Friday, December 19, 2008

Fisking the White House Bailout of GM and Chrysler

President Bush has decided to give some number of billions of dollars of TARP money, which was supposed to be used for financial firms, to two failing car companies.

In doing so, he said ... well, let us fisk, shall we?

Bush said in normal economic circumstances

What are "normal" circumstances? Is there any set of circumstances that we could call "normal" that would cause companies the size of GM and Chrysler to fail, while other companies are not failing? Or would the fact of two of these companies failing be considered evidence that circumstances were not "normal"?

he would not intervene to save the automakers

Intervening is one word, "meddling in private business by Executive fiat to favor two companies over their competitors with an unconstitutional bill of attainder" describes it better. And saving the automakers may be what he says he's doing, but it's really his own image he's worried about. "Something must be done, this is something, therefor this must be done." These steps are neither necessary nor sufficient to save the automakers from anything except a painful, newsworthy Christmas. In these times of pain avoidance, Mr. Bush is just doing the expedient thing: borrowing money to loan to people who have no clear means to pay it back.

but "in the midst of a financial crisis

The financial crisis has very little to do with the automakers problems, except that their problems were caused primarily by the run-up in oil prices, making people unwilling to buy inefficient but high-markup trucks and SUVs that they had previously wanted as toys and status symbols.

To the extent that the financial crisis is a cause of the GM and Chrysler problems, it's because they have continued to make ever-more-expensive vehicles believing that people would continue to buy them on credit. When people suddenly became credit-wary, realizing the foolishness of taking a loan against a depreciating asset, the car makers were sunk.

But now that people have realized that it's foolish to pay interest on something which is losing value, no amount of Federal credit assistance is going to rescue the car companies.

"and a recession,

Again, would there ever be a car maker failure during some other economic phase?

"allowing the U.S. auto industry to collapse

The collapse bogeyman, too big to fail, etc. If these companies cannot make it, they should be allowed to fail now before we dump huge amounts of money we don't have into propping them up. We will be paying the interest on the debt we incur propping up the failing companies long after they go under anyway.

"is not a responsible course of action."

Saying it doesn't make it so. The responsible thing is to let people face the consequences of their actions. Call it compassion, call it anything else, but responsible it is not.

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1 comment:

Anonymous said...

Loans with strings attached. Gee, it raises their debt service even higher and guarantees failure.

But look on the bright side, Loren. It keeps the lights on for two million industry employees in the US and Canada during the winter months.

Failure is easier to handle when it's WARMER - in 2009.

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