That's not true. Back taxes are first in line, followed by unsuboordinated debt, followed by suboordinated debt, followed by mezzanine debt, followed by preferred stock followed by common stock. The government is cutting in line. We didn't bail them out. We were used to transfer the wealth of GM to the unions.
And I say good for the government. It should cut the best deal for us that it can. More to the point, if you are listing government as a stockholder, I think you might be mislabeling the nature of the bailout agreements. GM has wealth? I think they are bankrupt, isn't that the absence of wealth? barfo
You don't find that scary that the Government can cut the queue? You believe the government to be a lot more benevolent than do I. I believe this move to be very dangerous. How can you have a healthy and secure investment climate when the government can nationalize any industry they see fit? That move is closer to something that would happen in Venezuela. Once you cut out the bondholders, GM still has assets. They went to the UAW. It's good to be a FOO.
I'm not convinced they are cutting the queue - I'd have to see the bailout agreement to know where the government stands in relation to the other parties. Secondly, this isn't "nationalizing any industry they see fit". This is bailing out a failed company. Note nothing is happening to Ford (or Toyota, for that matter). What does FOO stand for? The assets haven't gone anywhere yet. barfo
Like I wrote in the previous post, there is a heirarchy to debt and equity. The government decided to jump the line. Why do you think the government brought in the bondholders and tried to strongarm them? Because the government put themselves first. They're trying their hardest to not take back the TARP money from banks. Mind you, they insisted that evehn healthy banks take the money to not stigmatize the weaker banks. They tried to get Ford to take money, but Ford was too smart. GM and Chrysler tried in a futile attempt to avoid bankruptcy, but the Government decided to act like the majority shareholder in a private company rather than a debtholder. For God's sake, they told Chrysler how much to spend on advertising and fired GM's CEO. Friend of Obama.
Like I wrote in the previous post, it isn't clear to me where in the hierarchy the government sits. You claim they jumped the line. Based on what? Specifically where in the line do you think they belong, and why? And yet some banks did turn down the TARP money, so the insisting must have been either spotty or not very, uh, insistent. Ford was too not bankrupt. Wait, you are saying they are a debtholder? Wouldn't that put them at the top of your hierarchy? So maybe they aren't cutting in line after all? Both good ideas, since clearly management at those companies had failed. Someone has to be the adult, and since GM's board failed to act... I'm baffled by the suggestion that we should pour money into failing companies and exercise no control over them. I can understand thinking that the bailouts were bad ideas to begin with, but given that we did the bailouts, it is incumbent upon us to maximize the value of the money spent. Leaving management which has a track record of failure in charge is not the way to do that. I pity the FOO! barfo
Like I said, I understand that point of view. But that ship has sailed (or sunk, if you prefer that metaphor). barfo
True, except that Chavez is smart enough to drill for as much oil as he can to keep an outside source of income coming via oil exports. Our dunderhead leadership is taking the opposite approach and trying to decrease our drilling of the most valuable asset in the world. In other words, long-term, Venezuela may be better set than the USA in terms of the world economy. Solar panels and windmills don't drive commerce, and accepting higher oil prices while refusing to drill for our own will only expediate a massive wave of inflation.
In light of the news that the Obama administration will be hand-picking the new board of GM, I have no other option but to consider our President a bald-faced liar from this point forward.
"I don't want to go to work" . . . so when I go to work, am I a bald-faced liar or is someone misintrepreting what I am saying? Personally I would be very upset if the gov't gave all this money to GM and was not actively involved in their operations . . nothing would piss me off more than to give money to GM and learn about millions in bonuses going to GM top brass.
Um, based on corporate law. There's a whole field of it out there. Take some time to read some of it before commenting. None of the big ones. They were put in a room and told to take it. I don't care about some local S&L. Neither was GM nor Chrysler when the Federal Government came into their lives. I look at how the Federal Government dealt with Chrysler in 1979 and how the Federal Government deals with them now, and I wonder why we've taken the road we have. Guaranteeing the loans and letting Chrysler turn itself around worked. The Federal Government coming in and dictating day-to-day business items has been a disaster. It's not my heirarchy, it's the heirarchy of corporate law. The Federal Government was given preferred stock which they converted to common stock. Now they're sqeezing out the shareholders. I can't think of a bigger failure than the Federal Government. Year after year, they run massive losses. Legacy costs killed the US Auto Industry, forcing them to take shortcuts or price themselves out of the market. Who's to say Rick Waggoner did a crappy job? Who's to say Fritz Henderson is the right guy? One thing has been proven--advertising works. So when you come in and tell someone to cut their advertising, you're cutting their sales. I'm not surprised you're baffled. You can't understand simple heirarchy of debt and equity. Of course I think the bailouts were a bad idea. It was clear where those companies were headed. The Federal Government stepped in to help the UAW, not the companies. If you want to maximize the value of the money given to the auto companies, get out of their way and let them compete. Instead they tell the companies who should run them, how much they can spend on advertising and what kind of cars they can make. Mind you, there is not one senior member of the Administration who has ever run a large company. Not one. Yet these people are suddenly corporate experts? At least the Carter administration knew what they didn't know. I pity the American taxpayer. I pity the American auto worker.
Yes, your usual reply of "I'm not going to back up any of my claims, I'm just going to imply you are stupid". Not very convincing. You claim they jumped the line, but you don't actually know. Utter nonsense. The government came into their lives because they went begging to Washington for a bailout, in a last-minute attempt to avoid filing bankruptcy. If you really believe they were just fine and the government forced money upon them, then... well, I don't believe you really think that. The situation might just be a little different now. The car-buying public, that's who. That's a pretty broad generalization, don't you think? So the key to business is just to spend as much money as possible on advertising? It's not possible to spend too much? The relationship between sales and advertising is absolutely linear? Yes, yes. I'm so stupid and you are so smart. barfo
Like I said, read some corporate law. It's not my job to inform you that common stock is suboordinate to unsuboordinated debt. If you don't understand that, yet you somehow imply you have any idea what you're talking about, then you are stupid. Don't shoot the messenger. No kidding GM and Chrysler went to the Federal Government. They were expecting to work with the Federal Government the way Chrysler worked with them in the late 70s. The data is clear on this point. However, you continue to trust the Federal Government and their ability to run an auto company more than the auto company themself. Someone sounds a little butthurt. Get over it.
Not shooting the messenger, just pointing out that you can't back up your claims. You don't (apparently) know the nature of the bailout agreements, so you are assuming that the government has only the rights of a common stockholder. And what? Then the government tricked them? What's your evidence for that? Let me guess, it's that I'm stupid. Nicely avoided. However, you'd need to show that the cut in advertising hurt Chrysler more than it helped, and you haven't come anywhere near the vicinity of even starting to address that point. Someone needs to argue for his point of view, instead of making ad hominem attacks. barfo
But we should pour money into people with failing financial situations (Welfare), failing health (Medicare/aid), and failing youth (Social Security)?
I've spent a few years in corporate governance. Common stock is subordinated by almost all other claims against a company. Preferred stock can have any rights assigned to it that the company and shareholder agree upon. Typically, preferred stock is used to encourage a big investment by offering a better position than common when it comes to liquidation rights. The stock may have no voting rights (to elect board members, other shareholder issues/votes), or pay higher dividends than common. Conversion rights are often part of a preferred offering; that'd be the right to convert 1:1 or 2:1 (or whatever) some or all shares of preferred into common. Sale of stock is authorized by the board of directors, shares available to be sold are authorized by shareholder vote. There is a huge difference between how the govt. bailed out Chrysler and GM (and Chrysler). Govt. found a partner in Lee Iacocca and empowered him to turn around the business. Govt. did not force him out to put in a guy of their choosing, or demand that the unions become the lion's share owner, or squeeze out its existing shareholders and bondholders. Nor did govt. put harsh new regulations on its product. The automobile is a household's 2nd or 3rd largest capital expense. That'd be behind a mortgage and perhaps educational loans. It's not at all surprising that people fear for their jobs and forego replacing their older but still servicable vehicles to buy something shiney and new. It has nothing to do with what GM and Chrysler made - sales of hybrid vehicles spiked for about a year during those high oil price days and have plummetted. The airlines needed a bailout after 9/11. People similarly (out of fear) stopped (mostly) flying for vactations and business. Govt. loans and loan guarantees and bankruptcies and mergers held the industry together, the environment for their product improved, and they survived and even thrived. The guarantees were really all that was needed, not taking ownership positions, restructuring the companies by presidential edict, and that sort of thing. 7 years from now, every car has to get the mileage of a Toyota Prius. I don't know of more than 2 or 3 vehicles now, any automaker foreign or domestic, that gets that kind of mileage. The three would be Prius, Insight, and a 60 MPG diesel made by ford and sold in Europe. Good luck with that plan, folks. The closing of auto dealers means death for the automakers. For a company that size (the size we want) to succeed, it needs to advertise, subsidize NASCAR, and have enough points of sales that people don't have to drive 500 miles to find a place to buy a car. And when times are good, an auto purchase can be an impulse buy. You know our manufacturing sector is dead when it's govt. owned and you have to show up on tuesdays at some govt. warehouse to obtain product. That's the direction we appear to be heading.
