Outside the Beltway

$50 Billion for GM

Steve Verdon
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This article about the 31 year old who is in charge of dismantling GM (kinda disturbing that a 31 year old is in charge of it, but oh well) has this little bit in it,

He lives a dual life these days. He starts the day at a desk wedged just outside of Mr. Summers’s office, where he can hear what young members of the economic team have come to know as “the Summers bellow.” From there, he can make it quickly to the press office to help devise explanations for why taxpayers are spending more than $50 billion on what polls show is a very unpopular bailout of the auto industry.

How much would it have cost to pay the GM workers their hourly wage for 8 hours a day for 2 years? Why not give them that and tell them, good luck finding a new job and after 2 years no more money. According to GM’s website they employ 245,000 people around the world. So, even if we sent all of those people a check for $4,000/month we’d be under half of the $50 billion. If we excluded people outside the U.S. we could probably cut it down even more.

This bailout/takeover/abomination sure is a rotten deal for the taxpayer. Clearly, nobody is representing the taxpayer in Washington D.C. these days.

Update: I’m not even sure the $50 billion will be enough. This article indicates that GM has $173 billion in liabilities. I have to wonder if we wont be seeing requests for another $10 billion, just $15 billion more, and so on.

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40 responses to “$50 Billion for GM”

  1. odograph Avatar
    odograph

    FWIW Steve, I agree with everything you write here. Does that worry you?

  2. Dave Schuler Avatar
    Dave Schuler

    Of the many things that concern me about all of this, the one that nobody other than me seems to be criticizing, is will the resultant GM be worth saving?

    The arguments that people are making in favor of saving GM mostly revolve around how many jobs will be saved as a consequence. But they’re thinking in terms of today’s, pre-bankruptcy GM and today’s pre-GM bankruptcy automobile industry. Isn’t a GM with fewer jobs less worth saving? And isn’t that the objective?

    At some point it seems to me that the objective isn’t worth doing at all.

    Of course if GM can’t be saved at all it’s all just pouring money down the drain. At this point I’m unconvinced that any plan that’s on the table will save GM.

  3. just me Avatar
    just me

    GM and any other company should either succeed or fail. The taxpayer can’t bail out every company that wants saving. Not to mention with every bail out, the companies will just expect to get more when things fail again. There is no incentive to change.

    I think you are dead on when you say that nobody in Washington seems to be looking out for the taxpayer.

  4. Zelsdorf Ragshaft III Avatar
    Zelsdorf Ragshaft III

    From where comes the authority for the government to pay GM anything? Congress has not passed a bill allowing the expenditure. I thought Congress held the purse strings. Has the Obama administration usurped the authority of Congress?

  5. Dave Schuler Avatar
    Dave Schuler

    ZRIII, you’re fighting a lost war. Congress’s powers in the economy are now unlimited for practical purposes under the “promote the general welfare” clause and its powers in regulating interstate commerce. For the last 70 years interstate commerce has been construed as, essentially, the entire economy.

  6. Drew Avatar
    Drew

    “….the one that nobody other than me seems to be criticizing, is will the resultant GM be worth saving?”

    Excuse me. Here I am. And have been since day 1. Question #1 of a workout when fresh money (in this case, the taxpayers) has to come in is: is it good money after bad??

    Here’s a question for anyone. Personalize the issue:

    We have a 31 yr old with no real legal, operational or finance experience in an influential role (the puff piece aside) here. We have a President similarly inexperienced. We all have heard the supposed “fix” for GM. If someone knocked on your door today and asked for a $30K check in return for GM ownership……..would you???????? (Yes, this is an intelligence test.)

    Of course you wouldn’t. But today, you have no choice.

  7. Steve Verdon Avatar
    Steve Verdon

    Don’t you mean “presidentialize” Drew?

  8. Zelsdorf Ragshaft III Avatar
    Zelsdorf Ragshaft III

    Dave, thanks, I understand that. At least until some of the filed lawsuits get to court which could limit federal power over the States. However I do not recall the legislation required to give the executive the authority to spend tax dollars on this specific issue. No bill passed congress allowing Obama to give GM or Chrysler billions of dollars. I believe congress approved the money loaned to Chrysler years ago, where is the current legislation?

  9. Drew Avatar
    Drew

    “Don’t you mean “presidentialize” Drew?”

    ;->

  10. odograph Avatar
    odograph

    I don’t think it is Presidential “inexperience” (per Drew), just because this is the path of least political resistance.

    Anyone who is President when a GM bankruptcy comes up is essentially screwed. Even if he had an opposing ideology, he wouldn’t actually stiff them on his watch. He wouldn’t want to be the President that let GM die. That’s why Bush gave them his billions.

    I mean, you can joke about “Presidentializing”, but the flip side is again that the thread is factually there.

    (One could guess that this is Kabuki, and that we really are letting GM die, just too slowly for anyone to notice, and long enough that everyone will have made their peace. If that’s true, they should try to keep those costs a little more under control.)

  11. odograph Avatar
    odograph

    BTW Steve, I’m sure there are polls that say people hate bailouts, but do The Peoples complete the thought? Do any polls say “let them go out of business?”

  12. Zelsdorf Ragshaft III Avatar
    Zelsdorf Ragshaft III

    We have a government spending money it does not have to buy a product that will not succeed in the marketplace and the process is being run by someone 31 years old? Anyone beside me write their congressman today? I am going to have to change my tax status to exempt.

  13. odograph Avatar
    odograph

    Wow, a slim majority do:

    Even when presented with the stark choice between providing government funding or letting GM go out of business, only 32% of voters support the bailout. Most voters (56%) say it would be better to let GM go out of business.

    Is that enough to actually do it, with the expected live TV coverage of families being evicted & etc?

  14. Rob Avatar
    Rob

    Personally, I think Pres. Obama does not care one whit about GM, only expanding governmental control.

    Only the Republicans will try to tie Obama to GM, the press and everyone else will give him a pass and be distracted by a dinner date or some lofty rhetoric.

    Congressmen are the ones we taxpayers need to start holding accountable NOW, they will be up for election sooner, and if the tax protesters start hammering on this point as well as other misguided spending, maybe a few of our elected reps will figure it out, if only for self-preservation’s sake.

  15. Drew Avatar
    Drew

    “Most voters (56%) say it would be better to let GM go out of business.”

    That makes 56% wiser than our government officials, including the The Rookie In Chief.”

  16. odograph Avatar
    odograph

    Well, if you can build that percentage and do the full BK that’s fine with me. I suspect we need a lot more.

    I also suspect that we are on the double super secret path to the same thing anyway, for the reasons Dave listed.

  17. odograph Avatar
    odograph

    BTW,

    If someone knocked on your door today and asked for a $30K check in return for GM ownership……..would you???????? (Yes, this is an intelligence test.

    There are about 110M households in the US. $30,000 times 110M is 3,300,000,000,000 … three trillion?

    I think that would be overpaying.

  18. odograph Avatar
    odograph

    (oh, if you mean would someone offer me the whole thing for 30K? Of course I’d do it, and promptly go see Mr. Obama 😉

  19. An Interested Party Avatar
    An Interested Party

    Only the Republicans will try to tie Obama to GM, the press and everyone else will give him a pass and be distracted by a dinner date…

    Actually, it appeared to be Republicans who were the most distracted by the president’s dinner date…

  20. Drew Avatar
    Drew

    Your slithering argumentation is fascinating, odo.

    I would first advise you to look at tax incidence, and the fact that about 15% of Americans will pay the big load, the others…….not so much. Guys like me are paying for GM. You? I suspect not so much.

    Second. If you want to go low. I’ll bet that 95% of Americans, when the kid shows up on the front porch – “Can you buy $5 of M&M’s for my baseball league” shut the door. They don’t know this guy. Scam? Legit?

    Calculate it anyway you want, odo. If everyday Americans were presented straight up – at their door step; “gimme a check for GM: $100, $1,000, $10,000…” with the current proposition, they’d pass. No sale. No check. Because it’s absurd. In Latin: Propositionus downus toiletus. But, of course, the taxpayers have no choice.

    Now, those who frequent the late night infomercial come’ons???………maybe, but we have a term for them. Fools……..and their money.

    You don’t watch those, do you, odo?

  21. Rick DeMent Avatar
    Rick DeMent

    For the last 70 years For the last 70 years interstate commerce has been construed as, essentially, the entire economy. has been construed as, essentially, the entire economy.

    Interstate and global commerce is the entire economy. There are no states there is not local. American business made sure of that.

    We are going to find out just how interconnected this economy is in the next month. For all of those who scoffed at the stimulus package projects because we would be out of the recession by 2010, be prepared to eat those words cause we are just getting started.

    Our consumer driven brand of all-hogs-to-the-trough-capitalism of which GM was the poster boy is dead. And with it American exceptionalisum. The only thing left do do is take lessons from France on how to withdraw from the world stage.

    Greed does not work.

  22. Drew Avatar
    Drew

    Rick –

    Have another beer……another toke. Whatever is going on there…..

  23. Rick DeMent Avatar
    Rick DeMent

    Drew,

    This is as sober as it gets, you all are the ones living in the fantasy land. If there is something I said you want to take exception with be my guest. But the fact is if you would have told anyone ten years ago that both Chrysler and GM (GM having once been the worlds largest corporation) would be bankrupt by the time the decade is out they would have told me to go back stop the dope smoking too; but here we are(and don’t kid yourself Ford will be there inside of three months).

    We have been riding the wave of our highly fortunate and extremely unique post war situation of being the worlds only manufacturing power and we made the mistake of believing that our economic muscle was due to our superior economic \ political system. We made the oldest mistake in the book, we confused brains with luck and we though it would go on forever.

    People like Drew are the problem. Unfortunately they outnumber those who can do simple math 10 to 1.

  24. anjin-san Avatar
    anjin-san

    Interesting that the market seemed to like todays news…

  25. Rick DeMent Avatar
    Rick DeMent

    Interesting that the market seemed to like todays news…

    Wall street love it when jobs get shed. I repeat Unfortunately the people on wall street outnumber those who can do simple math 100 to 1. Hence our current problem.

  26. odograph Avatar
    odograph

    Your slithering argumentation is fascinating, odo

    Are you kidding me?

    You think you are making a rational argument that “people like you” will pay $30K a head for GM?

    And you make it a personal attack because I’ve had the mental security to keep my financial security carefully out of the discussion?

    You accuse me of going low for running some simple per-household math?

  27. Bill H Avatar
    Bill H

    Let me get this straight. For many years we’ve had three big auto makers. Now we have, what, five with Toyota and Mazda in the US. People are buying fewer cars which, with a slumping economy and energy becoming a long-term issue is a long-term trend. We need to buy fewer cars and smaller ones. And so we still need five big auto makers? Exactly why do we still need five big auto makers? Why do we even need four? Or three?

  28. odograph Avatar
    odograph

    Bill, I’ve heard that there is a global oversupply in automaking capacity. The problem is not unique to the US. Too many countries have been propping up manufacturers in a saturated market.

  29. Steve Verdon Avatar
    Steve Verdon

    Bill, I’ve heard that there is a global oversupply in automaking capacity. The problem is not unique to the US. Too many countries have been propping up manufacturers in a saturated market.

    Gov’t at work, prop up that which is failing because it gets you votes.

  30. odograph Avatar
    odograph

    Gov’t at work, prop up that which is failing because it gets you votes.

    There was a time when they called it The British Disease.

    But if our luck holds, that “31 year old who is in charge of dismantling GM” will do exactly that.

  31. Steve Verdon Avatar
    Steve Verdon

    But if our luck holds, that “31 year old who is in charge of dismantling GM” will do exactly that.

    We don’t need a 31 year old to do it, we have bankruptcy courts with plenty of experience to do it. Its that bothersome rule of law thing.

  32. odograph Avatar
    odograph

    I know we have rule of law, and a BK judge, Steve. That is a given. The 31 year old is only there because without government financing the BK would become liquidation.

    He’s only there because, well I agree with Felix Salmon:

    The key bit of misdirection here is where Reich talks about “what a reorganization under bankruptcy would do” as an alternative to the government spending $60 billion on GM. But a reorganization under bankruptcy is exactly what is going on right now — and exactly what wouldn’t be going on were it not for the government providing debtor-in-possession financing.

    The alternative to the $60 billion bailout-with-bankruptcy would be outright liquidiation — and outright liquidation would cost the government even more. Remember the NYT story on Brian Deese?

    I talked about a “double super secret path” yesterday, maybe not so secret …

  33. Eric Florack Avatar
    Eric Florack

    will the resultant GM be worth saving?

    From our POV? No.
    From the POV of most Americans? No.
    From the Greens and the left running the WH? Of course.

    By way of grabbing a laugh, I’m going to give you a picture of this.

    I consider the Prius to be the perfect vehicle for people who don’t like to drive, and want that dislike reinforced on a daily basis.

    What we now have is a group of people who want us driving such lawnmowers cars things, who have been given the power of government. Ponder why such people would find value in being in control of a car company or two.

  34. Steve Verdon Avatar
    Steve Verdon

    I know we have rule of law, and a BK judge, Steve. That is a given. The 31 year old is only there because without government financing the BK would become liquidation.

    So?

  35. odograph Avatar
    odograph

    I know we have rule of law, and a BK judge, Steve. That is a given. The 31 year old is only there because without government financing the BK would become liquidation.

    So?

    And if Felix is right that liquidation would cost the taxpayer more, you’d still go for it?

    It’s his case, not mine, but that seems the rational and non-ideological question. I’ll take the lowest cost to us.

  36. odograph Avatar
    odograph

    I consider the Prius to be the perfect vehicle for people who don’t like to drive, and want that dislike reinforced on a daily basis.

    I can get the same outlet, better actually, on a mountain bike. No cops, it’s between you and the trail, whether you risk a 30 or 40 MPH downhill.

    I never crashed my cars, where I would have likely hurt someone else, but I’ve pushed the bike harder and broken a few bones over the years.

    … and of course it’s fun to beat people 20 years younger UP the mountain.

  37. Steve Verdon Avatar
    Steve Verdon

    Salmon is spouting baloney. Bankruptcy doesn’t usually come with the government giving the failed company $50 billion, yet that is what he claims,

    The key bit of misdirection here is where Reich talks about “what a reorganization under bankruptcy would do” as an alternative to the government spending $60 billion on GM. But a reorganization under bankruptcy is exactly what is going on right now — and exactly what wouldn’t be going on were it not for the government providing debtor-in-possession financing.

    What we have here is a psuedo-bankruptcy where the company in question gets $50 billion and allowed to reorganize when it should die and according to Salmon will die. And look, his best evidence is the 31 year old non-graduate and points to Chrysler??!?! WTF? Oh, I see it must be true for GM too.

    If GM were to be liquidated, there would be a domino-line of supplier bankruptcies which might well have fatal repercussions even for the last bits of the US car-manufacturing industry which are reasonably healthy: the Japanese-owned car factories in the south. The wave of defaults and bankruptcies would not only set back the US auto industry and networks by decades, but would certainly spill over into municipal finance and a huge number of other areas of the US economy. The recession would get much worse, and any economic recovery would be significantly delayed.

    Right, without any evidence other than Memos by Brian Deese nobody has seen that actually pertain to Chrysler.

    So the point of the $60 billion isn’t to buy GM, or to provide jobs to some subset of its workers. It’s to avoid the catastrophe that would be a GM liquidation.

    In other words to prop up a failing industry. Nevermind that once you start pumping that money out like that, like heroin, the recipient will become increasing dependent on it making it harder and harder to cut off the supply.

    Brilliant. Like I said, we are constantly confronted by our government rewarding those who fuck up and punishing those who don’t. But go right ahead believing that there is poney in there somewhere Odograph.

  38. odograph Avatar
    odograph

    Salmon is spouting baloney. Bankruptcy doesn’t usually come with the government giving the failed company $50 billion, yet that is what he claims,

    We know it doesn’t usually, but we also know when the “too large to fail” start to fail it does attract the boys in Washington.

    I’m not sure about how you are choosing to interpret Salmon here. Are you actually suggesting that you think that Salmon thinks that the US usually funds all bankruptcies?

    Right, without any evidence other than Memos by Brian Deese nobody has seen that actually pertain to Chrysler.

    That’s why asked you an abstract question, “if” I said it was true:

    “And if Felix is right that liquidation would cost the taxpayer more, you’d still go for it?”

    The abstract question is easy enough, and then after that, yes, we can look for support one way or the other that costs are higher in practice.

  39. Steve Verdon Avatar
    Steve Verdon

    We know it doesn’t usually, but we also know when the “too large to fail” start to fail it does attract the boys in Washington.

    In this case “too large to fail” means it wouldn’t be polticially expedient for Obama to let it fail.

    Ooops, there I go again presidentializing. Of course, the same would likely go for anyone sitting in the Oval Office as you noted.

    I’m not sure about how you are choosing to interpret Salmon here. Are you actually suggesting that you think that Salmon thinks that the US usually funds all bankruptcies?

    No, I’m suggesting he is a partisan hack who has drank long and deep of the kool-aid. He thinks it will cost just $50, $60 or whatever billions it will cost and then we’ll be done with it. What he isn’t telling us, like a lying sack of crap, is that the Gov’t just signed on to an open ended processes and there is no telling how much money is going into that black hole. Keep in mind that the gov’t usually low balls these costs, or high balls the positives.

    The abstract question is easy enough….

    Given your recalcitrance in answering other people’s questions I find this most ironic.

  40. odograph Avatar
    odograph

    Ooops, there I go again presidentializing.

    Yeah you did, because I flat don’t believe that any US President would let GM go into disordered liquidation on their watch. Again, Bush signed his bailout bill.

    No, I’m suggesting he is a partisan hack who has drank long and deep of the kool-aid. He thinks it will cost just $50, $60 or whatever billions it will cost and then we’ll be done with it. What he isn’t telling us, like a lying sack of crap, is that the Gov’t just signed on to an open ended processes and there is no telling how much money is going into that black hole. Keep in mind that the gov’t usually low balls these costs, or high balls the positives.

    He at least gave one reference for his “higher cost” argument. I notice that you waved it away with zero references of your own. And you say partisan hack at the same time?

    The abstract question is easy enough….

    Given your recalcitrance in answering other people’s questions I find this most ironic.

    I don’t remember dodging any meaningful questions.

    On the other hand, this is meaningful, if you actually care about taxpayer expense.

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