Friday, November 14, 2008

Car Company Bailout and More Stimulus

Let's get our bailout score card somewhat up-to-date -- not a bailout history.

-- Bear Stearns - $30 billion to avert default and acquired by JPMorgan Chase
-- Fannie Mae and Freddie Mac - $200 billion in preferred stock, $5 billion in their mortgage securities
-- AIG - $85 billion emergency loan in return for an 80% ownership stake; wait, make that $120 billion
-- Emergency Economic Stabilization Act of 2008 (H.R. 1424) -- $700 billion + $150 billion in Congressional pork yielded the Troubled Assets Relief Program (TARP) and and a newly created Treasury Office of Financial Stability with the initial goal to buy troubled mortgage-backed securities. Wait, Treasury has decided not to do that opting instead to invest in the actual banks in exchange for an equity stake.

Don't forget about Bank of America buying Merrill Lynch, the federal government allowing Lehman Brothers to declare bankruptcy (sold to Nomura and Barclays), and Goldman Sachs and Morgan Stanley converting into traditional banking institutions. On the global stage, the central banks of many nations have guaranteed their banking deposits with money they really don't have.

Today (actually always), liquidity is a premium, making cash flow; i.e., lending, extremely tight. Recession has formally gripped the U.S. and the world. The housing market has not improved -- consumers are months late on their mortgage payments and many in outright default. Likewise credit card debt payments have diminished.

The Congress and the White House were quick to bailout Wall Street and the banks, still not really addressing any core issues. Now the interest is on the big three auto companies. Bush and Congress are serious about loaning them $25B -- the sticking point is where the money comes from. Regardless, the government does not have it and if they do, they are borrowing it from the taxpayers -- future taxes yet to be realized.

Any cash given the auto manufacturers is throw away -- rewarding years of mis-management. Detroit has not created an attractive product line in decades.

Detroit is also tied up with stifling labor contracts and government manufacturing regulations. Pensions and health care costs per Detroit car are in the thousands, costs passed on the consumers.

The Democratic Congress is again talking $billions in more stimulus hoping to increase consumer spending and spur higher production and employment.

Again, this money comes from where? From whom? Future tax receipts -- borrowing from ourselves so we can have stuff now -- stuff we don't need -- and pay for it later.' Isn't that part of what has gotten us into this mess?

The talking heads; i.e., this weekend's G20 powwow in Washington, will blame the lack of sufficient government oversight and look to increasing regulation. And again, they will be wrong.

Whether you bought a home you couldn't afford, loaned money to people or businesses that were too risky, or built cars no one wanted, when poor financial decisions are made, there is a price to be paid by all involved. It is not the government's role to make it all better again.

In the United Socialists States of America, that apparently is the role of government -- to keep everyone equal (except those in power) by hatchet, axe, and saw.

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