Posts Tagged ‘bailout’

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Would You Take A Bailout?

June 16, 2009

I know I would not take a bailout. The government likes do do things like cap executive pay, force your top executives out, and even put you into bankruptcy. I am not really seeing an upside to getting emergency money from the government.  I do not think GM or the banks are either, since the banks are in a hurry to pay the TARP money back and GM is going into bankruptcy, the situation it was trying to avoid.  There is a lot smaller moral hazard there than I thought there would be.

The one upside to all of this I see is that creditors are probably going to be more open to negotiating with their debtors.  If the GM and Chrysler creditors had been willing to cut a deal, they would probably be getting a bigger return than they are now.  After all, once the federal government got involved, it is going to protect its interests first.  It is kind of like taking money from a loan shark.  The federal government will make sure it gets paid first.

So, remember all of this before you try to get bailed out by the federal government.  Taking money from them comes with a LOT of strings attached.

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Bailout Trade-Offs

January 31, 2009

I am pretty sold on the idea that, for long-term economic growth, tax cuts are one of the best things.  They keep more of the money in the economic machine.  However, short term, I do not think tax cuts have any real stimulating effect.

So, what do we do?  Do we spend our way out of the problem?  I believe a large spending stimulus package will stimulate the economy in the short term.  Throwing that much money into the economy and money will start flowing through the economy.  What remains to be seen is how far and how fast it will flow.  If it flows fast and far enough, it might just get us out of this downturn.

The downside to the large stimulus package is the large increase to federal debt.  It prevents larger future tax cuts because that debt needs to be paid back with interest.  So, it appears the cost of stimulating the economy now may be slowing the economy’s long-term growth.

Is it worth it?  I do not know.

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Should We Bailout The Car Companies?

November 17, 2008

So, the US government has already pumped a bunch of capital into national banks.  Now the auto industry is asking for a handout.  Should we give it to them?

I think the government should loan GM (and the others) money, but with one stiupluation: they go into bankruptcy.  This does a number of things:

First, it lets a judge alter GM’s debt and labor contracts.  This would lower GM’s debt payments and labor costs.  GM’s average hourly rate (with fringe benefits) is $71 an hour.  Toyota’s is $47.  I know the labor unions will cry about it, but if GM goes under, the unions are not going to be much help to the tens of thousands of unemployed union memebers, will they?  The unions worked with the airlines that went into bankruptcy, and that allowed the airlines to come back out.  The UAW needs to consider doing the same thing or have it done for them.

Second, going into bankruptcy lets the US government give GM “debtor in possession financing.”  This lets GM keep running, but give the US government dibs on repayment and assets if GM goes belly-up.  This gives the tax-payer the most protection.

GM has been hemorriging money for years, even before the credit crunch.  They need some punishment to go along with any help they get.

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Gas Tax Holiday?

May 8, 2008

Sounds like a bad idea to me.  I’m not a big fan of pandering, and this really smacks of Clinton and McCain attempting to buy our votes with money the government doesn’t have.

People say they want the government to be run like a business, but since businesses exist soley to make money (except for non-profits, and even then…) I think that is not the goal we want of our government.  A government should be run like a household.  It should make money in order to provide for the needs of those living under its roof.

Where am I going with this?  Well, say you’re the head of a household.  Your financial situation isn’t looking so good, and it looks like your wife and kids may be losing their jobs.  So, what do you do?  Bringing in less money does not sound like a good idea to me.  Convincing your family’s jobs to give them more money sounds like a better idea to me.

To stop the analogy, real wages have not increased in quite awhile, and I think the economy is starting to feel the effects.  People say that raising the minimum wage hurts businesses by forcing them to spend more of their money on their employees.  However, most of the companies that pay minimum wage are companies that people spend a lot of money at:  retail stores, grocery stores, dry cleaners, etc.  So, giving people more money to spend actually will give those companies a boost.

So, again, I think that companies need to bail out the economy, not the government.