage or a little over about his hardships in life and why it’s important for our government help him out, I don’t know who should have their head examined first. It’s the Unions and their demands of “fairness” that have caused the collapse of the big three. Union members hourly salaries are obscene ask any other worker whether they believe that the wage is fair compared to their own of $10.00 or $11.00 hourly wage. I think it would be a no. They made their bed, now lie in it.

      If Toyota and other foreign automakers whose plants are also in the US and whose workers make far less hourly wages and whose cars are better made can “get by” on $47.00 hourly why can’t you? Ask anyone waking minimum wage if they would accept $47.00 an hour. They would say yes in a second. It’s only the auto workers who would say no. You’ll have to live with that decision, won’t you? It’s your own greed that puts you on the unemployment line for your refusal to reduce your hourly wage; you deserve what happens to you.

      There are alternatives, the automakers Executives could sell their numerous private jets and do without all the “perks” that they have. Demand the unions do without as well. Of course they won’t do without; they would prefer that the taxpayer do without. On this we’ll have a say and tell you and Congress no. If Congress gives them money most Americans will be angry. They have options and I don’t think bailing out overpaid worker, whose Executives rush to Congress to beg for the funds they need to survive and arrival in private jets, separately, isn’t the best way to show Americans we need help.

    8. Pingback: Protectionism Promotion » The Foundry

    9. Kevin Minnick says:

      I agree fully with Robert Davis's statement. The only way the auto industry can possibly turn things around is through chapter 11. The fact that Wagoner and the others haven't worked out a bankruptcy plan, should be grounds for their termination in and of itself.

      Congress is either corrupt, or just plain stupid. The American taxpayer is being robbed by congress.

    10. Michael J O'Bri says:

      Since the finacial bank bailout the markets have crashed, financial stocks down 50%. Citi under $5, Bank America $13. Markets don't like the government trying to run capitalism. Expect the same with the coming bailout to the big 3. Our country has gone insane.

    11. Michael J O'Bri says:

      Since Obama has been elected, the Dow has fallen from 9625.38 to 7552.29. He's our Savior?

    12. Russ Sutherland, Cal says:

      The fact that Nancy Pelosi says that bankruptcy for the auto companies is off the table means she doesn't understand how capitalism works or that she is totally controlled by the unions– or probably both !!

    13. Spiritof76, New Hamp says:

      Lee Iachoca (may be I am misspelling his name) wrote a book titled, Where have all the leaders gone? bemoaning the state of the country. There have not been any leadership in Detroit. The management caved into the union demands. The management ranks are bloated with no idea of cost management other than to trick the consumers. That whole culture must be dismantled. Let them go through bankruptcy and reorganize.

      The Board of Directors of those companies must be imbeciles or a part of the good old boy network paying salaries and bonuses not having risked any of their finances in the company. In other words, they act as though they were the owners of the company in the likes of Henry Ford.

      US Congress must not approve any bailout. As a matter of fact, they must stop passing more regulations and making them all the more uncompetitive. Just as Congress is the culprit of the subprime fiasco, they are responsible for the demise of the auto industry of Detroit as it exists today. That is why Chapter 11 is the right course.

    14. Pingback: The Perpetual Bailout Machine « Conservative Thoughts and Profundity

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    17. Corpus Christi Texas says:

      Please help,

      I'm a federal firefighter and it has been a socialist enviroment (AFGE) and appears it will soon get worse with the election of the "messiah" Obama. I'm a CHRISTian and feel this administration will delete anything that is remotely related to our Father God. I stand in Christ! I pray this will be a 4 year trial in "socialism" God Help and protect us!

    18. Mark, New Mexico says:

      The US automobile industry is about to collapse. I estimate that last year auto workers in this country paid $60 billion in income tax. In addition they paid state and local property and sales taxes. If the automobile industry goes out of business in the US, none of this tax will be collected. Instead of collecting tax the local governments will need to spend money for unemployment benefits.

      Automobile will still be available from overseas but the US won't get any tax from those workers. In addition there will be a much diminished US market for all products.

      If the government helps to keep the automobile industry it is a good investment in America. If they want to perpetuate the success of American industry, the US government will stop providing a tax free advantage to manufacturing in other countries.

    19. Mark, New Mexico says:

      Try to replace emotion with reason and I think you will rethink most of your comments.

    20. Cal Devitt, Rocheste says:

      American automakers have made mistakes, but this situation now is not necessarily of their making. A great part of the problem is the fickleness of the car-buying public. They demand certain types of vehicles, and refuse to buy any other. What is the maker to do? Make a bunch of cars that nobody will buy? Then there is the matter of fuel prices: up and down, fluctuating wildly, and with every fluctuation the public changes their vehicle preferences. How the heck is the maker to know far enough ahead of time what kind of vehicles to produce? We send billions of dollars all over the world to people who hate us. Let's help our own. And no, I am not an autoworker.

    21. Jason C., Las Vegas, says:

      First, let me say I have stopped saying "The Government," as this refers to an institution. I now address those who make decisions on behalf of the rest of us – for better or for worse – as "The People Who Run Our Government."

      Here are the facts as I see them:

      The proverbial cat is out of the bag. We all now know that money is created out of thin air in our existing banking system. It is not backed by gold and it has no value beyond the extent that we all agree to use it for trade. Money comes to life when someone signs a contract for debt. This is one of the reasons it's so critical to lower reserve requirements at this point; the country thrives on debt and inflation.

      Now back to the bailout. The "someone" in this case is one of The People Who Run Our Government. The repayment obligation lies on the rest of us, plus interest.

      I repeat, the money was created out of thin air; someone in government signed for it; we have to pay it back to the banks with interest. The Fed is taking stock swaps on many of the handout recipients, which means that the Fed, a private bank, is handing out money that it never had, which you and I will have to pay back, and taking ownership of hundreds of billions of dollars worth of ownership in these major corporations during this economic downturn.

      The artificial injection of TRILLIONS of dollars into the economy will, without question, result in inflation.

      So let's recap:

      The People Who Run Our Government are giving their Wall Street buddies a bailout that they would certainly never consider giving to the 400,000 people – people like you and me – that fail in business every single year. They are doing it by creating money out of thin air. You and I will be obligated to repay it through real work at our jobs and businesses, plus interest. The Fed, a private bank, is taking ownership of hundreds of billions of dollars of private business assets at a 90% discount in exchange for printing more inflation-causing greenbacks.

      Am I the only one who thinks The People Who Run Our Government are using it, using you and me, using the banking system to steal unimaginable wealth from those of us who actually work for a living?

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    23. martha long says:

      Auto makers should face their own financial problems like the american people do. File bankruptcy and go on.

    24. Jonathan, Frederick says:

      This is not a gift to the Automakers, it is a gift to the Unions. Pelosi et al care nothing for any of the capitalists, only the socialist unions.

    25. Ken Jarvis Las Vegas says:

      The HF has gone completely Coo Coo.

      Under Bush The USA has become a Socialist Country.

    26. rebecca kaminski says:

      IF there is NO viable environment eventually (because our leader didn't make the hard choices and didn't cave) then what's the point of ANYTHING?

      Never mind, like you will ever see for what it really is.

    27. Eileen, Alabama says:

      Let the nonsense begin, Democrats really don’t care what the public wants, the public is telling them no and it appears they are much smarter and wiser then us and will be saying yes.

      This is what I thought would happen if the American public voted them into power. If they cheat to win the remaining seats in the Senate, their greed will become twofold. It’s important that those in Minnesota and Georgia don’t give them absolute power. No matter the Democrats will always abuse whatever power the public gives them. We’ve been through it before with Carter and Clinton; 62 million Americans have a short term memory loss and they can’t blame it Alzheimer’s.

    28. Evan from Anchorag says:

      Would you be a hard core free market person if it lead to— GM filing for bankruptcy, a Chinese company secretly financed by the Chinese govt bought GM assets for pennies on the dollar,—and then offered our disperate unemployed Walmart wages to manufacture cars here in the US?

    29. mike hutchings texas says:

      socialism is a constant bailout. this version is fascism. this will have the same effect as reparations at the end of a war which is what this is.we have lost something not yet entirely known to us on a battle field that exists in the abstract by players who will never feel a loss or a days pain for the chains generously looped around our necks.the history of these days is being written by academics who do not love us and prance and dart in black suits like vultures picking a corpse. how many jobs in gas oil coal and steel could be created when the green gangsters can be pushed out of the way and how much money kept here to off set the structured trade imbalance inherent in the treaties with our partners(potential enemies).there is a bibical passage that refers to egypt as a broken reed. gone from a great power to one eager to marry her daughters to small powers who became greater only in scale to what was lost. is that us and will the world be better for our defeat. i think not.

    30. Richard Archer says:

      When will the American Taxpayer get a bailout? It's about time the federal government let free markets decide, reduce their involvement, and begin to cut government entitlement programs. When are they are going to go to a flat tax? What a wonderful world it could be!

    31. Andy Foisy says:

      Why does my newsletter say Monday, November 21, 2008???

      The 21st was a Friday!

      Monday, is the 24th!

    32. Judith from Detroit says:

      While the labor unions have a major roll in the "Big Three" problems, don't forget the EPA. They also share a major roll in all of this. Fuel efficient vehicles? Our auto mfgs. do quite well selling diesel autos (Fuel efficient) in Europe but can't sell most of them here because of the extreme, job-killing regulations and red tape in the US. Get rid of the corp.jets? Oh, please. That is a minor issue only brought up to incite anger at the big bad business execs. If I remember correctly, didn't Mrs. Pelosi demand in 2007,I believe, a C-32 jet(seats 45 and costs $22,000 per hour to operate) to fly her & her friends around? Did she give that up in the interest of economy? There is a lot of blame to go around, but the biggest I feel, is too much gov't. interference. Now, all of you auto mfg. engineers out there, and experts in business administration call Detroit and offer your expertise in building the perfect automobile and running a dynamic co. in spite of being strangled.

    33. Pingback: We once were red…. » Oh My God, They Admitted It

    34. Patrick O'lone says:

      What happened to equal rights? If the government pays these high wages to auto workers, aren't we all entitled to the same?

      Don't let them confuse you. There are those in congress whose goal is socialism. They are called DEMOCRATS. Their Gods are F.D.R. J.F K. L.B.J. and now this guy B.O.

    35. Ken in Santa Barbara says:

      My newsletter says Monday the 21st also. I attribute it to the THF and the symbolism they are again falling behind.

      More important than the inability to recognize what the day or the date, is how up "THF" are putting our collective problems on one sector of our populace and branding all of those problems as "Liberal" or "Democrat".

      That branding and contempt not being bad enough they attempt to divide us through said banter, push questions and a general disregard for debate.

      I will still breeze or browse THF current dribble in hopes they will address fiscal conservatism, seek common ground and a readership built upon getting along and not "getting it on".

      Until then my time and money is better spent working with programs like DARE and School/education issues and supporting the fact that this is a Republic first and foremost.

      I survived the date malfunction and hope THF will also.

      Thanksgiving is still on Thursday November 27,2008.

    36. Pingback: The Bailout Mentality Ends Here « Conservative Thoughts and Profundity

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