GM Bailout? A Little Bit Too Late

GM, Chrysler and Ford are drowning. This is not really news, as it has been in the works since last year. GM has frantically been trying to re-organize its business to move towards more 'fuel efficient' models and reduce production of the gas-guzzling SUVs.

How ironic then that it was actually GM which came up with the first major breakthrough in the electric car technology, but decided to scrap the idea because it was afraid for its long-term profit potential. In my view, GM should be allowed to suffer for being in bed with the oil industry, and looking at its long term profit potential instead of thinking about the well being of the planet and its customers. I am not going to say any more here, except go watch Who Killed the Electric Car on Google Video and see for yourself. Narrated by: Martin Sheen.

More on the following topic in the next post: I think GM will be allowed to collapse and its remaining parts will be sold off to Ford and Chrysler for bargain prices. This will occur because it is the only possible way to save at least a good portion of the US auto-industry. The government will have to choose between a lame bailout program for all three major US auto manufacturers, or letting the biggest sink allowing its competitors to buy up assets at firesale prices. This will increase their own market capitalization and growth, and during the up-cycle of the economy, the true value of the assets acquired through inexpensive acquisitions will increase Ford's and Chrysler's net worth. Ultimately almost all, if not all of GM's 'lost value' will be re-distributed into the market.

This just makes economic sense all around, and anyone arguing saving GM to save the US economy does not understand the fundamental principle of capitalism: maximize profits for the shareholders. In this case, the shareholders of the US Government (the majority of the people), of the Fed (the banks) and of Ford and Chrysler. When the overall 'benefit' is weighed for all the shareholders, versus the benefits for GMs shareholders, I think it is quite clear that "for the greater good", GM will be allowed to fall. Yes, there is a lot of jobs which will directly and indirectly be affected by this, but once the industry completes its consolidation (much like the banking industry), most of these jobs will come back during the "growth" stage of the economic cycle.


You know, it amazes me how often people forget that our economy is a "cyclical" one, whether by design or by nature. Even though the economy is currently grinding to a halt, it always ends up making a comeback and even surpassing its previous value. And the reason is that those who run the economy (i.e. the banks and the corporations) have the most to lose should the system collapse. And they will NOT allow it to collapse. Granted the current crisis is more grave than any previous one since the Great Depression, but again, the people with the wealth have the most to lose by a total systemic collapse of the markets. Their assets, bonds, stocks, paper and digital money would be worthless, so they will not allow this to happen.

The big banks are aware of everything I am discussing here, and they are prepared to play ball. Reuters reported this week that both Goldman Sachs and J.P. Morgan downgraded their ratings for GM. They are getting ready for the collapse and so should you. It will trigger many job-losses and an overall sell-off of stocks from all industries. I really hope that I am wrong about it being GM, and that a smaller company will be chosen to go bankrupt, but I think that they may not have much of a choice...

Readings:

Time - Is General Motors Worth Saving?

Bloomberg - Obama Pushes for $50 Billion for Automakers, Oversight Czar

NYTimes - G.M.’s Troubles Stir Question of Bankruptcy vs. a Bailout

Reuters - RESEARCH ALERT-JP Morgan Downgrades GM

Reuters - Goldman Suspends GM Rating, Sees $22 billion Bailout