Saturday, October 23, 2010

GM Set to Sell More Cars in China Than in U.S.; Doesn't That Mean China is Shipping Jobs to U.S.?

SHANGHAI (WSJ) -- "China's domestic auto market could reach sales of more than 17 million vehicles this year and 19 million next year, said a senior General Motors Co. executive, outpacing home-market sales for several Western auto brands . The sales forecasts are up sharply from the 13.7 million vehicles that auto makers sold in China last year (see chart) as the country's auto market grew about 50% to surpass the U.S. as the world's biggest." Also:

1. Daimler expects Chinese consumers to become the biggest buyers of Mercedes Benz cars in the next three to five years. 

2. Volkswagen AG's Audi unit expects its sales in China to surpass German sales next year.

3. GM's sales in China will surpass that of its parent company in the U.S. according to GM's Kevin Wale (source)."

MP: We hear a lot about how because of corporate greed and trade with countries like China, we end up "shipping U.S. jobs overseas." (Q: How exactly are jobs packaged and shipped from the U.S. to China or other countries, i.e. which shipping method is used to send jobs overseas: air freight, containers by ship, or ??)

The story above illustrates how trade with China benefits the U.S. and creates jobs in the U.S. for GM workers. But by selling more cars in China than in the U.S. this year, doesn't that mean that China is "shipping jobs overseas to the U.S.?"  And by buying so many Mercedes, Audis and Volkswagens in China, doesn't that mean that China is "shipping jobs overseas to Germany?"Don't all those brand new Buicks, Mercedes and Audis sold in China make the Chinese people worse off?

146 Comments:

At 10/24/2010 2:28 AM, Blogger sethstorm said...

The jobs aren't being shipped to the US. It undermines the remaining US work left. Not everyone wants a globalized, bland car with all of Detroit's character out of it.

That action only makes it harder to build US-specific models.

Buick is already dead in the water for being internationalized. They deserve the fate of Oldsmobile, as the Buick brand has been gutted.

 
At 10/24/2010 3:10 AM, Blogger Lyric said...

Nonsense.

Does Mercedes have trouble selling cars with steering wheels on the right side? Would they have trouble selling cars modified to US tastes? if they do have trouble, will a Korean auto maker have trouble filling the void? Will Toyota make electric cars if the US wants them and China does not?

Dead in the water? Deserve? Who decides what they "deserve?"

 
At 10/24/2010 7:56 AM, Blogger Jason said...

The Chinese require a joint venture for foreign car manufacturers where the Chinese partner has majority control. They also require cars are built there.

The GM IPO is important, once GM is past it, they can pay off the US and Canadian governments and then look to moving to China, become a majority holder of their JV, and actually grow..

 
At 10/24/2010 9:30 AM, Blogger juandos said...

GM to sell more cars in China...

Enough to make a taxpayer almost proud...:-(

 
At 10/24/2010 9:31 AM, OpenID TBrad82 said...

No, this doesn't mean China is shipping jobs to the US. It means the cars are being made by Chinese autoworkers in Chinese autofactories where the Chinese government is a partner with GM.

 
At 10/24/2010 9:59 AM, Blogger Sean said...

What TBrad82 and juandos said. :)

 
At 10/24/2010 10:05 AM, Blogger Walt G. said...

GM has to expand into emerging markets to competitively support their global operations and obligations. No matter how you look at it, the U.S. is a mature automobile market that is going to be split by at least five major automakers (from a low of 10 million to a high of 18 million vehicles sold per year between them).

Personally, I hope GM is very successful domestically and overseas and that they can fund their pension plans for the next 30 years or so. I can tell you that the $12 billion GM has to come up with in 2013 and 2014 to fund their pension fund is scary for someone like me who wants to retire next year.

Whether you like GM or not, you have a vested interest in its success if you want your taxpayer money back and over a half million retirees' hands out of the PBGC cookie jar.

 
At 10/24/2010 10:14 AM, Blogger VangelV said...

The jobs aren't being shipped to the US. It undermines the remaining US work left. Not everyone wants a globalized, bland car with all of Detroit's character out of it.

Is this the 'character' that was rejected by American consumers and drove GM and Chrysler to bankruptcy?

 
At 10/24/2010 10:18 AM, Blogger Walt G. said...

juandos,

The article you referenced left out the benefit side of a cost/benefit analysis, so I guess we could call that a half-ass analysis, couldn't we? Costs are always the easy part, but it takes a bit of effort to determine the benefits. For example, where's the $10,000 I've paid in taxes this year show up at?

I'll be happy to take the tax money back if the U.S. taxpayers don't want it. In addition, anyone who does not want my money can put a sign saying "No GM Workers' Money Accepted Here" in their store, restaurant, hardware store . . . window and I will be happy to take my money (yours?) elsewhere.

 
At 10/24/2010 11:33 AM, Blogger PeakTrader said...

Much of the U.S. jobless recoveries from the past three recessions may be explained by the Information and Biotech Revolutions.

During the Industrial Revolution, it may have taken a few weeks or a few months for farmers to become competent factory workers.

However, in the Information and Biotech Revolutions, it may take factory workers years to become competent computer engineers or biochemists.

Top 300 Highest Paying Jobs in America (2008 & 2009)

http://www.myplan.com/careers/top-ten/highest-paying.php

 
At 10/24/2010 12:05 PM, Blogger jcarroll1948 said...

Logically, one would assume that most of the jobs created by GM building a factory and selling cars in China would be Chinese jobs, and that most of the profits made would stay in China for re-investment purposes. A few American jobs would be created for the managers and foremen who go to China to oversee the new factories, but, again, the money they make would mostly remain in China to pay for their food, lodging, etc (some, probably a small percentage, would probably return to the US through their retirement contributions and other payments they make to US interests). And, I suppose, there would be a few truly US jobs in Detroit created for a hand full of people who oversee the Chinese subsidiary. Can anyone familiar with the total economics associated with the Chinese GM factories quantify the US benefit?

 
At 10/24/2010 12:22 PM, Blogger PeakTrader said...

jcarroll1948, typically, more domestic jobs are created and more profit is earned when you expand production beyond domestic production.

There are tens of thousands of high-paying jobs in Silicon Valley. Yet, almost no durable goods are produced. They're produced offshore.

 
At 10/24/2010 12:39 PM, Blogger Walt G. said...

"Can anyone familiar with the total economics associated with the Chinese GM factories quantify the US benefit?"

GM will present their financial information on a consolidated balance sheet when they are public (actually the U.S. Treasury gets one now). That means all their profits and losses from all regions of the world and various subsidiaries/partnerships are on there. Most companies, GM included, are global now, and they make global economic decisions, which can be influenced by social and political policies. Except for those social and political factors, there's no reason to expect U.S. or Chinese profits/losses to stay in the country where they were made.

 
At 10/24/2010 12:49 PM, Blogger James said...

Just how does that add to US jobs?

GM opens a production line in China to get around a 30 percent tariff on vehicles. A 30 percent tariff that American trade negotiators agreed to. Not only does that not create US jobs but it transfers, for free, GM’s manufacturing technology to China.

If free trade worked the way Adam Smith, David Ricardo, and others say it should work then the US would be making cars with American labor and shipping them to China. Instead we have this bastardized version of free trade where American workers are cut out and corporations profit without creating jobs for Americans.

No tariffs, No Recovery

 
At 10/24/2010 12:53 PM, Blogger VangelV said...

Much of the U.S. jobless recoveries from the past three recessions may be explained by the Information and Biotech Revolutions.

You mean that the Fed's liquidity injections had nothing to do with it?

During the Industrial Revolution, it may have taken a few weeks or a few months for farmers to become competent factory workers.

However, in the Information and Biotech Revolutions, it may take factory workers years to become competent computer engineers or biochemists.


I doubt it. To become a competent engineer or scientist you need a level of education that is not being provided in the US system to most students. Most university graduates today could not do those jobs and I doubt that a typical factory worker could do any better.

 
At 10/24/2010 12:55 PM, Blogger VangelV said...

Can anyone familiar with the total economics associated with the Chinese GM factories quantify the US benefit?

Without Chinese profits GM goes bankrupt and all those pension obligations vapourize. The taxpayer is still on the hook for the bailout and the money recovered is much smaller.

 
At 10/24/2010 1:13 PM, Blogger VangelV said...

GM opens a production line in China to get around a 30 percent tariff on vehicles. A 30 percent tariff that American trade negotiators agreed to. Not only does that not create US jobs but it transfers, for free, GM’s manufacturing technology to China.

A bankrupt GM does not have any manufacturing technology. That goes to the creditors and the purchasers of liquidated assets. From where I stand GM needs China far more than China needs GM.

If free trade worked the way Adam Smith, David Ricardo, and others say it should work then the US would be making cars with American labor and shipping them to China. Instead we have this bastardized version of free trade where American workers are cut out and corporations profit without creating jobs for Americans.

You have no idea about the issues involved. Free trade allows consumers to benefit as they purchase the lower cost goods from the people best able to supply them. It allows for specialization of labour and ensures that those that are best able to make use of resources effectively get most of the market share. The reason why the US is no longer dominant is because American car companies are not efficient. It is not high wages because Toyota and Audi can make better cars at more attractive prices with higher paid labour. It is low productivity.

No tariffs, No Recovery

Tariffs will mean that lower income individuals and the middle class will spend much more money on goods that are now imported from China and cannot be made cheaply enough in the US. Instead of coming from China you will simply see slightly more expensive goods from India, Vietnam, or South America. That will leave less disposable income for consumers to spend on other things that they buy in the domestic economy. In effect, most people will be harmed while benefits will accrue to a few politically connected producers who will be able to ask more money for the goods that they make. As higher prices cause demand to decline fewer workers will be needed to satisfy that demand. And the US economy will go down in flames.

 
At 10/24/2010 1:59 PM, Blogger Ron H. said...

"Costs are always the easy part, but it takes a bit of effort to determine the benefits. For example, where's the $10,000 I've paid in taxes this year show up at?"

Walt G., that's a phony argument. Can you say "broken window fallacy"? Carried a little further, you could say that taxpayer money spent to have holes dug then filled back in is a good investment as it provides workers with income that they will spend, and generates tax revenue.

That NTU study describes a business loss. Labor costs are part of that. Any firm that loses money could say "Oh, it's not all bad, our employees paid taxes and spent their pay to the benefit of others.

I don't have a good number for domestic GM employment, but I'll bet you do, and if you multiply that number by $10k I'm pretty sure the total will be at least an order of magnitude less than the tens of billions in taxpayer bailout money, so that was a pretty lame argument in any case.

The bottom line is that as a taxpayer, I've had money ripped from my pocket to support a losing business that private money said should have gone out of business. we have suffered an overall loss.

 
At 10/24/2010 2:20 PM, Blogger rufus said...

Our Corporate Tax laws will force GM to transfer all of their profits, and thus "future investment dollars" overseas, and Leave Them There.

Any CEO of a Fortune 500 Company (or 2,000 company for that matter) that pays Any U.S. taxes, or has Any money in bank accounts on U.S. soil should be fired, immediately.

We are the stupidest people in the history of the world.

 
At 10/24/2010 2:28 PM, Blogger Walt G. said...

Ron H.

I am saying the article was biased and not a well-balanced piece of writing. I think you need to include past and future benefits, too. I am still waiting for someone to quantify what was or will be actually "lost" as compared to the alternative of a GM liquidation. Liquidation would have cost billions and billions of dollars, too. If you have anything from an academic-type source that shows what the total costs of liquidation would have been, I would be happy to read it.

Many experts and governmental agencies (GAO, CBO, and U.S. Treasury) believe most or all of the money and investment will be repaid. Personally, I think it will be shown to be a much better way to spend money than the Iraq and Afghanistan Wars, but you have to have an open mind to think that way.

I find GM/UAW bashers are not unlike those who believe all trade and Wal-Mart are bad, immigrants cause all the job losses, and the educational problems would just go away if all the bad teachers were fired.

 
At 10/24/2010 2:36 PM, Blogger morganovich said...

jcarrol-

while you are doubtless corrects that most of those jobs will be chinese (though i'm not sure that's true of the component suppliers), you are leaving out a key issue:

these chinese jobs will save US jobs. the chinese venture is MUCH more profitable than the US one, and these profits will wind up subsidizing the UAW workers.

you may feel that to be good, bad, or indifferent, but these profits are going to come home to fund US ops and pensions.

ford is certainly doing that with brazil.

 
At 10/24/2010 4:02 PM, Blogger Ron H. said...

Walt G.,

Biased? I suppose you would find anything not favorable to the GM bailout to be biased. The NTU report, is a view from a taxpayer advocacy group. It is a summary of a report by an academic, Thomas D. Hopkins, Professor of Economics at the Rochester Institute of Technology. (you expressed trust in academics) It pretty closely reflects how tens of millions of taxpayers view the bailouts. You need to get out more often. Your view is narrowly defined by your immersion in the GMUAW culture.

The bailouts were political decisions, not economic ones, and the CBO, GAO and Treasury are not likely to find that billions in taxpayer money was wasted on these political decisions.

"Personally, I think it will be shown to be a much better way to spend money than the Iraq and Afghanistan Wars, but you have to have an open mind to think that way."

Don't get off track here, Walt, wars aren't being argued. It's silly suggesting that we try to judge which of several bad ideas is least bad.

"I find GM/UAW bashers are not unlike those who believe all trade and Wal-Mart are bad, immigrants cause all the job losses, and the educational problems would just go away if all the bad teachers were fired."

What kind of smoke screen is that? It makes no sense. You are lumping several opposing viewpoints together.

The problem, Walt, is the nationalization of a large private enterprise. It's a very alarming direction to take, and it should alarm you too, unless you're an admirer of Hugo Chavez. You can put whatever spin you want on it, but that doesn't change what it is.

 
At 10/24/2010 4:40 PM, Blogger Ron H. said...

"If free trade worked the way Adam Smith, David Ricardo, and others say it should work then the US would be making cars with American labor and shipping them to China."

James, if you are going to invoke Ricardo, you should at least state his principles correctly. Comparative advantage would dictate in this instance, that cars be made where they are made most efficiently. That wouldn't be in the US.

 
At 10/24/2010 4:53 PM, Blogger Walt G. said...

Ron H.,

Biased article? Yea, just try to cite the NTU report in a college economics's class for a term paper.

You never answered how much it would have cost U.S. taxpayers for GM's liquidation. You surely don't believe that alternative was free. The PBGC costs alone would have been huge (The GAO 10-492 report estimated GM and Chrysler had 922,537 employees they would have had to cover).

I am not the one who is trying to ignore the other side. The viewpoints I am lumping together are people who attempt to simplify problems past the point of usefulness or feel they must have an easy scapegoat to understand a difficult problem.

I don't consider it a smokescreen to determine the best use of taxpayer dollars from an array others have already chosen to make. I have my dollars in this game, too. I'll take a GM investment over a war in Afghanistan that even supporters are saying cannot be won any day--especially since the GM investment will mostly be paid back.

 
At 10/24/2010 5:03 PM, Blogger morganovich said...

walt-

why do you assume that GM's liquidation would cost taxpayers anything?

liquidation does not mean wholesale job losses, it means new owners.

that may mean wage cuts for the privileged union members, but that's not a taxpayer problem.

someone could have used those assets and made them pay if they changed the designs and cost profiles.

your "bail us out or we'll be a burden" argument could be applied anywhere. should we bail out any company that might go under and shed some employees? the implications of your idea when spread to the whole economy are ludicrous.

also, what is the cost of such clear nepotism in terms of priority of claims in a bankruptcy? do you think bond markets wont respond to this increased risk? what about jobs at ford that didn't need a bailout? they were poised for a big share gain that they didn't get because of government intervention.

 
At 10/24/2010 5:19 PM, Blogger Walt G. said...

morganovich,

What you say is correct in the long term. But to get to the long term, you have to make it through the short term. In the long run, everyone is dead.

Business in the U.S, does not operate on a long-term model or worry about future generations. That's probably why we have such a huge unfunded public liability problem, and half the people age 50 don't have a dime saved for retirement. Maybe we would be much better off as a society if we operated using an Asian model, but we don't.

I understand this was an unpopular political decision. I just don't see where narrowing the scope down to five years or so and looking at the U.S. economic impact it was necessarily a bad choice given the alternatives.

You mentioned Ford, and I will mention Toyota. Both thought the loans and investments were a good idea and supported them publicly. Why do you think a competitor would do such a thing unless it would help them, too?

 
At 10/24/2010 5:25 PM, Blogger sethstorm said...


Does Mercedes have trouble selling cars with steering wheels on the right side?

They're used to being in an export role to Third World hellholes, specifically Guard vehicles to despots.



What kind of smoke screen is that? It makes no sense. You are lumping several opposing viewpoints together.

Except that he is right about you.




these chinese jobs will save US jobs. the chinese venture is MUCH more profitable than the US one, and these profits will wind up subsidizing the UAW workers.

No, it will be a way to kill off jobs in the US. Then we get vehicles so bland that today's Buicks look good. One only needs to look at the various underpowered(China) or rebadged Buicks(China-derived) to make my point more clear.

I buy deeply into Detroit's manufacturers to get away from bland, globalized golfcarts. They get the idea of providing more power and cubic feet per dollar to the masses.

 
At 10/24/2010 5:38 PM, Blogger Craig said...

Not everyone wants a globalized, bland car with all of Detroit's character out of it.

Presumably, neither do the Chinese. That's probably why they're buying Buicks instead of Kias. Really, I should think you could do better than that one.

 
At 10/24/2010 6:13 PM, Blogger morganovich said...

walt-

that is an argument by which one could justify virtually any bad decision.

well, we burned the house to keep warm, but oops, now were really in for it.


private enterprise in this country does just fin in the long term. lots of companies make it. some don't. others take their place. that is exactly as it should be.

your argument about a lack of long term thinking is as wrong as it is irrelevant. those that do, do well, those that do not provide fodder for the next round of creative destruction. that's capitalism, and it works well.

where it breaks down is when assets that ought to be reallocated aren't. political patronage breaks the cycle and allows companies that deserve to fail to limp on until they fail again, like GM. this was not their first bailout. why should we believe they'll learn their lesson now?

ford supported the bailout out of fear for the supply chain. that could have been mitigated using existing bankruptcy law and DIP financing as opposed to the radical and unfair asset reallocating that were used to favor the UAW at the expense of creditors. that strategy will keep any kind of buyout firm from ever looking at GM. who would put money in in it gave them an unpredictable claim on assets?

note that the IPO is not going well. gee, i wonder why...

and as ever seth, i can;t even find a shred of logic in your argument. can you really not see that barring big earning subsidiaries overseas, the whole big 3 would go under?

i know you still wish cars had tail fins or whatever it is you claim to care about, but you are just flat out ignoring the fact that you are a market of one and the rest of the country disagrees. look at the cars that sell well in the US. they look less like what you want than the US cars do. we went through this before. you want a $40k car for $18k. sorry, but there is no such animal...

 
At 10/24/2010 7:32 PM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 10/24/2010 7:47 PM, Blogger aorod said...

GM North America will be gone in 5 years....

 
At 10/24/2010 7:58 PM, Blogger Ron H. said...

"GM opens a production line in China to get around a 30 percent tariff on vehicles. A 30 percent tariff that American trade negotiators agreed to."

That raising an interesting question, James, If the US imposed a tariff on imported Chinese goods, would you see Chinese businesses building factories in the US to avoid that tariff, and thereby competing directly with US businesses, as a good thing or a bad thing? For whom would it be bad or good?

By the way, when you speak of US trade negotiators, you aren't referring to free trade.

 
At 10/24/2010 8:38 PM, Blogger sethstorm said...


That's probably why they're buying Buicks instead of Kias.

Unfortunately the Buicks they have aren't much more than dressed up Kias in size/power.



morganovich said...

Cut the environmentalism out of it and those full-size cars won't be out of reach. To ask Detroit to make bland, globalized cars is asking for something that US customers do not want. Simply increasing the volume to drown out choice won't get rid of the desire.

But don't let me stop your demonization. You just want to justify a bland car just because I'll get used to it over the long run. There are plenty of ways to make cars the Detroit Way, larger and more affordable per pound and cubic foot than their Third World competitors.

Save the bland golfcarts for the rest of the world.


liquidation does not mean wholesale job losses, it means new owners.

Who will be politically motivated to exact revenge.

 
At 10/24/2010 8:44 PM, Blogger sethstorm said...


If the US imposed a tariff on imported Chinese goods, would you see Chinese businesses building factories in the US to avoid that tariff, and thereby competing directly with US businesses, as a good thing or a bad thing?

Not going to happen, as that lesson has already been learned. The firm would have to have no links to China or anyone who would have links to China.

That, and you'd have to see products that are US-made end-to-end, in factories that are in the North.

 
At 10/24/2010 8:46 PM, Blogger sethstorm said...

This comment has been removed by the author.

 
At 10/24/2010 8:50 PM, Blogger sethstorm said...


Ford supported the bailout out of fear for the supply chain


And they thank us by making golfcarts in hellhole countries, and generally gutting out what made Detroit cars good.

By going global(and removing the Panther platform), they want to make cars blander than a saltine cracker. Same for GM and (a lesser extent) Chrysler.

 
At 10/24/2010 9:08 PM, Blogger morganovich said...

seth-

your response is so incoherent that i'm having trouble even figuring out what you are trying to argue.

you some to think there is some magic car out there from the glory days that US manufacturers can't make because of some rule.

they sell what is demanded. camrys outsell mustangs. it's a demand issue. the average US car is bigger and more powerful than it was in the 80's. you are just making stuff up because you want a caddy CTSV for the price of a ford fiesta.

there are lots of big, powerful US cars. you just aren't willing to pay for them and their fuel, just like most americans.

unlike them, you blame some conspiracy as opposed to accepting the market. it would be great to get a quad core dell XPS for $100 too, but no one can make money selling them at that price, so they don't exist, just like this fanciful sethmobile.

isn't it interesting how these terrible global cars keep taking us share? why do you think that is?


your paranoid ideas about new owners "exacting revenge" sounds delusional. revenge for what? on whom? offering people jobs is revenge now?

do you trot out that little chestnut in job interviews?

 
At 10/24/2010 9:45 PM, Blogger VangelV said...

I am saying the article was biased and not a well-balanced piece of writing. I think you need to include past and future benefits, too. I am still waiting for someone to quantify what was or will be actually "lost" as compared to the alternative of a GM liquidation.

Little will be lost in a liquidation. The equity holders will get wiped out. (As they did.) But the assets, if they are productive and have value, will go into the hands of other people who will put them to better use than GM's management, which drove the company into bankruptcy. The workers will lose their jobs and will have to apply to the new owners for new jobs. If they are productive and dependable they will have no problem getting a job. If they are not then they will have to find something else that they are more suited to.

You seem to forget that the very thing that made the US the great manufacturing powerhouse that it became was creative destruction, a process that rewards the economically virtuous and punishes the sinners. By doing so it makes us wealthier.

Liquidation would have cost billions and billions of dollars, too. If you have anything from an academic-type source that shows what the total costs of liquidation would have been, I would be happy to read it.

You are missing the point. The assets were not being used properly by GM and should have been liquidated. The bailout cost billions not only in taxpayer dollars but for bondholders even as it rewarded the UAW morons that helped drive the company into bankruptcy. The assets should have gone to the senior bond holders as would be expected if the rule of law was followed. Instead we had Obama follow his political instinct and cost the taxpayers billions.

Many experts and governmental agencies (GAO, CBO, and U.S. Treasury) believe most or all of the money and investment will be repaid. Personally, I think it will be shown to be a much better way to spend money than the Iraq and Afghanistan Wars, but you have to have an open mind to think that way.

The money could be repaid with USDs that buy a fraction of what they used to when the loans were made. But in real terms there will be a massive loss because bailing out weak companies that are incapable of competing in the marketplace never ends well.

I find GM/UAW bashers are not unlike those who believe all trade and Wal-Mart are bad, immigrants cause all the job losses, and the educational problems would just go away if all the bad teachers were fired.

Your confusion is showing.

 
At 10/24/2010 9:47 PM, Blogger VangelV said...

James, if you are going to invoke Ricardo, you should at least state his principles correctly. Comparative advantage would dictate in this instance, that cars be made where they are made most efficiently. That wouldn't be in the US.

You are asking too much of James. He is either ignorant of Ricardo or simply dishonest. I doubt that you will have him commenting favourably on the virtue of comparative advantage.

 
At 10/24/2010 9:49 PM, Blogger VangelV said...

You never answered how much it would have cost U.S. taxpayers for GM's liquidation. You surely don't believe that alternative was free. The PBGC costs alone would have been huge (The GAO 10-492 report estimated GM and Chrysler had 922,537 employees they would have had to cover).

Why cover the worker pensions? There was some money left in the pension plans that workers could have shared. There was no reason to bail out the plans by having other people pay for the rich plans that GM employees were expecting to get from the very company that they crippled because of those plans.

 
At 10/24/2010 9:53 PM, Blogger James said...

RonH.

In Ricardo’s theory capital can not move across a national boundary. Only products cross a border. Under Smith/Ricardo trade is about products developed and produced by one country and sold in another country. In the modern version of free trade production is moved to another country to get cheap labor. Products are developed by one country and produced in another. Under both theories of free trade China would have had to invest their own capital to design and produce a car. They could not have done that on their own. Thus they would have had to buy cars from someone else.

Very little of modern free trade is justified by either the theory of absolute advantage or the theory of comparative advantage because the means of production, land, labor, and capital are not in the same country. Once any of the means of production cross a border these theories no longer apply.

 
At 10/24/2010 9:58 PM, Blogger VangelV said...

I don't consider it a smokescreen to determine the best use of taxpayer dollars from an array others have already chosen to make. I have my dollars in this game, too. I'll take a GM investment over a war in Afghanistan that even supporters are saying cannot be won any day--especially since the GM investment will mostly be paid back.

You are always free to invest your own money in GM if you wished to do so. I am sure that there are many others just like you who could also invest their own money in the hope of turning a profit.

But wait, GM was going under because people did not want to use their own money to bet on profitable GM operations. So if they did not risk their own cash willingly why should they be forced to by the government?

Clearly the Afghan war should not be going on and the US government should pull its troops from all foreign bases, But GM and Afghanistan are not linked and have nothing to do with one another. They are just bad examples of what happens when government is too big and meddles too much.

 
At 10/24/2010 10:20 PM, Blogger VangelV said...

Business in the U.S, does not operate on a long-term model or worry about future generations. That's probably why we have such a huge unfunded public liability problem, and half the people age 50 don't have a dime saved for retirement. Maybe we would be much better off as a society if we operated using an Asian model, but we don't.

Business has little to do with unfunded liabilities. It was the government that took SS contributions, spent them by funding general programs and replaced them with IOUs. SS and Medicare are now well north of $70 trillion short of what is needed to allow the government to keep its promises.

 
At 10/25/2010 3:55 AM, Blogger Ron H. said...

"By going global(and removing the Panther platform), they want to make cars blander than a saltine cracker."

So, you think those Crown Vics are pretty exciting, do you? The Mercury is still available.

"The firm would have to have no links to China or anyone who would have links to China."

How then would I know it was a Chinese firm? Would employees be allowed to shop at Walmart?

"That, and you'd have to see products that are US-made end-to-end, in factories that are in the North."

There's no product like that made in the US now.

 
At 10/25/2010 4:05 AM, Blogger Ron H. said...

Morganovich,

Seth won't buy a Ford Fiesta, as it's really a Mazda built in all the following places, but nowhere in the US: Europe, Brazil, Argentina, Mexico, Venezuela, China, India and South Africa.

 
At 10/25/2010 5:01 AM, Blogger Ron H. said...

James,

"In Ricardo’s theory capital can not move across a national boundary. Only products cross a border."

Actually, Ricardo described the actions of "parties", which can be individuals, firms, or countries. You might want to brush up on that.

In all fairness, I guess I have been referring to absolute advantage not comparative, but that changes nothing.

Just what could be magical about a national boundary? It's just an arbitrary line.

In reality, I can easily move capital across a border by purchasing capitol equipment, a lathe maybe, from a Chinese firm to use in my woodworking business.

What if my factory is close to a national boundary, and an updated land survey shows that I am now in a different country? What is the status of my capital?

Do you feel the same about state boundaries? Can I move my business from California to Arizona? Is it wrong to allow Montana orange growers to go out of business just because it is cheaper to buy them from California growers, or should they be protected by tariffs, established to raise the price of imported oranges at the Montana border?

 
At 10/25/2010 5:08 AM, Blogger Walt G. said...

morganovich,

You are assuming companies are left alone by their investors to plan for the long term. That's not true. Listen to some of the conference calls between bankers and CEOs--they are on the Internet. I found it strange to listen to GM's CEO voices tremble when talking to those who supply them with working capital. A CEO who pits short term profits behind long term profits will not be a CEO very long. The Asians think long term in generations while the U.S. thinks long term at maybe five years (or 1 election cycle).

In addition to the investors, the U.S. government dictates how a company can operate with CAFE and other legislation. I believe the government shared in creating GMs problems, so it was their job to help.

I agree with you that we should think long term, but that's just not the process we have now or have ever had. Politics cannot be removed as a factor either, and it would be irrational to think otherwise.

The Iran and Afganistan War is very relevant. It is 1/7 of the $14 trillion national debt or about 7%. Even if none of the investment in GM of $50 billion is ever paid back, that's just 0.3% of the national debt toward a company that has been very good to the U.S. If you don't see the perspective about that, I guess we don't agree on how to account for how money is spent.

VangeIV,


The PBGC was/is on the hook up to their maximum for GM's pensions whether you like it or not--and I realize you don't. The supplements for early retirement are not covered. There's some money currently in GM's pension plan that would have went to the PBGC, but the GAO report stated the PBCG long-term potential liabilties exceed $160 billion before adding GM's liabilty in.

 
At 10/25/2010 8:17 AM, Blogger Jet Beagle said...

Walt: "that's just 0.3% of the national debt toward a company that has been very good to the U.S."

You cannot really mean that the economic success GM has realized over the past century is justification for forcing taxpayers to keep union workers employed.

Do I remember correctly that you are a parttime economics teacher somewhere? Is this the sort of economics you are teaching young people?

"Walt: 'the GAO report stated the PBCG long-term potential liabilties exceed $160 billion before adding GM's liabilty in."

That could only make some perverted sense if we believed that PBGC will not eventually have to absorb the GM pensions anyway. All the damned bailout did was cost the taxpayers billions and delay the inevitable.

The worse thing about all bailouts, of course, is the moral hazard. Unions at large employers can continue to press their outrageous demands without fear that they will ever lose. They know the politicians and fools who believe in the "too big to fail" fantasy will always keep them from facing economic reality.

 
At 10/25/2010 8:23 AM, Blogger Hydra said...

"The bottom line is that as a taxpayer, I've had money ripped from my pocket to support a losing business that private money said should have gone out of business. we have suffered an overall loss."

==================================

My boat is sinking and the Coast Guard brings me a pump. With the help of the pump I'm able to effect repairs an the boat continues to generate revenue for anther 20 years.

Should government let the boat sink?

 
At 10/25/2010 8:30 AM, Blogger VangelV said...

In Ricardo’s theory capital can not move across a national boundary.

Really? You mean that gold would not cross boundaries and that gold could not be used to purchase capital goods from other countries? While I have not read my Ricardo for quite some time I doubt that my memory is so bad. Can you please reference what was actually stated in context rather than just make crap up?

Only products cross a border.

Do you mean to say that products cannot be capital? That we cannot buy a drill press from Japan or Germany and have to get it from domestic sources? I think that you are probably confusing land with capital as so many economic illiterates sometimes do.

Under Smith/Ricardo trade is about products developed and produced by one country and sold in another country. In the modern version of free trade production is moved to another country to get cheap labor. Products are developed by one country and produced in another.

The confusion flags are out again. Ricardo argues that products should be made in the countries that are best able to produce them with the lowest inputs. He would argue that China should sell many manufactured goods because American companies cannot make those goods as cheaply at home. (Which is why they move their facilities abroad.) Please note that the consumer does not care about the ownership structure of the producer, the location of the mines that produce the ore that goes into the parts, the location of the design facilities, or the location of the assembly operations. All they care about is getting the product that they want at the best price.

Under both theories of free trade China would have had to invest their own capital to design and produce a car. They could not have done that on their own. Thus they would have had to buy cars from someone else.

It is individuals, not governments that do the bulk of the 'investment' that you see. When they invest they will go to places where their capital is treated best and where their total costs are the lowest.

Very little of modern free trade is justified by either the theory of absolute advantage or the theory of comparative advantage because the means of production, land, labor, and capital are not in the same country. Once any of the means of production cross a border these theories no longer apply.

As others have written above, you have no clue what it is that you are writing about. Try reading something other than labour economists.

 
At 10/25/2010 8:31 AM, Blogger Hydra said...

"You cannot really mean that the economic success GM has realized over the past century is justification for forcing taxpayers to keep union workers employed."

================================

I don't think we know the answer to that. What was the investment and what was the return?

Anyway, it is a misleading statement. American taxpayers are not being forced to keep union workers employed. If government took over the company and continued to operate it on a money losing basis a la USSR then they would be keeping workers employed.

As it stands now, the company could still go under taking it union and nonunion employees with it.

Or it could eventually get over the problems it inherited from the housing crisis and pay back the government money, as Chrysler did. If you believe the housing crisis was the fault of government, what is wrong with government trying to limit the damage? (Yeah, I know, the government should never try to do anything because it is incompetent at everything.)

 
At 10/25/2010 8:44 AM, Blogger Walt G. said...

Jet Beagle,

I teach heating and cooling and write the curriculm, so the only economics I officially teach is the pay-back period for a high-efficiency furnace (talk about something that is subsidized now!).

People can justify whatever they decide on their own. Our government shows a propensity to spend. I wish it were not the case, but it is. Taking that as a constant, yes, I will rationalize how the money that should never have been spent is spent. If that sounds screwy, that's because our political process is screwy. We have to play with those cards until we are dealt better ones.

I spent a lot of time reading GAO, CBO, auto task force documents I received from a Congressman, the actual court documents of bankruptcies and appeals to the Second Circuit and Supreme Court concerning Chrysler and GM. I initially was skeptical about the U.S. government getting into the car business, but after looking at the only other option of Chapter 11 liquidation, I think the best decision was made.

Only time will tell if GM can survive in the long-run, but most indications are we have a fighting chance. We'll have to wait and see what happens; it's still too soon to count us out, but that won’t stop the doomsayers from trying.

 
At 10/25/2010 8:46 AM, Blogger VangelV said...

You are assuming companies are left alone by their investors to plan for the long term. That's not true. Listen to some of the conference calls between bankers and CEOs--they are on the Internet. I found it strange to listen to GM's CEO voices tremble when talking to those who supply them with working capital. A CEO who pits short term profits behind long term profits will not be a CEO very long. The Asians think long term in generations while the U.S. thinks long term at maybe five years (or 1 election cycle).

What drivel. Companies that do not consider the long term will go out of business as they should. We should celebrate that fact, not encourage it by bailouts. To suggest that investors don't have a choice means that you do not pay much attention. There are many companies of all size that make it clear that they pursue long term goals and have the record to show investors that they are working to those goals. Investors tend to pay attention and often hurt company shares when directors pursue shorter term strategies that give up the long term potential. (Just look at the Robert Quartermaine dismissal for an interesting example.)

In addition to the investors, the U.S. government dictates how a company can operate with CAFE and other legislation. I believe the government shared in creating GMs problems, so it was their job to help.

No. The standards applied to all competitors. The best way to 'help' taxpayers, businesses, and consumers is for government to get out of the way, not to meddle even more than it already does.

I agree with you that we should think long term, but that's just not the process we have now or have ever had. Politics cannot be removed as a factor either, and it would be irrational to think otherwise.

Again you have no idea what it is that you are talking about. Determining what planning should have taken place is easy in hindsight but not so easy when it matters. To make concrete long term plans would require knowledge that we simply do not have. Long term survival depends on the right approach, values, and risk control. To earn or attract the capital necessary to survive the long term a company needs to demonstrate that it can execute over the short term.

 
At 10/25/2010 8:47 AM, Blogger Jet Beagle said...

Walt G: "You are assuming companies are left alone by their investors to plan for the long term. That's not true."

Companies that make good decisions are given the freedom to balance both long term and short term requirements. It's the companies which get in trouble because of poor decision-making that are forced to get approval of bankers.

Walt: "A CEO who pits short term profits behind long term profits will not be a CEO very long."

That's a very simplistic view of corporate strategic planning and corporate finance. Different companies face different challenges. Many are forced by the situation they inherited or other circumstances beyond their control to focus on short term profitability. When a company gets in serious trouble, restoring profitibility - or reducing losses - is all that matters. Boards are correct in rewarding CEO's who focus in the short term in carrying the company through the rough times.

There are other situations when shareholders should prefer a short term, milk the profit approach.

 
At 10/25/2010 8:55 AM, Blogger VangelV said...

The Iran and Afganistan War is very relevant. It is 1/7 of the $14 trillion national debt or about 7%. Even if none of the investment in GM of $50 billion is ever paid back, that's just 0.3% of the national debt toward a company that has been very good to the U.S. If you don't see the perspective about that, I guess we don't agree on how to account for how money is spent.

The government should never have occupied Iraq and Afghanistan. It was not only too expensive but it was immoral and just plain evil to kill innocent people. And it isn't just the Afghan adventure that needs to end; the US should pull all of its troops out of their foreign bases and bring them back home.

The fact that the US government is wasting money on the military-industrial complex does not mean that we can justify wasting money propping up failing companies that waste resources and cannot compete.

 
At 10/25/2010 8:59 AM, Blogger VangelV said...

The PBGC was/is on the hook up to their maximum for GM's pensions whether you like it or not--and I realize you don't. The supplements for early retirement are not covered. There's some money currently in GM's pension plan that would have went to the PBGC, but the GAO report stated the PBCG long-term potential liabilties exceed $160 billion before adding GM's liabilty in.

Actually, it is not on the hook for the full amount. And from what I can see it has failed miserably and needs to be eliminated. The PBGC has been providing cover for companies as they underfunded their plans. The GM workers would have received the minimum, which is what should happen because it was those workers and their union that did not do what they were supposed to in order to protect their own pensions.

 
At 10/25/2010 9:09 AM, Blogger VangelV said...

My boat is sinking and the Coast Guard brings me a pump. With the help of the pump I'm able to effect repairs an the boat continues to generate revenue for anther 20 years.

Should government let the boat sink?


You have the wrong scenario. The boat is sunk and there are people waiting to bring it up to the surface after you are forced to sell to them. Unlike you, they know how to look after boats and see it as having more value to them than to you. Now you have the government step in and say that the incompetent boat owner should be given a hand. They lift the boat out at a much higher cost, fix it it by using taxpayer funds, and hire an expensive crew that is not very competent to help you out. Because you are not competent, they appoint an overseer who is even less competent than you are but knows the right power players.

Reality suggests that unless the government steps away you are on your way towards the bottom eventually because you cannot make enough money on your own to keep the boat in the proper repair.

 
At 10/25/2010 9:20 AM, Blogger VangelV said...

Anyway, it is a misleading statement. American taxpayers are not being forced to keep union workers employed. If government took over the company and continued to operate it on a money losing basis a la USSR then they would be keeping workers employed.

Of course taxpayers are forced to keep union workers employed. They were forced to put up enough capital to keep GM afloat. Add to that the government's theft from creditors and you have a situation that is not very different from the typical fascist arrangement when you have government control but private ownership of productive assets.

As it stands now, the company could still go under taking it union and nonunion employees with it.

Without the government's intervention it will most certainly fail.

Or it could eventually get over the problems it inherited from the housing crisis and pay back the government money, as Chrysler did. If you believe the housing crisis was the fault of government, what is wrong with government trying to limit the damage? (Yeah, I know, the government should never try to do anything because it is incompetent at everything.)

GM was reckless. It was offering no money down loans and mortgages to people who were terrible credit risks. The market punishes reckless behaviour and encourages prudence and good judgment. Subverting that process will only lead to more reckless players taking massive risks and benefiting from the gains while putting out their hands when the losses need to be socialized.

Actually, I would support the prediction that GM would pay back taxpayers. But when it does, the nominal payment will not buy nearly as much as it did when the bailout took place. My twelve-year old predicts that it should be enough to buy one of GM China's cars.

To see the effect of this stupidity keep your eye on the USD.

 
At 10/25/2010 9:23 AM, Blogger VangelV said...

I spent a lot of time reading GAO, CBO, auto task force documents I received from a Congressman, the actual court documents of bankruptcies and appeals to the Second Circuit and Supreme Court concerning Chrysler and GM. I initially was skeptical about the U.S. government getting into the car business, but after looking at the only other option of Chapter 11 liquidation, I think the best decision was made.

Only time will tell if GM can survive in the long-run, but most indications are we have a fighting chance. We'll have to wait and see what happens; it's still too soon to count us out, but that won’t stop the doomsayers from trying.


Didn't you consider the conflict in analysis done by government agencies being run by people who are appointed by politicians? Would you expect any document that criticized the bailout to be sent to you by your elected political representatives when their future is partially dependent on convincing voters that they did the right thing?

 
At 10/25/2010 9:35 AM, Blogger VangelV said...

The iPod would not be nearly as cheap if it were made in the US.

Hard to say without any real comparison of iPods made in the US.

Not that hard at all. Factories are much more expensive to build and run in the US and the regulatory environment makes it difficult to adjust when increased production is required to meet demand.

 
At 10/25/2010 9:36 AM, Blogger Walt G. said...

VangeIV,

The GM workers would have received whatever the amount their age and the year that the pension plan was terminated qualified them for when the plan was transferred to the PBGC (or the maximum pension at age 65). I estimated my PBGC pension at $720,000.00 for my lifetime in 2009 (30 years at $2000 per month). Feel free to use your own numbers for your estimate. Whether you agree with the PBGC’s legislative authority is irrelevant because it does currently exist.

Do you have better documentation of the bankruptcy events at your disposal than I have? I can use, and would appreciate, whatever you have that is not used to sell newspapers, magazines, or air time. This is an area I am interested in researching.

Jet Beagle: Can you find the 20, 30, and 50 year profit projections on any U.S. corporation’s 10-K?

 
At 10/25/2010 9:54 AM, Blogger VangelV said...

The GM workers would have received whatever the amount their age and the year that the pension plan was terminated qualified them for when the plan was transferred to the PBGC (or the maximum pension at age 65). I estimated my PBGC pension at $720,000.00 for my lifetime in 2009 (30 years at $2000 per month). Feel free to use your own numbers for your estimate. Whether you agree with the PBGC’s legislative authority is irrelevant because it does currently exist.

The PBGC is bankrupt. It cannot pay anything to GM employees unless Congress gives it billions of dollars. I am suggesting that Congress should do nothing of the kind. There are funds in GM's pension plans. They should be redistributed to the employees. Nothing more, nothing less.

You are also missing out one of the big costs, healthcare. Why should the taxpayers have to pay billions of healthcare benefits for past and present GM employees when most of them have no such pensions themselves?

 
At 10/25/2010 10:04 AM, Blogger Walt G. said...

VangeIV,

Look up who sits on the PBGC board, and see if you think it will be funded with taxpayer money.

I don't know what health care costs you are talking about. Do you have anything that shows past or present government funding for UAW/GM pensions or health care costs? To try to keep the taxpayers from paying that was one of the biggest reasons our elected leaders decided to help GM and Chrysler.

 
At 10/25/2010 10:33 AM, Blogger morganovich said...

walt-

that's a meaningless answer about long term planning. first off, i probably listen to 200 earnings conference calls a year and read the transcripts for more, so i think i have a pretty good idea of how companies plan whereas you are just reading hysterical newspaper articles and taking them on faith. lots of companies plan for the long term (or at least as long as is practicable).

not putting a 10 year plan in a 10-k means nothing. would you lay that plan out for all your competitors to see. 10 years ahead? that would be the height of stupidity.

again, you miss they key thrust of the argument in your rush to lampoon managements: even if they do not plan long term, it doesn't matter. they will be more likely to fail if they don't, and so long as they are allowed to and assets reallocated, then that's a good and virtuous part of creative destruction. that's how capitalism works.

where it goes awry is when companies are allowed to fail over and over with no penalty. in this case, the UAW was REWARDED for driving GM under.

you keep talking about the cost of a liquidation like it's just the cost that matters. it's not. who pays matters too. that is the essence of fairness, equity, and predictability.

it also matters if it's going to happen again. GM has already done this twice. we'll see them begging for another handout in another 10-15 years.

if GM and its investors lose money, well, they all knew the risks. you buy those bonds, you may lose money. so why should I have to pay? i didn't make a bet on GM. i have no relationship to them or their workers, but now i wind up not only paying for their failure, but rewarding them for it at the expense of the rule of law.

that is a disaster on every level (unless you are a UAW worker).

and your comparisons to the wars are meaningless. saying it's OK to do a stupid thing because you have previously done stupider things is not a valid justification for policy. that's like arguing that it doesn't matter if you drill another hole in the bottom of the boat because you already have one.

 
At 10/25/2010 11:04 AM, Blogger morganovich said...

walt-

"To try to keep the taxpayers from paying that was one of the biggest reasons our elected leaders decided to help GM and Chrysler."

this doesn't strike you as a circular argument?

you are essentially arguing that taxpayer money was spent to avoid paying taxpayer money.

worse, it was not just taxpayer money, but creditor money.

taking a big share of GM away from the secured, senior creditors who were entitled to it and giving it to the pension fund who was not entitled to a dime until the senior creditors mad a full recovery is hideously unethical. you are advocating stealing because it benefits a special interest and "saves money". it doesn't save money. it has to be stolen from someone.

sure, maybe the creditors paid instead of taxpayers, but if that's an acceptable standard of conduct, then i presume you'll be OK when i advocate seizing your savings to pay for your local welfare and social security program? it is literally exactly the same thing. a special interest wins, you lose, and the taxpayers save money.

the whole purpose of rights and property law is to prevent precisely the sort of abuses that occurred at GM. one it's OK to seize private assets to "save taxpayers money", well, that's fascism, no? what could not be done under such a standard?

you can't favor reallocating someone else's assets by fiat unless you are willing to have the same done to your own. are you ready to step up walt?

 
At 10/25/2010 11:14 AM, Blogger Walt G. said...

OK, it hurts, but I'll try to forget the $1 trillion spent on the war and building Iraq and Afganistan back up.

How about this government spending; 1989 Savings and Loan $293.3 billion, and in 2008 and 2009; Fannnie Mae $400 billion, AIG $180 billion, TARP $700 billion, and Bank Of America $142 billion. Is the $50 billion that the U.S. Treasury owns in G.M. (60.8%) really that huge in comparison, or do you all have an axe to grind with the UAW and GM?

 
At 10/25/2010 11:23 AM, Blogger Walt G. said...

Morganovich,

No secured bondholder lost any money at GM. You are thinking about Chyrsler. I know this area well now thanks to you all.

It's hypothetical of course, but if you take the $720,000 I estimated the PBGC would owe me and spread it across the potential 1,000,000 retirees that would be $720 billion. Sometimes you have to spend a little to save a lot. Whether it will turns out to be a good investment is yet to be seen.

 
At 10/25/2010 12:20 PM, Blogger morganovich said...

walt-

you are just making the same "they did something stupid then so it's ok to do something stupid now" argument.

that is no basis for policy making. by your logic, it's fine to do any stupid thing so long as you have done something stupider in the past.

GM sure as hell soaked their senior creditors (mostly bondholders). they should have had priority claim on assets to the workers and the pension. that's how the capital structure was laid out.

rather than follow it, it was violated to "save the taxpayers money". theft to save taxpayer money is still theft.

i notice you are not willing to have your savings treated this way. why not? if it's such a great idea, how about putting some skin in the game?

i suspect you'll feel a great deal less anxious to save the taxpayers money when you have to do it by forfeiting your assets.

your savings number is also totally meaningless. so, pension holders lost money. why is that my problem as a taxpayer? it's not. it's their problem. i was never on the hook for that to begin with, so you're not saving me anything by bailing it out, even assuming the bailout was successful, which is highly unlikely.

what should have happened was a cram down, not a bondholder money give away.

the literal equivalent of what you are proposing is for me to cover the $1 million shortfall on my house by taking money from your home equity. when i do, will you be excited that you "saved the taxpayers money"? did you even save them money? why would they have paid my mortgage?

just because the failure of the pension fund would have hurt UAW workers does not make it a taxpayer issue. why should i have to make you whole after your union/employer failed to save enough?

 
At 10/25/2010 12:48 PM, Blogger Walt G. said...

Morgonovich,

I lost over a year's pay in GM stock. I shared the pain, and I will admit I had and have a lot to gain. I do have my name in for the upcoming IPO next month.

Creditors are not protected the same in a 363 bankruptcy as a straight Chapter 11 liquidation. Even secured creditors can lose money, but GM's did not (read the Chrysler Second Court of Appeal's decision stayed by the U.S. Supreme Court and the final GM bankruptcy settlement for the details).

You are correct the UAW came out better than the unsecured creditors. The bankruptcy court decided the UAW was needed more for success in the future than them, and that’s how a 363 legally works. A quote I remember reading in my research of official documents was, and I can’t remember where but it was not a union official: “ We need the people who make the steering wheels and install them more than to reward speculators who bought junk bonds at deep discount.” I can see where someone would be pissed about that, but I can't say it was illegal. All three branches of the government were on board for helping GM and Chrysler.

You can't ignore that the PBGC would have had a massive liability just because you don't like it.

I live in Michigan, which historically sends more money to Washington than they receive back, so I don't mind a little temporary reallocation of taxpayer resources for a change. I've been reallocating over 40 years now to one cause or another.

 
At 10/25/2010 1:27 PM, Blogger morganovich said...

walt-

forcing a bunch of creditors who do not want to be into a 363 situation through the use of overt threats by the government is not the same as "legal"...

if i put a gun to your head and demand that you sign a paper selling me your house for $20, i'd have a legal contract, but would you really call that a fair transaction?

is it really that different to threaten to audit a fund and all of its investors every year for the rest of their lives? the bond holders were basically told - give up your claim on these assets and allow the 363 (which needed their consent) or we'll bury you and wreck your entire business.

that's the behavior of a gangster, not a government.

i know some of the guys who got those calls personally. they knew they were being robbed, but caved in because they knew they couldn't win against the full coercive power of the government.

calling that "legal" certainly flouts the spirit of the law.

 
At 10/25/2010 1:31 PM, Blogger morganovich said...

i'm not ignoring the liability for the pension, i'm making a statement about whose liability was.

why should taxpayers be on the hook for that?

if i have a liability i can't meet, that's my problem, not the nation's.

 
At 10/25/2010 2:12 PM, Blogger morganovich said...

also note-

a full asset sale and reorg is not what 363 BK is for. 363 is to sell off non core assets in order to get a good price and facilitate the rest of the BK.

that was clearly not what happened here.

bypassing key stakeholders to the preference of others is simply theft and political patronage.

 
At 10/25/2010 2:25 PM, Blogger VangelV said...

I lost over a year's pay in GM stock. I shared the pain, and I will admit I had and have a lot to gain.

So you are just talking your book and have no interest in the truth. How convenient.

For the record, my kids are hoping that you have your way and that the government continues to meddle. It is possible by the time that they are adults they will not have to work a day in their lives just because they have used their allowance and birthday money to make a few small bets against the USD. The more that people like you get their way the richer they will be.

I do have my name in for the upcoming IPO next month.

Unless you are a degenerate trader who plays momentum games that is likely to be a very stupid move. Why not play it safe and buy a Silver Wheaton or Franco Nevada instead? You will make a huge amount of money without taking nearly the same amount of risk.

Creditors are not protected the same in a 363 bankruptcy as a straight Chapter 11 liquidation. Even secured creditors can lose money, but GM's did not (read the Chrysler Second Court of Appeal's decision stayed by the U.S. Supreme Court and the final GM bankruptcy settlement for the details).

The meddling by the government and the courts was a travesty. They undermined the capital markets to reward a political group. That will make it much harder for companies to raise capital because bond buyers no longer have the law to protect them.

 
At 10/25/2010 2:34 PM, Blogger VangelV said...

I live in Michigan, which historically sends more money to Washington than they receive back, so I don't mind a little temporary reallocation of taxpayer resources for a change. I've been reallocating over 40 years now to one cause or another.

Do you have a citation for this?

 
At 10/25/2010 2:35 PM, Blogger VangelV said...

i know some of the guys who got those calls personally. they knew they were being robbed, but caved in because they knew they couldn't win against the full coercive power of the government.

A lot of pension plans and little old ladies were screwed by the government because it knew that the UAW was a dependable supporter and vote getter.

 
At 10/25/2010 2:54 PM, Blogger Walt G. said...

VangeIV,

I have the state data in Excel form at home, and I am on the road tonight (I think it is from 1981 to 2005), but it is from the taxfoundation.org.

Junk bond buyers don't usually have much security (the average bond holder who lost money at GM paid 43 cents on the dollar and got back about 10 cents on the dollar plus a chance to make money on preferred stock).

 
At 10/25/2010 3:05 PM, Blogger morganovich said...

walt-

those bond buyers had more security than pension plan participants.

so doesn't your argument cut both ways?

also, your argument about getting hurt on taxes out of your state being higher than what comes back is internally inconsistent and ethically unsound.

if you are upset about losing money to the political process, how can you support doing it to others?

you are arguing that because you were robbed it's OK to rob someone else.

 
At 10/25/2010 3:10 PM, Blogger morganovich said...

i also fail to see what relevance your participation in the IPO has.

why does your willingness to by into an enterprise whose liabilities have all been shifted to someone else demonstrate anything?

that's like saying you'd be happy to live in a house if someone else paid the mortgage.

 
At 10/25/2010 3:59 PM, Blogger Walt G. said...

morganovich,

The pension fund has not had any money added to it in a few years. That money was vested and not subject to confiscation during the bankruptcy. There is no federal money currently in either the pension plan or the VEBA. I would be happy to look at anything you have that shows otherwise.

A 363 sale is whatever the bankruptcy court says it is. The court decided the unsecured bondholders' and UAW's fate.

Someone asked me about how the bondholders felt, so I answered about my loss and willingness to reinvest.

I don't deal in ethics, and I realize politics means some win and some lose. I know which side I hope to be on. Whether the taxpayers lose has not been written yet, so far they have not because GM is more than current on all the Treasury Department funding stipulations.

 
At 10/25/2010 6:02 PM, Blogger morganovich said...

a 363 sales is not whatever a BK court says it is.

a 363 sale is a pre packaged and ratified agreement brought to the court by the involved parties. it was not designed nor has it traditionally been used to dispose of all the substantive assets of a corporation. that novel construction was forced upon creditors by threats from the government.

your notion that the pension fund was not bailed out is completely untrue. its vesting or non vesting is irrelevant. what matters is whether it can be paid. you can have all the vested stock options you want. if the company goes out of business, they are worth zero.

GM's pension fund was grossly underfunded. if the creditor claims ahead of it were paid, it would have failed massively due to monetary shortfalls.

union pension benefits were just another unsecured credit claim. that fact that they were made whole while others with more senior claims took 90% haircuts is an indisputable fact. if that's not a bailout, then i don't know what is.

the canadian division actually took direct government aid to prop up the pension fund.

the preferential and coercive elimination of all the other claims on GM assets are a de facto bail out. absent that, the fund was busted. costs were shifted to a union trust funded by stock grants in the reorg that were made valuable by crushing $80bn in creditor capital that should have come first.

you don't deal in ethics? seriously? so it's all about might making right? that's a terrifying viewpoint. that said, it's pretty clear that ethics are not a consideration for you as you create your viewpoint. you seem only to care about what you guys could get and routinely rail against your tax burden in other ares while supporting mine when it benefits you.

if your ethical position is typical of the UAW, then it seems small wonder to me that they are held in such low esteem.

you keep trying to focus on the taxpayer and that he might not lose by glossing over the creditors that have already lost so that you didn't have to. if you position is that "it's just politics and we'll play to win", well, there's not much i can say other than the fact that that's a morally bankrupt viewpoint if it can support theft and extortion so long as it benefits you.

that is the ethos of a gangster, not a moral man.

 
At 10/25/2010 7:17 PM, Blogger Jason said...

Walt, I've had my disagreements with you, and I don't completely agree with you now. Regardless, reading through this thread, it seems you are defending a practical argument versus Jet, Morgan and Van, who favor a more theoretical argument.

For full disclosure, I know my job was saved as a result of the bailout. I feel pretty confident I would have found another, but I am similarly confident it would have been painful. Probably a forced relocation and a pay cut, in addition to the substantial pay cuts I'd already taken to keep my company cash-flow neutral.

The GM and Chrysler bankruptcies were predictable, I think. The reasons are many, and I think you and I disagree on them somewhat. I think I would tend to agree with Jet, Morgan and Van more on this. However, I wonder whether this is important anymore, with the exception of the current context of creating healthy companies going forward. And in this regard, I have doubts, because of the manner in which the bankruptcy occurred. And BTW it was Steven Rattner who said he needs auto workers, not bondholders.

Getting back to practical vs. theoretical arguments, I think that GM and Chrysler bailouts can be successful. I sure hope they are, and I'll be sure to do my part. But there are so many currents flowing in the wrong direction, so success is less likely than more. In any case, whether the total amount of harmony was maximized in the bailout is, I believe, impossible to determine. For every me and you who benefit and pay taxes and think it keeping these companies afloat pays for itself, there are others who will argue that car buyers are harmed by government interference and this harm out weighs benefits. To which I say, how the hell can anyone prove that? But, I am forced to admit the argument has merit...

The one and only thing I am certain of is the situation is what it is. The Detroit auto industry has been given a second (or third) chance - And we better get it right this time. Otherwise, the theorists will be proven correct beyond all doubt and there will be no third (or fourth) chance.

 
At 10/25/2010 8:20 PM, Blogger morganovich said...

jason-

i'm not so sure about your characterization of many of these arguments as theoretical.

leaving aside for the moment the wisdom of a bail out, there is the very tangible and real issue that bond holders with senior claims were forced to take 10 cents and less on the dollar so that the subordinated claims of the UAW could be paid in full.

it was done using the full coercive power of the federal government to extort acquiescence from those holding the claims.

those losses are as tangible and real as it gets. money was taken from those who were entitled to it and given to those who were not.

that is not an acceptable policy. it offends fairness, justice, and rule of law.

even the last round of auto bailouts were not this capricious.

whether or not a third chance for GM is a good idea, the ends certainly do not justify these means and this precedent.

no outcome justifies gangster government.

 
At 10/25/2010 9:38 PM, Blogger sethstorm said...


The meddling by the government and the courts was a travesty. They undermined the capital markets to reward a political group. That will make it much harder for companies to raise capital because bond buyers no longer have the law to protect them.


On top of that, it makes any vengeance committed against GM that much worse. I can only hope that the anger against General Motors dies off enough so that the company survives.

 
At 10/25/2010 9:42 PM, Blogger sethstorm said...


Not that hard at all. Factories are much more expensive to build and run in the US and the regulatory environment makes it difficult to adjust when increased production is required to meet demand.

The problem is that there is no actual proof, just excuses about regulation. When a factory goes up that isn't designed to fail, then you might have something (should it fail given every single chance of success).

 
At 10/25/2010 11:27 PM, Blogger Ron H. said...

"The problem is that there is no actual proof, just excuses about regulation."

Proof? What would you consider proof? Don't you think that if someone had sound financial reasons to believe that an Ipod factory in the US would be competitive that it would already in operation?

Get a clue, Seth ...and a job.

 
At 10/25/2010 11:33 PM, Blogger Ron H. said...

"On top of that, it makes any vengeance committed against GM that much worse. I can only hope that the anger against General Motors dies off enough so that the company survives."

Well, I know I probably won't buy a GM car, and I don't know anyone who will. You won't help them out by buying a car because they won't build the 80's style car you want for $15k. The future looks grim.

 
At 10/26/2010 12:16 AM, Blogger Jason said...

This comment has been removed by the author.

 
At 10/26/2010 12:16 AM, Blogger Jason said...

Morgan, I agree with you about gangster government. And I think this was a huge payoff to union labor where bondholders were boned and unions received preferential treatment. I also believe this is the primary reason that the bailouts would (hopefully not) fail.

I alluded to this in my original post, reasons for bankruptcy and such. And I'll expound now. The primary reason for the bankruptcies was the poor financial health of GM and Chrysler (and Ford). And the primary reason for that was unbelievably bad labor contracts. I know it's an old crutch, but it really was true. And I laugh at people who say it isn't as bad as, or it's much better today...they are just in denial and want to think that the way things were/are done are ok.

They are wrong.

Even a person like me, who benefited by keeping his job as a result of the bailout, was...sickened...by the flippancy in which the UAW was treated. I mean, it is absolutely ludicrous to me that uneducated UAW members have the Gaul to think they are owed $30 an hour (plus benefits) to put bolts into brackets. I viewed this as the problem, not as part of the solution as implemented in the Obama/Rattner plan. It's also criminal in which the skilled trades, of which my father was a member until his retirement, are continually exploited to lever/extort higher wages for general rank and file employees. And the to have the UAW, through connections with the president, decimate bond holders so that they learn NO LESSON of the excesses of their insipid contract demands...

Do you see my contempt here?

Ok, all that aside, the reason I call the argument for bailouts practical is that despite what happened, retirees and present workers, numbering near a million people, are subsidized by the bailouts. and that provides a tangible return. Using some simple numbers, assuming $75k per job and 15% absolute tax rates (sales, ss, FICA, fed, state) is $11.5b in tax revenues for every year they stay employed. So, there is a return on the investment, so to speak. I think if I looked at this harder, I could make a case for a better ROI, but you get the point...it's real money.

The reason I, perhaps unfairly lumped, you, Jet and Van into the theoretical argument camp is because you argue against the unfairness, unintended consequences and general poor judgement of keeping afloat bad businesses. And these are damn good points.

Honestly, I just don't know how all this will play out. As I posted, who's to say the theoretical harm doesn't exceed the practical return? And as I said, how the hell can you prove it?

Regardless, my major point is, whatever is said and posted, the situation "is." I think you, I, Walt and everyone don't want to do this again. So, all I propose to do is to do what I can, and I beg everyone I know, to move the industry in a better direction, and try to take this...GIFT...and do the best I can with it.

 
At 10/26/2010 3:41 AM, Blogger sethstorm said...


Well, I know I probably won't buy a GM car, and I don't know anyone who will.

However, plenty will. Either I'll be among the ones that buy new, or lightly used. In a roundabout way, you help make my decision easier about sticking to General Motors by your attacks on that company. It just makes the pickings that much more affordable.



You won't help them out by buying a car because they won't build the 80's style car you want for $15k.

I'm not sure that I understand you here - how can I buy a car that does not exist?

The ironic thing is that with efficiencies added, that car could be mass produced at that price. The only thing missing is the marketing.




The future looks grim.

It doesn't have to be. The political vengeance doesn't have to happen (or as deeply). GM doesn't have to be a company in the world. They can be a US company, with a worldwide reach of products that surpass the competition.

 
At 10/26/2010 3:45 AM, Blogger sethstorm said...


Proof? What would you consider proof? Don't you think that if someone had sound financial reasons to believe that an Ipod factory in the US would be competitive that it would already in operation?

Proof would be in the form of a factory. It would not come in the form of an (thinly disguised) attack piece. You can throw all the metrics you want into avoiding the US, but at some time you have to be able to prove it with an honest attempt.

 
At 10/26/2010 6:11 AM, Blogger Walt G. said...

morganovich,

You don't get to decide the legal aspects of a bankruptcy because the courts do that, and the Chrysler case that GM's bankruptcy was built on went all the way to the Supreme Court. On top of that, you had two U.S. presidents, the House and the Senate sign off on the provisions along with Treasury Department and the Auto Task Force along with recommendations from the GAO and the CBO.

I think if you read some of the official documents like I have, you will find a lot more thought than you want to acknowledge went into helping the automakers and avoiding what many intelligent individuals and groups thought would be a major economic disaster at a time the U.S. could not afford to do otherwise ethically, morally, politically, socially, or economically.

Jason, we will get it right this time. Anyone who does not believe the UAW will change has not read anything our new president Bob King has written.

 
At 10/26/2010 9:50 AM, Blogger morganovich said...

walt-

signing off on a 363 and giving up your legal rights because of overt government threats is hardly a basis for ethical behavior nor rule of law.

we went over this before. if i threaten you until you sell me your house for 10% of what it's worth so i can give the money to my political cronies, i doubt you'd be happy with the transaction or feel that the contract was "legal". if i forced you to sign a contract like that, you can plead duress and get out of it. if its the government that does it to you, you have no such recourse. this is precisely why we need to be so vigilant about such actions by government.

your notion of "courts decide BK" is misconceived. courts run a chapter 11 process based on specific rules that reflect the seniority of claims in the capital structure. it's a process that is well understood and predictable by the participants. that's the whole point and that is why it works well and encourages investment.

to coerce stakeholders into a blatant circumvention of these rules for political gain by forcing through a 363 is NOT how it works. show me any other BK that worked this way.

you still seem to be arguing that because gangsterism was good for you, that it was fine. i had been assuming that your disavowal of ethics (and law) was a misstatement, but it's becoming increasingly clear that that is what you actually believe. don't you find it hypocritical to complain about michigan not getting enough taxes back if this is you philosophy. you certainly seem to favor fairness what it would benefit you.

jason-

i think you'll find that if you take the $80 billion in debt eliminated and then add in the $50 billion in bail out money you'll get about 3 years of wages per employee just from the bailout and perhaps that again from the debt.

it would have been cheaper to reallocate the assets and give everyone a year of unemployment.

i appreciate your view about this not being done the correct way, especially in comparison to the prevailing UAW view, but i'm still not so sure you can make the tangibility argument you are making.

i think that selling the assets to a new owner who was not saddled by the UAW would have made them more productive in the intermediate and long term.

how many times are we going to trust the same guys who keep running this thing into the ground?

 
At 10/26/2010 10:15 AM, Blogger VangelV said...

I have the state data in Excel form at home, and I am on the road tonight (I think it is from 1981 to 2005), but it is from the taxfoundation.org,

Thank you. I had looked at the link before but I have not seen any recent data. I will look again. From what I recall, Michigan was the beneficiary of the Fed's great liquidity injection and wound up paying about $100 to the federal government for every $95 or so that it received as federal payments. That is to be expected in a state that has a higher than average industrialization and lower than average natural disasters. Typically the US government throws money in low population states or states that are poorer than average because it wants to buy votes. But that does not justify theft from taxpayers.

Junk bond buyers don't usually have much security (the average bond holder who lost money at GM paid 43 cents on the dollar and got back about 10 cents on the dollar plus a chance to make money on preferred stock).

Actually, the legal system puts the claims of the bond holders above those of the employees or investors. Obama put pressure on the funds to reward his big donors in the UAW. By doing so he made the American capital markets less attractive and made it much harder for viable businesses to get loans.

 
At 10/26/2010 10:16 AM, Blogger VangelV said...

why does your willingness to by into an enterprise whose liabilities have all been shifted to someone else demonstrate anything?

that's like saying you'd be happy to live in a house if someone else paid the mortgage.


It is the looter mentality where one tries to take advantage of the damage done to others by the initiation of force. What else did you expect?

 
At 10/26/2010 10:20 AM, Blogger VangelV said...

you don't deal in ethics? seriously? so it's all about might making right? that's a terrifying viewpoint. that said, it's pretty clear that ethics are not a consideration for you as you create your viewpoint. you seem only to care about what you guys could get and routinely rail against your tax burden in other ares while supporting mine when it benefits you.

Your expectations are too high. Looters have no problem with theft as long as they benefit from it. They cannot afford to be ethical because that cuts into their profits.

 
At 10/26/2010 10:28 AM, Blogger Walt G. said...

morganovich,

I am arguing that GMs bankruptcy was not going to follow any rule, law or otherwise, from the beginning to what happened in the past. How many bankruptcies are financed by a president who hates the U.S. auto industry and endorsed by your biggest rivals (Ford and Toyota)? We all knew, or should have known, that new ground would be broken on this bankruptcy.

I am not complaining about Michigan getting enough tax money back, I am simply stating a fact. It's the same sort of fact that the 363 was legal because the court said so and they are the ones who determines legality--not you--not me.

I get that people are mad, but I think it is premature to write any loss off yet. I am glad that a diverse group of people with differing points-of-view who had/have a lot to lose spent enough time and energy to deeply research the whole situation instead of making a snap judgement that they would let GM die. I don't know how exactly to define "fair" because almost anything can be judged unfair by someone, so I will let you keep trying to define that abstract notion.

You really don't know the depth and breadth of what happened unless you spend a few hours reading the documentation that the decision-makers used whether you agree with the decision or not (that's close to 2000 pages of the GM bankruptcy alone). I find it is important to at least understand situations even if and when they do not go the way I wished they would.

 
At 10/26/2010 10:32 AM, Blogger Ron H. said...

"However, plenty will. Either I'll be among the ones that buy new, or lightly used."

Sethstorm!! Did you get a job and not tell us? You sly fox, you.

You understand, don't you, that to help GM you need to buy a NEW car, right? A used one doesn't help.

"GM doesn't have to be a company in the world. They can be a US company, with a worldwide reach of products that surpass the competition."

Apparently GM doesn't agree with you.

"It just makes the pickings that much more affordable."

That's the wrong attitude, Seth, you need to be willing to pay a high price for a new GM car so the company can make money & prosper. You might even consider paying more than sticker to show your support.

Remember, GM says it intends to pay back the money - with interest - that its government goons stole from me.

"- how can I buy a car that does not exist?"

Well, that's MY question to YOU. You describe a car you want in a price range that no longer exists.

"The ironic thing is that with efficiencies added, that car could be mass produced at that price. The only thing missing is the marketing."

Think about it for a moment. Preferably before you write nonsense like this. If GM could just add "efficiencies" to make a better cheaper car, don't you think they would already be doing so? And if it was just a matter of marketing, don't you think GM would be doing that also? Get a grip, Seth.

In fact, they could have started 10 or 12 years ago when they first started leaking.

 
At 10/26/2010 10:36 AM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 10/26/2010 10:38 AM, Blogger VangelV said...

Walt, I've had my disagreements with you, and I don't completely agree with you now. Regardless, reading through this thread, it seems you are defending a practical argument versus Jet, Morgan and Van, who favor a more theoretical argument.

You are totally wrong about this. There is nothing practical about having the courts intervene in the sanctity of contract and do grievous harm to the capital markets. When people invest they look at how the markets have priced the legal and political stability in a nation. As soon as Obama cleaned out the creditors to reward the unions he did a huge amount of harm to the capital markets that made corporate paper far less attractive. That increased the costs for American companies and made them less competitive against foreign companies. It also changed the pricing equation and made the American markets less attractive in real terms.

The lack of respect for the rule of law made it far more difficult for capital accumulation and ensured that employment growth will stay weak until there is a significant change.

Clearly the damage done to bondholders, who were forced to take less so that the unions could get more, was not theoretical. Those little old ladies that were counting on the 5% dividend that they were getting got wiped out so that overpaid workers could keep what they do not seem to have earned.

 
At 10/26/2010 10:39 AM, Blogger Walt G. said...

VangeIV,

My undergraduate degree is in philosophy, and I took a couple graduate classes in philosophy, too. I even wrote a 10-source term paper on ethical pluralism, which is why I said I don't deal in ethics, but I did not say I don't understand anything about ethics.

 
At 10/26/2010 10:41 AM, Blogger VangelV said...

I can only hope that the anger against General Motors dies off enough so that the company survives.

Why is it better for GM to survive than for Ford or Toyota to gain the market share currently held by GM? Cars will still be made. Consumers will still have choices. Workers will still be needed to make the parts and assemble the cars. The free market does not care all that much about producers because it is driven by the spending decisions made by consumers. If consumers reject GM it needs to go bankrupt so that its assets can be used by more productive automakers.

 
At 10/26/2010 10:42 AM, Blogger morganovich said...

walt-

it's certainly not too early for the bondholders to write off their losses.

and can you really be serious about "the president hating the auto industry"? he just bailed them out in epic fashion. if he hates them, he sure didn't let him affect his giving them loads of other people's money and rewarding the UAW as political cronies.

and yes, you did complain about michigan. you used it as a justification for the UAW taking other people's money.

go read your own comment.

this seems representative of your overall "ends justify the means" thinking. you have no problem running roughshod over the rights of creditors so long as the you pension is funded. you have no problem taking down taxpayer funding equal to several multiples of the value of the business to protect your wages.

as a taxpayer, i'd have been better off paying 18 months of unemployment for you while the new owners got the assets back on line. this would have left the bondholders better off as well. the only people who did better in this deal were the UAW. everyone else got hosed by federal fiat.

and then you have the gall to claim that the president hates you? what color is the sky on your world?

 
At 10/26/2010 10:48 AM, Blogger VangelV said...

The problem is that there is no actual proof, just excuses about regulation. When a factory goes up that isn't designed to fail, then you might have something (should it fail given every single chance of success).

Of course there is proof. All you have to do is to see where new factories are being built and look at the population flows. People are leaving Michigan for states that have lower taxes and fewer regulations.

 
At 10/26/2010 10:48 AM, Blogger Walt G. said...

morganovich,

Are you saying the bondholders would have been better off in a Chapter 11 liquidation? You should have supplied that important information to the task force.

You did realize I was talking about President Bush?

 
At 10/26/2010 10:58 AM, Blogger VangelV said...

Ok, all that aside, the reason I call the argument for bailouts practical is that despite what happened, retirees and present workers, numbering near a million people, are subsidized by the bailouts. and that provides a tangible return. Using some simple numbers, assuming $75k per job and 15% absolute tax rates (sales, ss, FICA, fed, state) is $11.5b in tax revenues for every year they stay employed. So, there is a return on the investment, so to speak. I think if I looked at this harder, I could make a case for a better ROI, but you get the point...it's real money.

It is a very bad argument. When you damage the capital markets for the benefit of a few people you have to look at the entire economic picture, not just the jobs that you 'saved.' When the government sends a signal that it will not respect creditor rights companies will find it harder to attract capital and will have to pay an extra premium for the extra risk that bondholders will have to take. In such a low employment growth environment the demand that is required for the 'saved' companies to survive is reduced and the risk of bankruptcy goes up again.

The bottom line is that it is very illegitimate for you to talk about ROI when discussing government because the government distorts the market whenever it spends money that it never actually earns. If investment in GM made sense it would have come from private sources. If it did not the government should have stepped aside and permitted liquidation to take place.

 
At 10/26/2010 11:04 AM, Blogger morganovich said...

vangel-

i think you are correct about the increased costs companies will face to borrow as a result of this debacle, but i think a caveat is worth adding:

this will increased costs to borrow for highly unionized companies. borrowing costs at firms with no unions (like IBM) are still extremely low.

the great irony of this is that in favoring a union, obama has made it more difficult for all the other unionized companies while will ultimately hasten their demise just as attempts to help sub prime borrower buy homes destroyed their balance sheets and cost many the roof over their heads.

for all the complaints of corporate short term thinking, they are thinking in millennial terms in comparison to the government.

i suspect this intervention will wind up being more of an "own goal" in the intermediate term than a victory.

 
At 10/26/2010 11:15 AM, Blogger morganovich said...

walt-

yes, the bondholders would have been better off in chap 11. that is virtually incontestable. if the share that went to the subordinated claimants in the UAW went instead to the creditors, they would have had more..

your response it utterly disingenuous. they knew they would be better off in 11 than 363. they were forced to sign off on 363 out of fear of government reprisal despite the fact that it left them worse off in the deal. they made a rational decision not to get audited every year forever and have their investors harassed. i have been saying this all along and you keep ignoring it and claiming it was "legal", which misses the whole point. it was a coercive deal.

go back and read the example about my buying your home again.

 
At 10/26/2010 12:05 PM, Blogger VangelV said...

I am not complaining about Michigan getting enough tax money back, I am simply stating a fact. It's the same sort of fact that the 363 was legal because the court said so and they are the ones who determines legality--not you--not me.

But 363 was only made legal because the federal government used force to get the bond funds and bond holders to agree with its plan. You have no ethical concerns because you have no problem with the government using force for your benefit.

I get that people are mad, but I think it is premature to write any loss off yet. I am glad that a diverse group of people with differing points-of-view who had/have a lot to lose spent enough time and energy to deeply research the whole situation instead of making a snap judgement that they would let GM die. I don't know how exactly to define "fair" because almost anything can be judged unfair by someone, so I will let you keep trying to define that abstract notion.

Many people are mad because they can't retire with the same benefits as the UAW members that they just bailed out and wonder why it is that people who make less money are asked to pay for benefits for a group of higher paid but less competent workers. Theft is theft no matter how you spin it.

 
At 10/26/2010 12:08 PM, Blogger VangelV said...

My undergraduate degree is in philosophy, and I took a couple graduate classes in philosophy, too. I even wrote a 10-source term paper on ethical pluralism, which is why I said I don't deal in ethics, but I did not say I don't understand anything about ethics.

Then it must be obvious to you that what Obama did was unethical. That leaves you only with the 'practical' argument but that one falls apart as soon as you move the focus onto the bigger picture and look at the implications of the act on the total economy.

 
At 10/26/2010 12:09 PM, Blogger Walt G. said...

morganovich,

The task force study showed that 80% of the $27 billion unsecured bonds were owned by the hedge fund and derivative market (all $6 billion of the secured debt at GM was paid in full). This group did not have many friends because they are not popular with most people and the big secured-bond banker at Chrysler (I forget his name) had already made them mad. This group also should have had other holdings to lessen the impact of losing on one company reasoned the task force.

The remaining 20% that was owned by smaller investors who were well-diversified would not take much of a hit reasoned the task force (safe investors should have no more than 10% of their money invested in one company). So, the few unsecured bondholders who made imprudent or speculative bids on trying to make money on a junk bond they bought at deep discount did lose--that's what happens when you gamble.

The UAW retirees, reasoned the task force, did not have the benefit of diversification that the bondholders had. In fact, most had spent their whole lives at GM, and few had other retirement income sources. I am sure most of the people who made these difficult decisions did not want to hurt grandpa and grandma, so I guess you can say they have ethics even if you don't believe I do.

Again, you really need to do a more in-depth study of what happened to really understand it. If you don't agree with the decisions afterward, and I am guessing you probably won’t, at least you will know what you don't agree with.

 
At 10/26/2010 12:09 PM, Blogger Walt G. said...

morganovich,

The task force study showed that 80% of the $27 billion unsecured bonds were owned by the hedge fund and derivative market (all $6 billion of the secured debt at GM was paid in full). This group did not have many friends because they are not popular with most people and the big secured-bond banker at Chrysler (I forget his name) had already made them mad. This group also should have had other holdings to lessen the impact of losing on one company reasoned the task force.

The remaining 20% that was owned by smaller investors who were well-diversified would not take much of a hit reasoned the task force (safe investors should have no more than 10% of their money invested in one company). So, the few unsecured bondholders who made imprudent or speculative bids on trying to make money on a junk bond they bought at deep discount did lose--that's what happens when you gamble.

The UAW retirees, reasoned the task force, did not have the benefit of diversification that the bondholders had. In fact, most had spent their whole lives at GM, and few had other retirement income sources. I am sure most of the people who made these difficult decisions did not want to hurt grandpa and grandma, so I guess you can say they have ethics even if you don't believe I do.

Again, you really need to do a more in-depth study of what happened to really understand it. If you don't agree with the decisions afterward, and I am guessing you probably won’t, at least you will know what you don't agree with.

 
At 10/26/2010 12:20 PM, Blogger Walt G. said...

VangeIV,

Ethical pluralism is a belief that there can be two or more decisions/choices that can be ethical even if they contradict each other. It is the opposite of monism. I try to deal more in facts myself, but I do know my Kant.

 
At 10/26/2010 12:35 PM, Blogger morganovich said...

walt-

so you are now arguing that being politically connected as opposed to rule of law is the justification for recovery from a bankruptcy?

your whole argument is "we worked here for a long time, got paid for it, and now demand more compensation because we want it and are politically connected, so let's take it from funds, who cares who their investors are"

that rationale could be sued to justify virtually any assets seizure.

it is you who don't understand what happened and its ramifications.

your position is morally, ethically, and legal bankrupt.

it doesn't even make financial sense except for the UAW. every other participant loses.

 
At 10/26/2010 12:56 PM, Blogger Walt G. said...

morganovich,

I am trying to understand what happened by delving into the documents that were produced for this anomalous event. It is you who expects this to fit into your box of how things are supposed to be because that is the way it has always been. A lot happened I do not know about. Even more happened that you don't know about. The end of this not been written yet. Your predictions could turn out to be correct—or not.

 
At 10/26/2010 12:56 PM, Blogger VangelV said...

Are you saying the bondholders would have been better off in a Chapter 11 liquidation? You should have supplied that important information to the task force.

The information was available. Instead of the UAW getting the assets they would have gone to the bondholders, who could have restructured the company to make better and cheaper automobiles or sold off the pieces to Magna, Ford, VW, Tata, or whoever wanted to purchase them. We would still have had automobile manufacturing and auto assembly jobs but the people running the show would be different.

You did realize I was talking about President Bush?

The way I remember it the bailout was announced in the summer of 2009 by Obama. It was not Bush who robbed the bondholders You need to check your facts again.

http://tinyurl.com/29bc37p

http://tinyurl.com/39yqokz

http://tinyurl.com/32mnkkb

http://tinyurl.com/26vfsa9

No matter how you may try to run from it there is real ethical dimension to this issue. The theft carried out by the Obama Administration on behalf of its donors in the UAW did real and tangible harm to hundreds of thousands of individuals who put trust in the law that was ignored by the government. Even the defenders of the theft do not dispute that the law was not followed. They simply justify the theft on 'practical grounds' that are conveniently narrow and are not applied to the larger picture.

 
At 10/26/2010 1:00 PM, Blogger morganovich said...

the more i think about your response, the worse it looks.

you are arguing that because GM workers were in a tight spot because their company failed, that it was OK to steal from other people because they had other assets. you make them responsible for the failure of GM and its workers.

your claim that such a redistribution is "ethical" is a complete farce. it's ends justify the means thinking. by the same token, it would be fine to steal if you wanted a new TV so long as the victim was rich.

the whole purpose of rights and rule of law is to prevent just the sort of political popularity contest that you describe from resulting in tyranny of the majority.

there is nothing remotely ethical about theft.

there are many americans needier than you are. shall we let them steal your pension because they need it to eat?

if your answer is no, then how can you justify what was done to the bondholders?

 
At 10/26/2010 1:29 PM, Blogger Walt G. said...

VangeIV,

Without Bush, GM would not have made it to Obama. I find it strange we owe him thanks, but we do.

morganovich,

The decision was made the way it was because a lot of people thought it was the best thing to do given the circumstances at the time. I get that you and many others don't feel that way, and I hope we prove you wrong about our future at GM.

I lost about 9% of my portfolio when my GM common stock turned worthless, but I can still empathize with the unsecured bondholders. I was wiped out where they got back around 10 cents or more per an average 43-cent-investment (they might get preferred stock warrants, too).

I knew better than to have more than 10% in any one company, so I’ll be just fine. I was raised to make sure I did not have all my eggs in one basket. I guess my parents taught me about cash management skills instead of ethics :)

 
At 10/26/2010 1:36 PM, Blogger morganovich said...

walt-

my "prediction"? i'm not making a prediction, i'm talking about what already happened. it is you are are relying upon predictions about the performance of GM equity to lessen the blow to taxpayers (though it won't help the creditors much, and certainly not as much as they were entitled to).

 
At 10/26/2010 1:47 PM, Blogger morganovich said...

no walt, it was not made that way because a lot of people thought it was best. it was made that way because that is what the UA wanted and obama was willing to threaten creditors to compel their acquiescence.

that is a far cry from "thinking it's best". you may "think it's best" to give a mugger your wallet to avoid getting stabbed, but that doesn't make it a willing transaction.

your loss is irrelevant. you got what you were legally entitled to, which is more than the creditors can say. then you got more than you were legally entitled to in your pension and employment.

your claims about a future are also largely irrelevant to this discussion. the fact is that the stakeholders who were legally entitled to participate in such success should it exist are not going to be able to do so because their claims were not honored in order to benefit those whose claims were subordinate.

i notice you are mum on the notion that the impoverished should get to raid your pension because they need it more and you can spare some just as your claim the investors could.

until you can answer that question, you have no moral or logical ground upon which to stand.

 
At 10/26/2010 1:50 PM, Blogger Walt G. said...

I don't have any idea what is going to happen. I said that to this point, GM has more than met their obligations as determined by the U.S. Treasury and bankruptcy court.

How much money the taxpayers will make or lose for their 60.8% investment in GM will be largely determined by the timing of when the Treasury decides to sell the stock and the market for the stock over a period of time yet to be determined (there is a GAO analysis about this strategy, but I did not save it).

 
At 10/26/2010 1:58 PM, Blogger VangelV said...

The task force study showed that 80% of the $27 billion unsecured bonds were owned by the hedge fund and derivative market (all $6 billion of the secured debt at GM was paid in full). This group did not have many friends because they are not popular with most people and the big secured-bond banker at Chrysler (I forget his name) had already made them mad. This group also should have had other holdings to lessen the impact of losing on one company reasoned the task force.

What a load of crap. The law is applicable to everyone equally. We do not justify robbing all bond holders just because some of them are not popular. No wonder people want to avoid talking about the ethics.

The remaining 20% that was owned by smaller investors who were well-diversified would not take much of a hit reasoned the task force (safe investors should have no more than 10% of their money invested in one company).

Tell that to the kids who were hoping to go to college or old people who used GM dividends as part of their income.

So, the few unsecured bondholders who made imprudent or speculative bids on trying to make money on a junk bond they bought at deep discount did lose--that's what happens when you gamble.

Again, you are justifying the morality of looting by saying that it is all right to break the law as it is written.

 
At 10/26/2010 2:07 PM, Blogger VangelV said...

The UAW retirees, reasoned the task force, did not have the benefit of diversification that the bondholders had. In fact, most had spent their whole lives at GM, and few had other retirement income sources.

Why? I worked in a similar sector and had enough in savings to retire after 15 years without making much more after tax than your average GM worker. Why do we want to bail out those who have no discipline and make bad choices by harming those that were prudent and saved?

I am sure most of the people who made these difficult decisions did not want to hurt grandpa and grandma, so I guess you can say they have ethics even if you don't believe I do.

You are naive. The name of the game is political support and the UAW provides that in spades. The political appointees have no trouble hurting grandma and grandpa as long as it gets their political masters a better chance at getting greater contributions.

No matter how you spin it you have no ethical argument to support your views.

 
At 10/26/2010 2:09 PM, Blogger VangelV said...

Again, you really need to do a more in-depth study of what happened to really understand it. If you don't agree with the decisions afterward, and I am guessing you probably won’t, at least you will know what you don't agree with.

No review can justify theft and the subversion of the legal system.

 
At 10/26/2010 2:11 PM, Blogger VangelV said...

Ethical pluralism is a belief that there can be two or more decisions/choices that can be ethical even if they contradict each other. It is the opposite of monism. I try to deal more in facts myself, but I do know my Kant.

You justified stealing from grandma to help out the highly paid UAW workers who helped to destroy GM. Kant can't help you justify it.

 
At 10/26/2010 2:24 PM, Blogger VangelV said...

I am trying to understand what happened by delving into the documents that were produced for this anomalous event. It is you who expects this to fit into your box of how things are supposed to be because that is the way it has always been. A lot happened I do not know about. Even more happened that you don't know about. The end of this not been written yet. Your predictions could turn out to be correct—or not.

Come on. This is easily explainable by looking at the political incentives.

 
At 10/26/2010 2:29 PM, Blogger morganovich said...

walt-

those "obligations" were set by the feds threatening the other stakeholders and forcing them to agree to a 363 split that gave up their claims on assets.

i give up.

you seem to have absolutely no concern for that sort of abuse of power and political patronage so long as it benefits you and even less interest in actually looking at the ethics of what was done because you cannot possibly justify it.

i fear your view is quite prevalent among the UAW.

if nothing else, it's been very educational in terms of just how self centered and fascist (in the economic sense) you guys are.

you actually seem to be bragging about being ethically bankrupt.

when it's your turn to get looted, i wonder if you will accept the kinds of might makes right arguments you have made from those taking your money...

 
At 10/26/2010 2:45 PM, Blogger VangelV said...

Without Bush, GM would not have made it to Obama. I find it strange we owe him thanks, but we do.

More nonsense. Bush did not decide to rob bondholders and to reward the UAW. That was Obama's doing.

 
At 10/26/2010 3:17 PM, Blogger Walt G. said...

morganovich,

If you want to look at the past instead of the future on how the taxpayer will be paid back for their 60.8% investment, I think we have two different viewpoints. Mine: I see an unsecured retired bondholder who possibly put way too much money in GM bonds because he thought the 10% yield when everyone else was getting 6% was great, so he paid $430 for a junk bond that had a face value of $1000. Yours: Those lazy UAW bums never worked hard, so they don't deserve a pension because it was their fault GM went bankrupt. I guess we will be swayed depending on which one of us has a grandpa in that position. The task force used their considerable influence using that kind of information.

The other point seems to be whether labor unions have power in the 21st century. I felt rather powerless with only about 12% of the U.S. labor force unionized. According to you, though, we received this deal because of our clout with President Obama and company. I guess that shows the importance/influence of unions. We could also ask the unsecured bondholders and maybe the Delphi salary retires if they wish they had a union supporting their interests. The UAW was my port in the storm. I wish everyone had a union.

The other important revelation is electing those who will support your interests because they can make a big difference in your life. I used to think politicians were useless, thanks to you, I have new respect for them being able to get something done (even if it is, according to you, wrong).

I am bragging about educating myself on how a complex political, social, and economic catastrophe that has never happened in my lifetime was dealt with by our leaders. This was a huge event even if you had no direct involvement with GM other than being a U.S. taxpayer who helped us out. I hope we earn the trust you put in us whether you were a willing participant or not. Thanks--we do deeply appreciate it.

VangeVI,

Without A, no B, without B, no C, therefore no A, no C. You were the one who wanted logic.

 
At 10/26/2010 3:18 PM, Blogger Jason said...

@ Walt: I hope you are right. But this has happened before with Chrysler and the lessons were not learned. I doubt the UAW will retain the lesson and understand these companies need to build sizable cash positions to maintain competitiveness and upgrade operations. It will for a while, then it will devolve into the same old cash grab...BUT like a typical Detroit fool, I have hope.

@ Morgan and Van:
I don't propose that why the bailabout happened is completly or even somewhat justifiable. I couldn't today even with a clearer head. A good number of issues were self inflicted: Bad product choices, bad and disillusioned management, horrible, terrible labor contracts with crushing legacy costs...I could go on and on.

However, there are benefits as I've explained. A GM and or Chrysler liquidation would have long term consequences that would not be absorbed by the marketplace for, well, at least 3-5 years. This is not as simple as, sell equipment to company B who can use it better. Toyota wasn't going to build Malibus, after all. These plants are mammoth and virtually unusable for other cars without significant (>$500M) capital investments. And besides this, the supply chain can takes 24 months to spin up additional capacity. The system is pay to play and just in time. This means they have no excess capacity AND suppliers have to pay for the tooling/equipment to get that additional capacity. Remember, no one was lending, and no company was going to outlay precious capital to expand in the uncertainty. So...without a bailout you would have had capacity limitations, which lead to higher car prices.

Also, let's not fool ourselves. Most of the displaced workforce would STILL be unemployed today. I believe any new jobs would be created where they aren't today. So you would have a dust-bowl migration or just higher levels of poverty in Illinois, Indiana, Wisconsin, Ohio and oh yeah Michigan.

The ONE THING the Obama/Rattner plan did do well was look at the systemic repercussions of liquidation of GM and Chrysler and determine the actual effect. It was not pleasant. They bailed out these companies to maintain status quo.

Now, what I think they did not do well was look at the long term consequences of maintaining the status of the UAW. Morgan, you've really hit it on the head regarding borrowing costs. This will be the elephant in the room going forward. GM MUST have exceptional postive cashflow and ROC for it to stay in the race going forward. No one will lend to those guys without a premium. Not to mention the half life of a lesson learned, which I eluded to above in my response to Walt.

And Van, I don't claim that maintaing status quo was a good argument. But in my opinion it is providing some CERTAINTY of outcome rather than the theoretical outcome of what the free market might, could, should or won't do given liquidation. Believe me, when you stare oblivion in the face, like we were around here, principles don't provide much solace and buy any grocieries.

 
At 10/26/2010 3:44 PM, Blogger James said...

Problems with Ricardo’s Theory of Comparative Advantage

According to myths of free traders the Theory of Comparative Advantage developed by 19th century economist David Ricardo proves that free trade is best. Always! Under the assumption that the reader knows and understands the theory I will point out deficiencies in the theory some of which Ricardo acknowledged:

Ricardo shows that free trade works for one product from each country and then generalized to all products saying ”To simplify the question, I have been supposing the trade between two countries to be confined to two commodities—to wine and cloth; but it is well known that many and various articles enter into the list of exports and imports. By the abstraction of money from one country, and the accumulation of it in another, all commodities are affected in price, and consequently encouragement is given to the exportation of many more commodities besides money, which will therefore prevent so great an effect from taking place on the value of money in the two countries as might otherwise be expected.” Both the concept and explanation strike me as thin to say the least.

The market may not be able of absorb any extra production that results from more efficient production. When American grain was allowed into Mexico without tariff it put more Mexican grain farmers out of work than the outsourced factories and domestic industry could absorb. Many came to the US as illegal aliens accepting below market wages to survive.

Productive assets can easily be shifted from declining to rising industries. It is not easy to train a textile production equipment mechanic to be an airplane mechanic. Free traders give lip service to retraining laid off workers but that aid is usually limited to extra weeks of unemployment checks and sometimes training for a new job that more often than not does not exist. Example: Google “nursing students unable to find jobs”

Free trade doesn’t worsen income inequality. Even though workers would be working in more efficient jobs and are therefore more productive free trade increases the supply of labor and forces the price down. There are more English speaking college graduates outside the US than the US has jobs. At the Doha Round of trade negotiations India is pushing a thing called “The Movement of Natural Persons.” What that means is that any person in the world would be allowed to hold any job in the world without regard to nationality of the employee or the job location. Your employer could hire anybody in the world at any wage to replace you.

Trade is sustainable Just how long do you expect that the US can run a trade deficit? How many jobs can we outsource before we have a problem keeping our citizens employed?

Trading partners will not exploit their advantage after inefficient industries are shut down Right now we could reopen a factory in Youngstown Ohio and quickly staff it with experienced workers by sending a van with a banner passed all the fast food restaurants in town. What happens when we can no longer do that? Rare Earth Elements anybody?

Comparative Advantage favors short-term efficiency over long-term growth There is a reason why innovation tends to happen in rich countries, in spite of poorer countries' lower labor costs and in many areas similar skill levels. High labor and product costs force innovation by increasing the return to acquiring superior technology.

 
At 10/26/2010 4:31 PM, Blogger morganovich said...

walt-

you seem unable to separate 2 issues in your head.

the first is taxpayers being asked to put up a lot of money and take a great deal of risk that the majority of them did not want to take.

the second, which you keep ignoring, is the fact that creditors had money to which they were entitled taken from them in a coercive manner (direct threats from the federal government) to benefit a politically favored group, the UAW.

your position is utterly hypocritical as you feel no sympathy for bondholder that might have been overexposed, but expect the UAW to be protected because they were.

you're just fashioning rationales as you go along to favor the outcome you want. you afford no one else the protections you demand.

to make matters worse, the UAW was paid to participate in GM. they got salaries and benefits. so even if GM goes under, they were still compensated for their time. lot's of people have their net worth tied up in the companies they work for. they take the risk if they fail. you pretend that somehow the UAW is the victim here and therefore entitled to rob others.

i have still not seen even one ethical argument from you nor have you responded to any of my basic questions about how you would feel if what was done to the creditors was done to you using the same rationale.

the reason is that you can't. your position is immoral and internally inconsistent. worse, you seem not to care.

 
At 10/26/2010 5:24 PM, Blogger VangelV said...

When American grain was allowed into Mexico without tariff it put more Mexican grain farmers out of work than the outsourced factories and domestic industry could absorb. Many came to the US as illegal aliens accepting below market wages to survive.

When Mexicans were allowed to buy much cheaper grain they became better off. Some farmers did have to look for something else to do and some did come to the US and provided Americans a cheap source of labour. Everyone won. So what is your problem?

It is not easy to train a textile production equipment mechanic to be an airplane mechanic.

So what?

Free traders give lip service to retraining laid off workers but that aid is usually limited to extra weeks of unemployment checks and sometimes training for a new job that more often than not does not exist.

No, free trade is about producing the most with the least input and providing consumers with the lowest price. The market does not care about retraining because that is the responsibility of the individuals who are looking for more marketable skills and higher pay. Do you really want your kids to grow up to be textile workers?

Example: Google “nursing students unable to find jobs”

I did. What exactly is the problem? What we have is a highly regulated market in which the schools produce more nurses than are required. Should we subsidize nurses?

 
At 10/26/2010 5:28 PM, Blogger VangelV said...

Even though workers would be working in more efficient jobs and are therefore more productive free trade increases the supply of labor and forces the price down.

So. Lower prices means that a lower wage will buy the same things or more. I would have had to work my entire life to purchase a computer in the 1960s. Today I have one in my pocket that is so cheap that I do not worry about losing it.

There are more English speaking college graduates outside the US than the US has jobs.

So? Isn't that supposed to be a good thing? Haven't you seen the huge increase in the standard of living in the rest of the world? Why is that a bad thing?

At the Doha Round of trade negotiations India is pushing a thing called “The Movement of Natural Persons.” What that means is that any person in the world would be allowed to hold any job in the world without regard to nationality of the employee or the job location.

Sounds good to me. Why should the government tell me who I have to use to cut my grass or my hair and which doctor I should use?

Your employer could hire anybody in the world at any wage to replace you.

It works the other way too. I could go anywhere and get any job that I am qualified to do. I am not scared. Why are you?

 
At 10/26/2010 5:36 PM, Blogger Walt G. said...

morganovich,

I found ethics/philosophy too abstract to pursue in a master's degree after my undergraduate degree, so I will let you walk through the quagmire and wait for you on the other side. I thought killing was wrong, but I also believed in the death penalty. Either side can be morally right and profess they have a rational argument in that field, so that defeats the rule of logic that something cannot both be and not be that I am more comfortable with. I don't know what you mean about "feel" because I am not a "touchy" "feely" type person--I feel with my hands.

About the bondholders, I spent some time on the Wilmington Trust Company Website a while ago, and I found the latest court case was filed August 10, 2010. Did you know there are still legal issues outstanding concerning the unsecured bondholders? So, it is not over. It also seems some unsecured bondholders illegally filed more than 1 claim for the same bond, and GM is having to spend money to try to remove the duplicates. Bad bad grampa!

I also went to the Liquidation Motors' Website to see what's happening over at the old GM. They have 70,463 claims filed against them with the latest by DEMETRIOS SOTIROPOULOS on 10/14/2010 for $2,120.00. So, that's ongoing, too.

Your claim that the bondholders lost huge money is not true--yet. The have a 10% claim on the New GM stock and the stock has not been issued or priced. In addition, they have possible warrants for more which could bring them up to 25 cents on the dollar, but the average price paid for the bond was 43 cents. I know you know more about bonds than I do, so what do you think the value of a bond bought for $430 for $1000 face value should be? We know what the task force came up with.

I think part of our difference of opinion is you expected laws to stay the same and considered any change "breaking the law." On the other hand, I grudgingly found that change is difficult but inevitable and considered during the tumultuous time that laws needed to be written to change with the times. I think I just opened the door to Justice Scalia's constitutional originalist position. Jundos will be along any time now.

 
At 10/26/2010 5:39 PM, Blogger VangelV said...

Just how long do you expect that the US can run a trade deficit? How many jobs can we outsource before we have a problem keeping our citizens employed?

What does this have to do with free trade? Do you really think that you would be better off if you had to buy bananas from growers in Akron or Scotch from brewers in Memphis?

If you read your Ricardo you would understand that the increase in wealth from specialization occurs even if we assume that no increase in individual productivity takes place. As explained by the late great Manuel Ayau, "the division of labor itself increases collective, not individual, productivity—be it of hunter-gatherers or an industrial society."

You really should do some more reading. Clearly you have no idea what Ricardo was talking about and have little understanding of real world economics.

 
At 10/26/2010 6:24 PM, Blogger Walt G. said...

Here’s an excerpt of what Ron Bloom, Obama Auto Task Force member, had to say at the INSOL INTERNATIONAL ANNUAL REGIONAL CONFERENCE
FAIRMONT SCOTTSDALE PRINCESS
SCOTTSDALE, ARIZONA
MAY 21, 2006


. . .The problem is that labor, particularly when it has an organized voice, does not fit easily into this
Equation [speaking about insolvency].

It can certainly be argued that we are creditors. We have sometimes quite substantial deferred wage claims, most significantly in the form of pensions and retiree health care, as well as claims for unpaid wages, severance, vacation and other similar obligations. These deferred wage claims are based on promises that were made to people who no longer work for the company, as well as to those still holding jobs. But while these obligations can be quantified it is hard to call them
traditional creditor claims.

Before banks and bondholders lend companies money they explicitly assess the likelihood that
the company’s obligation will be honored. Based on their assessment, with full access to all the information they deem relevant, they then write covenants regulating the company’s behavior.

Often, they secure the company’s commitments with liens on the company’s assets and finally
they charge interest to reward them for the risks they are taking.

Then, each day the market re-prices the company’s obligation based on the best information available. This allows those who like the risk-reward ratio to take it and those who don’t to
liquidate their position and move on.

Shareholders too, have at any point in time, both no restrictions on their ability and of course no compunction about selling their ownership stake to someone who wants to have it.
Thus every day, when the market closes, all financial stakeholders have affirmatively chosen –that day – to purchase their position at whatever price the market set for it – either because they
actually did so or because they choose not to sell.

Now compare this to a worker’s deferred wage claims. Those already retired are the ultimate hostage lenders, with essentially no rights. They worked a lifetime and deferred a significant amount of current compensation in exchange for the company’s promise that, upon their retirement, they would be paid a fixed stream of cash and provided with help with their medical bills.

Then, without their knowledge or consent, the company choose to not set aside enough money to
honor that promise. In effect, the company borrowed money from them without even discussing
the terms of the loan.

Further, if the retiree thinks that the company is not being prudent, he or she has no ability to take the company’s promise, convert it to its present value and sell it to someone who would like to own it.

So what we have is a bunch of old men and widows being forced to lend the company, for whom
they worked a lifetime, some portion of the value of their pension and their health care. This loan is made on terms on which they have no input and they have no ability to liquidate their position. I am guessing that not too many of you would advise your clients to do that deal.

Later the company decides that it is insolvent and announces that these “creditors” ought to
compromise their claim so that more value can be provided to a bunch of hedge funds who bought their claims at ten cents on the dollar and have owned them for all of ten minutes before
loudly proclaiming their inviolate right to be paid back at par plus accrued. . . .


Yea, we are just the same.

WOW!! I sure am glad this guy was on the Task Force!! Walt

 
At 10/26/2010 6:26 PM, Blogger Ron H. said...

James,

"When American grain was allowed into Mexico without tariff it put more Mexican grain farmers out of work than the outsourced factories and domestic industry could absorb. Many came to the US as illegal aliens accepting below market wages to survive."

Well, it appears I've returned too late, and my responses have already been made by others, but you might also want to ask whether some other undesirable government interference in the form of subsidies for US grain growers might have exacerbated the problem by allowing lower prices than otherwise. This is a common problem for third world growers who have trouble competing in world markets against subsidized US growers

 
At 10/26/2010 7:24 PM, Blogger morganovich said...

walt-

yes, my claim that they lost money is absolutely true. at the very least, they should have a much larger equity claim as legally, they were entitled to a full recovery before the UAW got anything.

after the 363 they were forced to participate in, their rights have been permanently given away. you don;t seem to have any idea how bankruptcy works or what a vast departure from all settled law on the topic this "settlement" was.

where they bought the bonds is irrelevant. if you had even rudimentary BK or financial experience, you would know this. the bonds are a claim on assets and cash flow. they sit in a certain place in the tiers of the capital structure. the law of the land is that they must be paid IN FULL before more subordinated creditors see one dime.

this was flouted by the 363 filing into which creditors were extorted into participating. you keep talking about the "task force" like that means anything. the task force was the group perpetrating the extortion at the behest of the federal government. that fact that you would even consider referring to them as an impartial arbiter is ridiculous. that's like my calling the 3 guys who mug you a task force and claiming that they agreed about how much money you should give, so you have nothing to complain about. after all, you could have just let them stab you if you disagreed.

i really don't know how to explain this to you any more clearly. you don;t seem to have an even rudimentary understanding of bankruptcy.

you death penalty analogy completely misses the point. that's not the argument you are making. you are making an argument that it is OK for you to steal from others, but not for others to steal from you. you are making contradictory arguments about why bondholders should get fleeced but you should get paid. you advocate breaking the law to your benefit, but demand that contracts to you be honored. it's hypocritical, illogical, and unethical.

you may have studied philosophy, but you certainly didn't absorb any ethics or logic.

you are making arguments that are provably internally inconsistent and using the same arguments you claim others cannot use when they benefit you.

then, you dodge these issues by claiming "ethics are complicated" and pretending that yours is just another view, when, in fact, it has no underpinnings at all apart from your own convenience.

you are just arguing "my group wants" over and over again and trying (and failing) to justify it.

so, for about the 3rd time, if it's OK for you to take the property of bondholders because you need it more, are you willing to allow your pension to be taken by the detroit homeless who clearly need it more than you do?

 
At 10/27/2010 7:19 AM, Blogger VangelV said...

I found ethics/philosophy too abstract to pursue in a master's degree after my undergraduate degree, so I will let you walk through the quagmire and wait for you on the other side. I thought killing was wrong, but I also believed in the death penalty. Either side can be morally right and profess they have a rational argument in that field, so that defeats the rule of logic that something cannot both be and not be that I am more comfortable with. I don't know what you mean about "feel" because I am not a "touchy" "feely" type person--I feel with my hands.

Nice bit of spin but you can't pretend to accept that killing innocent people is a good thing or moral. Or that robbing grandma to help an overpaid auto worker is justified. You avoid that simple discussion because you can't support your position, which seems to be that the morality of looters is perfectly fine when it is carried out by the government.

About the bondholders, I spent some time on the Wilmington Trust Company Website a while ago, and I found the latest court case was filed August 10, 2010. Did you know there are still legal issues outstanding concerning the unsecured bondholders? So, it is not over. It also seems some unsecured bondholders illegally filed more than 1 claim for the same bond, and GM is having to spend money to try to remove the duplicates. Bad bad grampa!

First, grandma is not bad if she was told that she owned a bond that also happened to have been sold to someone else. Second, if she is guilty of fraud, the law is perfectly capable of handling it without Obama's intervention and following it will lead to a just settlement. That is the problem in this case; the law was not followed and Obama's thugs used the power of government to coerce people who had legitimate standing to accept far less money than what they were owed.

Your claim that the bondholders lost huge money is not true--yet. The have a 10% claim on the New GM stock and the stock has not been issued or priced. In addition, they have possible warrants for more which could bring them up to 25 cents on the dollar, but the average price paid for the bond was 43 cents. I know you know more about bonds than I do, so what do you think the value of a bond bought for $430 for $1000 face value should be? We know what the task force came up with.

The claim is true you moron. They got a few cents on the dollar in equity that is not yet marketable. If I take your house and give you 10% non-marketable ownership of a private company that I own in exchange I have robbed you no matter how I try to dress it up. I now know why you avoid dealing with the ethics issue. It helps to understand simple concepts like theft before you can talk about them.


I think part of our difference of opinion is you expected laws to stay the same and considered any change "breaking the law." On the other hand, I grudgingly found that change is difficult but inevitable and considered during the tumultuous time that laws needed to be written to change with the times. I think I just opened the door to Justice Scalia's constitutional originalist position. Jundos will be along any time now.


No, the difference is that he expects the laws to be followed and for the government not to change the law to rob some people so that it can help out a political donor. He is also naive enough to ignore the fact that economic and political life is dominated by politics.

 
At 10/27/2010 7:39 AM, Blogger VangelV said...

Here’s an excerpt of what Ron Bloom, Obama Auto Task Force member, had to say...

Let me try to find an equivalent. Here is one:

Here is what Wilhelm Frick, Hitler's Minister of the Interior 1933–1943 and Reich Protector of Bohemia-Moravia 1943–1945 had to say about...

Why would one accept one side of the story told by someone who took part and is using a forum to justify his actions? I know that you want to avoid discussions of ethics or morality but how about one about common sense and being a 'useful idiot' for the regime?

Let us look at a part of the argument.

Now compare this to a worker’s deferred wage claims. Those already retired are the ultimate hostage lenders, with essentially no rights. They worked a lifetime and deferred a significant amount of current compensation in exchange for the company’s promise that, upon their retirement, they would be paid a fixed stream of cash and provided with help with their medical bills.

Then, without their knowledge or consent, the company choose to not set aside enough money to
honor that promise. In effect, the company borrowed money from them without even discussing
the terms of the loan.


When I got my job in a manufacturing company I certainly understood that my pension and healthcare claims only had any validity until the company was solvent. After insolvency I would stand in line with the other unsecured creditors, like grandma who bought the bonds that she is using to fund her own retirement. The GM workers understood the risks that it was possible that its union could run the company into bankruptcy yet they kept voting for leaders who used their power to force GM to keep making promises that could not be kept. When GM could no longer keep those promises the workers had no special standing and had to line up with grandma for their share of what was over.

There is no way to justify robbing grandma to help those workers but Mr. Bloom who is a labour lawyer who made his money by representing the unions obviously thought that justification was not necessary.

I take it that your posting was ironic because there was no way to have missed the conflict of interest.

 
At 10/27/2010 8:28 AM, Blogger Walt G. said...

Morganovich and VangeIV if I was still speaking to him after the last post :.)

I figure my pension is about 1/3 of my gradient cash in-flows over the next 30 years which will carry me to 86-years-old. I plan to retire next year, and I worked 60-80 hours per week all my life at up to three jobs at a time to make sure I did not have to depend on GM or the government to support me and my family in retirement. I can pull 4% out of my portfolio and increase it 4% yearly for inflation and pay my bills without touching the principle--there will not be much traveling or as many extras though. I'll tell the unsecured bondholders to their face that if they had more than 10% of their investment in GM, they were a fool. I told the same thing to a guy I work with who put his life savings into GM common stock when it was $8 per share right before the bankruptcy.

I want what I was promised to me (pension and SS), but I will deal with whatever financial conditions I meet. I managed to acquire over $60-per-day of net worth for every day since I turned 18-years-old (isn't compounding interest over 30 years great!!). I expect some sort of means-testing to limit those who saved in favor of those who wasted in the future--that's life. I don't especially like having local, state, federal, and property taxes taken from me either. I don't think ethics are complicated so much as I can't quantify then and use them in how I think. I sought philosophy out because I spent 25 years working on mechanical devices and engineering things and wanted a change, but I found I prefer the concrete over the abstract.

It was Ron Bloom who favored the retirees over the bondholders. I did some reading of the task force papers last night. His reasoning, basically, was that investors can enter or leave the market everyday after assessing the risks and rewards while the UAW retirees can't. The UAW benefited from his input this time, but next time we might not. That's how the game is played. I understand it without either agreeing or disagreeing.

I deal in processes and procedures everyday while not always agreeing with them but operating within the scope and parameters I am given. Like I said, I am not a "touchy" "feely" type person. I don't talk to someone at MIOSHA and ask if they are having a good day.

I see the financial condition of GM and the entire economy over the last couple years intertwined and inseparable. As such, we have, and we will see, a lot of changes that make many people who try to make emotional and legal comparisons to the past uncomfortable and very very mad. To those people, I say, "Hold on, you have not seen the end of this yet." Enough said, cheers, and I'm out of here.

 
At 10/28/2010 11:22 AM, Blogger VangelV said...

I'll tell the unsecured bondholders to their face that if they had more than 10% of their investment in GM, they were a fool.

Perhaps you can tell them that but you can never justify having the government break the rule of law to reward you by harming grandma and the rest of the bondholders.

I told the same thing to a guy I work with who put his life savings into GM common stock when it was $8 per share right before the bankruptcy.

Again it isn't your call to make. People should make their own choices and face the consequences. The issue is not whether grandma should have bought GM bonds but whether the law should be ignored and she should take less than she is entitled to because Obama wants UAW support and contributions.

I want what I was promised to me (pension and SS), but I will deal with whatever financial conditions I meet....

But that is the point. You are not dealing with the financial conditions. You got more because grandma was robbed by Obama and the UAW. There is no legal or moral justification for that. (Which is why you avoid such arguments.)

It was Ron Bloom who favored the retirees over the bondholders. I did some reading of the task force papers last night....

The labour lawyer who gets a lot of money from the UAW decides to rob grandma so that the people that he works for can get more than the law would give them and you buy into his justification. As I wrote, it does not matter what story he spins; he has a conflict and cannot justify robbing grandma so that Obama can get more UAW votes and UAW contributions.

I deal in processes and procedures everyday while not always agreeing with them but operating within the scope and parameters I am given. Like I said, I am not a "touchy" "feely" type person. I don't talk to someone at MIOSHA and ask if they are having a good day.

But the process for bankruptcy is actually very clear and it was violated in this case so that you can gain while grandma loses. You don't have to be a "touchy" "feely" type person to know that the law should be applied as written

As such, we have, and we will see, a lot of changes that make many people who try to make emotional and legal comparisons to the past uncomfortable and very very mad.

The US was the great nation that it was because it applied its laws justly. When that changes American assets are worth a great deal less to outsiders who already have much cheaper markets to operate in and no longer trust the government enough to pay a premium for the rule of law and the protection of property rights. No matter how you spin the story you cannot justify adopting the morality of looters.

To those people, I say, "Hold on, you have not seen the end of this yet." Enough said, cheers, and I'm out of here.

But we have seen the end. The USD is now in decline. The American capital market has been harmed. Grandma is eating Alpo. GM workers still get paid too much and have benefits that they will not be able to collect. The One has lost most of his shine and many people who voted for change are now beginning to miss Bush. Unfunded liabilities and debt stand as more than $200 trillion and the US is a just shadow of the great nation that it used to be.

 
At 10/28/2010 11:31 AM, Blogger VangelV said...

However, there are benefits as I've explained. A GM and or Chrysler liquidation would have long term consequences that would not be absorbed by the marketplace for, well, at least 3-5 years.

Not true. As an economic illiterate you do not understand about the need for the market to clear away the bad and inefficient companies. Keeping them alive does far more harm than good. That is a lesson that you are about to learn the hard way.

 
At 10/28/2010 1:33 PM, Blogger Walt G. said...

"But the process for bankruptcy is actually very clear and it was violated in this case so that you can gain while grandma loses."

Not so VangeVI:

The courts gets to decide what is legal--not you or me. I take it you did not read the Second Appeal's Court decision for the secured creditors at Chrysler (Source: Docket No. 09-2311-bk). It was upheld by the U.S. Supreme Court. It does not get much more legal than that using our system of government's checks-and-balances. There were no Obama appointees on the Court at the time. GM's unsecured creditors’ fate was sealed by that decision as it was cited numerous times in GM's bankruptcy case (Source: Case No: 09-50026).

The 363(b) purpose, according to the Courts' opinion (bankruptcy, Second, SCOTUS) is to maximize asset value even if that means some people lose so the company can survive--especially if the secured creditors will be better off than in liquidation. In essence, as I read it, they can’t screw themselves to spite someone else. That's the law as it is written and not as you think it is or you want it to be. I did not make this up, so don't hold it against me. (Personally, I think that the Executive Office, Congress, and the Court have abused their Constitutional power since Nixon’s era, but I am trying to leave my opinion out of this and just try to understand what happened).

I would like to find where an unsecured creditor has more claims to assets than another unsecured creditor for my research (unsecured bondholders v. union deferred wages). Do any of you have an authentic legal source/citation for that information (unofficially called “pecking order”)? Everything I find states it is up to the bankruptcy court to decide who gets what and when (which is in the Judicial branch and not the Executive branch of the government). I know what you are thinking; however, courts overturn stare decisis almost every day, so that’s a reality you have to fit into the paradigm.

 
At 10/28/2010 9:51 PM, Blogger VangelV said...

The courts gets to decide what is legal--not you or me.

First, the rules were quite clear. The courts only ruled in the way that they did because the US government used force against bond holders to get them to accept less. Second, given the fact that the U.S. Supreme Court ruled that a Virginia law that permitted the compulsory sterilization of patients of state mental institutions was constitutional, and that Nazi courts accepted statements obtained under torture I refuse to accept your statement as fact.

As our friend pointed out you seem to take great pride in being immoral and unethical. Well, some of us see that as a vice and not a virtue.

 
At 10/29/2010 5:51 AM, Blogger Walt G. said...

If you read the 2nd Court of Appeals case, you would find the Chrysler opinion was based on the 2008 Lionel case, which predated the current administration. It was a well-reasoned opinion even if you don't agree with it.

 

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