34
   

Let GM go Bankrupt

 
 
Cycloptichorn
 
  3  
Reply Tue 24 May, 2011 02:49 pm
@hawkeye10,
The article you quoted is over a year old, and is from when both of those companies were still getting back on their feet. Hardly what we would call 'persuasive evidence.'

The idea that foreign car companies were lining up left and right to buy GM assets is a joke. You seem to completely forget that we had a major recession, brought on by a liquidity crisis, going on at the time.

Cycloptichorn
hawkeye10
 
  0  
Reply Tue 24 May, 2011 02:53 pm
@hawkeye10,
Grasping The Full Costs Of The Auto Bailout
May. 9 2011 - 4:14 pm | 427 views | 0 recommendations | 4 comments
posted by DAN IKENSON

Quote:
E.J. Dionne seems perfectly comfortable with the fact that he doesn’t understand economics—as long as the Washington Post continues to allow him to interpret economic events in a manner that comports with his political predispositions. Dionne sees GM’s recent good fortune as evidence of the propriety of government “step[ping] in when the market fails.” Dionne, like others before him, stands slack-jawed, in awe, ready and willing to buy the Brooklyn Bridge, donning narrow blinders and viewing just a narrow sliver of the world, oblivious to the fact that related events are transpiring in the other 359 degrees that surround him. Dionne is the perfect Bastiat foil.

Last week, GM reported first quarter profits of $3.2 billion—its best quarterly performance in ten years and its fifth consecutive profitable quarter. That’s good for GM (although it remains to be seen how GM performs going forward). But that is really beside the point. Dionne creates a straw man, contending that bailout critics thought that the government couldn’t resuscitate GM. But the most thoughtful criticism—my opposition to the bailout, at least—wasn’t predicated on the notion that GM couldn’t be saved by the government extinguishing debt, rewriting ownership, providing cash infusions, and underwriting sales rebates. That opposition was borne of concern that that the government would do just that. And it did.

In the process of “saving” GM (which I still contend would have survived without the intervention and the number of jobs losses in the industry would have been comparable to the job losses that occurred anyway), the government inflicted huge costs on the economy, which—rather than repeat—I cite from an earlier post. After all, my argument that IPO euphoria (from November) was misplaced is nearly identical to my argument that GM’s positive financial statement does not confer a verdict of success on the bailout.


Quote:
Yes, GM is making sales and accounting for market share, but only at the expense of the other automakers. Had GM been forced to severely atrophy or liquidate, the other automakers would have had greater revenues, more market share, and probably higher profits). They would have been able to attract GM’s best engineers and line workers. They would have more money to invest in R&D and to lead the industry into the future. Instead, by keeping GM in the mix, some of those industry resources remain misallocated in a company that the evolutionary market process would have made smaller or extinct.

The auto industry wasn’t rescued with the GM bailout. GM was “rescued.” By rescuing GM, the government overrode market forces, and there are significant costs to assign for that. Witness the stagnant economy with 9.6 percent unemployment. Is it not plausible that businesses are sitting on their cash and not investing or hiring because of the fear inspired by the government interventions starting with the bank and auto bailouts? It’s more than plausible. The regime uncertainty that persists to this day was spawned by the GM bailout and other interventions.

What about the weakening of the rule of law? Doesn’t the diversion of TARP funds by the Bush administration, in circumvention of congress’s wishes and in contravention of the language of the law, represent a cost? How about the property right of preferred bondholders who were forced to take pennies on their investment dollars under the Obama bankruptcy plan? Any costs there? What about U.S. moral authority to dissuade other goverments from meddling in their markets or indulging industrial policy? That may be costly to U.S. enterprises. And with the government still holding a third of GM, its hard to swallow the idea that public interest will be the driver of policies affecting the auto industry. And that suggests even more costs.

http://blogs.forbes.com/beltway/2011/05/09/grasping-the-full-costs-of-the-auto-bailout/
hawkeye10
 
  0  
Reply Tue 24 May, 2011 02:56 pm
@Cycloptichorn,
Quote:
The idea that foreign car companies were lining up left and right to buy GM assets is a joke. You seem to completely forget that we had a major recession, brought on by a liquidity crisis, going on at the time
It would not have mattered, we told you at the time that a bankruptcy judge could have run the company for a few years until the banking system got back on its feet, in which case the assets would be getting sold right about now to better companies than GM or Chrysler will ever be.
Cycloptichorn
 
  3  
Reply Tue 24 May, 2011 03:01 pm
@hawkeye10,
Total bullshit. The author makes no mention of the collapse of the secondary parts market that would follow a GM liquidation. Ford would have been screwed as well, and certainly wouldn't have simply expanded to fill GM's shoes completely.

Not only that, but the last paragraph merits direct response.

Quote:
What about the weakening of the rule of law?


There was no weakening of the rule of law.

Quote:
Doesn’t the diversion of TARP funds by the Bush administration, in circumvention of congress’s wishes and in contravention of the language of the law, represent a cost?


Nope.

Quote:
How about the property right of preferred bondholders who were forced to take pennies on their investment dollars under the Obama bankruptcy plan?


They had no such right. Parados explained this pretty well earlier in the thread.

Quote:
Any costs there?


No.

Quote:
What about U.S. moral authority to dissuade other goverments from meddling in their markets or indulging industrial policy? That may be costly to U.S. enterprises.


We have that moral authority? Those other countries didn't give a **** about what we say on that matter already. This is tripe.

Quote:
And with the government still holding a third of GM, its hard to swallow the idea that public interest will be the driver of policies affecting the auto industry. And that suggests even more costs.


No, it doesn't. It suggests that the author is casting about for reasons to attack Obama and GM. And why not? The author is a fellow at the CATO institute, a far-right wing policy group who exist only to prop up Republican economic theory with sham studies and false statistics.

Cycloptichorn
0 Replies
 
Cycloptichorn
 
  3  
Reply Tue 24 May, 2011 03:02 pm
@hawkeye10,
hawkeye10 wrote:

Quote:
The idea that foreign car companies were lining up left and right to buy GM assets is a joke. You seem to completely forget that we had a major recession, brought on by a liquidity crisis, going on at the time
It would not have mattered, we told you at the time that a bankruptcy judge could have run the company for a few years until the banking system got back on its feet, in which case the assets would be getting sold right about now to better companies than GM or Chrysler will ever be.


Utter crap. GM couldn't have survived two more months without loans, which they couldn't get due to the liquidity crisis; a 'bankruptcy judge' couldn't have ran the thing for years. Certainly not without running the brand into the ground.

You're simply making **** up here; advancing an ideological position, not a logical one.

Cycloptichorn
hawkeye10
 
  -1  
Reply Tue 24 May, 2011 03:17 pm
@Cycloptichorn,
Quote:
Utter crap. GM couldn't have survived two more months without loans, which they couldn't get due to the liquidity crisis; a 'bankruptcy judge' couldn't have ran the thing for years. Certainly not without running the brand into the ground.
GMC still had $16 billion cash at the beginning of Nov 08, there was plenty of money in the company to continue operations if the Judge had stopped all non critical payouts, for instance stopped paying on the loans and bonds....also stopped paying into the pension and cut back on the medical payments. http://www.businessweek.com/lifestyle/content/nov2008/bw2008117_534334.htm
Cycloptichorn
 
  2  
Reply Tue 24 May, 2011 03:23 pm
@hawkeye10,
hawkeye10 wrote:

Quote:
Utter crap. GM couldn't have survived two more months without loans, which they couldn't get due to the liquidity crisis; a 'bankruptcy judge' couldn't have ran the thing for years. Certainly not without running the brand into the ground.
GMC still had $16 billion cash at the beginning of Nov 08, there was plenty of money in the company to continue operations if the Judge had stopped all non critical payouts, for instance stopped paying on the loans and bonds....also stopped paying into the pension and cut back on the medical payments. http://www.businessweek.com/lifestyle/content/nov2008/bw2008117_534334.htm


The article you linked to proves MY point: that without some sort of loan they were simply going to fold, which was unacceptable.

I do like how you on one hand bitch about the bondholders being screwed under Obama's deal with them, but on the other, advocate simply deciding not to pay the bondholders or any of their loans. You want to have it both ways, it seems.

I don't think you are arguing in good faith here, Hawk. You're making it up as you go along in an attempt to prove that you and others who predicted failure from this thing were wrong. This whole bit about the bankruptcy judge is nothing but conjecture and supposition on your part; there's no validity to your argument.

Cycloptichorn
parados
 
  3  
Reply Tue 24 May, 2011 03:23 pm
@hawkeye10,
huh?

Stopped paying on the bonds? You mean screw the bondholders? You don't seem to realize your arguments are contradictory.
parados
 
  3  
Reply Tue 24 May, 2011 03:24 pm
@Cycloptichorn,
Plus, Hawk fails to realize that it WAS a Bankruptcy judge that approved the "Obama" plan.
hawkeye10
 
  -2  
Reply Tue 24 May, 2011 03:45 pm
@parados,
parados wrote:

huh?

Stopped paying on the bonds? You mean screw the bondholders? You don't seem to realize your arguments are contradictory.
No, Obama screwed them permanently, had the case been run according to bankruptcy law they would have had delayed payments, and still would have taken a bath, but they would have gotten much more than the few cents on the dollar that they got.
Cycloptichorn
 
  4  
Reply Tue 24 May, 2011 03:49 pm
@hawkeye10,
You base that on what evidence?

Cycloptichorn
0 Replies
 
hawkeye10
 
  0  
Reply Tue 24 May, 2011 03:51 pm
@parados,
parados wrote:

Plus, Hawk fails to realize that it WAS a Bankruptcy judge that approved the "Obama" plan.
It was proforma, the Judiciary was told by the other two branches to stick with the team, that there would be no role for the bankruptcy judge other than to sign off on the Obama plan, and that if they did not like it they would be taking it up with SCOTUS, which is loath to get in the way once the Leg and Admin decide to do something...especially after they made the mistake of getting in the middle of Bush v Gore.

The Bankruptcy court was a kangaroo court, and we all knew this at the time.

GO AMERICA!
Cycloptichorn
 
  4  
Reply Tue 24 May, 2011 03:53 pm
@hawkeye10,
Hawk, you wouldn't know **** if you had a mouthful. Unless you have some evidence to back up these crazy theories of yours, why should anyone take what you say seriously?
0 Replies
 
parados
 
  4  
Reply Tue 24 May, 2011 03:54 pm
@hawkeye10,
Quote:

No, Obama screwed them permanently, had the case been run according to bankruptcy law they would have had delayed payments, and still would have taken a bath, but they would have gotten much more than the few cents on the dollar that they got.

Let's start with your "few cents on the dollar" claim.. What do you mean by "few cents"?
parados
 
  1  
Reply Tue 24 May, 2011 04:01 pm
@hawkeye10,
What exactly is your argument hawkeye?
Do you think bankruptcy judges normally create the plan for bankruptcy?
hawkeye10
 
  -1  
Reply Tue 24 May, 2011 04:07 pm
@parados,
parados wrote:

What exactly is your argument hawkeye?
Do you think bankruptcy judges normally create the plan for bankruptcy?
Used to be they always did, now pre-packaged bankruptcy is more common but the judge can change the terms it if he thinks it should be changed . In the case of GM Obama told the courts that if the judge insisted upon any changes then the deal was off, and they would seek an emergency remedy with SCOTUS.
Cycloptichorn
 
  3  
Reply Tue 24 May, 2011 04:08 pm
@hawkeye10,
hawkeye10 wrote:

parados wrote:

What exactly is your argument hawkeye?
Do you think bankruptcy judges normally create the plan for bankruptcy?
Used to be they always did, now pre-packaged bankruptcy is more common but the judge can change the terms it if he thinks it should be changed . In the case of GM Obama told the courts that if the judge insisted upon any changes then the deal was off, and they would seek an emergency remedy with SCOTUS.


Do you have any evidence for this claim?

Cycloptichorn
hawkeye10
 
  -2  
Reply Tue 24 May, 2011 04:18 pm
@Cycloptichorn,
Quote:
Do you have any evidence for this claim?
Not handy, I am going by memory.
Cycloptichorn
 
  3  
Reply Tue 24 May, 2011 04:21 pm
@hawkeye10,
hawkeye10 wrote:
Quote:
Do you have any evidence for this claim?
Not handy, I am going by memory.


Oh, right. That's a reliable source Laughing

Cycloptichorn
hawkeye10
 
  0  
Reply Tue 24 May, 2011 04:42 pm
@Cycloptichorn,
Quote:
Ironically, then, the fact that there were no other prospective “purchasers” apart from the government, which allowed the government to
dictate all terms of the purchases,
including the emergencies necessitating immediate sales, produced less judicial oversight and scrutiny of the
resulting value allocations rather than more. This, of course, was precisely the market defect that caused equity receivership law to evolve in the
opposite direction. Now, sadly, we apparently have simply returned to
the “bad old days.”
The pressure to approve the Chrysler and GM sales immediately, no
matter what, was immense. Moreover, while there was little regard
shown for intraclass equity amongst unsecured creditors, the sales did
carefully respect creditors’ relative interclass priority rights (with no apparent departures from absolute priority) and gave all creditors more
than they would have received in an immediate liquidation. The resulting approvals of those sales were, therefore, entirely understandable. In
the process, though, they threaten to render sub rosa plan doctrine a virtual dead letter, potentially eviscerating even the venerable absolute
priority rule.

http://www.law.illinois.edu/lrev/publications/2000s/2010/2010_5/Brubaker.pdf

pg 1405

You will also recall the scam of the government putting GM in Bankruptcy june 1 and given the court 5 weeks to approve the deal or else the government would with draw financing. This was done with the full knowledge that there would be no time for a judge to do anything other than sign off, as putting together any changes would have taken far longer.
0 Replies
 
 

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