Treasury Continues to Harpoon the Real Economy
With the ever increasing amount of taxpayer money handed over to "bail out" financial firms, manufacturing firms and Insurance firms, the Treasury has given a new meaning to the term "venture capital". Venture, by its very definition, involves risk for reward. But risk and reward for whom? All the risk for the U.S. taxpayer and all the reward for company CEOs and boards. Has any of the money stuffed in to the back pockets of the banking community actually done any good? For the economy, no. For the U.S. taxpayer (who is the real investor, as this whole thing involves their money), none. For the recipients themselves, yes. What have these institutions done with the free money? JPMorgan Chase (JPM) used some of it to buy Washington Mutual for $1.9 billion and Bear Sterns for $1.1 billion. Bank of America (BAC) bought Merrill Lynch for $50 billion. Talking about return on investment, Fannie Mae, even after receiving $100 billion, lost $29 billion in the third quarter. AIG Insurance (AIG), after having received $85 billion, followed by an extra $38 billion, lost $25 billion in the third quarter. And now we are witnessing even more money being proposed for even more "bailouts".
As a side note, after each new merger, the number of controlling banks reduces and the choice for the consumer is slashed. Competition is slowly being removed from the banking sector and we are witnessing the birth of a banking monopolization. It will come as no surprise that the cost of banking for the consumer will rise alongside.
"Bailing out" is only worth it if you can remove more water than is coming in, and with every "real economy" report that comes in, the waters rise even faster. General Motors (GM) is failing fast because it makes stuff nobody wants to buy. In free market terms, that means that it goes to the wall. This is the system that the Fed have stood by for all those years as they put their trust in "free market forces". Have they been blinded to the consequences of their actions and think that the solution to failing banks and manufacturers is to simply give them more money without even looking at their balance sheets? Would you trust Paulson or Bernanke to run your hedge fund? I wouldn't think so. Let's take a look at exactly how much the "bailouts" have come to so far...
Total: $2.7 trillion
Not a single dime of the trillions of dollars thrown at the problem so far has led to an improvement in the system that it was meant to fix. Quarterly losses are mounting; banks, along with manufacturing companies, are dumping employees and slashing costs to "weather out the financial crisis", as if the same crisis can be cured simply by grabbing their employees' tax dollars and then firing them to reduce costs.
It's the people who are being fired who are the engine of the real economy. They're the ones who buy financial services, sign up to interest bearing mortgages, buy General Motors' F 150 pickups and groceries down at the local Target (TGT) or Wal-Mart (WMT). The financial sector can do whatever it wants with the free money, but none of it will benefit the people for whom it was meant originally.
The U.S. is shooting the final bolt at the problem. I say the "final bolt" because when they go to borrow the money from foreign governments and investors, they will see that the well is drying up fast. For several trillions of dollars to be raised, the amount of Treasuries that will have to be sold will bring the forces of the free market to bear. An overabundance of product brings a consequent reduction in price. Can anyone say "bond collapse"? Every foreign investor currently holding the bonds already bought will find themselves with a serious hole in their collective pockets. Uncle Sam will have just maxed out his credit card.
Is this the big talking point at the upcoming G20 summit? Each and every party will have to come out of this meeting with something. Somehow, the foreign debt of the U.S. will have to be accounted for. China and Japan will want to feel that their foreign reserves are actually worth something. The call for a "New World Order" is back in the headlines and heralds a ground shift in how the world will be run. There is no alternative, as the old system has gotten to the point that it can no longer survive. The engine that kept the "American dream" alive and pushed the growth of China is now gone as there are no more golden eggs to be laid. That goose was shot a while ago by Alan Greenspan and successive Fed chairmen. Keeping an eye on the 10-year Treasury yield these days has become a nail biting nightmare.
So with the "bailing out" of moribund institutions, all that has been achieved here is the certainty that things will steadily get worse. Nothing that has been done so far has reduced unemployment, increased tax revenue, increased the value of real estate or stopped the soup kitchen queues from getting longer. It has all been for nothing; well, except for the Royal Bank of Scotland (RBS) execs who threw themselves a $300,000 champagne party, no doubt to celebrate their collective genius at managing other people's money.
So why throw even more money at the problem when it obviously is not solving the problem? In the case of General Motors, the loss in unemployment terms could come to 2.5 million. Gone would be the health care that the company provides its current and former employees. This would seem like a worthy candidate, as the fallout is so great that this company is just "too big to fail." But the system has already failed and the inevitability of more company failures is guaranteed - there is no getting away from this unless the system is turned on its head. The real economy has to drive the means of production and not the other way around. There is no point in General Motors burning through all their savings for another year, using more taxpayer money if, by the end of that year, there is nobody left to buy their products. This simply amounts to an unbelievably gross waste of money. There is no return on this investment and the only upside is that some of the employees will get to keep their jobs and healthcare a little longer. Thousands of jobs will be lost via mergers and cost cutting schemes, anyway.
The only realistic way to save General Motors is to invest in what General Motors actually earns money doing: selling automobiles. This is not achieved by handing them cash; it is achieved by investing in their customers, who, at present, are a quickly diminishing commodity. The latter is the indispensable component of the system, not the other way around. There are a lot of other auto companies out there that offer much better products at a lower price, and if GM is not up to the mark, it's history anyway.
If the $2.7 trillion dollars had been invested in rebuilding America's economy, i.e. creating jobs for the unemployed, repairing infrastructure, renovating derelict factories, keeping people in their homes, keeping them mobile and maintaining a disposable income, reducing their tax payments, then the return on the investment would have been greater. A new fair banking system, to replace the current racket that has caused wholesale destruction, could have been organised along the lines of credit unions, where the customers actually own a part of the institution. This would have heralded a step in the right direction to recovery, by basing the economy on real value, not CDOs, MBSs and derivatives, which is just a way of lighing a fire downwind of you and hoping the wind doesn't change. By doing precisely the opposite, the available capital has been squandered and ended up in the pockets of the same people who are responsible for the mess in the first place.
It's time to stop the deliberate waste of public money and hold our "benefactors" accountable. The "useless eaters" (Henry Kissinger) are watching their hedge funds being managed by the largest coalition of organized crime in human history.
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This article has 21 comments:
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investor88
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755 Comments
Nov 12 09:08 AM-
bosun.j
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Nov 12 09:28 AM-
paulsjj
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Nov 12 09:30 AM-
User 118015
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309 Comments
Nov 12 10:52 AM-
JasonC
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367 Comments
Nov 12 11:17 AMUtterly pointless and ignorant rant.
On GM, cut wages, simple. They are perfectly competitive at national average wages, they aren't worth their existing debt at 2-3 times national average wages.
On the bailouts supposedly achieving nothing, the banks are open, TED spreads as falling. It would be much worse had nothing been done.
On it supposedly being nailbiting to watch the 10 year, um, compared to watching paint dry? It is locked in a trading range between 3.5 and 4%, meandering there aimlessly, and doesn't care a lick how much new issuance there is. Even with real rates rising (see TIPS, see corporates, see everything else) USTs are well bid worldwide.
On bailout "costs", ignorant refusal to distinguish payments and loans. If I lend you a dollar for a day and get it back, did I "spend" a dollar supporting you?
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Repper
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26 Comments
Nov 12 11:26 AMI'm SO sick of people blasting the products produced by the US automakers. The OBJECTIVE TRUTH is that they are building world class quality cars and trucks with world class fuel efficiency. Compare styling and they blow Toyota away. GM’s products are the benchmark in many segments. Look at the data! And [really] look at the cars!
The problem is the perception that keeps getting perpetuated that they don't build good cars and trucks. Many won't even look at them because of this ridiculous, pervasive misconception.
Yes, they had problems in the 70’s, 80's and early 90's. They got very complacent, and their products suffered. The companies have changed drastically since then, they HAVE BEEN doing the right things, but since so many consumers have written them off for past sins, they are having trouble getting some people to even look at domestic vehicles. Now with this perfect storm of the economy, and their legacy costs they are obviously hurting.
Letting them fail would truly send the economy into deep depression. Apparently most don't realize how much this manufacturing base effects every part of our economy. Yes, it hurts to say we're gonna "bail them out", but all they need is affordable loans to continue on the RIGHT path of building great vehicles and getting ahead of the competition with alternative fuel technologies. The American public would do the most for their economy if they would just CONSIDER buying American. It would help 'themselves' as well because the government can make a good deal of money from these loans (see the Chrysler "bailout" of the early 80s).
Before blindly bashing, please give a real look at the products that are being produced today and educate yourself with the facts. Try visiting gmfactsandfiction.com/.../ . Yes, it is compiled by GM, but all the facts included are from third-party sources to which links are provided. Dispel your misinformed misconceptions about GM and the other domestic auto makers.
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jesterboomer
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6 Comments
Nov 12 11:45 AMGovernment stimulus needs to be directed to activities that retain the stimulus within the US and generates jobs with a multiplier effect - as well as doing something useful. We have to stop the net outpouring of wealth from the US to Iraq, the Middle East and China. The most obvious candidates:
- massive investment in health care, which create all manner of domestic employment as well as R & D;
- infrastructure and alternative energy, ditto;
- ending the Iraq and Afghan wars - Israel (and neocons) should make peace with its neigbors;
- stop obsessing about the dangers of Russia and Iran. Russia's population is only 90M and diminishing. It's military budget is one tenth that of the US. Scary Russia is history.
To plug the deflation in every asset class, the Government should consider the option of just creating a few trillion $ to invest in the above. Yes it will devalue the $ but in a deflationary environment that is requred to stabilise the economy. Like pushing the reset button to restart the US economy.
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dawdler
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5 Comments
Nov 12 01:43 PMLive by the free market, die by the free market.
On Nov 12 11:26 AM Repper wrote:
> This IS an ignorant rant. You may know i LITTLE about finance, but
> you obviously know nothing about the auto industry.
> I'm SO sick of people blasting the products produced by the US automakers.
> The OBJECTIVE TRUTH is that they are building world class quality
> cars and trucks with world class fuel efficiency. Compare styling
> and they blow Toyota away. GM’s products are the benchmark in many
> segments. Look at the data! And [really] look at the cars!
> The problem is the perception that keeps getting perpetuated that
> they don't build good cars and trucks. Many won't even look at them
> because of this ridiculous, pervasive misconception.
> Yes, they had problems in the 70’s, 80's and early 90's. They got
> very complacent, and their products suffered. The companies have
> changed drastically since then, they HAVE BEEN doing the right things,
> but since so many consumers have written them off for past sins,
> they are having trouble getting some people to even look at domestic
> vehicles. Now with this perfect storm of the economy, and their legacy
> costs they are obviously hurting.
> Letting them fail would truly send the economy into deep depression.
> Apparently most don't realize how much this manufacturing base effects
> every part of our economy. Yes, it hurts to say we're gonna "bail
> them out", but all they need is affordable loans to continue on the
> RIGHT path of building great vehicles and getting ahead of the competition
> with alternative fuel technologies. The American public would do
> the most for their economy if they would just CONSIDER buying American.
> It would help 'themselves' as well because the government can make
> a good deal of money from these loans (see the Chrysler "bailout"
> of the early 80s).
> Before blindly bashing, please give a real look at the products that
> are being produced today and educate yourself with the facts. Try
> visiting gmfactsandfiction.com/.../ . Yes, it is compiled
> by GM, but all the facts included are from third-party sources to
> which links are provided. Dispel your misinformed misconceptions
> about GM and the other domestic auto makers.
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JGN
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2 Comments
Nov 12 02:18 PMThey make such great products........that why everyone is lining up to buy the POS they produce. Let them all go under so Toyota or Honda can run the business. What a buch of jackasses.
On Nov 12 11:26 AM Repper wrote:
> This IS an ignorant rant. You may know i LITTLE about finance, but
> you obviously know nothing about the auto industry.
> I'm SO sick of people blasting the products produced by the US automakers.
> The OBJECTIVE TRUTH is that they are building world class quality
> cars and trucks with world class fuel efficiency. Compare styling
> and they blow Toyota away. GM’s products are the benchmark in many
> segments. Look at the data! And [really] look at the cars!
> The problem is the perception that keeps getting perpetuated that
> they don't build good cars and trucks. Many won't even look at them
> because of this ridiculous, pervasive misconception.
> Yes, they had problems in the 70’s, 80's and early 90's. They got
> very complacent, and their products suffered. The companies have
> changed drastically since then, they HAVE BEEN doing the right things,
> but since so many consumers have written them off for past sins,
> they are having trouble getting some people to even look at domestic
> vehicles. Now with this perfect storm of the economy, and their legacy
> costs they are obviously hurting.
> Letting them fail would truly send the economy into deep depression.
> Apparently most don't realize how much this manufacturing base effects
> every part of our economy. Yes, it hurts to say we're gonna "bail
> them out", but all they need is affordable loans to continue on the
> RIGHT path of building great vehicles and getting ahead of the competition
> with alternative fuel technologies. The American public would do
> the most for their economy if they would just CONSIDER buying American.
> It would help 'themselves' as well because the government can make
> a good deal of money from these loans (see the Chrysler "bailout"
> of the early 80s).
> Before blindly bashing, please give a real look at the products that
> are being produced today and educate yourself with the facts. Try
> visiting gmfactsandfiction.com/.../ . Yes, it is compiled
> by GM, but all the facts included are from third-party sources to
> which links are provided. Dispel your misinformed misconceptions
> about GM and the other domestic auto makers.
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Chris B
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575 Comments
Nov 12 02:23 PMOn Nov 12 11:26 AM Repper wrote:
> This IS an ignorant rant. You may know i LITTLE about finance, but
> you obviously know nothing about the auto industry.
> I'm SO sick of people blasting the products produced by the US automakers.
> The OBJECTIVE TRUTH is that they are building world class quality
> cars and trucks with world class fuel efficiency. Compare styling
> and they blow Toyota away. GM’s products are the benchmark in many
> segments. Look at the data! And [really] look at the cars!
> The problem is the perception that keeps getting perpetuated that
> they don't build good cars and trucks. Many won't even look at them
> because of this ridiculous, pervasive misconception.
> Yes, they had problems in the 70’s, 80's and early 90's. They got
> very complacent, and their products suffered. The companies have
> changed drastically since then, they HAVE BEEN doing the right things,
> but since so many consumers have written them off for past sins,
> they are having trouble getting some people to even look at domestic
> vehicles. Now with this perfect storm of the economy, and their legacy
> costs they are obviously hurting.
> Letting them fail would truly send the economy into deep depression.
> Apparently most don't realize how much this manufacturing base effects
> every part of our economy. Yes, it hurts to say we're gonna "bail
> them out", but all they need is affordable loans to continue on the
> RIGHT path of building great vehicles and getting ahead of the competition
> with alternative fuel technologies. The American public would do
> the most for their economy if they would just CONSIDER buying American.
> It would help 'themselves' as well because the government can make
> a good deal of money from these loans (see the Chrysler "bailout"
> of the early 80s).
> Before blindly bashing, please give a real look at the products that
> are being produced today and educate yourself with the facts. Try
> visiting gmfactsandfiction.com/.../ . Yes, it is compiled
> by GM, but all the facts included are from third-party sources to
> which links are provided. Dispel your misinformed misconceptions
> about GM and the other domestic auto makers.
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Rokjok777
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68 Comments
Nov 12 02:54 PM-
DaveW
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235 Comments
Nov 12 03:04 PM-
Smarty_Pants
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1130 Comments
My Website
Nov 12 04:19 PMVery close. Substitute an "economy built on savings" and you will be closer to the truth. Economies built on non-productive debt are doomed to collapse in the long run, even faster if the debt is issued via leverage (aka fractional reserve banking).
This has been the fate of every country relying on fiat currency throughout history. Why does everyone expect things to turn out differently for us? Ain't gonna happen.
Buckle up. It's gonna be a bumpy ride from here on out.
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Homer II
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54 Comments
Nov 12 08:17 PMI believe you (mostly) about the Big-3 cars being great, from an engineering and styling viewpoint. The problem is the price point for these products. They would sell much better if they were about 1/2 price. And, that was possible if it weren't for the unions and their pervasive avarice. That is precisely why they aren't competing with Toyota, Honda, et.al.
The parts you say about whats going to happen to us if the Big-3 are allowed to fail, is highly speculative. We are already in a state of collapse. I doubt letting GM, Ford and Chrysler go under will have any more of an impact to our economy.
I think that all you auto workers and those involved in ancillary sales, parts and service should dust off your resumes and look for a new line of work. If that means moving out of Michigan or Ohio or wherever, then do it. I'll bet you can find work in Texas, or Arizona. Just, don't tell us you can't "afford" the dislocation costs. With the obscene amounts of money you have all made over the last 5, 10 or 20 years in the lucrative auto business, your savings accounts should be literally bursting at the seams.
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prudentinvestor
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161 Comments
Nov 12 10:39 PMThe Financial sector has grown too large, and some of its workforce need to be redeployed to productive skills. Bailing it out to attempt to maintain an artificial and flawed status quo is unwise.
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Evan Grey Owl
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33 Comments
Nov 12 11:53 PMThe U.S. auto manufacturers need pressure on them to re-tool for electric cars and hybrid cars. Left to their own devices, pressure from oil companies would maintain the status quo forever - guaranteeing more war and expensive wars, more death, more waste, more environmental poisoning. Only a great force would lead them to change direction. Is that the silver lining in this horrible market crash. Why doesn't NASA put a hold on the next space adventure and devote itself to a suitable electric car battery. Don't tell me they can't do it. Other countries are ahead of us in this regard, and GE , an American company, is funding them. What are Americans going to get from that? We deserve to know. The employees of auto companies need to be helped during a major transition, but a major transition there must be. And oil companies will need to have a plan in place for their employees to retrain and retool in coming years as the electric car is adopted. Also, we need to ask for government support to small investors who were crushed by the market manipulations engineered by the big investment banks and the Treasury. Such as SIPC reimbursements for up to $100,000 of losses for each small investor who has recently fallen victim of what you call " the largest coalition of organized crime in human history."
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ur2smrt4me
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13 Comments
Nov 13 12:31 AM-
Kunst
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783 Comments
Nov 13 01:41 AM-
Chris B
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575 Comments
Nov 13 09:21 AMThe bailouts seem designed to prop up the failed business models of the past rather than building the economy of the future. All in the name of make-work.
How about putting those auto workers to work (at prevailing wages) building subways, light rail, wind turbines, and geothermal plants? Building quickly-obsolete Hummers at a loss or convincing people to invest in CDO's is not production - it's a waste of resources and human talent.
On Nov 12 10:39 PM prudentinvestor wrote:
> Any bailout should be to create jobs that give people new skills
> and self-esteem, not handouts and not charity. They should be directed
> at building a new and efficient infrastructure, like high-speed rail,
> mass transit, renewable energy, etc. That's what China is doing,
> and maybe we are not above learning from them.
>
> The Financial sector has grown too large, and some of its workforce
> need to be redeployed to productive skills. Bailing it out to attempt
> to maintain an artificial and flawed status quo is unwise.
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sickofthehype
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236 Comments
Nov 13 10:27 AMFirst of all, they've been REACTIVE not PROACTIVE which is why the current situation exists. Toyota rolled out the first Prius 9 years ago! Come on! The Big 3 produce a crap product that's outdated. Even the Chevy Cobalt wonder-car is a POS that's a decade outdated by the time it will roll out. And that info comes from an electric car engineer whom I've personally spoken to. Even the guys developing this thing drive Toyota products!
They got greedy during the SUV rage, and now they're paying for it. And quality? Believe me, I've owned several GM products. Garbage. Since I've owned Toyota there's absolutely no comparison. Imagine 200K or 300K on a Chevy! Won't happen. Not without thousands of dollars to keep it going.
My last Chevy Tahoe was built in Mexico for crying out loud! And my Toyota now? It was built in Indiana! So BS on the 'American' crap. It's all about dollars, and they've built a cheap product for profit for a long time, and now the chickens have come home to roost.
And finally, to the one who argues that the 'styling' of GM products is a positive. HAAAAAAAAAA!!!!!!!!!!!...
Have you ever looked at the Pontiac Aztek! Ugliest vehicle EVER made. The Monte Carlo? Wow. The GTO? The Corvette (ED treatment)? The list goes on. Nice try.
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website
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62 Comments
My Website
Jan 01 06:21 PM