Monday, November 10, 2008

Revolution Calling

Got no love for politicians
Or that crazy scene in D.C.
It's just a power mad town
But the time is ripe for changes
There's a growing feeling
That taking a chance on a new kind of vision is due

I used to trust the media
To tell me the truth, tell us the truth
But now I've seen the payoffs
Everywhere I look
Who do you trust when everyone's a crook?

Revolution calling
Revolution calling
Revolution calling you
[There's a] Revolution calling
Revolution calling
Gotta make a change
Gotta push, gotta push it on through

-[song lyrics from "Revolution Calling" by Queensryche]


When do you say "Enough is enough!"?

Yet Another GM Bailout

Daily Article by Briggs Armstrong | Posted on 11/10/2008

General Motors has once again approached the federal government with its hand out. It should not be forgotten that in September of 2008, Congress gave the "big three" automakers a loan totaling $25 billion. Now they are back. This time they say that with a mere $50 billion they can turn things around and become profitable in the future. The management of GM and Ford as well as the UAW have been meeting with Nancy Pelosi to arrange a deal. GM claims that if the government does not give them the money they demand it will spell doom for the company and thus the entire US economy.

Let's consider the impact of GM ceasing to exist — highly unlikely even if they declare bankruptcy. Hypothetically, GM would close its doors and all 266,000 workers would be unemployed, never to find work again, or so GM would have the public believe. GM maintains that it is really in the best interest of the country and economy to continue to support their failing business model. After all, in what kind of a world would the government allow a company that employs 266,000 workers to fail?

Descending into an abstract economics lesson about shifting resources to marginally more productive activities may be ineffective; therefore, I will approach this issue from a more philosophical angle.

The basis of GM's claim is essentially that they are too big or too important to fail due to their massive labor force. But how massive is their labor force relative to other American companies? It may be surprising that the following companies employ a larger number of workers than GM: Target, AT&T, GE, IBM, McDonalds, Citigroup, Kroger, Sears, and Wal-Mart. It is also worth noting that Home Depot, United Technologies, and Verizon all employ nearly as many workers as GM.

The question must be posed: Should the government bail out all 12 of these companies and, if so, at what cost? I doubt that if Wal-Mart, with their 2.1 million employees, went to the government or the American people and demanded a bailout that they would receive much sympathy, let alone money. But if we are going to base worthiness of bailout on number of employees alone, then Wal-Mart is almost 7 times more worthy than GM.

(I have largely neglected Ford, whose executives are also demanding a bailout. I believe that it is enough to simply state that Abercrombie & Fitch employs almost 7,000 more workers than does Ford. Would the failure of Abercrombie & Fitch's threaten the economy? I think not.)

It is unethical to force taxpayers to pay billions of dollars in order to bail out a company with a failing business model. After all, they cannot even claim, as banks did, that it is an industry-wide problem. Because if it were industry-wide, Toyota, Hyundai, Honda, Volkswagen, etc. would all be joining their American counterparts on Capitol Hill with their collective hands out.

For years GM and Ford have produced a product that consumers do not value as much as the product provided by their competitors. Rather than changing their products or business model, they instead spent small fortunes on lobbyists. If the government does bail out GM, rest assured that this will not be the last time. But even if the government gives GM a check every week, there will come a time when no amount of government money will be enough to save them.

What is the best solution? In a word, bankruptcy. By filing for bankruptcy protection, GM can escape the death grip the UAW has on the business. Bankruptcy would allow for restructuring on an unprecedented scale. There is a good chance that a highly competitive company could rise from the ashes of what we today call GM. Even if GM itself was unable to survive bankruptcy, the resources freed from its grasp could be hugely beneficial to other automotive companies that make products that American consumers value more. As taxpayers, we have a right to object to this misuse of our money.

Briggs Armstrong is a student at Auburn University majoring in accounting and minoring in finance.

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Fed, Treasury revamp AIG support
New package unveiled as insurance giant posts $24.5 billion quarterly loss

By Sam Mamudi & Rex Nutting, MarketWatch
Last update: 10:20 a.m. EST Nov. 10, 2008

New York (MarketWatch) -- The Federal Reserve and the U.S. Treasury have brought new powers to bear as they restructure government support for American International Group, the insurance giant taken over on Sept. 16.

The new plan unveiled Monday calls for the Treasury to invest $40 billion in preferred shares of New York-based AIG and for the Fed to create two new lending facilities to help AIG remove toxic assets from its balance sheet.

The government's announcement signals a shift away from the original plan -- an $85 billion loan to AIG, the amount of which was later increased to $123 billion. The new plan also contains a $60 billion loan.

Senior Fed officials said that the new plan is possible because of broader powers granted the government -- to buy shares in companies and purchase toxic assets -- as part of October's sweeping bailout package. - full story

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