Banking Industry vs. Auto Industry
11-13-2008, 11:33 PM
#1
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Join Date: Apr 2001
Location: USA
Posts: 3,698
Banking Industry vs. Auto Industry
So....I have been thinking alot the GM thing.
One thing that amazes me is the hypocrisy in saying that GM should be allowed to fail because it has management stuck in the 60's and they need to build better cars. Then on the other hand we can give a $700 billion bail out specifically to banks...because it is essential to the nation.
Couple things to think about...
First off, if you want to talk mismanagement...lets talk about the banks. We beat on GM...but when you look deep into some of the stuff the banks did to get themselves in the hole...it is simply appalling. The problem is..it is easy for people without the proper knowlege of the situation to say "Well GM needs to make better cars..thats their problem" while shaking their head like they have a clue. On the reverse...most average people can't begin to wrap their brains around the assets and investment vehicles that sent the banking industry into chaos. Alt A loans, irresponsible lending, Mortgage Backed Securities, and so forth...all things that the banking industry abused that the average arm chair QB does not understand. If GM is guilty of anything...it is that they have been too generous with their workers, and too slow to reduce capacity...hardly civic crimes. However the banks can loose BILLIONS of dollars in irresponsible loans and investments...and while people are mad...you don't see a 10th the fist pounding rhetoric over it that discussion of a auto bailout generates. We gave AIG $150 billion dollars...and were basically told we "have to or the financial system will collapse". The funny thing is..most people don't have the slightest clue why we had to give AIG the money.
You want to see mismanagement..here is a great article to explain it-
http://www.fool.com/investing/genera...han-enron.aspx
The only notable string AIG has gotten attached so far is controls on executive compensation. While there will likely be government oversight on the board..AIG would be more conservative moving forward either way.
On the other hand..if GM accepts government money it will come with so many strings attached, GM might as well be a puppet. It is obvious that if GM takes the money, they government will put oversight on their boards as a vehicle to force through a new product lineup with 100% focus on fuel economy and emssisons. While these are things GM needs to/already is working to address...they also need to be able to have the flexibility to build what the market demands or the bailout is for naught. It would be like the government bailing out a bank, and then saying that the vast majority of their mortgages now have to go only to people buying small, modest, efficient houses. It is manipulation of the markets..which is not what is needed. What GM needs is access to cash to fix the legacy issue once and for all, and allow them to build cars with a competitive cost structure. They also need the money to right size in the correct manner..and not have the legacy costs come back to bite them. People forget..everytime GM lays off workers, that just makes the legacy issue larger. You will never have success when you have 100,000 workers paying for 300,000 retirees. Simple math really.
Also..people want to beat up GM for not having a plan. Well the government gave the banks all this money...and then had to go back and say "Hey guys we gave you money...you need to start lending again". Otherwise banker were just going to horde the money to make their balance sheets look better. Again..while I agree a plan is needed…you also need to treat everyone the same…and GM by no means is asking for near $700 billion..so I don’t see the big fuss.
While I 110% agree the banking bailout was needed…I see it as impossible to make a logical argument that it is okay to bail out the banks..but not an industry that supports 1 in 10 jobs in the US.
One thing that amazes me is the hypocrisy in saying that GM should be allowed to fail because it has management stuck in the 60's and they need to build better cars. Then on the other hand we can give a $700 billion bail out specifically to banks...because it is essential to the nation.
Couple things to think about...
First off, if you want to talk mismanagement...lets talk about the banks. We beat on GM...but when you look deep into some of the stuff the banks did to get themselves in the hole...it is simply appalling. The problem is..it is easy for people without the proper knowlege of the situation to say "Well GM needs to make better cars..thats their problem" while shaking their head like they have a clue. On the reverse...most average people can't begin to wrap their brains around the assets and investment vehicles that sent the banking industry into chaos. Alt A loans, irresponsible lending, Mortgage Backed Securities, and so forth...all things that the banking industry abused that the average arm chair QB does not understand. If GM is guilty of anything...it is that they have been too generous with their workers, and too slow to reduce capacity...hardly civic crimes. However the banks can loose BILLIONS of dollars in irresponsible loans and investments...and while people are mad...you don't see a 10th the fist pounding rhetoric over it that discussion of a auto bailout generates. We gave AIG $150 billion dollars...and were basically told we "have to or the financial system will collapse". The funny thing is..most people don't have the slightest clue why we had to give AIG the money.
You want to see mismanagement..here is a great article to explain it-
http://www.fool.com/investing/genera...han-enron.aspx
But here's a news flash, AIG: You don't know money.
If you did, you'd have realized a few things. Insurance is terribly simple, as long as you follow the Three Rules:
Price your risk correctly.
Invest conservatively so you can pay out claims when they come due.
Don't do anything else.
Sit back and collect the spread. That's it, folks.
Seriously, that is it. Ask Warren Buffett, and he'll probably tell you that if you follow those three rules, you'll be fine. You won't be the biggest or fastest grower, but you'll be absolutely fine.
The problems come when you get greedy and aren't satisfied with the spread. And your greed can lead to certain actions that aren't stated anywhere in the rules, including:
Diversifying into fast-money proprietary trading.
Leveraging your company 11-to-1.
Neither of these is a goal of a well-run insurance company, yet AIG embraced both with open arms.
Diworsifying
But AIG self-destructed not because it screwed up in its insurance business. It didn't fall into the trap of mispricing risk, as so many other insurers over the years have done. It also invested premiums fairly conservatively. So it followed Rules 1 and 2.
Where it slipped up was in Rule 3. See, the folks at AIG thought they were so smart at insurance that they could start other capital-markets businesses ... including proprietary asset management in things such as commodities, currencies, energy, interest rates, and the selling of default swaps on collateralized debt obligations (CDOs).
This strategy worked beautifully -- for a while. AIG created a separate business segment called Financial Services to trade in the aforementioned assets. This business had $204 billion in assets at year-end 2007, up from $60 billion in 1998.
Operating income surged from $900 million in 1998 to $4.4 billion in 2005. Some of the moves it made were brilliant, such as the purchase of ILFC, an aircraft-leasing business. But the other trading businesses were the Medusa that turned the whole company to stone.
Let me make one thing clear: Proprietary trading isn't bad, in and of itself. Warren Buffett engages in it. But just like atomic weapons in the wrong hands, proprietary trading can do a lot of damage. The problem is when you start to get aggressive and don't heed proper risk -- when you start to speculate instead of invest.
And there's one other critical ingredient for disaster.
The "L" word
As in "leverage," the sharp knife in corporate seppuku dramas. Leverage is, by my estimation, the No. 1 reason why companies fail.
And compared with its peers, AIG had one of the sharpest knives around. Here's how its leverage (assets to equity) stacked up against other insurance operations as of December 2007:
AIG: 11 to 1.
Markel (NYSE: MKL): 4 to 1.
Berkshire Hathaway (NYSE: BRK-B): 2 to 1.
Montpelier Re (NYSE: MRH): 2 to 1.
Travelers (NYSE: TRV): 4 to 1.
White Mountains Insurance (NYSE: WTM): 4 to 1.
Chubb (NYSE: CB): 4 to 1.
I would love it if someone gave me a rational, believable explanation of why leveraging your equity 11-to-1 is a good thing for an insurer. The sole job of an insurance CEO is to ensure that his or her company stays in business; the CEO's job has nothing -- absolutely nothing -- to do with growing profits every year in a steady, smooth line.
Surprises in insurance are almost always negative, so simply staying solvent is the overriding priority. A company can do just that by following the Three Rules.
Two years ago, a few of my Fool colleagues had an interesting conversation with Chris Harris, the chief investment officer at reinsurer Montpelier Re. Harris noted that Montpelier invested its float primarily in U.S. Treasuries, Fannie and Freddie bonds (back when they were considered safe), and the like.
When asked why he didn't invest more aggressively, Harris said the company believed that it got all the risk it could handle on the other side of the fence, insuring against megacatastrophes.
Even if you disagree, as an investor you have to recognize the judiciousness in this way of managing one's business. An insurer that has to pay big claims from hurricanes Ike and Gustav and Typhoon Sinlaku -- and additionally worry about the rapid decline in its investment portfolio as a result of the higher level of risks it has taken on -- has a big problem.
That insurer, folks, is AIG. And that big problem is now yours and mine.
This really is bigger than Enron
The edifice Hank Greenberg built has all come crashing down. Apparently, AIG didn't realize that almost 40 years of 15% growth multiplied by a big fat zero equals just that: zero. It didn't consider that its leverage left it exposed to a liquidity crisis, and it didn't consider that its non-insurance businesses could bring down the whole company.
In all fairness, management did not realize how much exposure it had to CDOs backed by subprime loans. This may or may not be true, but Buffett has famously stated that each one of these prospectuses has something like 15,000 pages, so it's unlikely they were gone through in any great detail.
But investing in things you don't know is a huge risk, right? And that risk was compounded by having so much leverage. The fact is, the more leverage you have, the more careful you must be with the investments you hold, because your own capital structure is that much riskier.
AIG did nothing of the sort. And so even though it has a rock-solid, wonderful insurance franchise, its greed and lack of care in its investing decisions took down one of the world's great companies.
What a shame. What a shame for all of the investors who lost billions thinking that this company was conservative. What a shame for taxpayers like you and me. What a shame for the United States' reputation as a beacon of financial stability and conservatism.
If you did, you'd have realized a few things. Insurance is terribly simple, as long as you follow the Three Rules:
Price your risk correctly.
Invest conservatively so you can pay out claims when they come due.
Don't do anything else.
Sit back and collect the spread. That's it, folks.
Seriously, that is it. Ask Warren Buffett, and he'll probably tell you that if you follow those three rules, you'll be fine. You won't be the biggest or fastest grower, but you'll be absolutely fine.
The problems come when you get greedy and aren't satisfied with the spread. And your greed can lead to certain actions that aren't stated anywhere in the rules, including:
Diversifying into fast-money proprietary trading.
Leveraging your company 11-to-1.
Neither of these is a goal of a well-run insurance company, yet AIG embraced both with open arms.
Diworsifying
But AIG self-destructed not because it screwed up in its insurance business. It didn't fall into the trap of mispricing risk, as so many other insurers over the years have done. It also invested premiums fairly conservatively. So it followed Rules 1 and 2.
Where it slipped up was in Rule 3. See, the folks at AIG thought they were so smart at insurance that they could start other capital-markets businesses ... including proprietary asset management in things such as commodities, currencies, energy, interest rates, and the selling of default swaps on collateralized debt obligations (CDOs).
This strategy worked beautifully -- for a while. AIG created a separate business segment called Financial Services to trade in the aforementioned assets. This business had $204 billion in assets at year-end 2007, up from $60 billion in 1998.
Operating income surged from $900 million in 1998 to $4.4 billion in 2005. Some of the moves it made were brilliant, such as the purchase of ILFC, an aircraft-leasing business. But the other trading businesses were the Medusa that turned the whole company to stone.
Let me make one thing clear: Proprietary trading isn't bad, in and of itself. Warren Buffett engages in it. But just like atomic weapons in the wrong hands, proprietary trading can do a lot of damage. The problem is when you start to get aggressive and don't heed proper risk -- when you start to speculate instead of invest.
And there's one other critical ingredient for disaster.
The "L" word
As in "leverage," the sharp knife in corporate seppuku dramas. Leverage is, by my estimation, the No. 1 reason why companies fail.
And compared with its peers, AIG had one of the sharpest knives around. Here's how its leverage (assets to equity) stacked up against other insurance operations as of December 2007:
AIG: 11 to 1.
Markel (NYSE: MKL): 4 to 1.
Berkshire Hathaway (NYSE: BRK-B): 2 to 1.
Montpelier Re (NYSE: MRH): 2 to 1.
Travelers (NYSE: TRV): 4 to 1.
White Mountains Insurance (NYSE: WTM): 4 to 1.
Chubb (NYSE: CB): 4 to 1.
I would love it if someone gave me a rational, believable explanation of why leveraging your equity 11-to-1 is a good thing for an insurer. The sole job of an insurance CEO is to ensure that his or her company stays in business; the CEO's job has nothing -- absolutely nothing -- to do with growing profits every year in a steady, smooth line.
Surprises in insurance are almost always negative, so simply staying solvent is the overriding priority. A company can do just that by following the Three Rules.
Two years ago, a few of my Fool colleagues had an interesting conversation with Chris Harris, the chief investment officer at reinsurer Montpelier Re. Harris noted that Montpelier invested its float primarily in U.S. Treasuries, Fannie and Freddie bonds (back when they were considered safe), and the like.
When asked why he didn't invest more aggressively, Harris said the company believed that it got all the risk it could handle on the other side of the fence, insuring against megacatastrophes.
Even if you disagree, as an investor you have to recognize the judiciousness in this way of managing one's business. An insurer that has to pay big claims from hurricanes Ike and Gustav and Typhoon Sinlaku -- and additionally worry about the rapid decline in its investment portfolio as a result of the higher level of risks it has taken on -- has a big problem.
That insurer, folks, is AIG. And that big problem is now yours and mine.
This really is bigger than Enron
The edifice Hank Greenberg built has all come crashing down. Apparently, AIG didn't realize that almost 40 years of 15% growth multiplied by a big fat zero equals just that: zero. It didn't consider that its leverage left it exposed to a liquidity crisis, and it didn't consider that its non-insurance businesses could bring down the whole company.
In all fairness, management did not realize how much exposure it had to CDOs backed by subprime loans. This may or may not be true, but Buffett has famously stated that each one of these prospectuses has something like 15,000 pages, so it's unlikely they were gone through in any great detail.
But investing in things you don't know is a huge risk, right? And that risk was compounded by having so much leverage. The fact is, the more leverage you have, the more careful you must be with the investments you hold, because your own capital structure is that much riskier.
AIG did nothing of the sort. And so even though it has a rock-solid, wonderful insurance franchise, its greed and lack of care in its investing decisions took down one of the world's great companies.
What a shame. What a shame for all of the investors who lost billions thinking that this company was conservative. What a shame for taxpayers like you and me. What a shame for the United States' reputation as a beacon of financial stability and conservatism.
The only notable string AIG has gotten attached so far is controls on executive compensation. While there will likely be government oversight on the board..AIG would be more conservative moving forward either way.
On the other hand..if GM accepts government money it will come with so many strings attached, GM might as well be a puppet. It is obvious that if GM takes the money, they government will put oversight on their boards as a vehicle to force through a new product lineup with 100% focus on fuel economy and emssisons. While these are things GM needs to/already is working to address...they also need to be able to have the flexibility to build what the market demands or the bailout is for naught. It would be like the government bailing out a bank, and then saying that the vast majority of their mortgages now have to go only to people buying small, modest, efficient houses. It is manipulation of the markets..which is not what is needed. What GM needs is access to cash to fix the legacy issue once and for all, and allow them to build cars with a competitive cost structure. They also need the money to right size in the correct manner..and not have the legacy costs come back to bite them. People forget..everytime GM lays off workers, that just makes the legacy issue larger. You will never have success when you have 100,000 workers paying for 300,000 retirees. Simple math really.
Also..people want to beat up GM for not having a plan. Well the government gave the banks all this money...and then had to go back and say "Hey guys we gave you money...you need to start lending again". Otherwise banker were just going to horde the money to make their balance sheets look better. Again..while I agree a plan is needed…you also need to treat everyone the same…and GM by no means is asking for near $700 billion..so I don’t see the big fuss.
While I 110% agree the banking bailout was needed…I see it as impossible to make a logical argument that it is okay to bail out the banks..but not an industry that supports 1 in 10 jobs in the US.
Last edited by formula79; 11-14-2008 at 01:15 AM.
11-14-2008, 12:18 AM
#2
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Join Date: Jun 2000
Location: SoCal
Posts: 3,463
IMO the banks and financial institutions are far worse for miss-management. They took a lot larger gambles with many more people’s money than GM ever did. We know all the problems that have plagued GM over the years but the financial industry can look no further than greed for their problems and they were given a lot larger bailout much quicker.
To me Pandora's Box is already open and since this country voted for and in sweeping fashion Obama and Democrats that says that people want bailouts because that was well spoke about issue on the campaign trail.
The problem with our thriving economy for decades is that many corporations did get too large to fail because they have interwoven themselves into far reaching areas of our infrastructure.
I look at the big 3 bailout and while I'm not for gov't intervention in the first place the consequences of doing nothing and letting them fail are too great. Besides that decision was already made for the financial/insurance sector and I see the auto buyout far less costly overall. That is unless they are allowed to fail then the cost will rise exponentially.
If the goal was to avoid a deep recession/depression then helping the auto makes should be part of that plan.
I think a less exposed issue here is that many people either don't like the Domestic auto companies or GM personally and so it's far easier to say don't help them than it is for a mortgage, bank or insurance company that could effect their homes. There is a much bigger picture but many fail to see it.
To me Pandora's Box is already open and since this country voted for and in sweeping fashion Obama and Democrats that says that people want bailouts because that was well spoke about issue on the campaign trail.
The problem with our thriving economy for decades is that many corporations did get too large to fail because they have interwoven themselves into far reaching areas of our infrastructure.
I look at the big 3 bailout and while I'm not for gov't intervention in the first place the consequences of doing nothing and letting them fail are too great. Besides that decision was already made for the financial/insurance sector and I see the auto buyout far less costly overall. That is unless they are allowed to fail then the cost will rise exponentially.
If the goal was to avoid a deep recession/depression then helping the auto makes should be part of that plan.
I think a less exposed issue here is that many people either don't like the Domestic auto companies or GM personally and so it's far easier to say don't help them than it is for a mortgage, bank or insurance company that could effect their homes. There is a much bigger picture but many fail to see it.
11-14-2008, 12:44 AM
#3
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Join Date: Mar 2005
Location: Melbourne, Australia
Posts: 3,123
It's OK for the Banking Industry to conduct business on a global scale as they can take advantage of real time changes in currencies, interest rates, trade and economic conditions in various countries.
No such flexibility exists for automakers. How the heck can automakers compete with the Asians when it comes to manufacturing cost?
That's why the free-market argument is flawed and hugely hypocritical. The free-market serves only to distribute more funds to the banks and profit-hungry institutions such as the oil companies. Meanwhile, the middleclass aids their cause and crumbles when local manufacturing collapses... like the one we're witnessing now.
No such flexibility exists for automakers. How the heck can automakers compete with the Asians when it comes to manufacturing cost?
That's why the free-market argument is flawed and hugely hypocritical. The free-market serves only to distribute more funds to the banks and profit-hungry institutions such as the oil companies. Meanwhile, the middleclass aids their cause and crumbles when local manufacturing collapses... like the one we're witnessing now.
11-14-2008, 12:49 AM
#4
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Join Date: Apr 2002
Location: All around
Posts: 2,154
Dude, great post. I hate to say "drop in the bucket" but $25 billion is just that to the $700 billion to the banks - and banks were able to get that money with no frills, bells or whistles.
But (I don't want this to become political) look who the current administration is and has been looking out for. While I agree a plan is necessary, it should be reasonable and intentional to not only right-size GM, but empower those that should be empowered. The market is demanding more fuel efficient cars - and while I think some [u]encouragement[/b] of that should come from Uncle Sam, mandating the development is like forbidding Burger King from making even Large sizes anymore knowing that they just gave up King Size due to the market. Its socialism to the extreme.
GM needs to make a plan - cause they need to survive. Or we'll all going down the tubes...
But (I don't want this to become political) look who the current administration is and has been looking out for. While I agree a plan is necessary, it should be reasonable and intentional to not only right-size GM, but empower those that should be empowered. The market is demanding more fuel efficient cars - and while I think some [u]encouragement[/b] of that should come from Uncle Sam, mandating the development is like forbidding Burger King from making even Large sizes anymore knowing that they just gave up King Size due to the market. Its socialism to the extreme.
GM needs to make a plan - cause they need to survive. Or we'll all going down the tubes...
11-14-2008, 01:55 AM
#5
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Join Date: Dec 1998
Location: Texarkana, Tx
Posts: 471
Thank you for posting about this. It seemed almost everybody in Washington couldnt get out of their own way fast enough to vote for the bailout bill of the Bank/Insurance industry. Everybody had their hand in the cookie jar and nobody wanted to get caught.
$700B for the banks got pushed through so fast there wasnt even really time for discussion. The auto industry wants $50B in loans and all of a sudden its a major problem. I also have a problem with the way the administration is playing politics with this, saying, well we might give the auto industry bailout funds, but only if we can pass this Colombia free trade agreement. WTF does free trade with Colombia have to do with the health of the auto industry.
$700B for the banks got pushed through so fast there wasnt even really time for discussion. The auto industry wants $50B in loans and all of a sudden its a major problem. I also have a problem with the way the administration is playing politics with this, saying, well we might give the auto industry bailout funds, but only if we can pass this Colombia free trade agreement. WTF does free trade with Colombia have to do with the health of the auto industry.
11-14-2008, 07:00 AM
#7
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Join Date: Mar 2001
Location: Shelton, WA
Posts: 954
$700B for the banks got pushed through so fast there wasnt even really time for discussion. The auto industry wants $50B in loans and all of a sudden its a major problem. I also have a problem with the way the administration is playing politics with this, saying, well we might give the auto industry bailout funds, but only if we can pass this Colombia free trade agreement. WTF does free trade with Colombia have to do with the health of the auto industry.
Over 80% of the public were against any kind of bailouts/loans from day one. Did our representatives listen? Uh, how about no?
Now the bailout/loan precedent has been set. First, the financial/banking industry, now the auto industry. Are there any bets on who gets bailed out next? When does this end?
It's been said here before and I'll say it again. You can't borrow your way out of debt. It just doesn't work. We can't continue to put all this "Bovine Scatology" on our collective tab, because at some point, someone (the middle class taxpayer - if there's a middle class left after this) is going to have to pay for this. These continuing bailouts/loans/whathaveyou is just going to ensure the prolonged recession/depression of this country's economy.
!Bailout
11-14-2008, 07:08 AM
#8
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Join Date: Jan 2000
Location: Albany, NY
Posts: 10,287
Banking = intangible
Auto manufacturing = tangible
If AIG failed other insurance companies would have came in and filled the vacuum in days if not hours. If the big 3 go under we will be feeling it for a decade or more.
Auto manufacturing = tangible
If AIG failed other insurance companies would have came in and filled the vacuum in days if not hours. If the big 3 go under we will be feeling it for a decade or more.
11-14-2008, 09:22 AM
#9
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Join Date: Oct 2000
Location: Toronto, ON Canada
Posts: 2,402
The answer to why can't the automakers secure a loan for their survival is a very simple one. They are not banks.
I think we all underestimate the power of the banking industry. Specifically (and in short), it has insured itself with bailouts. The banking industry thrives on collecting interest, and the more it lends, the higher the loans, the better it is for the bank. When loans cannot be repaid, it collects the money from the government in the form of bailout. It claims that all hell will break loose, hundreds of thousands of jobs will be lost UNLESS it gets the government to help with the bailout.
Of course, the government agrees, and the banking industry knows that the gov't will agree, and these are policies orchestrated by the banking industry way back when.
So, the gov't comes to the rescue. But where can they get the money? They owe trillions! Federal Reserve to the rescue! It prints the money, with nothing to back it up. It devalues the dollar. At the end, that money makes its way into the system and we see inflation. And in this way, we all get heavily taxed, especially since this $700 BILLION to $5 TRILLION will cause a rather steep inflation of the USD in the future.
My point is, the entire bailout and gov't assistance is tailored to the banking industry. They wield tremendous power, such power that automakers could never dream of. Witness the stupefying bailout bill, the lack of oversight, how many parts and pages are blacked out from inspection - does that make you NOT realize who introduced the bill and for what purposes? It is tailored to the bankers. Period. Their interests come first and foremost. Everything and everyone else is a distant second. It's not even about improving the economy - the bailout money will actually not be used to buy toxic loans, it will be used to buy stocks as per Paulson's latest comment.
If you can see the above and understand it, you really shouldn't be wondering why the automaker cannot secure a loan. The fact that the gov't has to debate and discuss and elaborate for so freaking long about a $25B LOAN while it passed within 1 week the bailout bill worth hundreds of billions... Well. What discussion can there be, really?
I think we all underestimate the power of the banking industry. Specifically (and in short), it has insured itself with bailouts. The banking industry thrives on collecting interest, and the more it lends, the higher the loans, the better it is for the bank. When loans cannot be repaid, it collects the money from the government in the form of bailout. It claims that all hell will break loose, hundreds of thousands of jobs will be lost UNLESS it gets the government to help with the bailout.
Of course, the government agrees, and the banking industry knows that the gov't will agree, and these are policies orchestrated by the banking industry way back when.
So, the gov't comes to the rescue. But where can they get the money? They owe trillions! Federal Reserve to the rescue! It prints the money, with nothing to back it up. It devalues the dollar. At the end, that money makes its way into the system and we see inflation. And in this way, we all get heavily taxed, especially since this $700 BILLION to $5 TRILLION will cause a rather steep inflation of the USD in the future.
My point is, the entire bailout and gov't assistance is tailored to the banking industry. They wield tremendous power, such power that automakers could never dream of. Witness the stupefying bailout bill, the lack of oversight, how many parts and pages are blacked out from inspection - does that make you NOT realize who introduced the bill and for what purposes? It is tailored to the bankers. Period. Their interests come first and foremost. Everything and everyone else is a distant second. It's not even about improving the economy - the bailout money will actually not be used to buy toxic loans, it will be used to buy stocks as per Paulson's latest comment.
If you can see the above and understand it, you really shouldn't be wondering why the automaker cannot secure a loan. The fact that the gov't has to debate and discuss and elaborate for so freaking long about a $25B LOAN while it passed within 1 week the bailout bill worth hundreds of billions... Well. What discussion can there be, really?
11-14-2008, 09:47 AM
#10
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Join Date: Mar 2001
Location: Shelton, WA
Posts: 954
If you can see the above and understand it, you really shouldn't be wondering why the automaker cannot secure a loan. The fact that the gov't has to debate and discuss and elaborate for so freaking long about a $25B LOAN while it passed within 1 week the bailout bill worth hundreds of billions... Well. What discussion can there be, really?
It's crazy how, in one breath, the current administration railed for this $700+ billion bailout, that if it didn't happen, the earth would cease to rotate. Now, in another breath, pertaining to the potential "bailout" of the American auto industry, the same administration is talking about letting the free market economy work. Dubya talks out of both sides of his mouth so much, it's not even funny.
11-14-2008, 09:59 AM
#11
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Join Date: Apr 2000
Location: CNY
Posts: 2,224
Cuz like some of you said, the banking industry wields TREMENDOUS power. The banking industry is what really runs this country, not the politicians.
Just watch the movie "Zeigeist" and you'll see just how intertwined the bankers are in our economy & society and how they control EVERYTHING. It's quite scary.
In addition, the repubs, conservatives, and big business types would like nothing better then to break unions. And they see this as their opportunity.
Just watch the movie "Zeigeist" and you'll see just how intertwined the bankers are in our economy & society and how they control EVERYTHING. It's quite scary.
In addition, the repubs, conservatives, and big business types would like nothing better then to break unions. And they see this as their opportunity.
11-14-2008, 10:16 AM
#12
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Join Date: Jan 2003
Location: Cleveland, OH
Posts: 176
The banking industry runs the world. It's troubles and fall are tied to alot of complex global issues. Banks don't make money the same way standard business does and because of that they operate based on credit, risk, etc. The oversteping of the banks is a different issue.
It's not comparable to the Big three with the exception that they both hurt the economy.
The financial industry can't fail as it's tied to the world economy. GM and the big three are tied to our economy in a situation where we have far too much presence in a slowing and USA centric business.
So considering the fact that the Big three can't compete and make money answers the question why they should fail but the banks be given money. It consolidates a industry past it's time and allows the market to dictate the survivors which will be the good companies like toyota, honda, nissan, mb, bmw, etc.
It's not comparable to the Big three with the exception that they both hurt the economy.
The financial industry can't fail as it's tied to the world economy. GM and the big three are tied to our economy in a situation where we have far too much presence in a slowing and USA centric business.
So considering the fact that the Big three can't compete and make money answers the question why they should fail but the banks be given money. It consolidates a industry past it's time and allows the market to dictate the survivors which will be the good companies like toyota, honda, nissan, mb, bmw, etc.
11-14-2008, 10:30 AM
#13
Registered User
Join Date: Mar 2002
Location: Rogers, MN
Posts: 198
This is just more evidence that the current administration couldn't care less about this country.
Over 80% of the public were against any kind of bailouts/loans from day one. Did our representatives listen? Uh, how about no?
Now the bailout/loan precedent has been set. First, the financial/banking industry, now the auto industry. Are there any bets on who gets bailed out next? When does this end?
It's been said here before and I'll say it again. You can't borrow your way out of debt. It just doesn't work. We can't continue to put all this "Bovine Scatology" on our collective tab, because at some point, someone (the middle class taxpayer - if there's a middle class left after this) is going to have to pay for this. These continuing bailouts/loans/whathaveyou is just going to ensure the prolonged recession/depression of this country's economy.
!Bailout
Over 80% of the public were against any kind of bailouts/loans from day one. Did our representatives listen? Uh, how about no?
Now the bailout/loan precedent has been set. First, the financial/banking industry, now the auto industry. Are there any bets on who gets bailed out next? When does this end?
It's been said here before and I'll say it again. You can't borrow your way out of debt. It just doesn't work. We can't continue to put all this "Bovine Scatology" on our collective tab, because at some point, someone (the middle class taxpayer - if there's a middle class left after this) is going to have to pay for this. These continuing bailouts/loans/whathaveyou is just going to ensure the prolonged recession/depression of this country's economy.
!Bailout
I am starting to agree with others who think the free market isn't as great as it is made out to be. I am starting to think it really isn't benefiting anyone other than third world countries who work for $0.25/hr... and the company I work for is no different. We are shipping manufacturing to Costa Rica because we can hire people for 2.25/hr, but we are currently leaving Mexico because they realized that quality of work we were getting was sub par and caused us plenty of issues. I am pretty sure this will be the same outcome from manufacturing in Costa Rica.
11-14-2008, 08:18 PM
#14
Registered User
Join Date: Dec 2005
Posts: 1,502
I agree there was an enormous amount of political cowardice here. But if you asked the average joe in 2005, the housing bubble was the greatest thing ever. And realistically what politician was going to put the brakes on that?
11-14-2008, 10:07 PM
#15
Registered User
Join Date: Sep 2005
Posts: 48
Maybe an idea nearly as old as our country could solve our problem. The last time there was no national debt was when Andrew Jackson vetoed the re-charter of the Second Bank of the United States. He thought that it concentrated the nation's financial strength in a single institution, it exposed the government to control by foreign interests, it served mainly to make the rich richer, and it exercised too much control over members of Congress. Obama's first job should be to do away with the private bank known as the Federal Reserve. There is no possible way for the United States to get out of debt when the Federal Reserve controls the manufacturing of money. The Fed asks the US Treasury for $100 billion and then loans the money out to the government or banking institution for $100 billion plus interest(I don't know the actual percentage). So how is it possible for the person receiving the loan to pay off the amount loaned to them if they owe $100B + interest and only $100B was created by the US Treasury? More money needs to pay off the accrued interest but that in turn leads to the creation of more interest. So it is an endless cycle that will eventually lead to debt slavery when the Federal Reserve calls in all of its loans. The Federal Reserve, and by association the federal income tax, need to be done a way with in order for any real, positive change to occur in our economy.