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The Jehoshua Novels


Cascade

The failure of Congress and the President to come up with some kind of workable bailout, or prepackaged bankruptcy plan will have nasty consequences. But they won’t be as rapidly apparent as those of the Lehman collapse. Make no mistake, however, there will be long term systemic effects if the automakers are allowed to twist in the wind and not given some kind of cash infusion. Here’s what amazes me: Wall Street firms were bailed out to the tune of billions, some were forced bankruptcies, like the forced purchase of Bear Stearns, others were outright nationalizations, a la AIG, Freddie and Fannie. These deals will cost more in the short-term (and already have) than the paltry $15 billion the automakers were willing to beg and grovel for. There is a nasty double standard at work here, as many have already mentioned. But what troubles me the most is that several hundred thousand good paying, factory jobs will be lost adding to an already stressed employment market. Add to the loss of auto manufacturing jobs are those of the parts suppliers. Add to that the loss of income from these folks, which will undoubtedly ripple through the general economy in the form of even less consumer demand and you have a mess. A mess that could be staved off and solved, or at the very least managed in a well thought out manner for the price of $15 billion in bridge loans. This wouldn’t be like Congress and the President and Paulson just throwing money into the black holes of AIG and many other banks.

I’m not saying bailing out the fools in Detroit is the best choice in the world. But it was the least worse one, for the time being. It’s also another clear indicator that our political class hasn’t a clue, lacks real leadership, foresight and courage. If GM and Chrysler go bankrupt there will be hell to pay.

27 comments to Cascade

  • Tim

    This will probably advance the date of the socialist revolution by several decades.

  • dsquared

    They’ll go belly up now or later. Now is cheaper. Let’s just let ‘em die.

  • mrmx

    production methods have changed drastically for automobiles. everyone needs to acknowledge that and move on. robotics and automation are the bottom line, not a huge labor force. the bigger hell is holding onto the illusion that we can turn back the clock 20 years.

    IMO, wall street is about money laundering and financial liquidity so it has to be saved no matter how disgusting their practices are.

  • Tina

    I’m betting Bush releases TARP funds to get the automakers thru


    “Go confidently in the direction of your dreams! Live the life you’ve imagined.” -Henry David Thoreau

  • Numerian

    Sean Paul’s summary is dead on. We’ve all decried Detroit’s management problems, but Detroit didn’t cause this Depression. Wall Street did. The hypocrisy of bailing out Wall Street with trillions but starving Detroit, which has hundreds of thousands of jobs at stake, is an example of the cul-de-sac the Republicans find themselves in. Their insensitivity to their own hypocrisy, because it is so ingrained, will cost them dearly. Detroit’s collapse will make the Depression not only deeper, but felt more deeply by everyone, and very quickly. At that point we all get to ask: how many depressions can a political party cause before they are forced out of business?

  • Tina

    Bush wants his legacy to also be the destruction of Detroit. I wonder how all those Southern Republicans senators who want them to go down will feel about all those workers (plus the supporting companies employess) suddenly being thrust on the welfare rolls, or when all the damn yankees head south for free warmth from the sun :D

    They were talking about it on the radio on my way home and they mentioned it was dumb for the senate republicans to reject it. They said Bush more than likely will step in and there will be a lot less strings than what the Republicans wanted.


    “Go confidently in the direction of your dreams! Live the life you’ve imagined.” -Henry David Thoreau

  • bex

    http://www.ritholtz.com/blog/2008/12/what-if-steve-jobs-ran-chrysler/

    GM is toast… buy Chrysler might be able to make it. One way is for Chrysler to sell off its plants to its suppliers. It should no longer be in the auto parts manufacturing business, or even in the auto assembly business. They should be in the design, marketing, branding, and selling business… much like Apple with its iPod.

    Also… what’s so bad about a GM bankruptcy? I thought a structured bankruptcy plan might make a lot of sense…


    http://bexhuff.com
    Of COURSE you can trust the US Government! Just ask the Indians.

  • hvd

    Two points in response. The phasing out and reorienting of labor can be done over time and humanely without having to “turn back the clock.” That’s what the Detroit bail out should be about.

    Because we don’t properly compensate and value laborers in service industries we will probably need unions to help get appropriate deals for these laborers. Our capitalists won’t do it on their own.

    Second, why do we have to save the crooks on Wall Street? What sort of liquidity have they actually passed on to our productive capacity. When they go down all that they bring with them is the appearance of liquidity – fake money being traded for more fake money. Let’s simply strip all of this fake liquidity from the system and use whatever federal resources we have to prop up local lenders who actually do due diligence in making loans to help our productive capacity. And this comes right back to Detroit which actually accounts for some of our productive capacity though not necessarily wisely done but which is at least something of a base from which to reimagine and reinvent the future. This, of course, means a change in management.

  • zot23

    No matter what Congress or his party does. Remember, this guy is the decider and he wants a bailout. He’ll pull $15B from where ever he has to get them through to next spring. This is all we are talking about here, a bridge loan to a real structured bailout next spring, not a cash handout of $15 now. $15 B to wait until Obama and Dems are in control of both house and senate is a good bet. We just flushed $700 B down the toilet for diddly-squat, 15 for a business that actually sustains the economy (even if very poorly) is a good deal by comparison.

    This is one instance where Bush is right IMHO and kicking the can down the road a little ways is the very best decision he can make.

    One funny thing is if Republicans do force the big 3 into bankruptcy to get rid of the UAW, they will inadvertantly force us to pull out of Afghanistan in addition to Iraq and contract our military budget by great convulsions. A huge military was fine when America was wealthy, when we’re all broke (besides CEO bankers) there is no way in hell Americans will choose guns over butter. We are much too affectionate to the taste of butter…

  • Anonymous

    Ugh… can agonist implement a system against acidental instant reposts? :)

  • jbaspen

    … it’s been reported in the Chinese press (hat tip to Asia Times) that the Chinese would love to purchase the Big Three’s patents and intellectual property. No matter how corrupt the Communist elite is, at least they have a sense of national purpose and think long term.

  • Raja

    MARKET SNAPSHOT: Stocks Off Session Lows As Treasury Vows To Help Auto Industry

    CNNMoney, December 12

    U.S. stocks skidded Friday but staged a partial recovery from earlier lows after the Treasury Department said it would step in to prevent a failure of the U.S. auto industry amid intensifying worries that more layoffs would deepen the recession.

    “Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” Treasury spokeswoman Brooklyn McLaughlin said in a statement.

    Funds for the auto companies are likely to come from the Trouble Asset Relief Program, or TARP. The decision to use TARP funds represents a shift in the previous White House position that the $700 billion should be limited to stabilizing the financial sector. .

    Down about 200 points at the start, the Dow Jones Industrial Average (DJI) was more recently off 126.16 points to 8,438.93, with 26 of its 30 components posting losses.

    With an industry rescue in doubt, General Motors Corp. (GM) fronted the Dow’s decline, its shares off 5.8%.


    They sicken of the calm, who knew the storm.

  • jonbrown

    The real prize here is the brand names. Cadillac is probably the most valuable brand name in the world, and Chevrolet is not far behind. I wonder what they would be worth on the open market. Much more than all of GM is currently valued for, that’s for sure.

  • Synoia

    Who provide the Debtor in Possession (DIP) financing? The banks…LAMO.

  • canuck

    including highly paid executives and union members. Let them die because they’re so selfish with Ford surviving the mess–the only automobile manufacturer not asking for a handout.

    There’s no guarantee that even if Congress funded the other two automobile companies who are begging for funds that they wouldn’t declare chapter 11 to reduce the amounts they have to cough up for pensions and other worker entitlements. Think they wouldn’t resort to such scandalous means…look at the airline industry and you’ll see management doesn’t have any scruples. Neither do investment brokers who caused the market collapse.

    Are Americans not willing to admit that the Fed made a mistake by funding the scoundrels that caused the collapse? The American economy is based on continued growth with consumer spending to the max which isn’t realistic.

    Let the chips fall where they may–yes people will lose their houses, but they’re overpriced. Deflation is the ultimate friend to populations–prices come down, making everything more affordable. Stop the US Fed from interferring with the process! Governments and central banks hate deflationary periods because they lack control over it. What the US Fed and world central banks adore is inflationary periods that drive up costs making everything more expensive for world populations.

    Bankers, especially in the United States, are hoarding cash and not relaxing lending rules. They’re buying up other banks with what they’re receiving.

  • zot23

    There is a baby in this bathwater though. It is buried under layers of scummy water, filth, and it’s own waste, but it’s in there. With a little time and some competence it can be separated from most of the water, but throwing it al out now is a big mistake.

    I say give Obama his shot on this one in February. If nothing else it is a great litmus test to see how he plans to govern over the next 4 years. Let’s see if the kid has the chops or was just razzle-dazzle.

  • Tina

    The Left Coaster view

    Why does the GOP hate US workers?


    “Go confidently in the direction of your dreams! Live the life you’ve imagined.” -Henry David Thoreau

  • chalo

    to the transportation industry in this country? When I ask myself this question, the answer is “no”.

    If, as it appears, these guys are going to continue to be part of the the problem, and continue to impede potential solutions– and the historical record shows that they will fight viciously to keep their broken status quo– then we really are better off without them, even accounting for the lost jobs and economic ripple effects.

    We don’t need a bailout or public subsidies for coopers, trappers, whalers, or milliners. And we shouldn’t spend our limited resources keeping a 20th century dead-end technology on life support, either.

    We’re going to need clean, efficient transportation. And we’re going to need people who will do what must be done towards that end, rather than what they think is best for their broken business model.

  • mrmx

    IMO, wall street and the big 3 are joined at the hip; they’ve schemed together for years.

    thus, America would be served well if the big 3 took their medicine.

    and wall street would have one less company to hustle.

  • mrmx

    that would be a good thing indeed.

    I do think it’s possible to remove the big 3 domino without an implosion. Moreover, modern, automated car companies would pop up and keep production going.

    i.e. I’m guessing that wall street has a far higher multiplier effect but, as investments lose value, investors will have to find new revenue streams.

    I think it’s more humane to ax the big 3 since inefficient manufacturing methods harm society as a whole so why keep a dead corpse alive?

    Finally, I believe Obama proposed a 3 percent federal account for workers so wall street can, theoretically, be defused.

    We’ll have privatized communism in the end…

  • Synoia

    Why do those from the south hate so much?

    Unions, gays, blacks, hispanics, women, catholics, or all but white southerners?

    They seem to specialize in hate.

  • Sean Paul Kelley

    serious and grave than that of Wall Street’s.

    “Is not our first thought to go on the road? The road is our source, our vault of treasures, our wealth. Only on the road does the ‘traveller’ feel like himself, at home.”
    Ryszard Kapuscinski

  • Sean Paul Kelley

    a siege mentality among many Southerners, especially the Deep South, Alabama, Mississippi, and portion of Georgia. Texas isn’t as bad, at least south and west Texas, but East Texas, well y’all remember Vidor, right?

    “Is not our first thought to go on the road? The road is our source, our vault of treasures, our wealth. Only on the road does the ‘traveller’ feel like himself, at home.”
    Ryszard Kapuscinski

  • Tina

    I guess he is dead weight since McCain/Palin no longer need him ;)


    “Go confidently in the direction of your dreams! Live the life you’ve imagined.” -Henry David Thoreau

  • chalo

    who work for the war industry. But they should all find something more productive to do with their time.

    I think looking at just the “jobs lost” part of the situation and ignoring the “smarter jobs gained” part is playing into the hands of demagogues. Allowing stupid, bad businesses to fail is not an emergency unless we want it to be one. I think we all agree that wholesome capitalism, if there is such a thing, brings with it what has been called “creative destruction”.

    There has never been a better opportunity for creative destruction than the imminent fall of Detroit automakers. These bastards have completely hosed our cities and ruined our quality of life, and now they want us to save them from themselves? We should definitely be spending that treasure to hasten what comes next, not to delay the inevitable.

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