Wednesday, April 29, 2009

The Day Capitalism Died

In a boardroom in Detroit, capitalism took a major step back when GM caved in to big government and big labor.
Under the plan, GM is asking the Treasury Department for an additional $11.6 billion in loans, on top of the $15.4 billion it has already received. It envisions giving the government at least half ownership of the company as payment for half of the loans.

At the same time, GM said it would use stock instead of cash to pay off half the $20.4 billion it owes a United Auto Workers fund to cover retiree health care. That stock would leave the union owning about 39% of GM.

GM told bondholders it wants to swap up to $27 billion in unsecured debt for a 10% company stake.
So the federal government that steals from taxpayers and knows nothing about running a business and the labor union who's motives are job protection for life and high salaries, and knows nothing about running a business, is now in control of a once great business. Those that made real financial investment get ten cents on the dollar.

The only chance this fails is if the bond holders tender less than 90 percent of the debt, forcing GM to file for bankruptcy.

For GM to become a viable business again, bankruptcy is the only answer. The government and unions are not going to run a proper business and build products people will want to buy. Who would buy a product produced by this entity?

Cutting the number of dealers 42 percent and eliminating Pontiac, Saturn, Hummer and Saab are all good moves but will only be the beginning. Buick will be next. And why they need both Chevy and GMC identical products is a head scratcher, branding aside.

With the government in control, what will it do with its profitable SUV lines given its own gas mileage mandates?

The transition to Government Motors, provided it happens, will be a major factor that historians will point to that ended capitalism.

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