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

Obama, Are You Asking For a Critique Already?

It didn't take very long to start critiquing Obama but after having read a Reuters article about his potential picks for the next Treasury Secretary, I felt I needed to comment. This is not to say that Obama yet deserves to be criticized, but I am already seeing the Washington bureaucracy and established order at work in his potential Treasury Secretaries.

Indeed, Obama's selection for this and other important roles in his administration will speak volumes about the approach he will take as president, and will give us a clue as to the man behind the 'cult figure.' Realistically speaking, how much decision making can one man (the president) really make? He will be relying on his inner circle to help him run the country, so his inner circle had better be up to par.

With the Treasury Secretary receiving all these new powers through the passage of the $700B bailout package, it was always obvious to me that it was not going to be Paulson excercising them, but his successor. So we should closely be watching who Obama is going to appoint in this crucial and increasingly important position. In my opinion, this should be someone with little ties to banks and corporations.

In fact, it should be a proven consumer advocate (i.e. someone who has consistently fought for the little guys) but that also has somewhat of a banking background, so that he can understand the mess and complexity of the issues that the banks and corporations have gotten us into. That way he would at least be in a position to propose intelligent and socially beneficial solutions to some of the problems facing the financial world today and tomorrow. I know I am probably being unrealistic in this expectation, but I try to be an optimist!

Lets take a look at the potential Trasury Secretaries one at a time:

1) Timothy Geithner, President of the Federal Reserve Bank of New York [profile]. A small amount of research into the US central banking system, i.e. the Federal Reserve, will show you that the most powerful, and essentially decision making branch, is the New York Fed. So my money is on Geithner taking the position for several reasons (please see the Muckety article below). This is not good news though. If you understand anything about how this system has been structured since 1913, you will realize that putting Geithner is just a continuation of the old debt-for-money scam and will do little to help 'Main Street', as the political elite have started calling it lately.

Greithner is closely affiliated to the Council on Foreign Relations and is chairman of the G-10’s Committee on Payment and Settlement Systems of the Bank for International Settlements. See his profile on the NY Fed website.

There is a great article about Tim Greither and some of his connections at news.muckety.com.


2) Former Treasury Secretary Lawrence Summers [profile]. Do I really need to say anything here? An old Treasury Secretary from the Clinton era, he has worked extensively in the Treasury. I very much doubt this will be Obama's pick so lets move to the next candidate on the list.


3) Former Federal Reserve Chairman Paul Volcker [profile]. Another member of the 'boys club.' He already served as Fed Chairman before Alan Greenspan. He has worked at both the New York Federal Reserve and the US Treasury, and is a powerhouse when it comes to political/corporate/banking connections. Definitely the second most likely candidate. The only reason I think he is unlikely to be chosen is because he flies in the face of Obamas 'Change' philosophy seeing as he is a well-established player in the game. Geithner is a lot more likely because he is young and is equivalently connected to the same crowd.

So in these three main choices, Obama is already starting to show his true colors, albeit wrapped in a much more politically attractive package. At the end of the day, will he be more loyal to the people who bankrolled him to the White House, or those that voted for him?

The following image illustrates who Obamas top campaign contributors were in the 2008 election campaign. I imagine a few people from these organizations will be filling positions in his new cabinet, especially from Goldman. Click on the image for more information.

I don't have an intelligent alternative suggestion, but I am open to hearing other people's ideas for who the next Treasury Secretary should be. Any ideas?


More readings:

Reuters - Obama considers Geithner, Summers for Treasury

Bloomberg - Summers, Emanuel Candidates for Obama Administration

International Herald Tribune - Obama Prepares to Name Key Team

Financial Post - Obama Must Pick Economic A-team

Obama Leads Democrats to Impressive Victory

I know that I am a fierce critic of everything government and corporation oriented. But even I have moments where I stop to admire people who have achieved something, even if they are sitting on the other side of the fence, or playing for the opposite side.

I must say that Obama's victory and subsequent speech inspired even me who is a total opponent of the American two-party system. Obama almost made me into a believer, so I can only imagine how he has moved and inspired all those who have been fighting for his presidency for the past 21 months. What a speech! Very powerful words and full of promises; it was the climax of a brilliantly organized and well fought campaign. Even McCain was admiring Obama in his concession speech.

Obama Victory Speech on You Tube

McCain Victory Speech on You Tube

In this post, I will say nothing critical or insulting about Obama or the US government. I really want to believe that Obama is not just blowing steam, but that he will really change the US and consequently the world in a good way. From foreign policy to corporatocracy, he has made a lot of big promises, and I really hope, for all of us, that he will deliver on these campaign promises.

Obama was absolutely right about one thing in his speech last night - The work does not stop here. The work never stops! Those people who worked so hard at bringing him to the White House, are now going to have to work twice as hard to make sure he is not corrupted by the system which he is about to enter. The position of president has been marginalized, and it will be very tough for Obama to break through all the Washington bureacracy and red-tape to get any major accomplishments. But I'll stay optimistic; expect the worst, but wish for the best.

The old Chinese curse had it right: "May you live in interesting times..."

Result Recaps, click on the image to see it in big (Images courtesy of CNN):

Election victory in the News:

NYTimes - After a Decisive Victory, Obama Chooses Transition Team as Challenges Loom

Reuters - After Historic Win, Obama Looks to Future

CNN - Obama's Victory Caps Struggles of Previous Generations

BBC - World Leaders Hail Obama Triumph

International Herald Tribune - Campaign Done, Obama Pulls His Team Together

NewsWeek - Hey, Mr. President-Elect, Got a Minute ... or 10?

MSNBC - Obama turns to building his administration