As of Monday, you and I own 60% of GM. When's the fancy executive retreat? BTW--you can read the restructing plan insisted upon by the government here.
I can't begin to tell you how disgusted I am by this. First off, did you know that the amount we taxpayers paid for 60% of the company ($68 billion) is more than GM's total market value has ever been ($52 billion in 1980)? Yup, that's a good investment. Only the government could buy something as shitty as GM stock at it's peak when it's gone bankrupt. And the new company will be lucky to be half of the previous size.
And let's make no mistake--there's no guarantee that GM's still going to make it. Sure, they've shed a bunch of costs and gotten some concessions from their unions in the US and Canada. But, they still make cars that most people think suck. I saw how their "revolutionary" electric car the Volt is going to sell for $40,000 (it goes the first 40 miles on electricity only before gas kicks in). A new Prius hybrid? About $23,000. Yes, there is a niche market for it (people who primarily make short drives and live near a 220 volt charging station or have the money to have one installed in their homes), but unless they improve the battery technology it's not a game changer. Their remaining brands will include Buick, Cadillac, GMC and Chevrolet. Except for the Escalade, I can't think of a car under any of those brands that has any cache.
While Obama says that the government will be a silent partner, it presents several problems. First, if I own 60% of the fucking company, I don't want to be silent. However, the dual relationship is troubling. Now when the feds buy new cars, are they going to HAVE to buy GMs (so we can get some money back) even if they aren't the best ones to have? Or, if the feds decide they want to implement new safety standards. Do they talk to "our" engineers first, hence giving GM technological head start? From a profit motive p.o.v., I hope so. From a fairness p.o.v., I hope not. See the problem.
Likewise, one of our fellow shareholders (at around 12%) is the Canadian government. What if they don't like a policy that affects them. Do they hold GM decisions hostage over how much maple syrup we export?
The UAW is also in a weird spot in that their health care plan (not pension or dues money) owns about 15% now. Do they shut down a plant to protect their investment, but throws thousands of members out of work? How do they vote when the other members of the board of directors wants to reduce benefits to increase profits?
I don't think any of the partners are going to be happy with this when it's all said and done. Especially when they are back in bankruptcy court.
Showing posts with label finance. Show all posts
Showing posts with label finance. Show all posts
Tuesday, June 2, 2009
Tuesday, February 10, 2009
Stimulating Pork
I've been watching the negotiations over Obama's stimulus bill in the House and Senate with interest. At a political level, I wanted to see how far the dempublicans were going to over reach and how convinced the repulicrats were going to stick to the theory that they haven't been fiscally conservative enough, hence their election defeats. So far, I have not been disappointed.
The repulicrats have an answer for everything having to do with the economy--tax cuts. Hunh? Remember that $600 check that W sent all those people? Well, it didn't do much for the economy because people are BROKE. They paid bills and stuck it in the bank, which is generally a good thing, but it's not an economic stimulus.
The dempublicans clearly see the bill as the answer to all of their constituents' problems. For instance:
$650 million for digital-TV coupons; $90 million to educate “vulnerable populations”
$15 billion for boosting Pell Grant college scholarships
$300 million for grants to combat violence against women
$150 million for agricultural-commodity purchases
$150 million for “producers of livestock, honeybees, and farm-raised fish”
$850 million for Amtrak
$300 million for energy-efficient-appliance rebate programs
We can have a separate discussion as to whether Congress should be funding any of those at all, but they sure as shit aren't economic stimuli. The dems see the big gravy train approaching and don't want to miss it.
The problem with all of this non-stimulus stuff is that, eventually, we pay twice as much for these programs due to the interest on the borrowed money taken out to fund them. Plus it allows foreign banks to have us by the short and curlies.
It's private industry, not government spending, that's going to lead us out of this recession. Obama may be right that 'green' industries will be the key. He proposes several measures to prop up the industry. The problems with this are that it hides the true cost of green energy, once an industry has a subsidy it almost never gives it up, and it puts the government in the position of picking winners/losers and it has a poor record of doing so.
If Obama wants to give green industries a boost, he should repeal tax breaks to the oil industry for exploration, etc. This will lead to carbon-based energy being priced more closely to its cost (in this case, higher) and make green energy more cost competitive while bringing money INTO the treasury. It will also force the green energy companies to put up or shut up by getting rid of one the barriers to their success. If they succeed, and I think they will, they'll organically create jobs without the government's help. What a concept.
The repulicrats have an answer for everything having to do with the economy--tax cuts. Hunh? Remember that $600 check that W sent all those people? Well, it didn't do much for the economy because people are BROKE. They paid bills and stuck it in the bank, which is generally a good thing, but it's not an economic stimulus.
The dempublicans clearly see the bill as the answer to all of their constituents' problems. For instance:
$650 million for digital-TV coupons; $90 million to educate “vulnerable populations”
$15 billion for boosting Pell Grant college scholarships
$300 million for grants to combat violence against women
$150 million for agricultural-commodity purchases
$150 million for “producers of livestock, honeybees, and farm-raised fish”
$850 million for Amtrak
$300 million for energy-efficient-appliance rebate programs
We can have a separate discussion as to whether Congress should be funding any of those at all, but they sure as shit aren't economic stimuli. The dems see the big gravy train approaching and don't want to miss it.
The problem with all of this non-stimulus stuff is that, eventually, we pay twice as much for these programs due to the interest on the borrowed money taken out to fund them. Plus it allows foreign banks to have us by the short and curlies.
It's private industry, not government spending, that's going to lead us out of this recession. Obama may be right that 'green' industries will be the key. He proposes several measures to prop up the industry. The problems with this are that it hides the true cost of green energy, once an industry has a subsidy it almost never gives it up, and it puts the government in the position of picking winners/losers and it has a poor record of doing so.
If Obama wants to give green industries a boost, he should repeal tax breaks to the oil industry for exploration, etc. This will lead to carbon-based energy being priced more closely to its cost (in this case, higher) and make green energy more cost competitive while bringing money INTO the treasury. It will also force the green energy companies to put up or shut up by getting rid of one the barriers to their success. If they succeed, and I think they will, they'll organically create jobs without the government's help. What a concept.
Wednesday, December 3, 2008
The Big 3 With Hat in Hand
After getting their asses handed to them after begging for dollars a few weeks ago, the CEOs of the Big 3 automakers are back again. Besides the usual, "We're too big to fail" argument, they are saying that they have all of these great technologies right around the corner, and if they only had a few tens of billions of dollars they'll get them to market soon and make tons of money.
There are (at least) two serious flaws with this argument:
1) If you guys were such management geniuses to be able to use all of this money wisely and bring great products to market, you wouldn't be prostrating yourselves right now. GM has been running their business into the ground for 30 years. What's different now? This whole thing about, "Oh, if you give us this money we'll work for $1 a year and we'll sell our jets" has nothing to do with anything. These guys do not know how to run a successful car business in North America. $25,000,000,000 won't change that. Remember, GM came out with the first modern electric car, the EV, then gave up on it.
2) If these new cars are that awesome and they just need capital to get them to the finish line, they should go looking for venture capital (perhaps from their unions?), not taxpayer money. There must be venture capitalists who want to cash in on these great cars of the future. What's that? Oh, yeah, they wouldn't have faith in Detroit to pull it off. Nevermind.
The Big 3 will have you believe that they made American capitalism great. For a time, that might have been true. But their arrogance and stubbornness has contributed to the degradation of our environment and their own demise. Let them sink or swim on their own merits, but not with my tax dollars.
There are (at least) two serious flaws with this argument:
1) If you guys were such management geniuses to be able to use all of this money wisely and bring great products to market, you wouldn't be prostrating yourselves right now. GM has been running their business into the ground for 30 years. What's different now? This whole thing about, "Oh, if you give us this money we'll work for $1 a year and we'll sell our jets" has nothing to do with anything. These guys do not know how to run a successful car business in North America. $25,000,000,000 won't change that. Remember, GM came out with the first modern electric car, the EV, then gave up on it.
2) If these new cars are that awesome and they just need capital to get them to the finish line, they should go looking for venture capital (perhaps from their unions?), not taxpayer money. There must be venture capitalists who want to cash in on these great cars of the future. What's that? Oh, yeah, they wouldn't have faith in Detroit to pull it off. Nevermind.
The Big 3 will have you believe that they made American capitalism great. For a time, that might have been true. But their arrogance and stubbornness has contributed to the degradation of our environment and their own demise. Let them sink or swim on their own merits, but not with my tax dollars.
Tuesday, September 16, 2008
More High Finance Doings
Putting in some serious non-bankers' hours, BofA bought Merrill Lynch and Lehman Brothers announced that it would file for bankruptcy on Sunday. Strangely, with all of this going on, the government still insists on taking over some others our with our tax dollars (see AIG). Do we really want the government dictating private finance?
I just don't buy into this idea that some companies are too big too fail. Whether it's AIG, GM or Microsoft. Remember, this whole crisis was due to their making--they gambled on too many bad mortgages and, after making a killing for a while, eventually lost. That's how captialism works. Their investors and employees pay the price, just as they reaped the benefits earlier. Putting every American on the hook for these failures sends the wrong message (It's OK--you can fuck up as much as you want, but we'll save you from yourselves) and morally wrong since these machinations lead to a higher federal deficit that our children and grandchildren will have to payoff. The first bailout of Bear Sterns just encouraged more of these--and believe me, AIG won't be the last. By propping these companies up, the government refuses to let the market determine their true worth, so they are likely to get over-valued and fail again.
The story line is always the same, "We can't let Bear Sterns/Fannie Mae/Freddie Mac/AIG/Whoever's Next fail because it will destroy life as we know it...at least financially." I say bullshit. There's always someone out there to buy them for what they think is the right price. Which is a better price than whatever the government thinks it's worth because it's our money and it shouldn't be used to pick winners/losers in the financial markets.
Speaking of these buyouts, BofA is being extremely aggressive (they bought Countrywide before they went bankrupt in January). Clearly, BofA feels that in the medium-long term both Countrywide and Merill are undervalued. That's between their board and their stakeholders. My feeling is that they will have a tough time making them work. Most acquisitions fail not due to market reasons, but do to a poor job of merging cultures and getting people to work together. Absorbing two pretty big companies at once is going to be a big task (I don't envy BofA's VP of HR). I wouldn't be surprised if BofA eventually spins off one or both of them.
I just don't buy into this idea that some companies are too big too fail. Whether it's AIG, GM or Microsoft. Remember, this whole crisis was due to their making--they gambled on too many bad mortgages and, after making a killing for a while, eventually lost. That's how captialism works. Their investors and employees pay the price, just as they reaped the benefits earlier. Putting every American on the hook for these failures sends the wrong message (It's OK--you can fuck up as much as you want, but we'll save you from yourselves) and morally wrong since these machinations lead to a higher federal deficit that our children and grandchildren will have to payoff. The first bailout of Bear Sterns just encouraged more of these--and believe me, AIG won't be the last. By propping these companies up, the government refuses to let the market determine their true worth, so they are likely to get over-valued and fail again.
The story line is always the same, "We can't let Bear Sterns/Fannie Mae/Freddie Mac/AIG/Whoever's Next fail because it will destroy life as we know it...at least financially." I say bullshit. There's always someone out there to buy them for what they think is the right price. Which is a better price than whatever the government thinks it's worth because it's our money and it shouldn't be used to pick winners/losers in the financial markets.
Speaking of these buyouts, BofA is being extremely aggressive (they bought Countrywide before they went bankrupt in January). Clearly, BofA feels that in the medium-long term both Countrywide and Merill are undervalued. That's between their board and their stakeholders. My feeling is that they will have a tough time making them work. Most acquisitions fail not due to market reasons, but do to a poor job of merging cultures and getting people to work together. Absorbing two pretty big companies at once is going to be a big task (I don't envy BofA's VP of HR). I wouldn't be surprised if BofA eventually spins off one or both of them.
Monday, September 8, 2008
What Free Markets?
I LOVE capitalism. It may not always be fair (whatever fair means) but is the economic system that rewards rewards creativity and allows people to have the most control over their financial destiny. That's why this whole Freddie Mac/Fannie Mae bailout KILLS me. The shareholders are going to get nothing while the big investors/underwriters will get nearly all of their money. The treasury department says this was necessary to keep foreign investment flowing into the banking system to avoid an even bigger crash. I say bullshit. Since when is investment in for profit US companies backed by the US Treasury?
All this does is prop up a market that shouldn't be propped up. If banks are a shitty investment, so be it. What this means is that the big money players got into the game where they could make big profits in good times with NO RISK in bad ones. Where do I sign up for that?
And remember, this whole thing was started by greedy mortgage companies and people who can't do math well enough to figure out whether they can pay for a house. Why in the world would we want to bail out either of those two groups?
This kind of bailout only encourages a future bubble that will burst. Just like when the feds give cheap loans to people to rebuild in flood plains after the big on. It will happen again. And we get to pay for it.
Oh, and since the bailout saves big Wall Street contributors, guess where both Obama and McCain stand on the issue?
All this does is prop up a market that shouldn't be propped up. If banks are a shitty investment, so be it. What this means is that the big money players got into the game where they could make big profits in good times with NO RISK in bad ones. Where do I sign up for that?
And remember, this whole thing was started by greedy mortgage companies and people who can't do math well enough to figure out whether they can pay for a house. Why in the world would we want to bail out either of those two groups?
This kind of bailout only encourages a future bubble that will burst. Just like when the feds give cheap loans to people to rebuild in flood plains after the big on. It will happen again. And we get to pay for it.
Oh, and since the bailout saves big Wall Street contributors, guess where both Obama and McCain stand on the issue?
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