Categories
economics

Bailout predictions

I have to say that I continue to be amazed that there is legitimate resistance to the auto company bailout. As free as both houses have been with money, I figured that this current thing was a done deal.

As you might imagine, I am no fan of this thing. There is zero chance that any sort of government appointed car czar will have a good impact on those companies… I have no idea of the bailout will squeak through the Senate or not. I hope it doesn’t and it looks like there will be some sort of fight for it at least… I wonder what will have to be thrown in to sweeten the deal enough to bring enough people over to get it passed like the last bailout bill was…

Anyway, here are my predictions. If the bill passes, this will only be the first of several requests for money. Those companies are bleeding money at an amazing rate and the government is going to show them how to be fiscally responsible? It will be good money after bad and the companies will have to completely reorganize anyway.

If the bill doesn’t pass, the companies will have to file for chapter 11 and they will reorganize. They will reduce their capacity, restructure union contracts, and lay off a ton of people. All of these bad things will be blamed on the lack of bailout money and not on the incompetence of management…

It has been pointed out that this is a bit of a “prisoner’s dilemma.” There is a ton of excess car manufacturing capacity worldwide. That excess needs to go away in order to make the industry profitable and competitive. The trouble is that every country wants the other country’s capacity to shrink, so they will bolster their own. The result? All of the car manufacturers do poorly because of the excess capacity. By moving to prop up the industry, the whole thing stays bad. Yet another chapter of massive distortions caused by government. When will they learn?

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