SURREALISM

Posted in Quick Hits on November 20th, 2008 by Ed

Cable news is starting to take on a distinctly art-house feel. I can think of no explanation aside from irony or theatre of the absurd for CNN to have D.L. Hughley debating Bay Buchanan live on TV.

Not Pat. Bay.

GANGLAND BAILOUTS

Posted in Rants on November 20th, 2008 by Ed

The impending meltdown, many years in the making, of the Big Three American automakers is all over the news these days. No doubt the automakers and their employees considered an Obama victory combined with a Democratic Senate the best of all possible opportunities to get the aid they will need to survive. As usual, all of the "not with my tax dollars!" bitching has dominated the professional and corn-pone opinion on the subject. What escapes these deep thinkers is that, one way or another, we're all going to be picking up the tab for the Big Three. It is a question of which of two distinct alternatives we prefer. On one hand we can provide obscene sums of money to keep them afloat. On the other hand we can let them file Chapter 7 and pay for their sins through the bankruptcy courts and via the explosion in social spending that would inevitably result from tossing a million blue-collar workers out on the street.

The story is pretty cut-and-dried on the talk radio level. Greedy executives / greedy UAW members made their own beds and now must sleep therein, and we'd have an easier time working up sympathy (and cash) if they didn't make such shitty cars. Here is the problem. Actually, here are several problems.

1. The sheer size of the two automakers who remain publicly traded (Ford, GM) is staggering. Probably beyond the comprehension of 99% of the people passing off-cuff judgment on letting them go bankrupt. Bankruptcy requires some manner of keeping oneself operating while under protection of the court. While this often comes from something called debtor-in-possession loans, with the banking industry tenuously gripping their last thread of sanity (and solvency), who's going to pony up the tens of billions that are required? That is the point that everyone seems to be missing. They need cash right now. They haven't enough money to keep the lights on and the water running much longer. They have no cash, no credit, and no one willing to lend them a handshake. That's why…..

2. If they file BK, it's not going to be the re-organization (Ch. 11) that people think of when they hear a business has gone bankrupt. GM in particular is staring straight down the barrel of Chapter 7 – liquidating everything down to the copper wire in the walls. With no automaker (even the vaunted Toyota) in a financial position to pick up the pieces, within 30 minutes of a Ch. 7 filing by GM there would be 7000 dealers, a half-million employees, 479,000 retirees, and an entire industry of contractors/suppliers who would be out on the street. There is not a goddamn thing else for any of those people to do right now. GM might be a lousy investment for the government or anyone else, but the auto industry is providing too many meal tickets right now to disappear overnight.

3. Government will inevitably end up doling out billions in assistance after a liquidation or even a milder bankruptcy. Note this cute quote:

Instead, G.M. should submit a prepackaged bankruptcy, laying out steps it plans to enact once in Chapter 11 protection, said Mr. Ackman, who is not a major holder of G.M. shares.

"I'd rather the government's money be used to train people for other jobs," Mr. Ackman said.

We can thank Bill Clinton for making this platitude part of BusinessLogic. We'll just "re-train" or "educate" people in some vague and unspecified way for some vague and unspecified jobs that don't exist. There is some industry right now with a million high-paying jobs, the kind on which people can actually support a family, waiting to be filled. If only Americans would get some "training" to make themselves qualified! We've heard this horseshit for 20 years and we know exactly where it leads – failure. Specifically, it leads to some combination of menial service industry work (think Arby's or Wal-Mart) and massive dependence on welfare, unemployment, Medicaid, and every other manner of social spending. Government and "the taxpayers" are going to foot quite a bill either way. It may end up costing significantly more when we consider how the implosion of such a large industry would decrease tax revenues.

4. People will still fly on a bankrupt airline because all they are buying is 90 minutes in coach before they walk away. People will not buy a car from a bankrupt automaker. A car is a major purchase and a long-term committment. Warranties, the ability to get parts and service in the future, and the re-sale value of the cars (check eBay Motors for an Oldsmobile if you're skeptical) are all important concerns for buyers. So in filing bankruptcy, GM/Ford/Chrysler would essentially be committing suicide. The only way out of bankruptcy would be to sell a shit-ton of cars. And a bankrupt automaker can't sell cars. Repeat circular argument as necessary.

This is not a burden for the new government, it is an opportunity. It is an opportunity to take an important but broken industry out behind the woodshed and give them a thorough ass-beating. In my ideal world, a bailout would resemble the finest moment of a TV show I generally find severely overrated: Christopher's intervention for heroin addiction on The Sopranos. To make a long story short, it begins as the classic "Let me tell you how your addiction has hurt me" intervention led by a social worker and quickly degenerates into a mob beatdown. A perfect bailout would look pretty similar.

Sure, guys, we'll bail you out. Now here's our list of conditions. No more bloated payrolls, no more skimping on parts so your cars fall apart at 12,000 miles, no more 5800-pound V8 behemoth Expeditions and Tahoes that nobody fucking needs, no more excuses about how they don't have the technology to increase efficiency (every single advance in engine technology for the past 100 years has been purposefully directed toward increasing horsepower, which compensates for Americans' little dicks), no more redundant marketing and "badge engineering" (GM currently sells about 5 different versions of every vehicle it makes), no more 7000-dealer networks (Toyota makes do with about 1200), no more executives who give us things like the Cimarron and the SSR while taking home $20 million annually (hi Rick Wagoner!), and no more pissing and moaning about the free market and the "burden" of regulation every time the government dares to impose any "Draconian" legislation like CAFE on the industry.

Congress will end up spending the money one way or another. Might as well keep a lot of people productively employed while blowing it. Give them what they need. But there's no reason outside of cowardice to hand them a check with no strings attached.