SOPHIE'S CHOICE

Posted in Rants on March 15th, 2009 by Ed

Perhaps the best recap of what happened in the 2008 presidential election is the satirical headline, "Black Man Given Nation's Worst Job." Does anyone envy that guy at the moment? Would you do the job at any price even given all the neat perks of being President?

The public, with its drosophilia-like memory capacity, is going to forget that Obama inherited all of these problems and angrily demand to know why he hasn't solved all of them in three or four months. The problem of the problems, of course, is that many of them are no-win propositions. Take, for example, the collapse of the auto industry, which is about to take a poor economic situation and make it much, much worse than anyone is willing to admit.

GM is at the end times; two weeks ago employees leaked a memo revealing that the company has taken away personal wastebaskets and laid off janitorial staff to save money. They are openly conceding that they have "substantial doubts" about their ability to survive without continued (and presumably increased) intervention. The new car market is in free fall and, more importantly from GM's perspective, the market for shitty new cars is even worse.

Obama is faced with a simple fact in light of GM's new request for $30 billion in "loans" less than 90 days after getting $13.7 billion: their survival plan is going to be to ask for $15-20 billion every three months for the forseeable future. His options are two: pay the ransom or let them go bankrupt…at which point they'll have to be provided with tens of billions in Debtor-in-Possession financing by Uncle Sam. What, you think any of the banks are in the position to lend it? Or that they would even if they could? Nope. Either way, this costs us an arm and a leg.

The company and its employees are behaving irrationally only in abstract; in the context of a company that is obviously going to fail, their behavior makes more sense. Fox and its allies have heavily hyped the refusal of unions to make even greater concessions (disregarding those that have been made) but the union likely realizes that the workers only have a few paychecks left no matter what they choose, so why cut them even further? Deep concessions will help the company sputter along for, what, two or three more weeks? And the company has recently announced a 45% increase in production irrespective of the fact that nothing is selling, a decision more reminiscent of a crack addict going on one last spectacular binge than any kind of reasoned corporate strategy.

There is no good option here. The President has little choice but to sit back and supervise the most expensive trainwreck in economic history. Given that bankruptcy and bailout both cost more than anyone can imagine, I guess that Obama's best bet is to figure out which one preserves more jobs and reduces the number of people who will be dumped onto the dole. The company can't raise additional capital – efforts to sell Hummer and Saab have gone absolutely nowhere, the former because the military is holding trials to replace the Humvee and, if another Hummer vehicle isn't selected to replace it, that unit isn't worth a warm bag of spit. The Swedish government will probably take over Saab but they sure as hell aren't going to pay for the privilege. This is it. The company is such a structural mess that they could fire everyone tomorrow, close every division other than Chevy, and still lose billions of dollars per month.

Pour a 40 for GM, and in the meantime try envisioning our current economic situation after another million or two million people with well-paid jobs become unemployed and stop making payments on their debts. Good luck, BO.

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