Geneseeonline.com -- The Voice of Reason since 2003

November 9, 2008

Loans or Loan Guarantees for the Auto Industry?

Does government have a place in determining the winners and losers in any industry? A government, at least in a capitalist market based society, can only raise money by taxation or issuing debt based notes.

Each according their needs and each according to their abilities. Sounds nice in a textbook or dream world but the credo of Marxism just does not work in the real world. It leads to the disincentive to compete to do better. Their has to be some "floor" for a society to succeed, call it socialism if you will. However, when the means of production is actively controlled by the government, it results in stagnation.

Does the imprudence of the financial industry deserve a "bailout" of loans of the taxpayer dollars? Or, any production based industry? That industry is in a pinch so give them a loan ( or what may turn out to be a grant, ) for reason that jobs must be saved?

The American auto industry does have a legitimate beef on the matter of government regulation but the regulation that the auto industry complains of is in part brought on by their own actions or inactions.

If the so called "financial crisis" is inhibiting the sales of automobile due to the inability of buyers to obtain financing, then the US Federal Reserve Bank should make funds for this available by purchasing the automaker's commercial paper freeing up capital and perhaps, offering some additional form of financing to consumers willing to buy automobiles.

If the are no willing buyers to be found, it is either the result of the lack of consumer confidence in the short term economic future or the product offered itself. In either case, if true, no bailout financing is going to aid the problem. If the problem is the latter, the taxpayer, through the government would just be giving money to management that would end up squandered.

The situation of health care costs for both active and retired workers needs to be addressed. Right now, it is cost advantageous to export assembly to foreign countries that have governmental socialized health care.

The auto industry has had a generation since the first political embargo and the subsequent price manipulation of oil and gasoline. They have not moved from the internal combustion engine powered by petroleum -- the writing has been on the wall for a long time -- they chose to ignore it.

The "Financial Crisis."

"You Can Borrow Up To 125% Of Your Home's Value"

Or, how the current financial crisis was born...

What a silly ad!

I think I recall seeing it a couple of years ago on a news site. I saw it as a harbinger of things to come. When you can borrow against an asset with a false value, above and beyond its real worth, it shows the lack of discipline of requiring a reasonable reserve of equity in any loan.

The Myopia of the Short Term.

The "sub prime mortgage crisis" has its roots in the quest for the short term profit by lenders, in earning fees paid by consumers. The originating lenders ability to access a secondary market where a loan could be sold only fueled this. Furthermore, the borrower's belief that they would be able to refinance their way out of their loan's cost ballooning due to interest rates that increased after the "Introductory Low Interest Rate" expired, inspired a certain recklessness.

If not reading the "fine print" on the part of consumers amounts to a predatory practice of mortgage lenders -- this is debatable. In the face of some seven plus years of governmental deficit spending to finance a *war-on-terrorism* this sub prime lending was allowed to go on with little regulation by governmental authorities to pump its political needs -- creating what is now seen as false economy of increasing wealth -- to drive consumer spending and keep the overall economy; an economy of warfare, deficit expenditures and hidden factors of inflation from scrutiny.

"Bailout" for the Financial Industry.

Why should the taxpayer "bailout" private industry? Because they made a mistake? When they were making profits did they share their profits with the taxpayer? No, it was capitalism for profits but now that there are losses -- let's socialize losses, the taxpayer should bear the burden of our loss -- after all, we are too big to fail . . .

..."Why am I too big to fail? It's important to grasp the critical role that I play in a wide-ranging but fragile web of economic relationships. If I go belly-up, I will no longer be able to tip my doorman when he gets me a taxi. This is not a hypothetical situation. I have studiously avoided tipping him for a solid month now. Consequently, he no longer has cash to spend at the liquor store after work, and the liquor-store owner no longer has money to spend on Internet porn. Given that Internet porn is the only fundamentally sound engine of the American economy, we're playing with fire here. If that stalwart industry is allowed to fail, Asian porn companies will rush to fill the void, offering porn that is both cheaper to produce and way hotter than ours. What will it take to keep this from happening? There are no guarantees, but sending me a check for twenty million dollars would buy us all valuable time." ... Too Big to Fail

Automakers Announce Losses and More Layoffs

The Big 3 American Automakers are turning to the federal government for additional loans toward relief of their need to find cash to continue operations without resorting to the bankruptcy courts for shelter from their lack of ability to borrow money in the financial markets.

The GM-Chrysler merger talks have been abandoned for now and if any federal loans are used to re ignite the stalled talks; The absurdity of federal loan monies being used towards a merger that will cause further job loss through consolidation has to be considered.