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November 19, 2008



Agreed. Not only do ppl not understand econ - they obviously can't count. Or get the concept of future outlays. Unemployed workers = social costs, ripple effects etc.

James Bowery

These top down bailouts aren't going to work. The consumer credit is maxed out.

The $2e12 loaned by the Federal Reserve is enough to fund 3 years of Charles Murray's citizen's dividend, including health care. It would instantaneously terminate the investment credit crunch.

Even the $30e9 GM bailout contemplated could buy 10% of GM's total output if injected at the consumer end -- and it would support the entire industry rather than just the operations favored by GM's less-than-trustworthy management.


My suspicion is that, to bush and his cronies, that the collapse of the Big 3 is a feature - not a bug - in that it would destroy the UAW. I don't think that people fully understand just how much the right wing despises and hates unions. Losing a significant portion of US manufacturing is (to them) a small price to pay to spite some/any unions at all.

I used to work for GM. I was a white-collar worker there, and I have no respect for the upper layers of mismanagement that was causing the problems then as well as today.

John Robb

James, it's all about not setting off economic nukes while we are at the brink of a massive change in psychology. I'd like to see a year or so more of relative normalcy so that some people can get changes in motion.

Tang, I agree. They all believe that Adam Smith was the second coming, the invisible hand is the holy ghost, and the markets are the manifestation of a capricious God. Total insanity.

John Mayson

I normally agree with Mr. Robb, but I'm going to strongly disagree with him on this.

Yes, the proposed outlay to Detroit is "chump change" in comparison to the Wall Street payout. But two wrongs do not make a right. We should never have given a dime to Wall Street. As it is AIG blew the money and no one can account for the funds already dispersed.

I don't buy the "the economy will fail" argument if we don't bailout Detroit. That's nothing more than a scare tactic. Sure, things will get uncomfortable for some people in the auto industry, but they will adapt.

And zenpundit? Don't flatter yourself by thinking anyone who opposes the bailout is stupid or doesn't understand economics. We understand economics just fine and we know the problems government intervention creates.

James Bowery

Avoiding "economic nukes" is advisable but it may be a forlorn hope when bailout money may, via blackmail from "the new IT", be going to physical nukes:




>no one can account for the funds already dispersed.

It would have been more accurate if you said "no one in the administration is willing to account for the funds already disbursed."

Congress wrote into the final (400+ page) bailout bill that there would have to be an accounting when the first $350B was spent. If you'll remember the original (3 page) bailout package granting Paulson complete and total immunity from any oversight, then you'll realize why the administration stopped giving out truckloads of money to their cronies when they got close to $350B.

GM can't get the financing to operate their existing facilities due to the frozen credit markets (which is why their short term bonds are yielding 30%). To operate in Chapter 11, they'd need about the same amount of credit that they'd need to operate without bankruptcy. Since they cannot get that financing, they'll never be able to do the "debtor in posession" financing needed to operate in Chapter 11. So the only BK that GM could go for would be Chapter 7.

Their suppliers don't have the money to float GM, and with JIT, all it takes is for one supplier to say "no" or to fold because *they* can't get short term financing to bridge the gap between GM ordering the parts, and GM paying for the goods delivered, and the whole nest of tightly coupled companies goes belly up anyway.

James Bowery

Senate Drops Automaker Bailout Bid


One hour into trading and the DJIA is recovering from an initial 1.5% drop.

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