Monday, June 6, 2011

If the Government Doesn't Stop Helping, Our Economy Will Never Improve

In Washington, success is measured by how much money is wasted

Liberals loudly trumpet the success of the Cash for Clunkers program, pointing to the three-billion-dollar handout as a successful government program.  In a nation where people are still falling for the Nigerian bank e-mail scam and prostituting their moronic lives to The Jerry Springer Show for a night in a luxury hotel, getting them to take free money is not much of an accomplishment.

Success!  Government got people to take free money!

What our governmental Department of Unintended Consequences ended up doing was destroying hundreds of thousands of serviceable cars, driving up the average price of a used car 10-30%.  Productive human beings create wealth.  Government destroys it.  Literally. 

Now Obama and his hallelujah chorus in the press are telling us how he saved the US Auto industry.  Actually, he saved Chrysler and GM from going through the painful restructuring needed to compete in the 21st century, but who cares?  And as usual, his math is off by billions.

GM still owes We The Taxpayer $24 billion, when special tax breaks are factored in, and Chrysler is in hock to us for about $5 billion.

God save us from more democrat "successes"

Worse than the loss to taxpayers was the "le etat cest moi" way Obama did it.  Not by the rule of law via bankruptcy court, but by kingly fiat:
As an exercise in what Zywicki calls  "state capitalism," the bailout was a procedural horror show. It was probably illegal to funnel TARP funds into the companies; they may not have been car companies worthy of the name any longer, but they certainly weren't "financial institutions." 

Chrysler's creditors, who held secured bonds and were guaranteed repayment first, got forced into taking 29 cents on the dollar. In contrast, the United Auto Workers' pension plan got 40 cents on the dollar. The creditors of both Chrysler and GM were denied their usual right to have a say in the reorganizations. (Rich Lowry)

Even more outrageous, Chrysler was a privately-held company, but the owners refused to put more of their own money in to save the company.  Would you invest in such a company?  Add in interest-free loans, and the government strong-arming investors into taking a 70% haircut, and you see just how close to Zimbabwe we really are.


Always On Watch said...

Confession time for me....

I took advantage of the Cash for Clunkers program to divest myself of my father's 1985 Dodge Ram pickup truck, a vehicle that I felt bad about selling to an unsuspecting buyer. That damned truck was a lemon (Never mind the low mileage!) and had electrical problems such that starting the vehicle had been a hail-Mary pass for several years. Somehow, Mr. AOW and I got it started, and I drove it to the Hyundai dealership.

Did I really want to buy a foreign car? Nope. But I couldn't get Ford, the only major American car company who refused a government bailout, to make a decent deal with me! Neither would Nissan, for that matter. Hyundai would deal, so I bought a Hyundai Elantra -- and just in time, right before our other spare vehicles (a 2000 Mustang and a 1996 Crown Victoria) broke down within less than a week after I bought the Elantra and required thousands of dollars in repairs. Mr. AOW, my resident mechanic, had his debilitating stroke within 8 weeks. If I hadn't gotten another car, I'd have had to rent a car to get back and forth from the hospital.

My participation in Cash for Clunkers is the ONLY time that I ever took anything from the government as I've refused all my life to work for the federal government, the primary "industry" in the D.C. area.

Putting that 1985 Dodge Ram truck out of its misery was a service to humanity.

Of course, I did see quite nice vehicles being turned in for Cash for Clunkers. My pickup truck, bird poop bespattered and with an any colony living in the truck bed, clearly wasn't one of those nice vehicles.

Always On Watch said...

All of the above blabbing from me is not to say that I disagree with the principle of your post. I do agree in principle! But sometimes practicality (survival) does have to reign.

Always On Watch said...

One more point about Cash for Clunkers: After those dealerships shelled out discounts on new vehicles and destroyed the turned-in cars, the federal government didn't pay up for months upon months!

Silverfiddle said...

AOW: Not a problem. I am not criticizing people who took the cash, I am criticizing stupid government programs that waste money and create unintended consequences.

I have my own motives for this post. I have been shopping for a used vehicle for over a year but I can't save up enough money and prices keep going higher.

Anonymous said...

You will love this. Here in Venezuela there are only two good investments. One is real estate and the other is automobiles. -------------this may be the only place in the the world where when you drive a new car off the lot the value goes up instead of down. In 1999 I bought a slightly used 1999 Toyota double cab pickup truck for $14,000. Eight years latter I sold the truck for... $14,000. Crazy!

The Born Again American said...

I'm glad to see AOW took advantage of this, as I thought the best thing it accomplished was to get thousands of Obama bumber stickers of the road....

Anonymous said...

Well, I think it's a bit complicated, and mostly because of what you brought up about the big-whigs not being willing to put up their own money.

It's hard to say if they would have let their companies die, but part of me says that they probably wouldn't have cared if it did. SImply letting them die would have been disasterous for a lot of people.

That was one of those situations where none of the options available were good, and we had to pick the one that would cause the least damage.

Silverfiddle said...

Most insidious was Obama acting as judge and jury and financier instead of letting laws and market forces sort it out.

Had Chrysler gone bankrupt, they may have gotten relief, or they may have had to sell off their assets. Someone else would have stepped in and bought up the factories and machinery.

It wouldn't have looked like it did before, and that's a good thing, because it was a failure before. It's Schumpeter's creative destruction.

I really hope these businesses have learned a lesson that puts them of firm footing for future competition, but I fear they have not.

Also, the Rooseveltian intervention set a dangerous precedent. Are we still a nation of laws?

Silverfiddle said...

conservativesonfire: I've lived in a few different Latin American countries. I think it was Quito, my friends and I talking stumbled upon an interesting observation:

In the US, manufactured goods are cheap and labor is expensive. In Latin America, manufactured goods are expensive and labor is cheap.

So in a place like Bogota, you can get a fine custom-tailored suit made for under $200, but a new automobile or air conditioner will cost you way more than it would in the US.

Anonymous said...

You are right on target, SF … and the ridiculous argument, “Well, Bush started it with TARP I” doesn’t wash with me. This entire business of “having compassion” moves us (conveniently) farther to the political left. No surprise, the more often this happens, the more used to government dependency the American people become. We need to apply the brakes. Bush had his head up his ass, and so did all the Goldman-Sachs insiders that helped him throw the country off the end of the pier. Again, there was no surprise in the fact that Bush placed another Goldman Sachs insider in charge of TARP disbursements. Give me a break!

The scare tactics used to advance government encroachment into private corporations —that is, a gazillion unemployed factory workers— worked too well. I believe it is true that “unemployment” would have been a serious issue for about one year, but this is the likely consequence of a poorly capitalized company. Surely, Jersey will stop by here any second and tell us how union workers deserve, and are entitled to taxpayer money, but then he’s a moron.

A company that cannot compete on its own merits should fail. That’s the rule of raw capitalism. The “too big to fail” mantra is pure hogwash. Why should we bail out AIG? Drive by a mega-autoplex and see how much inventory is “not moving.” If anyone does that, and then argues that GM deserved an American taxpayer bailout, then that person becomes the poster child for why siblings should never marry.

Jersey McJones said...

Give it a rest, Cash for Clunkers was a relatively small government program and it did help a lot of people and gave the car sales biz a nice little push during a hard time.

As for the auto bailouts - they worked! The moneys getting paid back and the the money that's not was worth the investment. The death of the auto industry in the country would be faaaaaaar more costly than the price of the bailouts.

Comparing any of this to Mugabe's Zimbabwe is just hyperbolic silliness.


Silverfiddle said...

Jersey: Pull your head out. Your smarter than that.

The money has not all been paid back, and probably never will. That is the point.

Cash for clunkers drove up the price of used cars, proving again government meddling in private markets distorts them and has deleterious unintended consequences.

When any president does what our last two imperious and crony crapitalist presidents did, we are indeed beginning to resemble Zimbabwe.

OD357 said...

Makes me proud to be a longtime Ford man.

Christopher - Conservative Perspective said...

The C4C program is what I like to call "Trickle-up Economics" in that the taxpayer money provided went to people who were going to buy a new car anyhow being they could actually afford to do so.

This was proven by new car sales going flat after the programs expiration.

TonyFernandez said...

If you want to see the real negative consequences of these government programs, look up on what Cash for Clunkers did. It would be hilarious if it wasn't so horrible.

Btw, I liked this page for you (StumbleUpon).

Country Thinker said...

Auto sales fell immediately after the program ended. The same happened with existing homes when the homebuyer tax credit expired. The main effect of these temporary programs is to get people to advance activities in time, and the net effect is minimal. It mostly just steals sales from the future.

TonyFernandez said...

The net effect is negative. We also have to account for the activity that is stolen from other companies because these industries are in effect getting subsidized. It's like we're trying to kill those companies that are succeeding despite the bust. The US government economic policy is crazy.

Jersey McJones said...

Silver, c'mon man. The price of used cars is up because demand is up. The price of new cars is down! That's because consumers are broke right now!

C4C created a small bump in new car sales and many of the cars would have been scrapped anyway. This whole flap is just another hyperpartisan attack on Obama. Pointless.

The bailouts worked. Period. There's no arguing it. None of the terrible predictions came true. Yet another pointless hyperpartisan attack.

Trekkie4Ever said...

It really was a bad idea from the get-go. But no one could convince Obama of that.

Nothing really changed, and I believe it made things worse. The taxpayer got the wrong end of the deal, again.

It was all utter nonsense.

Jersey McJones said...

Saving our auto industry for about 20 or thirty billion when all is said and done was "utter nonsense?"

Now, the GOP is going after the school lunch and breakfast programs. I suppose you think those are taxpayer wastes and government tomfoolerie.

You guys have some really screwy priorities sometimes.


Anonymous said...

The auto industry wasn't "saved." The rightful and natural death of companies that were not being run wisely and efficiently was merely postponed and the damage aggravated. It just means that development of a healthy American auto industry will be even farther in the future. If the federal government doesn't stop "helping," it there will never be a healthy American auto industry again.

Finntann said...

Jersey, your fellow citizens via the government aren't supposed to buy you a car, or lunch for that matter.

Saving our auto industry? The government didn't save anything, they virtually gave Chrysler to Fiat? And do you know who paid for it? You, Me, the UAW, and the original Chrysler investors.

According to the Economic Times, the US government with this deal and previous loan repayments, interest and cancelled commitments will have recovered $11.2 billion of the $12.5 billion it gave Chrysler in the bailout. The Treasury said it is unlikely to recover the remaining $1.3 billion.

Fiat however, bought the remaining 6% stake in Chrysler from the government for $500M making them the majority stakeholder at 52%. Fiat stock rose 4.4% raising the company value to $13.2B (US). Fiat said in a filing on Thursday that it had enough cash on hand to buy the US's stake and that it has rights to raise its stake beyond 70%.

As stated in Businessweek: “The reaction in Fiat stock shows that investors believe an IPO of Chrysler is less likely,” said Alessandro Frigerio, a fund manager at RMJ Sgr in Milan, which owns shares of Fiat Industrial SpA and Exor SpA, Fiat’s largest shareholder. “As Fiat becomes a proxy of Chrysler, the best way to invest is to buy Fiat shares.”

"As Treasury exits its investment in Chrysler, it's clear that President Obama's decision to stand behind and restructure this company was the right one," Treasury Secretary Timothy F. Geithner said in a statement

YEAH... If you consider a 1.3B write-off a success....and you're Italian.

Obviously, we're done moving jobs overseas and have moved on to government transfer of owenership of 70% of the private property (stock) of American citizens.

So buy those Fiat shares baby while savoring your gelato.

WomanHonorThyself said...

so tired of this govt intervention and manipulation my friend..arg!

Most Rev. Gregori said...

It shouldn't take a rocket scientist to figure out that Obama is not interested in saving our economy. His bail outs, hand outs and stimulations are designed for only one purpose and one purpose only, and that is to overwhelm the system until it collapses so that it can be rebuilt into a socialist/communist system.

Obama knows exactly what he is doing.

TonyFernandez said...

Jersey McJones, you don't know what you're talking about. Have you looked at the price of USED cars? Through the roof. And the auto industry is shrinking! Cash for clunkers did not work. It merely prolonged the necessary correction in the auto industry.

Rob said...

GM is a bloated behemoth that needed to fail and we propped the beast up instead. They've profited handsomely (insanely!) by carefully crafting unrealistic and unnecessary consumer desires and encouraging poor spending habits for 5 decades. Now when their outdated, under-performing, poorly-designed crap ain't competing in the global marketplace, we hafta bail their shit out? Yup, we've all bought GM cars - we just don't get to drive 'em.

Makes me proud to own two Hondas - both of which were built by hard-working Americans in Ohio.

Unknown said...

Chrysler is a fine example of a welfare-state business.
This is the second time in the last 20 some odd years that they had to be bailed out.
Attitudes have not changed with in the higher echelons of Chrysler management in those 20 some odd years. In 20 years or so, we see this happen all over again. Government bailout of this company is a revolving door.

MathewK said...

Well said, the point when everything turns to sh!t starts around the time when government starts 'helping'.