Monday, November 10, 2008

Right Here, Right Now (Mon. AM Update)

The chief of General Motors described bankruptcy as having "unimaginable consequences", asking instead that the government give it $50 billion for a bailout. The trough is not only depening, it is widening as well.

Well... why not let the company go into Chapter 11 reorganization - that's what bankruptcy usually means for corporations - and get rid of a large portion of its debt obligations? What's so terrible about it? The law is quite adequate in protecting the business as an ongoing concern, including provisions for employees and suppliers. So why not?

Yes, yes, I know... the horrible green monster of deflation. When one of the largest corporations in the world wipes out its debt in one stroke, it makes the picture pretty darn clear for everyone to see. And that's still unthinkable in the Bernankean/Pelosian "inside-the-box" universe. The "trailers" are still stuck in Luddite mode, unwilling to accept that what we need is debt liquidation and not debt preservation.

What about this alternative, instead: let GM go bust, then provide it with government loan guarantees to turn itself into the largest manufacturer of alternative energy automobiles and - why not - even wind turbines and associated machinery. Think of it as a major step in the war mobilization of industry - a war declared against environmental destruction, resource depletion and geopolitical dependency. It would also be a loud message that the United States will no longer fight Resource Wars, like the ones going on in Iraq and Afghanistan. (Note: I urge everyone to read the book by the same title by Michael Klare. It is a must in understanding what's going on in the world.)

It would also be a signal that the Age of Permagrowth is over and that the United States is now claiming the lead position in the Sustainable Era. We can do it right now, or we can wait and become followers. This is the inflection point ladies and gentlemen: Right Here, Right Now.
____________________________________________________________

Monday Morning Update:

Researching wind energy companies, I came upon several news stories about the current credit crisis creating delays in financing wind farm projects. This may be understandable in the short term, but downright criminal in the medium to long term. Here is a great opportunity for those 3/4 of a trillion dollars to do some REAL good, i.e. provide loan guarantees for such proven technology projects.

Instead, our "trailers" are today rushing to provide ADDITIONAL bailout money to AIG. Hello?? Are any grey cells still functioning in there??

27 comments:

Brian Woods said...

H,

Well said, again!

But you do know, don't you, that 'Successful Failures' are neither acknowledged nor halted - afterall our great leaders KNOW they are right. So carry on Resource Warring!! Never mind the payoffs, just look at that input!!!

Brian P

Debra said...

Great post.
I wish things would happen this way too.
I hope that things will happen this way.
But...
We, the baby boomers are running this country.
You know, the ones who have never known the Great Depression, who lived in no fear of venereal disease for quite some time, who managed to wiggle our way out of the momentous implications of birth control on our sexual activity, the ones whose parents raised to never lift a finger, basically, to just open our mouths, and let the manna fall right in. (Of course, I mean the RULING WASP CLASS, you know...)
We are soft. We are afraid. We don't know the very first thing about getting along in the world with just our ingenuity.
Will we go for it ? Will we dare ?
Do we dare to eat a peach ?

Anonymous said...

Off-Topic:

is there an RSS feed for this website? can't find one.

Thanks.

Anonymous said...

I wholeheartedly agree with your comment.

Let's cooperate with the inevitable, why fight it....?

Best regards,

Econolicious

Anonymous said...

If Bush doesn't hurry up and do it, Obama never will. The unions would never stand for reducing the present value of pension and health insurance obligations.

If those obligations were not weighing them down, the US car companies could compete with and beat the rest of the world! The cars they are producing right now are world class!

Anonymous said...

On second thought maybe that is exactly what Bush is doing, in which case bravo. What he has to do is ... nothing! If nothing else happens, these companies end up in Ch. 11, exactly where they belong.

fat_tail_rider said...

Three related points:

1. America enjoyed its broadest-based prosperity in the inefficient era of strong unions and limited global trade. So much for the purported benefit of "being globally competitive."

2, Given current global resource constraints, if the citizens of the BRIC countries manage to elevate their consumption to even a significant fraction of ours, we're all screwed.

3. As we are about to discover, complex systems that place the highest priority on efficiency and instant gratification rather than resiliency and sustainability are subject to cascading and eventually catastrophic failures.

Agree heartily that one of those failures should be GM. Let the company go bankrupt and leave it to the courts to allocate the pain equitably among investors, workers and GM's incredibly inept and overpaid management.

Thai said...

Well said Hell

Well Brian P

Well said Econolicious

sc said...

Agree... and throw AIG and Citi in now!

AIG has outmaneuvered the govt. They are leveraged disaster and frankly the only thing that will right this listing ship is debt deflation.

Anonymous said...

I agree GM should go into ch11 bk... it would be a real wake up call for everyone. Those of us who read blogs like this know the score, but many are still asleep.

I'd imagine that GM not being allowed to go into Ch11 is due to the "credit event" it would cause? On $45 bln in debt what would the CDS exposure be? 5x to 10x more?

Jesse said...

It would trigger Credit Default Swaps that would reverb through the financial system.

Rob said...

anon, scroll to the bottom of the main page for the syndication link.

Additionally blogspot auto generates an RSS feed at http://suddendebt.blogspot.com/rss.xml

Anonymous said...

GM's Opel is begging german chancellor Merkel for help.
Hah.

observer from Finland said...

Excellent post.

I too hope that our mighty warlords (presidents and other leaders) would start to think how to run things without constant "growth". There are very few even among the educated people who realize what is going to hit us. Even fewer who are willing to do something, like, say, live without a car. Gosh.

Seems that we will have to get really crushed before anything really happens. Hopefully we will remain organized enough with some resources so that things can be reconfigured into something that works.

Here in Finland the neat thing is that we never had any oil so it's easier for people to accept that we won't be getting cheap oil forever, but still our Prime Minister is totally clueless about the consequences and realities around this fact.

Obama has work to do. I hope he knows what to do and gets it right after the current clown has left the stage.

Anonymous said...

Prediction:

GM/Ford get bailout. Existing union/healthcare obligations left unchanged. Some management/union job cuts. Economy struggles and equilibrates to new setpoint with much less demand. GM/Ford still hurting in 1-2 years. Same scenario. Maybe some CDS unwinding by then may relieve some of the pressure. GM/Ford subsidized like agriculture is on perpetual basis.

Anonymous said...

I am wkwillis. Livejournal does not work on suddendebt with my laptop (xp and ie).

anonymous
Pensions are senior debt, bonds are junior debt. Defaulting on senior debt to allow junior debt to be paid is sort of missing the point.

goldie said...

Regarding GM, anyone who thinks UAW is representative of the avg unskilled worker has never worked in manufacturing. The UAW are aristocrats within a socialized mechanism that made life simple for management during their years of oligarchical competitiveness. This arraignment has brought them to their knees in the competitive landscape introduced during the 1970's

my prediction:

UAW healthcare remains unchanged as it is now controlled by the UAW

Pensions get dumped on the taxpayer and car warranties become voided.

In sum the aristocrat will get the bail out (ala bonuses for bankers) while the taxpayer/consumer gets the shaft.

Just my humble opinion

yoski said...

Nice post, exactly my thoughts. It will happen eventually after we waste about another 8 years and many more trillions of $$ on a system that is already dead. Too many special interests, too many lobbyists and too many dimwits in DC. My prediction is that it will take 8 years, one Democratic and one Republican president and 10s of trillions of dollars before "we" figure out that throwing money at failing business models will not turn any of those ventures into a gold mine. Might as well revive PETS.com, they are about as useful to our economy as GM or AIG in their current state. At least those evil Socialists in other countries nationalize profitable businesses, we only nationalize losers. But we're new at this socialist thing, maybe we'll learn as time goes on.

yoyomo said...

Somewhat off topic but in the theme of sustainability and resource (soil) depletion:

http://www.johannhari.com/archive/article.php?id=1406

Madam Z said...

Great post! I agree that companies who get themselves into deep shit should not ask Uncle Sam for a shovel. They should accept the consequences of their bad decisions and declare bankruptcy. Some companies that do that emerge again, as re-structured, leaner, meaner entities. I really like your idea of GM making "alternative energy automobiles and...wind turbines" etc. I fear, however, that our gov't will continue to throw good money after bad, improving nothing and continuing our downward spiral into crushing debt.

Anonymous said...

". . .Bernankean/Pelosian "inside-the-box" universe."

Don't try to pin this on Nancy Pelosi.

Hellasious said...

Madame Speaker wants to bail out GM with tax money. Why?

don said...

http://www.komonews.com/news/33970219.html

"You see, when the wind is really blowing and the farms are operating at maximum capacity, the present system will not be able to handle all of that electricity, which ultimately affects fish.

"This isn't just a theory - it actually happened recently. At the end of June, there was an unexpected surge in wind power and too much energy was created for the regional grid to handle. To compensate, the dams cut their power by spilling more water.

"Spilling more water is dangerous for fish because water plunging from the dams into the river becomes saturated with air. Air is mostly nitrogen and salmon do not like nitrogen saturation."

Anonymous said...

GM's $1T CDS dictates that the gov't will bail them out.

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