I’m starting to think that congress should have approved the $25 billion in loans that the Big Three was asking for a few weeks back, because it seems as though they’ve all huddled back in Detroit and all of a sudden the “emergency aid” requirement is up to about $34 billion. Today’s news even has it that GM will go under without an immediate $4 billion infusion.
In normal times, this might not be such a big deal. Chrysler went into bankruptcy a few decades ago and emerged as a better, stronger company. But, times have changed, and the underlying problem is the same no matter what industry we’re talking about – lenders are remiss to help companies before they get into trouble and even less likely to help those in bankruptcy. Congress seems to be missing these facts as they continue to grill the Big Three, and while I’m not in support of a bailout, it is time to consider a loan or rescue package that will allow these companies to survive.
I talked yesterday about my feelings surrounding the auto-bailout for Chrysler, Ford and General Motors, and the more I read about what Congress is doing and the debates that are flying around the more frustrated I get. Now CNN is reporting that Congress wants the automakers to show how they plan on spending their bailout dollars before they’re willing to offer any. Generally speaking this isn’t a bad idea, but what I find most frustrating is that they haven’t publicly asked the same from companies like AIG or banks taking money from the already approved $700 billion bailout. Doesn’t it seem logical that any company coming to Uncle Sam for a loan/bailout would be held to the same standards?
At the same time they’re asking for $25 billion in taxpayer money – these auto company CEOs are idiots. They all came from the same state in their own private luxury jets. The average American will never see first class, let alone the inside of a private luxury jet, and while continuing to pay their taxes will probably end up eating Mac-and-Cheese to get through this depression recession and these beggars can’t even share a ride or fly commercial. That’s saying two things – they are neither green nor frugal, and that should be disconcerting to everyone. These companies need to get both quickly and those changes need to start at the top.
At what point does a bailout become a lifeline? Is there a point anywhere in there that it becomes another bad idea? The Federal Reserve and Treasury Department got together today and unveiled a new plan to pump upwards of $800 billion more into the struggling US economy. Their hope is that this will jumpstart lending by banks and that suddenly consumers and small businesses will want to use that money.
These plans are as optimistic as TARP, with the Federal Reserve Bank offering as much as $200 billion to purchase securities backed by consumer debt (credit cards, auto loans, student loans, etc.). The Treasury will then insure up to $20 billion against losses (is this confusing yet?) and then the Federal Reserve will purchase up to another $500 billion in mortgage backed securities from Fannie Mae, Freddie Mac and Ginnie Mae (lets call them the three stooges). As if that’s not enough, the Fed will also buy another $100 billion in direct debt issued by those firms. And that’s it for Tuesday.
Normally, I have a lot of respect for Bloomberg.com, but their recent article on the US Government’s pledge of 7.7 trillion to ease frozen credit seems a little absurd all things considered. Their numbers include some of the following expenses:
$3.18 trillion — Already been tapped by banks and other financial institutions
$2.4 trillion — Set aside to buy short-term notes, or commercial paper, that companies use to pay bills
$1.4 trillion — Used by the FDIC to guarantee bank to bank loans
$29 billion — To help with the Bear Stearns takeover by JP Morgan Chase and Co
Is the current debate over whether or not to provide financial aid to the automakers a white-collar/blue-collar argument, because it’s sure looking that way when the government gives billions to help a single company like AIG and yet it won’t help companies like Chrysler, General Motors and Ford with a nearly insignificant $25 billion. Readers already know that I am against these bailouts on principle with the belief that they are prolonging the problem by smoothing the road and not fixing the problem, which ultimately means a much longer and more painful recession. My mantra remains, let companies fail, even the big ones – it will hurt more, but generally it’s for a shorter period of time The net impact on the economy will most certainly be less.
Experts are predicting that there will be somewhere between 3 and 5 million foreclosures next year alone. These figures amount to somewhere between 8,000 and 14,000 people evicted from their home every day. This is obviously not a small problem and with the continued acceleration of foreclosures it is very unlikely that it’s going to get better any time soon. Something has to be done; the situation has gone from bad to worse and the world economy is now free-falling into a global recession unlike anything imagined before.
I’ve already expressed that Henry Paulsen is not able to help the economy and I believe that time will show he prolonged and worsened the problems that he/Goldman Sachs helped create. I’m hopeful about Barack Obama coming into office because I believe that the world needs change and hope to empower the average citizen to help with improving the economy – to help the consumer believe. Unfortunately, I don’t think that Barack Obama will be enough and that’s where I believe the United States (and the world as an extension of the US) needs a bailout/stimulus plan that helps stabilize the markets while simultaneously improving consumer confidence. Some components should include:
Amid increasing turmoil, the financial sectors continue to get battered with ever worsening statistics, facts, and losses. Even once steadfast companies like Citigroup are seeing lines of of defaulting homeowners looking around for help and their share of the bailout. In what may be good news for some of these homeowners, Citigroup has announced that they are putting a temporary moratorium on foreclosures for all clients who are willing to work in good faith to restructure and repay their mortgages.
Some experts contend, and I would assume that they are correct, that the 158 year old Citigroup is simply postponing the inevitible if things don’t change in the economy as a whole. Of course, it will curb the ever increasing number of foreclosures, but until the underlying problems get resolved its impossible to know what the long-term benefits of this halt will be.
When did it become okay to go to the government bailout line the minute business got bad? In the past, make a bad business decision, pay the price, which might even mean closing doors. With modern day economics, some would lead us to believe that there are companies out there too big to fail.
Some of you still remember the internet bubble and subsequent popping of that bubble almost a decade ago. My own company closed its doors after some of our “new economy” customers lost their funding, resulting in non-payment on millions of dollars already spent on web development. We paid our employees and vendors the old fashioned way – we sold assets, clients, and took second jobs to make sure that we paid every dime owed. Ultimately, we closed our doors, but not one vendor was left without payment or a guarantee of payment. That’s how business used to be done. It never once occurred to us to ask the government to bail us out of our problems, and I don’t remember any other company getting a bailout either.