Category Archives: BadIdea

The GM/Ford/Chrysler Bailout

The Senate is discussing a $25 billion or so bailout for the 3 three automakers. Like the $700 billion bailout to financial companies, and the $300 billion or so for AIG, Freddie, and Fanny, this bailout rewards reckless management.

Senator Feinstein of California believes a loan should not be made unless the industry agrees to produce more competitive, fuel efficient cars. However, the American auto industry has had years to compete with the Japanese on reliability and fuel efficiency and with the Germans on performance and they have failed miserably. Their short sighted management refused to deal with the increase in the price of oil. Instead they continued to produce gas hogs for short term profit. Management has made unsustainable agreements with unions that has added to the their inability to compete. Management has chosen to produce cars that are far less reliable than their Japanese counterparts. They refused to innovate in the hybrid electric market until the Prius was flying off of Toyota’s lots. Loaning these completely ineffective companies money doesn’t change the fundamentals a stitch and simply postpones the inevitable.

I also don’t believe that a symbolic replacement of management will be able to transform the auto industry’s culture of mediocrity – although it will help the politicians look like they’re playing hard ball, even though the move is unlikely to have any real impact.

The best thing for the industry is bankruptcy. Yes, the shareholders and management will lose their entire investments, lenders will lose some of their investment, and union contract will be renegotiated (probably a net loss for union workers). However, this is the best option for restructuring the American auto industry. It doesn’t use tax payer money to pay for it (assuming congress doesn’t make some asinine move like bailout the UAW pension plan). It is the most sustainable long term for making America globally competitive and keeping manufacturing jobs here.

Senate Passed Bailout Bill

You probably saw the news today that the Senate passed their version of the bailout bill. It was expected to pass and did so by a wide margin – 74 to 25. It also appears that many members of the house are changing their mind since they had many constituents call in Monday and Tuesday after the vote and following stock market tumble. Come on people! Do not be so short sighted. A single day in the stock market means nothing. Committing $700 billion to a financial rescue package is going to have serious consequences: increased government power, allowing the financial institutions that behaved so badly to continue, and increasing our deficit – the money has to come from somewhere and you know how much government hates trimming their wasteful programs.

The Bush administration has used fear and little evidence to scare congress and the citizens into an expensive project with no exit plan. Sound familiar?

We need to keep the pressure on the house. They are the only thing standing in the way of this bill turning into law. Let’s take care of our current problems today instead of having our grandchildren pay for them down the road. Let’s keep government power in check. Call your congressperson and give them a piece of your mind!

House Rejects Bailout – Expect More of the Same

The house rejected the first bailout bill. I don’t expect the powers that be to accept that result. They most certainly will continue to try to get this horrible misappropriation of taxpayer money passed no matter what. We’ve got to keep on them.

I also read an excellent opinion piece on CNN written by Jeffrey A. Miron. In it, Mr. Miron explains the benefits of allowing the failed financial institutions to fall into bankruptcy. He also touches on the problems the government is already causing the market – by keeping the market in limbo while it waits for a bailout it shouldn’t get.

The Senate is supposed to vote on a new bailout package Wednesday. I encourage you to call your Senators and let them know you oppose the bailout. I’d also include a link to the CNN article above to help them get some perspective. I also encourage you to call your congressperson and let them know you still oppose the bailout. Apparently, ordinary citizens have been calling to complain about the bailout not passing after their stocks tanked on Monday – I guess they think it’s okay for the government to prop up their investments just not the investments of large financial institutions. Let me be clear: there is no good bailout! Bailing out individuals will hurt us in the long run and bailing out large financial institutions will hurt us in the long run.

I Oppose the Emergency Economic Stabilization Act of 2008

Here is a letter I’ve sent to my congresswoman and both my senators. I encourage you to do the same. Feel free to take this and use it as your own.

Dear Senator/Congressman/Congresswoman,

I STRONGLY oppose the Emergency Economic Stabilization Act of 2008. Please vote against this bill. This plan puts too much power in the hands of the executive branch, puts 700 billion taxpayer dollars at risk, encourages unbridled risk taking in the future by financial institutions, and will not help me out a stitch. Sure, my 401(k) and stocks are going to be severely beat down over the next several years as we go through a recession but I don’t care. The stock market does that sometimes and I can handle it. Credit will be available, but it will probably cost more, which is good – look where cheap credit has got us! And yes, home prices will continue to fall – and so they should! They are still way too high. Where I live most first time homebuyers cannot afford even a 2 bedroom condo – even with two incomes.

There is no good reason you should support this. You are being rolled by the administration. Not that I think they are being malicious, just that they are blowing the problem completely out of proportion.

Let me reiterate how strongly I feel about this issue. In the long term, this plan is bad for working class Americans. It is bad for me and my family. If you vote to pass this bill, I will hold you accountable at the polls and do everything in my power to convince everyone I know to do the same.

Thank you.

My Congresswoman, Anna Eshoo, on the Bailout

This morning I received an e-mail update on the recovery package from my congresswoman, Anna Eshoo. In it she writes:

Each of us is outraged about the circumstances that have brought our financial system to near collapse. In my view, the Administration has practiced “cowboy capitalism”, saying the markets must be allowed to run free, but they instead let Wall Street run wild without accountability, without transparency and without enforcement or regulations to protect the American taxpayer.

First, she claims we are all outraged about the circumstances that led up to this without naming specifics that we probably would disagree on. Without government created institutions like Fannie and Freddie that artificially encouraged home ownership, the current problem would have been less significant. Without government subsidies to home owners that renters don’t get (i.e. mortgage interest is tax deductible but rent is not) home prices would not have inflated as high as they did – and thus the total cost of the problem would be less. Congresswoman Eshoo, on the other hand, seems to view “cowboy capitalism” as the source of the problem and tries to wash her hands of the problem even though she’s been in office since 1993. Take some responsibility yourself, congresswoman.

She goes on to say the current administration let companies run free with no accountability. Give me a break. How about letting them fail? There’s some market based accountability for you. You, Congresswoman Eshoo, are removing the ultimate accountability by endorsing the rescue package.

Towards the end of her letter, congresswoman Eschoo enumerates elements she’s hopeful the legislation will include, the final point is:

Protection of School District and City/County Investments

Assist school districts, cities and counties who had investments in failed institutions.

Why should school districts and local governments who made bad investments be bailed out? This is so typical of big government arbitrarily picking the winners (in this case government investors) and losers (private investors) based on their personal biases of what is good and what is bad. This kind of federal government hand holding of local governments only encourages the behavior of local governments continuing to invest without considering the catastrophic case (i.e. large reduction in home prices). She is also pandering to fearful parents. Everyone wants their kids to have a good education, so her suggestion is to give the schools with the worst financial management the most money. Great idea.

In acknowledgement of reality (i.e. congress is going to pass this bill regardless of the public’s opposition), congress could make it a lot better than it is. They are trying to pass this thing way too fast. Mark Cuban wrote a good post with some ideas for making it more effective. If congress is going to turn this bad idea into reality, they should seriously consider some of his suggestions.

AIG Bailout

CNN is reporting on the government bailout of AIG.

What is going on? I feel like I’m living in a Twilight Zone episode where America is a socialist country. What happened to the “private” in private companies? Maybe the Fed and Treasury are confused and believe a publicly traded company means it’s really owned by the government.

The media continues to justify the government’s actions as necessary to prevent a major financial crisis, though in my estimation it is better in the long term to let AIG default on their loans because a major default like this would:

  • Put more pressure for lenders and investors to provide better oversight of the companies they invest in (at least until they forget about this crisis when the next bubble comes along)
  • Limit direct losses and risk to investors and lenders in AIG rather than spreading it out over all taxpayers
  • Stop the current trend of big government bail outs of large corporations (e.g. Freddie Mac, Fannie Mae, Bear Stearns), which will only desensitize the public and establish precedence – both which may make it more common in the future.

More importantly, the government sucks at running pretty much anything besides the military (and even they are infamously wasteful). I don’t see how it is the government’s and our responsibility as taxpayers to prop up large corporations – even if their failures will have effects on the broader economy. Recessions are normal market corrections that need to happen. A lot of companies dug themselves really deep holes and now the market needs a serious correction. The government bailing out a few of the big dogs doesn’t change the fundamentals but rather postpones the inevitable and spreads the losses over all taxpayers. I think welfare programs stink, but this is especially disgusting. For all the clamoring that Republicans did in the 90s to reform welfare with the support of President Clinton (which made welfare better than it was), this is far worse. The $285 billion (estimated for Freddie, Fannie, and AIG) is like loaning 10 million American’s with bad credit $28,500 each to keep them out of foreclosure. We’d rightly be pissed out of our freaking minds if that happened and so we should in this case as well.

I also cannot help pointing out how one sided CNN is. There is no mention of the negative consequences of the government taking ownership of AIG and becoming responsible for their debt, only of how it will help stabilize the world markets. That is first class, one sided reporting. I applaud you CNN for your journalistic integrity. Why should U.S. taxpayers be responsible for saving world markets?

There is a lot of turbulence in the markets – and for good reason. A lot of companies are built on a house of cards and the effects of their bad management and people who invest in these badly managed companies should be allowed to ripple through the market. Why should the government and U.S. taxpayers give a rats ass if world stock markets are down for the next 5-10 years. Why should U.S. taxpayers who don’t even invest in the stock market have their money used to artificially prop it up?

The only thing good that happened is that – just prior to the bailout – AIG stole… er, raised… $20 billion in private money before the government took over, so that should offset tax payer risk somewhat.

I haven’t seen Obama’s or McCain’s opinion on the AIG takeover, but I doubt they are going to say it was a bad idea, based on their general agreement with the Fannie and Freddie takeovers. The Senate and House appear to have the same mob mentality that was rampant on wall street with the housing market (must bail out, must bail out, no other options, must bail out). 534 Manchurian candidates (-1 for Ron Paul).

Fortunately, there is another.