Thank god. Heres to hoping that Obama never gets around to bailing these industries out either so that they finally declare bankruptcy and let the market work out its own (significantly more efficient) solution.
Anyway, with all that capital just floating around it should be a snap to recreate a heavy manufacturing based industry. Maybe those free market geniuses can make it as awesome as the financial industry or the health care industry.
I will dance on the grave of every company and industry that dies now because it means the restructuring is working. Nobody is putting them on life support. Nobody is saying, "It's okay you royally fucked up." They're dying, as they should be.
However, your logic doesn't make any sense. A bank can be totally solvent, but be wiped out by a bank run due to forces outside of their control. Similarly plenty of otherwise profitable businesses can be wiped out when the entire economy heads south. This is called throwing the baby out with the bathwater.
What I am expecting in governance that doesn't dig us into a deeper hole.
By the way, the worse the US economy gets, the worse the world economy gets. Do you really want a nuclear pakistan/india go off the deep end?
On the other hand, investment banks (which are legally different from banks) can be wiped out by runs very quickly if they take on too much leverage. Or at least that's what used to happen before the federal government decided the largest ones were too big to fail and bailed them out.
There will be collateral damage. That's just part of the deal. As I mentioned, this is a global event so yes, I realize the worse the US economy gets the worse the World economy gets, at least relatively speaking. I would prefer that one of the nuclear countries not go off the deep end and trigger a nuclear war, but I have no reasonable belief that they will either.
I think looking at it only in terms of economic efficiency is a little bit callous.
I'm fine with bad corporations "dying." However, what about the actual human beings that will not have jobs, and their children? Detroit is already starting to look like a third world country. What will it be like by the time all three auto makers get through the bankruptcy procedure?
I think the argument for a "bailout" for the people who still support it is that it is simply cheaper to keep the auto companies alive a little while longer than what the government would pay out in benefits for all of the resulting unemployed workers. And that it is a more efficient "stimulus" than the government just spending money on other projects directly. Maybe we will have to pay those benefits eventually in any case. But as bad as things are now it might actually make sense to keep the auto companies alive, even for just another year or so, while the rest of the economy maybe starts to improve.
You can argue that we should be more libertarian about these things, and the government should not be involved in "social safety nets" or whatever. But that is not the government we have, and it is not going to be the government we have any time soon. Given that, the question of whether a bail out is cost effective from the federal government's standpoint is not as clear cut.
And if they did fold, people won't just stop buying cars. They'll just buy different cars that were made mostly here in America, which employee the same number of people to build that a viable American car company would.
It's easy to say bailout = jobs, but that's sadly just not true. In the long run it won't save any, and it will cost a fortune. If it's done right, it will ensure viability, which means loss of jobs. If it's not done at all, it will mean restructuring and/or a shift to Japanese cars which means the same loss of jobs.
Even accepting the hard argument that this bailout would merely forestall restructuring and eventual job loss, if that restructuring can be pushed to a time when the economy isn't in such dire straits, then the bailout could easily be worth it. The timing is clearly the most important factor. Consider Lehman. Lehman (and all of Wall St for that matter) was in a very similar position to the one the hedge fund LTCM was in 1998 - i.e., highly levered and insolvent, thus constituting a systemic risk. In 1998 because the rest of Wall St was healthy, the Fed was able to organize a private bailout of LTCM that prevented a, in hindsight, minor credit crisis from escalating. In 2008, since all of Wall St is essentially insolvent, the Treasury was unable to broker a bailout/merger and unwilling to bail out Lehman with public funds, leading to a catastrophic bankruptcy. The cost of being wrong about Lehman far outweighed what bailing it out would have cost, just as the cost of being wrong about letting the Big 3 fail at this moment could far outweight the proposed $14 billion (admittedly just a first offering).
Those cars are built with parts from the same suppliers, or other suppliers still largely based in America. Profits may shift from one supplier to another, but they don't decrease.
Your mistake is assuming that demand, in this case for cars, remains constant even if the Big 3 go bankrupt. If the Big 3 disappear, it's an enormous downward force on demand. Japanese companies can't immediately start producing more cars to make up for the slack from a Big 3 failure, so the suppliers would likely disappear. So we're talking about potentially millions of lost jobs. And that's a lot of people no longer in the market for cars, or really any other goods or services.
We're potentially facing a deflationary spiral, where the credit markets freezing up leads to companies failing/laying people off, which lowers demand, which causes businesses and investors to cut back on development and lay even more people off, and so forth. And as drop in aggregate demand creates deflation, individual's debt burdens increase. So we can expect continued foreclosures and increasing defaults on credit card debt and student loans, etc., leading to even more writedowns for banks, and even less credit available for business or consumers. It's a vicious feedback loop. We need the government to stop this downward spiral.
It seems like this is confusing cause and effect. The big 3 disappear because of a major downward force in demand, they don't cause it. If demand were healthy, they wouldn't disappear in the first place, as people would be buying their cars and giving them cash.
I need a car within the next month. I was going to buy Japanese anyway, but say I wasn't. I can't imagine any scenario where I'd just say "Well, the American car makers are gone, so I'm just not going to buy a car." I'd go buy a Japanese or Korean car instead.
The proximate cause of this potential bankruptcy is the credit crisis. If the Big 3 disappear because of the credit crisis, and suppliers go bankrupt as well, experts estimate that could mean the loss of 3 million jobs. Suppose you worked for a fairly well run auto supplier, and suddenly you don't have a job. Instead of considering buying a car - or any major good or service - you wouldn't be able to. If you worked in an industry either directly or tangentially related to autos - say auto dealers, gas stations, hotels, steel - you'd likely start to fear losing your job. Just the fear of losing your job would change your consumption habits. Fear becomes a self fulfilling prophesy, creating even lower demand, necessitating even more job cuts, lower prices, and even less demand. A Big 3 bankruptcy would lower aggregate demand, and have potentially massive consequences through the rest of the economy. An event can both be the result of supply/demand, and create new supply/demand - financial markets and the economy are a chaotic system. That's why it's so hard to predict exactly what the consequences of a Big 3 failure would be.
Also, there are stories of Toyota and Honda paying for lots in California to store all of the cars they can't sell. There will be no lag.
What is happening to auto is mostly caused by 1) the financial crisis making credit scarce and 2) a huge drop in demand (30-40%) that no industry could sustain
For a "elderly and weak" patient such as auto, this is too much. Fine. But what happens if auto goes down, which the OP is celibrating? What other weak or newly weakened sectors does it take down with it? Btw, chapter 11 is the best case, it could go chapter 7. We don't know.
And they've done a good job of working on lowering their cost basis over the last 5 years, along with the Unions, but they've still got a long way to go and are progressing slowly. Without serious oversight in the bailout it's just throwing money down a well.
Or so goes the theory. You can choose to believe it's wrong (and you may be correct, it's a complex issue) but it's disingenuous and mean-spirited to say that the people against it are happy about job losses. They're happy that a bill that they believe is throwing money down a well and only delaying job losses didn't pass.
And I think its disingenuous to claim that I said others are "happy" about job losses, when I said no such thing.
My two points were 1) this is bad for the economy short term, potentially leading to further trickle down effects, and 2) the response of "meh, its just optimization" to the human suffering is not indicative of a society I am proud to live in.
One other possible option is for the government to spend a fraction of this money to help people suffering by the collapse of the US auto industry as a buffer until (likely foreign) competition moves in and takes its place.
If you see this as simply the acceleration of the inevitable (as I do) the argument you are making for a bailout is akin to saying we should support any industry that is no longer economically viable just to keep the people from having to suffer job loss. This is not a sustainable long term strategy. At some point people must move on. If this means acquisition of new skills in order to most efficiently re-integrate into the economy than society should help people who unfortunately lost their jobs in attaining these skills, but it is the wrong decision to prop up failing companies in order to help their employees, because at some point this ceases to work. There are more efficient uses for capital that help more people in the long term.
I think this is the relevant question. Is government money more efficiently spent propping up the auto companies a little bit longer, or giving it directly to all of the people laid off after the auto companies go under? As others have described in this discussion there is a real possibility of damage quickly spreading to other parts of the economy in a downward spiral if the automakers go down. So there might be a lot of people in need of that "fraction" of the money needed to keep the auto companies going a little bit longer.
The decision rests on how we weigh the specific costs and risks involved for each option.
I think even they are worried about the possibility of their suppliers going under, and the damage that could be done to the economy in general by the Big 3 disappearing.
The sentiment was "thank god the industry is finally allowed to die", not "thank god we are not wasting money", which suggests more of an emotional dislike of the auto industry rather than a dislike of this piece of legislation.
He wasn't saying he was happy about the loss of jobs. The loss of jobs is coming one way or another (or so the economists I've read seem to think). Chapter 11 gives them a chance to at least end up viable in the end, creating more jobs in the long term.
He is happy that we aren't throwing money down a well. Or that's how I read it.
What is happening to auto is mostly caused by
1) the financial crisis making credit scarce and
2) a huge drop in demand (30-40%) that no industry could sustain
The USA started out as a colony and had to fend for itself. That mindset has not left.
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In a good economy, sure let them fail. Though I find the lack of consideration and compassion for the human pain this would cause pretty appalling. "Yea, lets optimize them away" is not an attitude we need more of in this country.
The idea that this bailout is free, harmless, and guaranteed to work is wrong on three counts. It's not a choice between "Save their jobs" and "heartlessly cut their jobs", it's a matter of figuring out where the pain goes and how to minimize it, and there are more stakeholders here than just the autoworkers. Raising taxes to save the autoworkers will drive other businesses out of business and drive other taxpayers over the edge into bankruptcy, and the fact that they are not easily visible doesn't make that less true. Failing to raise taxes means that much more debt, which has its own consequences. (Regardless, you can't get away from opportunity costs.)
I believe in free market optimization precisely because I believe it is the most merciful and the best for the autoworkers and everybody else in the medium and long run, and the more you dick with the short run by stealing money from the productive to pay for the unproductive, the worse the medium and long run get.
And you can't say Tesla, because they don't even make their own cars. They just slap their parts onto a Lotus Elise shell.
They won't have the same level of employment (or at least salary) because that level is what makes the big 3 unviable. But that contraction is due one way or the other, and the market will make sure it happens whether there's a bailout or not.
American car companies are simply paying employees more than they're worth. Guys are getting $70k a year to pull levers. You can't spend $15 billion to correct that.
The body is not the hard part.