May I suggest that there is a lot going on which you are unaware?

Your arguments are politics disguised as economics. When people engage in a contract, both parties agree to the terms of the outcome, for better or worse. It is equality under the law, and it is the same for all before the law regarding private contracts. When our government steps in and makes a judgment, base on social justice or empathy for one party over the other, it ruins the confidence of free markets for all investments and enterprises. Whether you like the parties involved or not, it’s the precedent that counts. That it involves GM or rich investors, or Klingons makes no difference. This point is not lost on investors, domestic or foreign; and for you to think of yourself as “working class” (whatever the Hell THAT means) and that you are interacting on a unique existential plain aside from everyone else is shocking nativity for someone who can spell. These same Constitutional foundations of private contracts are what keep the tenets of legitimate elections and protection of individual liberties sound as well.

One of the cornerstones of a free market and a democratic republic like ours is the creative destruction of industries and companies that no longer provide viable goods or services. Much to Stephen’s argument, GM and Chrysler are still alive today because there are risk takers in the secondary that are willing to roll the dice on long shots like American car makers. If they were not there, businesses in times of transition, economic downturn, or even economic prosperity would not be able to execute the most basic tasks such as making weekly payrolls. The risk of capital through loans fully entitles loaners to first crack at liquidation value of GM and Chrysler’s assets because they are not owners, but loaners. This is nothing new or unexpected; and certainly not unfair.

It is the same as when banks loan you and me the money to purchase our houses. If we can’t make the mortgage, it’s the bank that takes the house, not Uncle Fred who helped us build the deck. To suggest anything less betrays a deep ignorance of centuries old tested traditions of risk and return in viable banking. I would like to suggest Thomas Sowell’s “Basic Economics” as a good blue print of how free markets work to the general benefit and fairness for all.

To keep the analogy within the realm of cars, I’m reminded of Biff Tannen, when he brings back George McFly’s car, totaled:

“I can’t believe you’d *loan* me your car without telling me it had a blind spot. I could’ve been killed!”

“Now, now, Biff, now I never noticed that, uh, the car had any blind spot before when I would drive it.”

“But what are you, blind, McFly? It’s there. How else do you explain that wreck out there? “

“Now, Biff, um, can I – Can I assume that your, uh, insurance is gonna pay for the damage? “

“My insurance? It’s your car. Your insurance should pay for it. I wanna know who’s gonna pay for this. I spilled beer all over when that car smashed into me. Who’s gonna pay my cleaning bill?”

No one here is advocating sympathy for bondholders. What we are upset with is the wholesale abrogation of the rule of law here by Dear Leader’s administration. There have been rules long in place about who gets what in a bankruptcy, and with Chrysler & GM these rules are getting ignored for a pure political reason: buying union votes. That is not how a mature, stable democracy operates.

You say that “one hates to think poorly of people,” yet I think that’s exactly how you should think. Go ahead and mock me for my lack of sympathy, but please add why the bondholders deserve it. What’s happening is a process before the company goes to bankruptcy court. Various proposals are offered, sometimes taken, and sometimes refused before the parties involved risk the decisions of a court. The government holds the strong hand right now, but in the morning that could change. Still, knowing where GM stands in the balance books, it doesn’t look like the government will ever be far from a controlling party. Is that a good thing or a bad thing? I’m with those who say, “Yes.” We’ll see what tomorrow holds, probably not see any sort of resolution come from this for many months if not years, and pretty much all the parties (which includes all Americans) will be screwed. GM should go under and be liquidated, but won’t. Saving GM won’t happen in the end. Many jobs will be lost, though over a longer span of time than they would otherwise. And the whole thing is a sideshow in the long downward trajectory of our entire economy. But what do I know? I’m just an arrogant jackass who loves Democrats more than the American people. I’d mock my sympathy, too, for all the good it will do.

I’ll cop to my bias at not caring much that people who invest are getting hurt as much as workers. Part of me says it’s about damn time. I still feel sorry for them, especially since I’m a recent inductee in the Investor Class (not that I haven’t been reliant on it all my life, only now I have some part of it in my name.) But when people are losing good-paying jobs and new good jobs are not appearing at a similar rate, I have a hard time feeling optimistic in general, much less generous with my sympathy.

And this easy credit economy is deader than Studebaker. There isn’t going to be a full recovery in the car industry until financing returns. And there won’t be financing until credit eases. And credit won’t ease until jobs return. And jobs won’t return until people need things that they can pay for with cash. And people won’t have cash until their credit is paid for. And the credit getting paid for isn’t making the banks lend to people until the banks are sure things aren’t getting worse. But things are getting worse. And all the propping up of homes, banks, loans, cars, and the rest isn’t going to change that fundamental equation that says we were on a bender and now it’s headache time. The budget is too big to be called Hair of the Dog, since the goal isn’t sobriety (which is too depressing for the American people) but another lost weekend to last as many years as possible. Fewer cars are going to be sold, they’ll be far more utilitarian than you’d like, and this country isn’t going to realize just how bad things are until a few more years pass and we realize how our car companies are the least of our worries.

Did you even read the post? There are no “bondholder meetings.” Most of what you’ve written has nothing to do with what I’ve written or the situation at hand. You remain ignorant, only now willfully so. I’m sorry my efforts were so wasted.

My sympathy well is still very dry.

I think things are going to hell and will go to hell. Our entire economic health has been based on illusions of growth and easy credit to pay for it. Now we’re having a correction and the easy credit system is failing miserably (even without the government meddling.) Obama is flailing away at the problem as if it’s fixable. The Republicans are claiming their version of flailing would be better. And they’re both R-O-N-G wrong (the wrong so wrong it can’t be spelled correctly:) the old market will not come back.

It’s as if we’re concerned about the office chairs and the stock options, while the Enron security guys are asking us all to leave as quickly as possible so they too can get in line at the unemployment office before it closes. Hate to sound like a protege (I nearly said “lovechild” but retched at the thought) of Glen Beck and James Howard Kunstler, but things suck more than a few billions here and a few billions there will fix.

Yeah, yeah: it’s the principle of the thing. But the Principle Thing is that the worthless piece of cash-hemorrhaging shit that is GM is still worthless and the government would like to have its influx of billions go where it wants. If those bondholders were doing something at their meetings over the last decade other than counting their winnings, I’d have sympathy. But they’re just another in a long line of people who only saw the balance sheet. Some would say that’s their job, but I’d argue they were bad investors if that’s all they were looking at. They’ll eventually sue and get a settlement, and the Administration will just hand out some more monopoly money. So justice will prevail and we’ll all be deeper in debt without even having the fleeting moments of fun that private debt allows us.

Still, thanks for the clarifications. I’m still a hater, but I’ll stockpile some of my vitriol for the inevitable “Save California and Keep Home Prices High” government program which is sure to be a bipartisan effort to top everything that’s happened already.

Yes, it’s true that barely 50,000 people draw a paycheck directly from General Motors, but as I wrote back in January:

“…after all, we suppliers make the parts that the automakers merely assemble to make cars…”

Asserting that GM only employs 50,000 people overlooks the “ripple effect” that their bankruptcy will cause (and it’s already started).

Case in point: my former employer (they went Chapter 11 yesterday) was a supplier to Chrysler, somewhere around 10% of their business was with Chrysler. After Chrysler declared bankruptcy, two weeks ago the downsizing at my former employer began. (Yes, I was one of the “downsized”) In my division alone, 84 out of 122 people were given their walking papers: we’re talking blood on the floor and growd men crying. And, no, these people aren’t going into the UAW (Usually Ain’t Workin’, AKA: The Gettlefinger Crime Family) “jobs bank” and drawing 85% of their base pay. All we got for our troubles was two cardboard boxes and thirty minutes to clear out our desks.

Here in the Peoples’ Republic of Michigan, for every one directly employed in the Stoopid Business™, there are seven people who’s livelyhoods are dependent on the auto industry…those “barely 50,000″ now-out-of-work GM employees ripple into some 350,000 “other” job losses…

350,000 unemployed in the Rust Belt alone is a substantial down-payment on “millions unemployed” nationwide. A lot would change.

Michael

Of course, things will change by Monday. I believe several items did change between what Chrysler announced just before bankruptcy and the plan the Treasury filed on the bankruptcy date.

The bad news is, while the PBGC currently does not draw on tax revenue, its sources of income (premiums paid by defined-benefit funds, assets of seized funds, recoveries from bankrupted companies that had defined-benefit funds, and investment income) are already insufficient for its long-term liabilities. Increased failures of defined-benefit funds reduce the first three items, and Obama’s anti-investment bias crushes the fourth.

I got so involved with writing about the generalities, I totally failed to notice that particular specific. Indeed, it looks like the bondholders are getting an even worse screwing than I thought.

So… so much for the rule of law and/or the sanctity of contracts and/and/or/or the freedom of the markets. The precedents set here will come back to bite us all on the asses — very deeply, and very, very soon.

In fact, I’d argue the only thing keeping our securities markets afloat right now is that the dollar is still the world’s safest remaining haven. But that’s a relative measure, and as you well know, bond markets can change their minds in a big ol’ hurry.

In fact, unless an unspecified percentage of bondholders agree to that shell game, the owners of “Old GM” won’t even get that.

I think, though, that we’re pissing in the wind. Unless Washington gets a massive dose of fiscal reality shoved up its ass in very short order, nothing’s going to change until it’s too late. We’re starting to hear some rumblings from the rest of the world, but nobody with any say in the matter gives a shit. The power-grab is almost complete, and carcass is getting picked clean as we speak.

What’s next? Is it possible to clean up the economic disaster looming on the horizon? Will it take literal pitchforks and stringing the bums up to clean out the detritus and start anew?

Revolution or Evolution? It may already be too late to choose. Even if the Tea Parties, for example, turn into a nationwide force, and bring about wholesale change in 2010, that’s an additional year-and-a-half of catastrophic damage that Obama and his clan can (and will) do the country.

I see no way to recover.

Thanks. It’s always nice to know when I haven’t, for once, embarrassed myself publicly!

You really should make this post a PJM article (colloquialisms and all). The world can use all of the easy-to-understand economic articles it can get, and this is written in the finest Sowell and Williams tradition

It occurs to me that the commenter’s bias is precisely similar to those who kept claiming the Bush tax cuts were for “the rich,” and regular, hard-working folk were getting the shaft.

If GM & Chrysler went away tomorrow, the slack auto sales will be taken up by other companies such as Ford, Toyota, etc. The unemployed GM workers can get jobs with those companies.