Washblog

Sadly, We Must Save Our States, Not GM and Chrysler...

...and, of course, certainly not the banks.

On the banks, I will only say that people should take a moment to look at the Good Bank proposal which is problematic - because, well, this is a really, really big problem - but at least it reflects the way sanity is returning to our nation.

Sadly, I must say that the GM and Chrysler proposals are more of the old insanity. I've been in favor of EVERY bailout plan that was put into practice up until recently. I am totally in favor of massive, massive deficit spending. I am totally in favor of preserving a car industry in America. But this is beyond ridiculous. The UAW workers are not at fault. They built a country, not this disaster. So why must I sadly conclude we can't bail out their companies? See below.

I'll just mention Chrysler quickly, because that's all it deserves. It's a much smaller company than GM, it's every bit as bad and it is controlled by private equity firm Cerberus, who loaded the company with debt in a gamble to make a buck. It would be unconscionable to help the very people who destroyed our economy.

Here are the numbers on GM:

  1. The General Motors Corporation is completely bankrupt with no hope of returning to viability in a form we would even recognize.

  2. Because of this fact, the full market value of the General Motors Corporation is about $1.3 billion, mostly based on a government bailout gamble.

  3. The management says it needs a minimum of ten times that amount and as much as 35 times that amount to keep going.

  4. There is no way for the taxpayers to bail out GM without getting robbed by the company's bondholders.

  5. Our states and counties are on the verge of a financial collapse which would completely wipe out the positive effects of the stimulus bill and they need massive help immediately.

This is very sad, but this is triage. The states and counties will lay off more people than GM if they go bust. If we use the state of California for a rough estimate, the states will lay off between 100,000 and 200,000 workers if they collapse. GM cannot force people to buy its cars, whereas the states and counties have the legal authority to tax and pay back the money when times are better. The states are a far, far better bet.

In terms of economics and using California as a metric once again, the states will almost certainly stop work on more infrastructure projects than the stimulus bill funds if they go broke. GM, on the other hand, will spend a huge portion of the $14 billion downsizing. If they're going to downsize anyway, I see no reason for us to spend money to help them do it.

We need to fund our viable, bedrock institutions. First, that means out states and counties. Second, we still have Ford - for the moment. Allowing Ford's U.S. competitors to go under would give Ford an economic advantage it could use to stay viable for the next few crisis years. That's not a pretty way to prop up a company, but it saves our resources for the more important fights ahead. In emergencies, you preserve the basics first.

The lying years have ended. Our bedrock institutions have a huge amount of work to do. Our nation will need an "Accounting Manhattan Project". We have to ensure that our bedrock institutions will safe and viable after the crisis. We have to restore confidence in those institutions as quickly as possible.

We have to let GM and Chrysler go.

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