GM: The Next Part of AmeriCar

With Chrysler firmly in the morass of bankruptcy restructuring, GMAC under the financial control of the U.S. Federal Government, and General Motors on course with its own bankruptcy court, we feel confident saying that the foundations of AmeriCar - our pet name for a Soviet-esque national car manufacturer - are almost complete. GM, according to the Obama Administration, will be 60% owned by the Federal Government, effectively making it a national auto-manufacturer. Please do not believe the Administration's promise to 'exit' the car business when GM is "bank on its feet;" that would shrink the size of the United States Government, and would run counter to the trend of increasingly large Government ever since President Andrew Jackson.

At the same time, the TARP programme will likely be made permanent, as expected; it will turn into a revolving loan facility for the Government, to nationalise - oh, pardon, "invest in" - various enterprises throughout the U.S. With various banks itching to pay back their TARP loans, the Government will have money to blow on other ventures. We suggest that Ford start watching its back: it's the last independent American auto-maker, which makes it the last major piece of AmeriCar. After Ford is nationalised, we posit that various car parts manufacturers and service providers will be next on the menu. The Obama Administration has already implied this, as it has put a Federal guarantee on all GM and Chrysler warranties... and one cannot fulfil a warranty without the expensive parts!

Eventually, we expect that GM, Chrysler, Ford, and a slew of parts manufacturers will be eventually consolidated into our concept of "AmeriCar." This will be an abomination of mis-managed, corrupt, resource-wasting 'manufacturing' not seen since the fall of the Soviet Union... and it will end just as badly. Simply put, the Obama Administration is betting the farm on a near-term recovery in the U.S. and world economies. There are problems with this attitude.

The Administration pinning its hopes, reputation, and trillions of dollars on a quick end to this 'recession' is asking for disaster. The Government seems to be unaware that this economic calamity is something altogether more potent. Nevertheless, we wouldn't be surprised if the Administration indeed orders its pet car manufacturer(s) to produce around 10 million cars a year, but we would like to ask the President from whence he thinks the citizenry will have the money to buy these spiffy new vehicles.

Because this Depression is destroying the citizenry's ability to produce income, the last things they will want to do is spend their dwindling resources on additional un-needed automobiles. If anything, people will: keep their cars longer; own fewer cars (say, one); share cars, either informally or through farsighted corporations like ZipCar; or, totally discard automobiles altogether and use public transportation, bicycles, or their own two legs.

We can't think of any reason why AmeriCar should outlast the Obama Administration; it just doesn't seem feasible to keep up such extraordinary waste on such a colossal scale, but it will probably happen anyway. In all honesty, we are putting the AmeriCar fiasco as one of an increasing number for which President Barack Obama will leave office in disgrace... as well as lay the foundation for a new Franklin Roosevelt to seize the presidency.

P.S. To the Government: in order to have a successful car maker, reference Tesla Motors. Their $100,000+ Roadster has a fifteen-month waiting list.

Follow-Up on Loan Delinquency

The FDIC is reporting delinquent bank loans are 7.75% of all loans. While this is not yet as bad as mortgage delinquency which we discussed in yesterday's post, it is still capital-annihilating (since most of these deadbeat loans will have to be written off).

With their capital evaporating, banks must shrink lending. It is no wonder that so many businesses and individuals are seeing their credit lines cut or cancelled. As those who have the means to pay off said lines of credit race to do so, they will not be investing or spending money. This will have a dampening effect on economic activity, to say the least.

If the nationalised, yet insolvent Freddie Mac and Fannie Mae being ordered to expand their books to keep mortgage loans flowing were a precedent, we would anticipate an imminent, very large bank nationalisation instigated in order to have banks under political control and follow the directive to grow loans, no matter the ultimate cost. (The hurried, and ill-conceived TARP investments do little to give the Federal Government adequate policy leverage over the banks).

We think it wiser to let banks gradually expire. In the post peak-oil, resource-constricted world, there will likely be no further economic growth. In the aggregate, borrowing and lending will become much riskier propositions since loans will tend to impoverish, rather than enrich borrowers. There will always be room for lending to promising enterprises, but this will be a small niche.

It will be very shocking to witness much of the 20% or so of the US economy that is the banking and financial sector just go away. But there is no way around it. Like house building and automobile manufacturing, it is a sector whose preeminence has come and gone.

Trillion Dollar Welfare

We're certain that you have seen the recent flap about Ms. Nadya Suleman, from whose loins recently sprung a brood of eight premature babies. We extend our condolences to the people of California, whose tax-dollars will go toward the bill Ms. Suleman's fourteen children are piling up.

Honestly, we have to agree with the more negative views of Ms. Suleman's irresistable urge to breed: she is patently unable to feed and care for her previous six children, much less the additional eight. She should never have had any children, since she is unwilling or unable to work. If we were more impolitic, the term 'welfare queen' would come to mind. Thomas Malthus never seems quite so right...

But, we really must protest about Ms. Suleman's unfair treatment. Or rather, the unfair treatment of the bankers, the car companies, and the United States Government. Ms. Suleman's spawn will cost California tens of millions of dollars... but the unspeakable excesses of Wall Street and other scams are costing trillions, not to mention the integrity of the entire world banking system.

Let us be perfectly honest: Ms. Suleman is a leach, sucking money from productive people so that she can breed; Mr. Ben Bernanke, Mr. Bernard Madoff, Messrs. Timothy Geithner and Hank Paulson, Jr., and the rest of that lot... they are worse that leaches. They -- the Investorati -- are internal parasites, consuming everything of value from within, leaving only a dead husk behind.

Ms. Suleman rightly deserves the scorn she is receiving. But the Investorati deserve far, far worse than what she is getting. A sense of proportion must be kept in matters of welfare and bailouts; TARP and the $787 billion stimulus package is welfare of a grander scale than anything Ms. Suleman could ever absorb. American citizens should be rightly offended by Ms. Suleman, and frothing with pure rage at the bailouts.

Disaster Economics

We remember the flap surrounding the origins of the TARP, when former Treasury Secretary Hank Paulson, Jr., told Congresspersons that martial law would have to be declared if the bailout were not quickly passed. If memory serves, words like 'catastrophe' and 'crisis' were bandied about. A dystopian landscape was painted for the poor elected officials, who apparently weren't intelligent enough to seek a second opinion.

Fast forward to today... and we find President Obama making more-or-less the same comments, albeit without the martial law part. Still, suddenly it's just fine to be using the very same phrases that netted Bush flak. The economy is in "a crisis," so the money's got to flow fast and furious to prevent "a catastrophe," says the new President.

"This economy needs support," whines Mr. Bill Gross, or else the United States will enter a "mini depression." By "this economy," we assume that Mr. Gross means his mutual fund portfolio, but we could just be cynical.

All this rhetoric is at once silly, and disturbing. If the Government and big-shot Investorati types manage to keep the citizenry of the United States in a state of reactive fear, any amount of deplorable -- if not downright illegal -- actions will likely be taken. Fear, above all, makes the average person less able to read the fine print... and there will be a lot of fine print in the months ahead.

The Long, Dark Teatime of the Holidays

As we sit at the keyboard, the rest of the Western world kicks back and takes some time off. The news services grind slower than usual; reporters are having a little eggnog with their vodka. This makes us twitchy: some of the greatest political coups d'etat have occurred when the holiday spirit permeates the air...the long, dark teatime of the year. Take the Federal Reserve Act of 1913... it was passed under the cover of darkness, after the majority of Congress had left for their Yuletide cheer. Who knows? As we type, a financial Kristallnacht could be going on without the slightest publicity...

What news we do see, though, is rather grim: retail traffic is down 24% year-over-year; the commercial real estate industry is whining for its bailout; the National Retail Federation wants a three-day jubilee on sales taxes; local banks are getting some hog slop from TARP; GMAC met with the elves at the Federal Reserve and was magically made a bank.

We wonder about GMAC's new status as a bank holding company. This company is, quite simply, a failed arm of a failed company of a failed industry. Not our idea of a good investment of the people's tax-dollars, and surely even the government must realise this. The details, though, are interesting: General Motors has to reduce its holdings in GMAC from 49% to 10%; Cerberus Capital must reduce from 51% to 33%. The 57% difference goes to an unnamed, independent 'trustee.'

This has deep implications: GMAC is now eligible for its share of TARP-feed... but the Fed's terms effectively cut off GM from the benefits of the gravy train. Cerberus won't get much of the money either, since the lion's share is going... somewhere. Hmmm, we wonder where. Were we the betting sort, we might be feeling lucky and put money on a former investment bank with the initials G.S.

But yet, we're heard that things aren't so bad: Turkey's PM is telling us this whole thing is just in our head. This would be funny, if the situation weren't so tragic. To quote Queen Victoria, we are not amused.

Painted into a Corner

Mr. Henry Paulson, Jr., has had $350 billion burning a hole in his pocket since October. It's a terrible thing: he had far more money than he knew what to do with. He's been passing out the bucks willy-nilly, handing off bags of cash to friends, former co-worker, and former employers. Even so, it took him awhile to burn up the taxpayer's hard earned dollars: the last of TARP's initial $350 billion are set to roll out from the Treasury's loading dock. Now Mr. Paulson has pockets filled with lint; it is within his powers to now request the second $350 billion immediately... but he's making no moves to break open that piggy bank. 'Tis strange, we think: it's the season of giving, and he looked like he was having a ball of a time.

His compadre, Mr. Ben Bernanke, is having an even better time: $1.388 trillion worth of goodness, to approximate from the Fed's inscrutable balance sheet. We've looked at the Fed's latest excuse for a report... good luck making headway into its decipherment. Bloomberg has apparently sued the Fed for more information about the central bank's various lending programs... but the Fed may fall back to its legal trump card: the Federal Reserve System is a private bank, and therefore doesn't fall under the Freedom of Information Act.

We put ourselves in the shoes of these two men, and we can't help but feel... nervous.

Let us explain: the Treasury wants to keep the bailouts rolling, and the incoming Obama Administration is planning on spending trillions. At present the Treasury's bailouts are funded by investors buying Treasury debt... but when the cost of make-work programs start rolling in, these investors will be swamped. They just don't have enough money.

Enter the Federal Reserve, which can create a theoretically infinite supply of money. The Fed wants to prevent deflation by any means necessary, and buying up Treasury debt on the open market is just the thing for stoking inflation. The Treasury gets its money, the Fed gets its inflation and liquidity.

The policies of the Treasury and the Fed seem to be forcing them into an inflationary corner. Surrounded by seas of financial red ink, they have nowhere to turn but to the presses. They are playing with fire: sooner or later, all that paper money is going to start burning - first, in the people's pockets; and second, in their furnaces.

Bailouts are the Ultimate Corruption

As we had suggested earlier in the month, a token bailout has been given to General Motors and Chrysler. $17.4 bullion may seem like a ton 'o cash, but its chump change for these sieve-like companies. The Big Three have hit the proverbial iceberg; it's only a matter of time until they go propellers-up. Unsurprisingly, six in ten Americans would prefer to see those propellers than have their tax-dollars go towards making more gas-sucking, barely-functional fashion excessories. And who could blame such sentiment?

Even more odious, in our opinion, is the use of TARP (i.e. taxpayer) money to fund bonuses on Wall Street. The complete hypocrisy of, say, AIG's Jay Wintrob getting $3 million in 'retention awards' is mind-numbing. We personally feel so disgusted that we look for the lynch mobs forming, hunting down Wall Street's finest and stringing them up in Central Park... but we instead see complacence. The American public seems content to whine vaguely about things, but do nothing to stop out-of-control lemon socialism.

These bailouts, besides unwise and reckless, are the signs of corruption so deep and pervasive it makes our head spin. For example, Mr. Henry Paulson, Jr. is a former Goldman Sachs CEO. As Secretary of Treasury and manager of TARP, Mr. Paulson has given his former employer $10 billion of unregulated cash. If this isn't a conflict of interest, we don't know what is. Mr. Paulson also helped remove Goldman Sachs from the old net-capital rule; last we checked, before its recent, cynical move to become a bank, this allowed Goldman to leverage their assets-to-capital to around 30:1 - a speculative foray which taxpayers are now expected to clean up the mess from.

Therein is the rotten core of the affair: public money has been usurped. Money which could have gone towards any number of productive things -- which would have given real, measurable benefits -- instead are going towards rewarding those who created the mess in the first place.

These people -- the bankers, the auto CEOs, Mr. Paulson, et al. -- are so obscenely greedy we feel ill sharing the same nationality. Even though the entire world is in the 2007 Depression, they will still try to milk the system for every last dollar they can get. The callous disregard for the misery and suffering they are helping to create is staggering, but yet it is apparently greeted with cheers and accolades.