Friday, December 12, 2008

Ponziriffic

The headlines today are likely to be about GM and the collapse of bailout talks (hooray!), but this story is mind-boggling. $50 billion. Holy crap!

As a conservative, I love to beat up the government for rampant corruption, but the private sector can clearly compete in this dubious field.

Check out some of their website before it evitably disappears. Lots to marvel at, such as this gem...

In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark.

It would be funny, except some very well-meaning people have undoubtedly been ruined. That seems to be a theme from what I've witnessed on Wall Street. Many "wealthy" people were actually leveraged to the hilt. The pain from this recession is going to run the full height of the socioeconomic ladder.

10 comments:

Restless Native said...

Gams, I think your unbridled joy at the bailout for the Big 3 failing may turn out to be pissing into the wind. As I learn more about the way the whole industry works, I become concerned that if any or all of the US makers go tits up, the suppliers are going to as well. These suppliers also provide the non-US makers who have factories (and workers) here (Honda in Marysville, OH, BMW in Bumfluck, AL, etc) with their parts. Should this supply chain seize up, there is going to be some serious hell to pay. Your loathing for the lazy unionized American worker could bring about serious problems for the good, non-union American worker, busting his Evangelical hump in the German- or Japanese-owned factory in the "real America" (read areas high on the infant mortality list and low on the adult literacy list).

We could be patting our free-market selves on the back while some of your more dire predicitions about food riots and such come true.

En fin (gratuitous use of French), I would just be careful that we don't get blase about the knock-on effect this goverment non-intervention could have. Indeed, failing to act can have as far-reaching of consequences as acting.

At the end of the day, the Republican lawmakers are nothing if not consistent. They manage to almost always be wrong. Impressive.

Oh, and the Ponzi scheme ole' Bernie was running? Amazing. Between Blagojevich talking on the PHONE as if he were in a Coppola movie and Bernie's "Boiler Room" (I loved ben Affleck's cameo) approach, it is frightening to see life imitate art to such a degree.

Aztec Tomb said...

Don't forget the dealers.

The dollar plunged and foreign markets took a dive on the news of no American auto bailout.

This is a huge misstep by GOP Senate leadership. The fall out will be significant and all of it will be laid at the feet of a handful of senators from right-to-work states with Toyota, Honda, and BMW plants.

How's that going to play in 2010?

Restless Native said...

http://www.goodjobsfirst.org/corporate_subsidy/automobile_assembly_plants.cfm

Here's a quick sumamry of some of the taxpayer's dollars that have already flowed to automakers. Foreign automakers, but automakers no less.

Note where they are located.

GammaBoy said...

You guys are crazy to support this bailout. As currently constructed, the Big 3 will never be profitable, at least in the U.S. Bankruptcy will lead to restructuring, not a liquidation. If suppliers go under, it will because auto demand has collapsed, not the question of bankruptcy or bailout.

The big losers in a bankruptcy will be unions, and I have no tears for the UAW.

Watch and see - if one of the Big 3 declares bankruptcy and restructures, if the political interference can be controlled, that company will be profitable within 3 years, even in a recession.

friedmanite said...

Wow, I'm shocked that any objective observer is in favor of this auto bailout. Forget the political game of congressmen haggling, that's of minor significance.

Should the government get involved with these businesses, the following will happen:

1) Congress will begin having input on the decisions of these businesses, which will not be how to make them profitable, but how to have them meet their own political objectives. You already saw one congressman asking Chrysler to re-open a paper mill in his district in exchange for his support. I'm sure we'll have "green" requirements that have nothing to do with demonstrated market demand, but rather what some people think sounds good in a sound byte. Remember corn based ethanol? So you'll have unprofitable businesses making business decisions for reasons other than profitability. These businesses will continue to be unprofitable (probably moreso than now) and seek further bailouts.

2) How will the US government treat competitors to the big three? Now that they have money in the game, I would suspect that they'll try to limit competition in order to keep their bailed out babies from losing more money and making them look bad. So those nascent car companies that might boom given the market opportunity of the big three faltering will instead be further restricted.

3) Momentum will continue to gather for more bailouts for other struggling companies. I'm sure you'll hear more of the theme of "we can't afford to let these fail", which translates to, "we don't want to quickly recover". The beauty of failure is that debts are wiped clean and resources look for more profitable business. Propping up bad business only slows this process.

I come back to the simple question, what experience do you have that makes you think that government will do well at running businesses? Have you not witnessed how poorly executed most government enterprises are?

Restless Native said...

Friedy,

I hear you. I am not 100% behind this but am concerned about the ripples if they go under. To be honest, I worry about some of GammaBoy's more desperate predictions (which may pre-date the blog) about how awful things could become should we have 1,000,000 or so people lose their jobs essentially overnight, with a significant down-time between their layoff and their rehiring by the "new" car industries.

On another comment, I referenced an article by one of your potential spiritual leaders (not sure if you are a Tom or a Milton follower) that discusses the electric car industry and necessary infrastructure being launched in Israel, someplace in Scandinavia and, I think, Japan.

I love the creative destruction and I am a big believer in letting bad businessmen (and I am quite certain the Big 2.5 qualify here) but letting one or two fail might bring down the third, as well as a ton of suppliers, which could ripple through to our less-literate brethren in foreign factories in Walmartland, as well as the dealerships all over the country.

I am a bit jaded on this, as a competitor of mine, AIG, was propped up, if not nationalized, and would have had far fewer ripples had it failed than the entire auto industry.

I agree that the Congress shouldn't be running the companies anymore than they are running the AIG, and I agree that porking them out is a triply bad idea. Notwithstanding, I am scared poopless about 1,000,000 or so newly unemployed people carjacking me to feed their kids.

Perhaps GammaBoy's tales of horror earlier (I'll let him bring you up to speed) had a spooking effect on my econo-politics.

Full disclosure, while I am a free market kind of guy generally, I am a little less anti-union than some of our co-contributors and went to high school in a GM town, so I may be unintentionally biased by my experiences.

Again, thanks for helping think about this and keep stirring the pot.

Restless Native said...

Bill Kristol, certainly not a liberal, wrote this piece in the Times today.

http://www.nytimes.com/2008/12/15/opinion/15kristol.html?_r=1&ref=opinion

friedmanite said...

Restless,
Thanks for the post, I enjoy the discussion.

I can see your point about the simultaneous bankruptcy of three huge companies being something we'd want to avoid during the period we're in.

It sounds like we're in agreement that the federal government should not be involved in private enterprise. If we agree that the big three with political meddling has little chance to succeed, then we're basically throwing billions of dollars away to keep people employed until the companies need the next bailout.

If its the workers we're really worried about, why not use those billions of dollars directly for their benefit, rather than keeping afloat bad business? Perhaps massive re-training or unemployment benefits. I don't necessarily agree with that idea, but its better than giving the money to failing business models.

I think we are all very complacent when it comes to fearing expansion of government powers. History tells us that democracy is fragile, yet few treat it so. During times of crisis is when government tries to use fear to dramatically expand their powers, and when people have to be the most weary. Bush did it with 9/11 with wiretapping, torture and extradition. The treasury is doing it now with billions given to companies based on the opinion of one man, not an act of Congress.

The federal government is quick to expand and loathe to contract. Once you establish a car czar and the precedent of government bailouts, those things will be with us for decades, hampering economic growth and giving special interests the room to bend the power of the government for their favor.

Democracy and freedom are not the natural order of mankind.

Free to Choose, by Milton Friedman, is an amazing book uncovering the natural order of government. He's the Friedman I'm following.

Restless Native said...

Damn. I am now going to have to educate myself on the mid-western Friedman, and not my comfortable New York and young-ish Friedman with a kicking stache. BTW, I'd pick Tom over Milton just based on the broads he pulls. Notwithstanding (and damnation once again) I am going to have to read again. I hate that (no, I don't) and put my feelings about good things in Chile to one side (look it up "Chicago Boys Pinochet"). Christ, Friedy, give me a day to get myself up to speed and I'll be back with you. Goddamnit. Real smart guys. Where are the pretend smart guys I ordered? WHAT? I don't give a good goddamn what Hank Paulson says! I need all the pretend smart guys at my house to make me look good. WHAT? Tell Tom Cruise he can stick his WWII movie up his Scientologist Ass. The pretend smart guys are MINE.

Restless Native said...

Holy balls. You know how much this guy wrote? He had nothing better to do? I am working on another page on amazon.com (shameless hucksterism) and I can't even buy this stuff fast enough. I am going to be reading for weeks. Goddamn baby.