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Tuesday, November 11, 2008

GM should go bankrupt

Its market cap is down to $1.8b. So shareholders lose $1.8 billion. Spread out as much as it is, that's not much. The damage has already been done.

A lot of people seem to think that declaring bankruptcy requires the company to stop operating. This is completely wrong. United Airlines just spent three years in bankruptcy. People arguing for a bailout are doing nothing to correct this misperception. Shame on you. That includes you, Barack Obama.

The argument goes that $25 billion in guaranteed loans will give GM the space it needs to clean its house and start producing vehicles that can sell without huge discounts. They're essentially arguing that their problems are not structural, but temporary. Let's agree that is true (though I think it is not.) So what? Why can't you do what needs to be done in Chapter 11 bankruptcy? Okay, maybe you need credit extended so you can actually make it through bankruptcy. I'm cool with the government guaranteeing that. However, this debt will be most senior, so if GM doesn't make it and gets liquidated, those debts will be paid first. So, that government guarantee wouldn't be needed.

It really comes down to politics. Bankruptcy will invalidate all the union contracts and all the leverage will be held by GM's creditors. A judge will be in place to make sure things go smoothly and to bless a final plan. Bankruptcy will effectively break the union. The labor contracts will essentially be negotiated from a tabula rasa. It is not improbable that the workers would decertify the UAW and form a new union. This may just be what GM needs, but it certainly terrifies the UAW.

I am against any bailout. The only real argument that I've heard for a bailout is that no one will buy a car from an auto manufacturer in bankruptcy because of warranty concerns. Hogwash. If people were willing to fly on a bankrupt airline, they'll buy cars from a bankrupt auto manufacturer. GM should go into Chapter 11 and reorganize there. Even if their problems are not structural, they cannot afford to add $25 billion of debt to their balance sheet. If they are structural, bankruptcy is the only way they can actually address these problems in a meaningful way.

Barack Obama cannot do anything but push for a bailout. His coalition is fragile and he needs the unions to back him. Maybe the Republicans can stay unified enough to block it. They could filibuster it and kill it. However, the implications for the next battle are not so great. We need a tremendous amount of government stimulus and we can't afford to let the Republicans block that. Also, Obama can't really allow the Republicans get the idea that they can beat him. He's got a tough job. The right thing to do is kill any talk of a bailout, but the right thing risks seriously damaging his ability to govern. This should be interesting.

Friday, November 7, 2008

Notes on the election

A popular meme is that Obama will be another Carter. I don't buy it. In terms of damage to the economy and American standing in the world, the best analog to Carter would have to be George W. Bush. Carter accomplished this two-fer with his timidity and reliance on symbolic, rather than real action. Bush managed to do it by being overly bellicose and completely tone-deaf to the messaging inherent in any of his choices. You could say Carter and Bush are the heads and tails of the coin of Presidential incompetence.

I'm going to predict that Obama is not another Carter because he has shown he's not afraid to play hardball when necessary and the time is right. He just hasn't done it for the sake of being perceived as hard. Palin was the biggest gift McCain could ever give Obama. However, taking that card and playing it immediately would have allowed McCain to jujitsu it back onto Obama. So what does Obama do? He waits and lets Palin prove herself an idiot. He doesn't say a single bad thing about her, but his campaign makes sure every piece of negative news on her is broadcast for the world to see. Then in the last week, Obama puts out a silent ad that uses her image with devastating effect. McCain is powerless to respond. Carter would have suggested they have more vice-presidential debates and then cried when the other side said no. Oh, wait, didn't McCain do something like that with his idea of near-constant town-halls?

Also, would Rahm Emanuel ever work for a girly-man like Carter?

Tuesday, November 4, 2008

I commend your speech, Mr. McCain

If you had shown this face throughout the campaign, the country would be better for it. You probably still would have lost, but the campaign would have not stained your honor or your soul. Nonetheless, I am truly grateful for the speech you gave.

I will tweak you on one point, though. You said, "But we both recognize that though we have come a long way from the old injustices that once stained our nation's reputation and denied some Americans the full blessings of American citizenship, the memory of them still had the power to wound." The injustices of which you speak did more than stain the nation's reputation. It stained its soul. Our inability to reverse those injustices still reverberates today. Mr. Obama's election shows that we have made great progress and once again gives hope that our great nation may come to fulfill its potential. There is much work to do yet, though.