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Tuesday, March 31, 2009

Bankruptcy Not Bailout

The bailouts, whether for the banks or Wall Street is nothing more than throwing good money after bad... tax payer's money to boot.

If a company is running with a plan that continues to fail, slight adjustments to be able to receive a government bailout is not going to address the root problem and turn the businesses around, so throwing more tax payer money after bad will do nothing but postpone the eventual failure.

While it may sound cold and unfeeling, the facts are the facts.

We are capitalists and that comes with risk. If a business is started and fails, they file for bankruptcy and/or close their doors. If they succeed, they stay in business.

Deciding which private companies deserve to be bailed out and which ones don't, is not the job of the government unless you have a socialist government.

This is the basic concept of why so many Americans are against the bailouts that Washington has been writing checks for, using hundreds of billion of dollars of tax payer money.

Yesterday word went out about Obama's "plans" for the auto industry, once again sticking his nose into privately owned businesses and today we see that the new General Motors CEO is saying that when the options are Obama's plan and bankruptcy, bankruptcy wins out as the better option.

Yes, it does, it did the whole time.

General Motors's new chief executive told CNBC that filing for Bankruptcy may be the best option for the struggling automaker.

In a taped interview to be aired tonight on NBC Nightly News, Fritz Henderson said that because of greater demands from the Obama administration to restructure, GM [GM 2.50 -0.20 (-7.41%) ] is considering the bankruptcy option. The auto giant previously had ruled out such a move, saying it would discourage people from buying GM cars.

Henderson's comments came after President Obama bluntly rejected turnaround plans by GM and Chrysler and demanded that both companies make fresh concessions in order to get more federal aid.

Obama rejected their plans, but still doesn't "get" what capitalism is about, so he offered up his own plans.... as NYT op-ed piece titles their article "Car Dealer in Chief," shows.

The Bush advisers decided in December that bankruptcy without preparation would be a disaster. They decided what all administrations decide — that the best time for a bankruptcy filing is a few months from now, and it always will be. In the meantime, restructuring would continue, federally subsidized.

Today, G.M. and Chrysler have once again come up with restructuring plans. By an amazing coincidence, the plans are again insufficient. In an extremely precedented move, the Obama administration has decided that the best time for possible bankruptcy is — a few months from now. The restructuring will continue.

But this, President Obama declares, is G.M.’s last chance. Honestly. Really.

No kidding.

Could this really be true? Could the Harvard Business Review’s longest-running soap opera possibly be coming to an end? Could President Obama really scare the restructural recidivists in Detroit into coming up with changes big enough to do the job?

Well, the president certainly acted tough on Monday. In a show of force, he released plans from his Office of People Who Are Much Smarter Than You Are. These plans insert the government into the car business in all sorts of ways. They pick winners (new C.E.O. Fritz Henderson) and losers (Rick Wagoner). They basically send Chrysler off into the sunset. Joe Biden will be doing car commercials within weeks.

The Obama team also raised the bankruptcy specter more explicitly than ever before. Even more tellingly, the administration moved to “stand behind” the companies’ service warranties. That lays the groundwork for a bankruptcy procedure and should be a sharp shock to Detroit.

And yet by enmeshing the White House so deeply into G.M., Obama has increased the odds that March’s menacing threat will lead to June’s wobbly wiggle-out. The Obama administration and the Democratic Party are now completely implicated in the coming G.M. wreck. Over the next few months, the White House will be subject to a gigantic lobbying barrage. The Midwestern delegations, swing states all, will pull out all the stops to prevent plant foreclosures. Unions will be furious if the Obama-run company rips up the union contract. Is the White House ready for the headline “Obama to Middle America: Drop Dead”? It would take a party with a political death wish to see this through.

Furthermore, there’s no reason to think the umpteenth restructuring will produce compelling results. Cost control without a quality revolution will make little difference. There’s no reason to think Americans are going to flock to G.M. cars. (The president lauded their fantabulousness, but G.M. sales fell 51 percent during the first two months of this year while the overall market declined by 39 percent.) Politically expedient environmental demands will make the odds of profitability even more remote.

Corporate welfare rarely works when the government invests in rising firms. The odds are really grim when it tries to subsidize fading ones. (In the ’80s, Chrysler already had the successful K-car in the pipeline.)

I will repeat what I have said on this blog before... the government has no place involving itself in private businesses that are going down... I don't care if it was the Bush administration doing it or the Obama administration.

It.Should. Not. Be. Done.

From The Hill:

Michigan’s senior Democratic senator, Carl Levin, said Obama didn’t ask for advice when he told lawmakers of the move in a Sunday call from the Oval Office to force GM CEO Rick Wagoner to resign, which caught Washington and Detroit by surprise. “He didn’t ask us about it, he informed us,” Levin said.

Some Republicans criticized what they saw as an unprecedented intervention into private industry by the government, while others praised the president’s move as a necessary pain to force the companies to find ways to become viable.

Most Democrats rallied around Obama’s rejection of restructuring plans by General Motors and Chrysler, but several were unhappy with the decision to ask Wagoner to resign.

The announcement sent the stock market reeling. The Dow Jones Industrial closed more than 250 points down, and shares of GM dropped 25 percent.

Sen. Bob Corker (R-Tenn.) offered the toughest criticism of the president’s plans, which would force Chrysler to merge with a foreign suitor to gain more funds and would call on unions, dealers and bondholders connected to GM to make additional sacrifices for more aid.

He said the administration’s plan would lean heavily on using the bankruptcy code to close specific auto plants determined not to be viable. He said this would give the administration too much authority to determine which plants survive.

“This obviously rang an alarm bell with me,” Corker told reporters on a conference call Monday. He said his understanding, based on a briefing by Steven Rattner, a member of Obama’s auto task force, is that the administration will use the threat of the bankruptcy code to force GM to close plants that the administration judges should no longer be in operation.

In a statement, Corker said the “sweeping new powers” could allow the administration to select favored plants based on kowtowing by members of Congress “trying to curry favor with the administration to keep plants in their states open.” He added that it would be “interesting to see if the administration makes these decisions based on a red state and blue state strategy” or on the capability of individual plants and their workers.

The White House disputed any characterization of a federal takeover, and White House press secretary Robert Gibbs said it’s “not fair” to say the federal government is running the companies.
“I think you’ve seen — if you want to talk specifically about management changes, this is not the first entity ... that’s received extensive assistance that has seen a change in management or a composition structure of their board of directors,” Gibbs said.

The White House also pushed back hard against suggestions from Michigan and the left that it is treating automakers and Wall Street banks with a double standard.

So, the auto makers produced a plan, one that won't address the root problem, were surprised by Obama's reaction to said plan, then Obama counters with a plan of his own that STILL doesn't address the root problem and auto makers dislike his plan and some thing bankruptcy is a better option.

Yes, bankruptcy, go for it, that should have been the only option on the table to begin with. We must stop throwing good money after bad on companies that do not have a chance to grow.

Just to be clear on the amounts spent on these bailouts, Bloomberg shows us that the "Financial Rescue Approaches GDP as U.S. Pledges $12.8 Trillion."

Nuff said?