J and I are having a disagreement ,which is worth further discussion. Here is the gist of it:
"Pretty simple, really. You remove the government constraints-- psychological and financial-- that prevent people from succeeding in business (and getting rich). This creates more jobs at better wages (because of competition for labor), and enables those who get rich to be more charitable without grumbling. Those private charities, in turn, actually improve the lives of those they serve, making them more productive citizens and lifting (or to use Ben Franklin's word, "driving") them individually out of poverty, rather than creating a whole dependent class as welfare does and has.
This is the way the world works, and the evidence is everywhere, but the politicians enjoy solving everybody's problems with everybody else's money, so around we go.
Andrew Carnegie said that once people amass great wealth they start looking for great charities to spend the money. Bill Gates is a prime example. While his father calls for the rich to pay more taxes, son Bill puts 2/3 of his wealth into a charitable foundation free of taxes, and Warren Buffet of "Buffett Rule" fame, added half of HIS wealth to it (and took the tax deduction, you can bet)." J Ewing
"Remember that we used to have that situation, it led to support for the New Deal. Because it apparently did not work out as well as it would in your nostalgic thoughts and beliefs.
Also, unfortunately it seems that Buffett and Gates are in the minority at this time..." G2A
"I don't remember "that situation" at all, and frankly don't know what you are imagining "led to support for the New Deal." The great fortunes that led to the Roaring Twenties produced endowments for many of the great philanthropic and educational institutions we still enjoy today, such as Carnegie Mellon University, and all the Carnegie libraries, and Carnegie Hall, to name just a few. The lack of a few Security trading and banking regulations caused the crash of '29, and the New Deal plus Smoot-Hawley extended that "correction" by several more years than necessary. The parallels to today's situation are a bit frightening, frankly. We would have been OUT of this Obama recession if Franklin D Obama hadn't given us the Raw Deal." J EwingNow my question is what do you think frustrated the masses to the extent that they were willing to support the New Deal. According to J's version of reality, Government was small so people should have been rich and very giving. Yet the Great Depression occurred, people were suffering and the masses voted to toss the Republican's out on their ears. Even ND went DFL... Thoughts?
US History: 1932 Changing of the Guard
Wiki 1932 Election
1932 Results
61 comments:
It is ironic that the folks at MN Publius just posted on a similar topic. MN Publius: Unlike the Great Depression I am betting they will have different comments than we will...
And here is another oldie but goodie. G2A: Is Recession a Bad Thing? Not to distract you, but did this recession go deep enough to change America's spend, borrow, spend, borrow, spend, etc mentality?
I hope so, but I am not holding my breath.
It was the depression that frustrated to the masses. Capitalism is inherently cyclical, subject to booms and busts. Bubble behavior is a part of that. There was nothing particularly constrained about business in 1929, it simply collapsed on it's own.
Roosevelt, in his inaugural address, noted that we have nothing to fear but fear itself. He said this perhaps dismissively, but to do that underestimates the real and very depressing effect fear can have the economy. Our economy has been in decline for a long time. That decline has become more visible, because the strategies that concealed it, among them the various market bubbles have now played themselves out.
--Hiram
It's an oversimplification to say that the public specifically supported the New Deal. That wasn't anything Roosevelt campaigned on. His election, like Obama's was the result of the charismatic figure meeting an economic collapse. in 1932 just as in 2008, the Democrats could have run a yellow dog and won. Nor was the New Deal any panacea for the nation's economic problems. Like all post bubble policies, it was to a significant extent, a response to the most egregious abuses of the bubble. You got stuff like the SEC, and an insistence that Wall Street had to be at least to some degree, honest and transparent. You had the FDIC and FSLIC which essentially ended bank failures in this country until deregulation. You had Social Security and work programs which put money in the pockets of the elderly and the unemployed. But the New Deal, in terms of adding new legislation ended fairly early in FDR's first administration. His second term, starting as it did politically with court packing, and economically with a return to the austerity policies of the Hooover administration, was pretty much of a disaster, both politically and economically. Roosevelt's economic and political policy didn't end the Great Depression. The Great Depression was ended by that ultimate of Keynesian events, the Second World War.
--Hiram
Government was small so people should have been rich and very giving. Yet the Great Depression occurred, people were suffering and the masses voted to toss the Republican's out on their ears. Even ND went DFL... Thoughts?
Depressions are very stable events economically. They can last a long time. Among other things, businesses develop strategies that are moderately successful in generating profits in depressed conditions. There is security in down turns because they are predictable, and business loves predictability. In depressions, fear of competition is less of a factor, because competitors disappear, and potential competitors can't come into being because of lack of financing. Many businesses, these days, aren't doing all that badly. The stock market has boomed since the president came into office, out performing, by a wide margin the supposedly business friendly Bush years.
--Hiram
The S&P 500 chart looks pretty similar to me... MSN Chart Thank heavens for our continuing faith in the system. Now where and when will the next crash / bubble burst occur?
I think you are mixing apples and kumquats to make lemonade. I was talking about the way society organized and maintained itself through the economic system. It is a known truth (Mazlow) that rich people turn to philanthropy at some point in their lives, and that such direct charities are more effective than government entitlement programs. But how the political winds blow is another thing altogether, and when a snake oil salesman demagogues his way into the White House, it simply means he has fooled half the people some of the time. What he then does with that power may or may not be the right thing, and almost certainly may not be what the people wanted. Did anybody really want Obamacare the reality, or just Obamacare the promises (now broken)?
The fact remains that this country was successful when it was more free than it is today, and before we dropped to, what, 9th place in the "freedom" rankings?
J. Ewing
Please see:
http://www.shotinthedark.info/wp/?p=26946
The quote:
"Even Franklin Roosevelt’s New Deal has finally been demythologised. All those works projects and federal programmes may have done something for national morale, but the hard economic evidence shows that the worst effects of the 1929 crash had begun to abate under Herbert Hoover, and that the Great Depression (which was arguably prolonged by FDR’s policies) did not properly end until the US entered the Second World War."
Shot In the Dark: We The People
Snake Oil Saleman... Franklin Roosevelt was elected 4 times and he must have had large support in both Houses to get all those government growing changes through. It seems to me that the citizens had had enough of small government and unregulated capitalism. They definitely weren't seeing Carnegie's generousity as adequate.
On top of this, most of the agencies and programs are still in place some 75 years later. If they were so bad, couldn't the Conservatives have gotten rid of them?
As for Obamacare, it seems a large number of people did and do want it. CNN Obamacare Survey And some those against it wanted something more aggressive. Though popularity may be fading. The Hill I love America !!!
Now where and when will the next crash / bubble burst occur?
We are in bust part of the boom and bust cycle. From here, we can go to what we narrowly averted in 2008, complete economic collapse.
"Franklin Roosevelt was elected 4 times and he must have had large support in both Houses to get all those government growing changes through."
Technically, FDR had Democratic majorities throughout his time in office. But the Democratic Party indeed both parties are very different now from what they were then. The Democratic Party had a substantial conservative component, that could be resistant to New Deal measures. And in the hundred days of his first administration, New Deal legislation passed with strong Republican support. But the fact is, as things settled down, FDR was never as effective with Congress as he was in the first days of his first administration, until the war. His second term was pretty close to being a disaster.
--Hiram
People often read too much into stock market charts. For example, stocks have done very well in the Obama years, and not even I would claim that the performance of stocks has matched the performance of the economy. But I do think such charts are interesting, and they do provide hard information to some extent. Here is a chart for the years 1920 to 1940. Note that stocks reached their lows in 1932, not 1929.
http://stockcharts.com/freecharts/historical/djia19201940.html
--Hiram
Stock markets in recent decades have tended to tank when Democrats are elected and rebound when Republicans are elected, but these changes don't always occur at the same point in the election cycle. You have millions of investors making their individual assessment of where specific investments and the market as a whole are going. It's like figuring out which way a flock of birds will fly.
It is also possible that government policy can be good for the market, particularly certain companies (think crony capitalism) while being overall bad for the economy. Lastly, people will always have a need to invest (more so with the realization that Social Security is insufficient AND broke), and the market will rise as these funds seek better returns while bond prices are held artificially low by government policy.
In short, it is simply erroneous to believe that political success for a candidate is evidence of support for the candidate's ideas and actions in office. Those actions have to be judged on their own merits, outside of the political sphere. The New Dealers and Democrats that controlled Congress for the vast majority of years between then and now had a vested interest in keeping the New Deal going, lest someone discover that the underlying ideas made the Depression deeper and longer than would its opposite. (BTW, Carnegie Mellon University is still open, as well. So is the Red Cross.) The extended fable of "easing the Depression" kept them in power. Why the New Deal? Because that's what leftists do, and it doesn't work.
J. Ewing
Stock markets in recent decades have tended to tank when Democrats are elected and rebound when Republicans are elected,
Actually, that's not true. Stocks tend to perform better under Democratic presidents. Bush in particular, was very bad for stocks.
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=djia&insttype=&freq=2&show=&time=20
--Hiram
"You have millions of investors making their individual assessment of where specific investments and the market as a whole are going."
Part of the problem in being an investors is that you are at the bottom of the food chain. For a long time now, management has allocating to itself a larger and larger portion of the pie. We see this in the stratospheric compensation packages we read about this time of year. That makes the companies they manage less valuable. My own theory is that managers are just a little bit more scared in creating compensation packages for themselves when Democrats are in charge. That means more is left over for investors, and to some extent, that's why stocks do better when Democrats are in the White House.
--Hiram
DJIA Hist Chart
Hiram,
The chart is very interesting. Apparently the investors were using a lot of margin accounts back then. Probably why the 1929 drop felt so painful to them. (ie ultimate bubble pop)
J,
The reality is that those Democrats that started and have been able to keep these things going can only do so because they have the support of many citizens. These citizens apparently do not trust unbridled capitalism or the rich to give them a fair shake or a helping hand.
I think they probably developed this belief system based on decades and centuries of experience. Which typically did not bode well for the small guy. Take a look at most of the 3rd world countries for on going examples. The Rich live in mansions and the Poor live/die in the streets. Or at least until the Poor have had enough and over throw the government.
Maybe some government intervention and wealth transfer is required after all? Now how to stay at the optimal balance point???
All,
Do you think the Great Recession was bad enough to teach people to minimize debt and save for a rainy day? Or will things go back to normal?
Do you think the Great Recession was bad enough to teach people to minimize debt and save for a rainy day? Or will things go back to normal?
No. Republicans are already demanding new tax cuts. And that's what is normal. What we are seeing here is the creation of the next bubble in it's early stages.
I think it's an oversimplification although a very common one to attribute the great depression to the collapse in the stock market. If you notice, stocks rallied quite significantly even after the crash, and for a good long while were trading at relatively high historically levels. Margin trading was a factor in the devastation of the market. But not that many people were involved in the markets back then. For just about as long as I have followed this stuff, I believe that the stock market, and the decline of other markets were more a symptom than a primary cause of the great depression.
--Hiram
For long periods of our history, stocks have been dead money. When Bain management first offered Mitt Romney the job of organizing Bain Capital, a company designed to benefit from the increase in stock prices generated by Bain's management advice, he was very resistant. I think that was because at the time, in the early '80s stocks were not seen as a good place to make money. Money was made by running companies, not by buying or selling them back then. And even then, the go go market was the bond not the stock market. Remember Michael Milken? Drexel Burnham Lambert? They made and of course subsequently lost their fortunes in bonds, albeit junk bonds which are similar to stocks in many ways, and not in stocks themselves.
--Hiram
An interesting and fruitless, IMHO, train of speculation. I think margin was the reason the market crash of '29 was so devastating and also accounts for why the banks failed-- insufficient reserves. Any other interpretation simply begs the question I ask of any stock market expert, which is, "if you're so danged smart, why ain't you rich?"
I like to look at government policy from the standpoint of what it does to the supply and flow of capital, the basis, obviously, of a capitalist economy. When government borrows and spends, it reduces the capital supply used needed to expand private business. When government taxes and spends, it reduces the amount of wealth-- i.e. capital-- that can be used to grow the economy. When government taxes and spends, it reduces the total supply of wealth in the economy and gets "back" less than it would had that spending been left in private hands.
The question of the New Deal isn't why its ideas have continued, it is the unwillingness of government to try the correct prescriptions for sustained economic growth. Some regulation, yes. Massive entitlement society, no, can't work.
J. Ewing
When government borrows and spends, it reduces the capital supply used needed to expand private business.
Not really. There is lots of money around for investment right now. It's just that business doesn't want to borrow it, a big reason why interest rates are so low. IMO, there is too often too much money available for investment, and that's one of the things that fuels bubbles. In economic terms, government is indistinguishable from the rest of the economy. One reason the economy is struggling is because government is both laying off and not hiring.
--Hiram
The difference between government spending and private spending is infinitely large because government either produces, in most cases, NOTHING, or produces things that nobody wants, and at outrageous cost. Exceptions, sure, but government cannot accrue capital as private enterprise does. It can only spend, and that uses up the capital that others create and could better use.
And if you want to be concerned with bubbles, be concerned with the ballooning federal debt. We all know these things are unsustainable-- a bubble that will devour us all unless our government reverses the course it has been on since the New Deal.
J. Ewing
"The difference between government spending and private spending is infinitely large because government either produces, in most cases, NOTHING, or produces things that nobody wants, and at outrageous cost."
Actually it produces lots of things people desperately want but which markets won't pay for. Warren Buffett makes a distinction between good businesses and bad businesses. The thing about bad businesses isn't that they produce things that people don't want, it's that they make things that people want very badly but which can't be made at a profit. Two examples are automobiles and airlines, neither of which industries could exist without huge public subsidies.
==Hiram
Really? Nobody buys air travel or automobiles? There aren't companies making a profit in both industries and that take no public subsidies for their core business, e.g. Ford or Delta?
I thought that sounded funny too, but he was on a roll...
Nobody buys air travel or automobiles?
Sure they do. It's just that these things can't be provided at a profit without heavy public subsidies in one form or another. The airline industry, in terms of investment, is basically nothing more than a conduit through which investors' money passes through to bankruptcy attorneys. Buffett has famously said that on the whole, investors would have been better off had the Wright brothers crashed.
--Hiram
In real economic terms, Delta was purchased by Northwest Airlines, benefiting from the de facto public subsidy granted to NWA in the form of released obligations granted by the bankruptcy courts.
--Hiram
After giving it some thought... I don't think the industries needed subsidies. I am thinking it is the Unions and it's Employees that needed subsidies.
The airplane and auto manufacturers, and the air lines have historically been very heavily unionized. Due to this and the Mgmt not being willingly or able to fight back effectively, these personnel were consistently compensated well above market. Also, some efficiencies and flexibility were lost due to this.
Therefore when more efficient businesses with personnel that were paid closer to market wages entered the competition, the big unwieldly companies failed and we chose to bail them out. Probably in order to save these over priced jobs. (ie NWA)
Therefore it looks like you and me are paying too much for our tickets and bailing out companies in order to protect union jobs and the union bosses. Now isn't that a kicker.
Remember that the GM Union workers used to say that GM stood for Generous Motors...
And look at the headaches when Boeing tried to decrease costs. A move that would help the industry and us travelers.
An excellent affirmation of my points.
The Daily: Autos
They need airports and roads paid for by the public. They are leveraged, capital intensive businesses highly vulnerable to economic cycles. In other words, textbook cases of what it means to be a bad business.
--Hiram
They are also in highly competitive business with not enough barriers to entry.
==Hiram
Nothing easier to second guess than the auto bailout, especially when you do it based on what "many experts suspect" two years after the fact. The president didn't have the luxury of that hindsight.
--Hiram
One does not need to be an expert to know that one's business will likely go broke if you pay your employees significantly more than your competitor does. Especially if the employees are less effective / motivated / flexible.
WAY OFF TOPIC!
This "prove you're not a robot" nonsense is completely out of hand. It takes me longer to type in those two nonsense words than it does my entire post some days. Isn't there some balance between "not a robot" and "superhuman and clairvoyant"?
J. ockmnbarnil ativsrnm
One does not need to be an expert to know that one's business will likely go broke if you pay your employees significantly more than your competitor does.
Possibly, although when you factor in benefits and other issues, I doubt if American car workers were paid more than their foreign competitors. Another significant issue is legacy costs, and that's a big one in the airline industry. Airlines were paying for retired employees, Nothing wrong with that, that was the contract they entered into, and Republicans frequently talk to me about the importance of contracts. But those contracts made old airlines uncompetitive with start ups, so they all went broke, and reorganized which in this csee meant shifting those dishonored contract obligations to the federal government, which amounts to a huge subsidy `to the airline industry.
--Hiram
As with the GM article, contracts signed with a gun to your head are not necessarily binding. It still sounds like we are subsidizing the employees and not the industry.
And as the jibberish spouting anon noted, we are off track. So...
All,
Do you think the Great Recession was bad enough to teach people to minimize debt and save for a rainy day? Or will things go back to normal?
Hiram says that the GOP has not learned.
I am more curious about America's general public and consumers. Will they carry as much debt and use it to blow up the bubbles. (ie housing / stocks) Or like the Great Depression folks, will they become very frugal? (ie like our grand parents)
I am thinking we bailed it out too soon and people did not learn. Of course this was at the expense of our children via the expanding Nat'l debt.
The notion of a "government bailout" is exactly the WRONG lesson to be learned. Had events taken their natural economic course, companies that paid excessive wages and the unions that paid them would ALL be out of work, and their investors would be out of money. As it is, only some of the investors in GM got screwed, including those who WANTED to buy pieces of GM but were denied that option by the Obama czars.
Now, apparently, nobody worries about losses in their business because Big Government will bail them out, on the taxpayer's dime, only the taxpayers don't have a nickel. No lessons learned here, unless somebody pays a huge price for getting government involved in the first place.
J. Ewing
I agree, however it would have needed to apply to the banks also. Since they should have been punished for making such irresponsible loans.
As with the GM article, contracts signed with a gun to your head are not necessarily binding.
Sure they are. And contracts are just about always made between parties of unequal bargaining power. Isn't the gas station owner "holding a gun to your head" when he insists you pay 3.69 for the gas you need? The fact is, we expect providers of labor to be more flexible than others, the providers of finance, the providers of energy, even the providers of management. And the reason for this isn't that labor isn't essential, rather it's because managers are in a stronger bargaining position.
--Hiram
I am more curious about America's general public and consumers. Will they carry as much debt and use it to blow up the bubbles.
Let's not limit this to consumers. Mitt Romney got very rich by borrowing huge amounts of money and being nimble enough to be out from under the debt before the various houses of cards he and his associates constructed, collapsed. Part of the problem with consumer debt was that it was secured by the housing bubble. That bubble popped and probably won't be inflated again. That leaves us with the real problem the ability to borrow against our homes concealed, the lack of wage increase. People are struggling, and the things that hit a lot of people hard, one being education costs are for many of us going up very fast indeed.
"Now, apparently, nobody worries about losses in their business because Big Government will bail them out, on the taxpayer's dime,"
A more accurate assessment is that some business owners, Mitt Romney for one back in the day, the airlines being another, grew very adept at shifting the risks of their businesses onto others. And one reason they were able to do that is that they had market power. That's something that won't change.
--Hiram
Hiram,
The gas station owner has no power over you because you can drive down the street to find a better deal.
The unions have way more power over companies due to the laws that make it difficult for them to just hire another employee who is willing to work for less.
Finally, are you ever going to blame the addicts? You definitely are only seeing one side of the problem. It must be very hopeless in your world if the individual normal people have no power, control, hope, responsibility, etc. By your comments, it seems they are just pawns under the control of "the man".
The gas station owner has no power over you because you can drive down the street to find a better deal.
Can you? But of course the gas station owner has no market power either.
"The unions have way more power over companies due to the laws that make it difficult for them to just hire another employee who is willing to work for less."
The union movement itself is in sharp decline, one reason the American worker and the American middle class is in decline. Companies have to honor contracts, but within those contracts, they are free to hire who they like and at the wages they like.
"Finally, are you ever going to blame the addicts?"
I simply don't see the analogy between hard working, decent Americans, our automobile workers, our teachers, our policemen, our firefighters, as drug addicts. These people aren't America's job creators, they are America's job doers, and I leave the disparagement of them to the Republicans.
--Hiram
"It must be very hopeless in your world if the individual normal people have no power, control, hope, responsibility, etc. By your comments,"
I think that sense of despair, of powerlessness is what motivates both the tea party and the Occupy Wall Street. But I believe that if we work together, we can make things better, we can demand and receive a better deal from the paper shufflers, the Mitt Romney's of the world. All it requires is the will.
--Hiram
These hard working, decent Americans like ourselves are not bad people, however many of them got hooked on things that enticed them to borrow excessively. They definitely contributed to the problem.
They made the choices, not Romney, not the bankers, not anyone else. I just hope they learned something when their source went dry...
"Companies have to honor contracts, but within those contracts, they are free to hire who they like and at the wages they like." -- hiram
hiram, you have obviously never worked in a union shop. Companies aren't free to hire at any wages other than what are specifically spelled out in the contract, and therefore the "who" doesn't matter. One person is exactly the same as the other, which IMHO is a serious problem when talking about someone like a teacher. They are NOT all the same. Heck, these days, companies are not even free to hire whom they want in an entirely different state, e.g. Boeing.
Unions have outgrown their usefulness. Most companies understand enough about enlightened self-interest to keep wages up and pay according to what the labor market will bear. We could have FAR more people working without the necessity of overpaying union slackers and minimum-wage kids for doing less than their labor is worth. The only reason every McDonald's job hasn't been outsourced already is because they can't import a smile and greeting from Chna. They are, however, experimenting with serve-yourself machines at some of them, which is what you get when government, directly through minimum wage laws or indirectly through favoring unions, messes in the labor market. The jobs simply disappear entirely.
Here's the solution: make union membership voluntary. Those providing value will continue and the dregs will die off. It's better than killing off the industries they infect, like parasites.
J. Ewing
The answer to the original question of "why" is "because FDR inflicted it on us in a moment of weakness." The lesson to be learned is that Obama is now doing FDR one better. Leftists never learn, so the solution to the boom-bust cycle is to never let leftists near the corridors of power.
"They made the choices, not Romney, not the bankers, not anyone else."
From Mitt Romney, they might learn to make sure that the burden of bad choices is imposed on someone else.
you have obviously never worked in a union shop. Companies aren't free to hire at any wages other than what are specifically spelled out in the contract
I think that's what I said. Companies enter into contracts all the time and presumably should abide by them.
"Unions have outgrown their usefulness."
I just think there is a lot of objective evidence to the contrary. The decline of the middle class corresponds with the decline of unions. It also corresponds with the rise of capital skimmers like Mitt Romney who are able to allocate enormous wealth to themselves because of the bargaining power they are able acquire to the detriment of working Americans.
--Hiram
I thought I would take just a moment to discuss the piece on the auto bailout. Back then, they were, broadly speaking three communities interested in the deal: the creditors, the workers, and potential vulture speculators. The article takes the sides of the creditors, and the vultures, against the workers. That's fine but you notice that the positions the article takes contradict each other, the interests of the creditors, being in conflict with the vultures. Basically, the position the president took favored the creditors, since the deal he offered them was better than they would have received in the marketplace, and the workers, since it provided that the companies wouldn't be liquidated. The fact that the creditors didn't get as good a deal as they wanted shouldn't be allowed to obscure the fact that they couldn't have gotten as good a deal anywhere else. Romney would have favored the interests of the vultures. It's not really that a deal with them would have been better for the industry. After all, the vultures as a class know nothing about the automobile industry. Rather, that's the side of deal that would have been best for the people who Romney has always served, the interest of financial speculators.
So in these three groups, creditors, workers, and speculators, in which do you fall? To which group should your president give priority?
--Hiram
The creditors got screwed royally, the "vultures" would have retained more workers than did the new GM, the taxpayers wouldn't have been on the hook to bail out the unions, and the middle class is just fine, thank you very much. I don't think there IS a "decline in the middle class" and if there is, it is BECAUSE unions have forced the good=paying jobs overseas.
J. Ewing
"The creditors got screwed royally, the "vultures" would have retained more workers than did the new GM, the taxpayers wouldn't have been on the hook to bail out the unions, and the middle class is just fine, thank you very much."
The creditors did ok, certainly much better than would have been the case if the vultures had prevailed. The vultures wanted to liquidate the company in crisis conditions and sell it off once the crisis was over. The creditor objection was that the administration gave the workers a better deal than they might have had in bankruptcy court. But the administration was in effect the buyer here, and once you buy something it's yours to deal with however you like.
I worked in a non union company for many years. The employee handbook contained many statements about how the company's non union status created job security. But when it was in the company's interest, it shipped as many jobs abroad as it could. Somehow the fact that the company was non union didn't matter.
==Hiram
Let's introduce some facts into this discussion, eh? The creditors with full claim to the assets of GM were liquidated by Obama fiat (arbitrary law, not the Italian car company). There were buyers ready to buy up the pieces of GM from the creditors, and both would have benefitted. The workers would have kept their jobs but the plush union pensions and benefits would have been left exposed, and the Obamas couldn't have that. The government became the vulture capitalist, tens of thousands of GM workers lost their jobs, permanently, the investors lost what was legally and rightfully theirs, and the union got rewarded with part ownership in GM. I will never buy a new GM vehicle until that changes.
J.
"The creditors with full claim to the assets of GM were liquidated by Obama fiat (arbitrary law, not the Italian car company).
Let's be clear, the bondholders, the creditors were paid. They go a better deal from the government then they would have in the market.
"There were buyers ready to buy up the pieces of GM from the creditors, and both would have benefitted.
Sure, but that deal would have hurt the creditors. They weren't offering as much as the federal government.
The workers are irrelevant at this stage. They weren't bondholders. Basically, the bondholders were upset at the separate deal the administration reached with the workers. But that deal wasn't their business. The only other deal available to them was theoretically from the vultures.
--Hiram
The workers would have kept their jobs but the plush union pensions and benefits would have been left exposed, and the Obamas couldn't have that.
Bear in mind, the alternative here would have been to shift those pensions to the federal government. That's really the point of many of these bankruptcies.
--Hiram
We seem to be at odds on the facts. The bondholders of GM, as I understand it, got something like 10 cents on the dollar from Obama, when they were entitled BY LAW to 100% of their investment.
Penske wanted to buy the whole Pontiac label and business, but Obama insisted that it be eliminated. That alone would have paid off many of the GM bondholders and most of those workers would still have jobs.
If GM had to accept a normal bankruptcy, rather than a "bailout" and takeover, the union contracts would have been broken and the new owners of those assets would be free to write new labor contracts. You are correct the pension obligations would be dumped on the government, but why should the UAW get a sweetheart deal to prevent that?
J.
I understand it, got something like 10 cents on the dollar from Obama, when they were entitled BY LAW to 100% of their investment.
Boy,do I wish there was a law out there saying that folks are entitled to a hundred percent of their investment. But there is not. When you make an investment, basically, you are entitled to what someone else is willing to pay for it. That's the way markets work.
--Hiram
The bankrupt is obligated to pay his debts the best he can, but the purchaser in bankruptcy is not. With respect to the GM bankruptcy, the government was the purchaser, not the bankrupt, and as the purchaser was under no obligation at all to pay the bankrupt's debts.
--Hiram
You have to distinguish between bondholders and investors. The people stiffed held GM bonds. The Obama administration acted as pirates. And vultures. There is no reason GM shouldn't have been left to the bankruptcy courts and everyone involved-- unions, management, investors-- would have learned something from their mistakes. And they probably wouldn't have built that stupid Volt at all.
J. Ewing
You have to distinguish between bondholders and investors
The bondholders stand in the place of the original investors. When you buy a bond or a stock, you become an investor for all intents and purposes, even though the money you paid for the asset doesn't go to the company. Your distinction isn't relevant here.
If GM could have paid a hundred cents to the dollar on it's debts, as you seem to think it could have, there certainly would have been no reason to go to bankruptcy. It would have been in great financial shape. But it couldn't, and that's why it was in trouble.
This seems to me basic household economics. If you can pay your debts, you many not be as rich as you would like to be, but you are probably not in a lot of financial trouble.
--Hiram
GM COULD have paid all of its bondholders, but not all of its creditors, and certainly not its accumulated obligations because of plush union benefits. But bondholders should have had first claim to the assets, and they got the back of Obama's hand. That's pretty basic stuff if you recognize the difference.
GM COULD have paid all of its bondholders, but not all of its creditors, and certainly not its accumulated obligations because of plush union benefits.
Bondholders are unsecured creditors and share their priority.
Those accumulated obligations are debts as well. The argument is that employees and former employees as unsecured creditors were given a preference contrary to bankruptcy priorities. But they weren't. The deal that was made with employees was made by the federal government, the purchaser out of bankruptcy, not by GM, the party to the bankruptcy proceedings that owed the money. The federal government could have given the creditors, including the bondholders, and GM employees a better deal than they did, but they chose not to. They did give them a better deal than they could have gotten elsewhere.
--Hiram
GM COULD have paid all of its bondholders, but not all of its creditors, and certainly not its accumulated obligations because of plush union benefits.
Since bondholders are the same as creditors, they have the same priority. GM could not have paid off one and not the other. That would have been an illegal preference.
--Hiram
Bonds are like mortgages. They are supposed to be paid unless you are totally bankrupt and even then, the bank gets the house. Creditors are like credit card purchases. They get what is left after the bank gets the house and they often get pennies on the dollar. When tyrannical thugs (Obama & co.) steps in, these legal contracts and constructs get turned on their heads and legalities get tossed aside. There is no defending it, hiram, and you shouldn't try. The correct solution to these "bailout" situations was to let economics take their normal course and let those companies and unions that killed the golden goose go without the eggs.
J. Ewing
Bonds are like mortgages.
No, bonds aren't like mortgages. Mortgages are secured by something and have priority over bonds to the extent they are secured.
"They are supposed to be paid unless you are totally bankrupt and even then, the bank gets the house."
Yes, indeed, the bank gets the house, but if the house is worth less than the debt, than the bank is an unsecured creditor to the extent of that difference and goes back in that debt classification.
The problem GM had was that the company was worth much less than it's debts, and it didn't have the cash flow to make the payments, the basic recipe for bankruptcy. The Obama administration stepped in and offered more for the debt than could have been gotten on the open market, which was great for the bondholders. The administration was under no obligation at all to pay full value for the house, just as in your mortgage scenario, the purchaser of the house in bankruptcy is under no obligation to pay the bank the full value of the debt it was owed.
--Hiram
The correct solution to these "bailout" situations was to let economics take their normal course and let those companies and unions that killed the golden goose go without the eggs.
Maybe, but that means the bondholders you think should have been paid one hundred cents on the dollar would have gotten much less than the Obama administration offered them. Which do you want? To have your cake? Or to eat it?
--Hiram
Look it up. The Obama administration gave the bondholders less than they should have received, though you are correct it might be more than they would have received in full bankruptcy. The unions got far more than they were entitled to in bankruptcy. Any way you want to look at it, the Obama admin. interfered with the free market and its consequences, so the "lessons" that could have been learned were not, or the wrong lessons were learned. It's not the New Deal, it's the Raw Deal.
J. Ewing
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