Socializing General Motors for the Public Good

The news that Deutsche Bank considers GM shares to be worthless helps us understand the Detroit bailout talks that are underway.

If GM shares are expected to be worth nothing regardless wehther or not there is a bailout, then the choice is not between rewarding shareholders or punishing them: the choice is between whether we should process the bankruptcy of General Motors through the exeuctive or judicial systems.

Thus, the question becomes more technical, and the ranges of possible answers less troublesome.

Still, some things are clear. GM has attracted workers through a system of unsustainable benefits, and those who “gambled” on a company being able to pull it off are in the same boat as those who gambled on housing pricies always going up. From this disaster we need to build a national health care system that business can love.

It also means that we should use this opportunity, where the corporate structure of GM is dependent on federal generosity and shareholders are going ot be wiped out anyway, to optimize the American auto industry for hydrocarbon efficiency. Cars like the Saturn Vue plug-in hybrid should not be delayed. Likewise, any support for GM must work alongside a geogreen stimulus to get us off foreign hydrocarbons and help protect us from Gap states like Russia,

I have said before that Russian leader Vladimir Putin is notable incompetent. Tom even calls him “stupid.” He is a Saddam Hussein with nuclear weapons and an economy the size of Portugal. Putin and leaders like him are nothing to fight a “new Cold War” over — but we need to think hard about every dollar we send to Putin and buddies.

15 thoughts on “Socializing General Motors for the Public Good”

  1. We have, in our constitution, a call for bankruptcy laws. These provide protection for managers, bondholders, and employees. Shareholders are responsible for the management of the company. If indeed GM shares are going to be worthless, whether this happens through the judicial branch in a formal bankruptcy or through the executive branch in a “bailout” is a somewhat technical matter.

    A “bailout” under these circumstances may save those who trusted the competence of the shareholders, but would not save the shareholders themselves.

    However, if the government would so be generous to the employees, the management, and the bondholders, it should get something for its money. It should help achieve strategic objectives.

    Any bailout must help reduce the future flow of wealth to hydrocarbon-rich Gap states.

  2. A few years ago when Honda was $15 to $18 I read an analyst report that chewed them out royally for not building what the market wanted – SUVs. I bought around 20,000 shares. Did well. I thought that analyst was as dumb as a rock.

    At that time GM was building what the market wanted. They were building what the analysts wanted. SUV America gave the greens the bird, and just about everybody loved it.

    Now all car companies are down, but Honda/Toyota is in a much better position to participate in the future.

    To me the solution is obvious. United States taxpayers take over domestic auto companies and trade them to foreign car makers for shares of stock in car companies that have better vision. Not much cheaper than a bailout, but better likelihood of success.

    A bankruptcy would most likely mean locking the doors and selling the scrap metal. They are that dead.

  3. As part of dehydrocarboning, GM would be a useful vehicle for the federal government.

    It might allow us to go farther and quicker than we could otherwise.

    That said, the opportunities for corruption are legion, and the market-friendly approach probably is let the company fail while doing what needs to be done to ease the transition.

  4. Hmm, non-rhetorical question for people: How much power to change GM’s (Chrysler’s, Ford’s . . .) ways would the Government achieve if its aid came in the form of buying a majority share of voting stock?

  5. the american auto industry/UAW is holding itself hostage to the gov: “save us or 5m jobs (from swing states) gets splattered on the wall.) deny the bailout and obama’s administration is stillborn.

    detroit will be bailed out — sans strings.

    ps — suv v. green won’t matter anyway — gas will be a buck and a quarter but no one will be buying anything during the upcoming GD II.

  6. Michael,

    Hmm, non-rhetorical question for people: How much power to change GM’s (Chrysler’s, Ford’s . . .) ways would the Government achieve if its aid came in the form of buying a majority share of voting stock?

    The government managed to make Fannie and Freddie act in non-economic ways for years with little more than a pseudoguarantee of loans. The government’s position would be quite strong.

    Doug,

    You’re right on their negotiating tactics. If this is really going to happen fast [1], I’m glad Obama is not President yet [2].

    [1] http://www.breitbart.com/article.php?id=081111001615.g5irg0ui&show_article=1
    [2] http://www.iht.com/articles/2008/11/11/america/11auto.php

  7. Local radio reports the GM plant here is on full overtime. They make big pickups and SUVs.

    Not to belabor the point, but the United States is in position to fire incompetent American management and hire competent Japanese management. They have the right vision for the future of the auto industry, and have had it for several decades.

    All we would have to do to seal the deal is institute single-payer, universal health insurance.

  8. The shareholders have been in a position to fire incompetent managers from day one,and they haven’t done so. Since those managers are in place, as well as the unions, congressman, lobbyists, political allies, I don’t see any positive change happening at all.

    As either Boyd or Chet Richards put it, only a company in crisis changes for the better, the bailout would just push the crisis off into the future at taxpayer expense..

    Also, if we did let it go out of business, competent management could buy it at a steal, and actually do something with it.

  9. Al Gore’s talking sense [1]:

    He also calls for a $400 billion investment in a “smart grid” to help handle bringing this future power to population centers and allow plug-in hybrids and electric cars to charge and share their energy when it is beneficial. Of course those cars should be built with American labor and so Gore calls for helping the “Big Three” and “innovative new startup companies” to begin the process of converting our fleet to vehicles that can use electricity as their source of energy.

    [1] http://www.autobloggreen.com/2008/11/11/al-gore-plan-to-solve-economic-energy-and-warming-crises-would/

  10. I think there has to be some way for scientists and engineers to clear the air about nuclear power, which is so politicized with disinformation it’s impossible to figure out what is up and what is down.

    My gut tells me a renewable base, solar, wind, wave, and hydro, combined with nuclear-hybrid standbys would end up being both the most reliable and the cheapest way to replace fossil-fuel electricity.

    But to both replace the projected demand for contemporary uses of electricity, and add the projected demand for transportation – that’s a tall order.

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