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Let G.M. go bankrupt

blogs.law.harvard.edu

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Re: Let G.M. go bankrupt

#21

Post by fauigerzigerk »

jbert wrote: post #10
Kilimanjaro wrote: post #6

Let * go bankrupt That's what capitalism stands for. Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed.

> Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed. There's an interesting issue there, though. Given: 1 - in general, higher risk => higher reward (if the risk comes off ok) 2 - fast growing competitors can dominate a market, wage a price war or buy slower-growing companies Isn't there a potential problem that companies which are sensibly prudent can be simply out-…

Yes I think that's true in the short run and it's a legitimate strategy. But bailing them out means to make the taxpayer pay for making it true in the long run as well, and that's a mistake.

Re: Let G.M. go bankrupt

#22

Post by peakok »

mdasen wrote: post #2

I doubt this would happen. Of all the players involved, it's probably the UAW that has the most to loose in a Chapter 11 situation. What's killing GM (and the other American auto manufacturers) is the unreasonably high labor obligations they have accumulated back when the industry was an oligopoly. The question is, will a president who ran as union-friendly allow UAW workers to loose a ton? GM has a lot of people on…

This is an analysis you won't find outside of the U.S. Typically, the car industry is known for having strong union labors in a lot of other countries (especially in Europe), and while auto makers are always in trouble during recessions, no European one is nowhere near the critical condition of GM.

The real problem is making cars that people want and selling them. I'll give you a clear example with the history of Fiat :

Fiat is an Italian auto-maker that had a very bad decade, the cars weren't selling and their reputation was bad, when you tought about Fiat, the first image that came to you was a subpar car. After they attempted everything else (cutting costs, you guess how), they finally resolved to fire every single guy with a tie in the company, from the simple chief to the CEO, the WHOLE management that was pointing to the high cost workers, unions, etc. as the sole responsible for the demise of the company, all these people that refused to take responsability were fired and replaced by new heads, an unprecedented move.

Guess what ? It worked. Fiat is making a strong come back in Europe and their reputation is building up again. Their cars are not synonymous of subpar anymore, they sell, even if it takes a lot of time to restore confidence and change your image, their strategy is ultimatly working.

I believe GM could take a lesson or two here. The problem is when the management refuses to take responsibility of a failure, they aren't qualified anymore to excercise responsibility, and their real chances of saving the company, bailout or not, are very slim.

Re: Let G.M. go bankrupt

#23

Post by Goladus »

modoc wrote: post #17
jbert wrote: post #10

Earlier quoted context omitted.

> Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed. There's an interesting issue there, though. Given: 1 - in general, higher risk => higher reward (if the risk comes off ok) 2 - fast growing competitors can dominate a market, wage a price war or buy slower-growing companies Isn't there a potential problem that companies which are sensibly prudent can be simply out-…

Is there a reason to bail those companies out of bankruptcy with tax payer dollars? If you're simply pointing out the potential advantage that a large number of higher risk competitors may hold, remember that advantage is tempered by lacking the pole position and the resources that the large company typically enjoys. My startup is competing against some very large companies, and while we are faster, cheaper, better s…

> Is there a reason to bail those companies out of bankruptcy with tax payer dollars?

If it's a company that would be almost certainly successful and profitable but is caught in a bind because of the freeze in capital, then it can be a good idea. The resulting economic slowdown can cost taxpayers significantly.

Re: Let G.M. go bankrupt

#24

Post by axod »

vaksel wrote: post #9

the problem is that GM is just too big to be profitable, and its just not competitive anymore. Hell GM is the biggest manufacturer in the world yet its losing money left and right.

Don't forget the fact it makes truly awful cars.

Re: Let G.M. go bankrupt

#25

Post by jotto »

Kilimanjaro wrote: post #6

Let * go bankrupt That's what capitalism stands for. Those who kept a well managed admin and saved for the worst should be rewarded, not those who failed.

it seems natural and appropriate to let poorly run businesses fail. unfortunately, our central bank doesn't prioritize based on inflation rates: http://www.house.gov/jec/press/2005/10-18-05.pdf instead they do the following:

instead of managing inflation, they generally do everything possible to prevent periods of deflation (which requires propping up the money supply) which is what happens when you let industry leaders fail. if we let all of the businesses fail instead of bailing them out the fallout would likely be unprecedented.

see jason calcanis's explanation of the belt tightening effect and the resulting death spiral. imagine if every industry was experiencing this. http://calacanis.com/2008/11/06/the-future-of-startups/

people need to realize that this is not an adam smith capitalistic system, this is a system heavily influenced by the government. this leaves room for regulation loopholes and mistakes which create bubbles which ultimately pop. this bubble has been patched for years, its getting too big to pop. popping it would remove our status as world police and likely be a large security threat.

george bush wanted to let these companies fail, but he was told, albeit mostly by market and industry leaders that letting them fail would create a chain reaction of failures and deflation.

the answer is probably to let some companies fail so as to punish poor businesses, but we have to be wary of purging the entire system.

Re: Let G.M. go bankrupt

#27

Post by thomasmallen »

Sure, do just that, but you'd better have a damn good safety net unless you want Detroit in flames. In spite of my libertarian views, this is why I voted for Obama: On the issue of labor. I figured that the economy was already screwed, and we needed somebody who could look out for the middle class that will be left to the wolves.

Re: Let G.M. go bankrupt

#29

Post by hugh »

thomasmallen wrote: post #27

Sure, do just that, but you'd better have a damn good safety net unless you want Detroit in flames. In spite of my libertarian views, this is why I voted for Obama: On the issue of labor. I figured that the economy was already screwed, and we needed somebody who could look out for the middle class that will be left to the wolves.

Auto workers are a pretty weird subspecies of the "middle class" though. As far as I can figure out, they're lower-class people with lower-class jobs who get upper-middle-class money.

Re: Let G.M. go bankrupt

#30

Post by thomasmallen »

hugh wrote: post #29
thomasmallen wrote: post #27

Sure, do just that, but you'd better have a damn good safety net unless you want Detroit in flames. In spite of my libertarian views, this is why I voted for Obama: On the issue of labor. I figured that the economy was already screwed, and we needed somebody who could look out for the middle class that will be left to the wolves.

Auto workers are a pretty weird subspecies of the "middle class" though. As far as I can figure out, they're lower-class people with lower-class jobs who get upper-middle-class money.

What makes that a lower-class job? The fact that you're not at a desk? However, you make a good point: I maintain that the prevelant college degree requirement for most desk jobs is responsible for the declining middle class. We're barreling towards a two-class system with a college degree as the price of admission into the upper class.
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