Yesterday the auditors of General Motors reported that they have "substantial doubt" that GM will be able to survive and may go into bankruptcy. This is after GM has received $13 billion in "bailout" funds and is asking for another $17 billion.
American International Group (AIG) has received a $150 billion "bailout" and are now asking for $30 billion more.
Citi Group has received $45 billion in "bailout" funds and is asking for more. Yesterday their stock dropped to less that $1 per share from a high of $50, as experts predict their failure.
Housing foreclosures continue to increase and today the House approved a $75 billion "bailout" program that will allow homeowners in trouble to refinance at more attractive mortgage rates and longer payment terms. These "bailout" rates will in many cases be MORE attractive than the rates being paid by homeowners that have been responsible by making their mortgage payments. In addition this bill will give judges the ability to "cram down" a mortgage - in simple terms, if the irresponsible homeowner can show they have "made an effort" to redo their mortgage, the judge can cram down the interest rate and possibly even the principle of the mortgage to ease their payments and keep them in the home. So if Obama eventually signs this bill, a judge may have the power to legally break a contract and decide that an irresponsible homeowner does not have to pay the price they agreed to when they bought the home. This stupid "cram down" provision will never work because lawsuits will stop much of this program and attorneys will get rich while the courts decide if this latest "bailout" is constitutional.
After throwing billions of dollars at these failing companies and bad mortgages, these "bailouts" have failed and our economy is falling like a skydiver whose chute did not open.
I am an advocate of letting market forces work; looking back here is something interesting - Bear Stearns was given no "bailout" money and they were allowed to fail. The market worked, the economy absorbed that business failure, and it is behind us. But we were told: "AIG is too big to fail". Could it be because AIG insures the Congressional Pension Plans? Most experts agree that one way or another AIG will fail or be broken up and us taxpayers will take it on the chin again...but what the hell, it's only $180 billion.
The stock market is a predictor of the future and it continues to plummet. The market has lost 3000 points since the Obama administration took over - the worst stock market performance for a new President in more than 100 years. Investors are standing on the sidelines wondering when the market will reach bottom. In my opinion it will reach bottom and start to turn around when our President and our moronic politicians in Washington stop the spending madness and say; "NO MORE BAILOUTS". The pain may be great, but the economy will recover and the country will be stronger. And after all, how could the economy get much worse?
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3 comments:
Chuck, I like your article called: "The chute didn't open" however, it's hard to accept the second half of this statement, "Bear Stearns was given no "bailout" money and they were allowed to fail. The market worked, the economy absorbed that business failure, and it is behind us."
I don't believe the economy absorbed that failure. I believe it rolled over and became a part of what is now a bigger snow ball, rolling out of control in what has formed into an massive avalanche.
When a company succeeds it brings its partners, vendors and suppliers up with it. When it fails, so goes its partners. The American auto industry will collapse and bring down its primary, secondary, and tertiary suppliers. All the way down to the base material suppliers with their financial investors being washed out with them, all the way down the food chain. The gov't needs to establish fire breaks because private capital is running away in fear. Forget what Obama and the new left socialists are doing, if you simply watch private money flows, money is flowing away from private capital and into gov't treasuries. If you believe in the saying, put your money where your mouth is... why are capitalists investing their money in the federal gov't (i.e. by buying U.S. Treasuries) at record levels, if they don't want a gov't solution to the problem? If capitalists want a capitalist solution, then why aren't they investing in one? Yes, you can say, let it all crash, but history has shown, it takes twenty to forty years to build a sophisticated fully sustaining interdependent economic system. Personally, I don't want to wait that long.
On the contrary, the economy did absorb Bear Stearns - it went down (the economy) but it survived that business failure and over time that financial sector of our economy will be stronger by getting rid of a poorly managed company.
I also feel that the auto industry will eventually be stronger by letting GM and maybe Chrysler go into bankruptcy and reorganize. I believe Ford will weather the storm. This will hurt, and will hurt other auto supply sectors but will not wipe out the industry. Gm and Chrysler may be broken up and maybe one of them may survive and the other not. But the business models as they are now structured will not work in the long run and it is madness to keep throwing billions of dollars at a failure (see my "Let them Fail" blog).
That sounds cruel, but our generation caused all these problems, so what right do we have to push them off on our children and grandchildren.
The previous blog I refer to in my comment should be "Let them die".
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