Bailout Detroit. (or OMG this economy is in deep do do)

The American car industry came out with an absolutely dismal earnings results and forecast on Friday. GM alone is burning though $2.3 billion a month over the last 3 quarters and has $15 billion in reserves (the figure was actually 14.2 or 16.2 billion, but I forgot) That gives GM about 6 to 8 months before they go belly up.

The old problems – Detroit went for the gas guzzlers and the fuel efficient car are the future. The foreign companies all enjoy universal healthcare while GM has to foot the bill for this and other financial considerations.

The new problem – GM, Ford and Chrysler can’t get loans and neither can many of their customers. This is the Credit Default Swaps problem moving from subprime to the car industry.

Obviously these companies are going to get some sort of a bailout. Democrats are in charge, an election was won, and promises were made. The wimpy CEO of GM came on CNBC and gave a really weak rational as to why there should be a bailout. No wonder they are in such trouble.

Here’s the main three reasons we be bail out GM.

* The loss of 1 to 2+ million jobs. Not only do all auto company workers loose their jobs. But the ripple effect is huge from part manufacturers to advertisers.
* Bond holders. Even a bigger impact. All those bonds (100′s of billions – I’m guesstimating) that come due in the next 30 years go up in flames.
*Huge amounts of American wealth will get sent abroad. We are already sending hundreds of billions to petro dictators each year. Now the future fuel efficient/electric cars and parts will all be imported from Japan, Korea and probably China who can easily undercut the prices of any startups here in the USA.

What’s needed in a bailout for American auto industry. Some ideas

*Get it in writing – "Must build fuel efficient cars."
*Unions and management need to financially bend.
*Temporary partial ownership of US auto industry should be considered. If American’s know that they have partial ownership they are far more likely to buy.
* Pass universal health care so our auto industry and other businesses can compete on a level playing field.
* Get banks to participate in bailout.

What to watch out for

The intent of the bank bailout (your tax dollars) was that banks in good faith would make loans. They don’t and are hoarding the cash. Example – to auto companies and their customers.

Unlike other countries that got this in writing we did not. You can understand Paulson and Cheney/Bush giving $ to banks/business without conditions, but Democrat Committee Chairs Barney Frank and Chris Dodd let huge blunder go through too. They should not have made banks promise to give out loans in writing, they should have got the commitment it in BLOOD.

The AIG bailout terms were way too oppressive. Something like 8% and then 2% above LIBOR. AIG can’t survive if it has to pay 11% to 14% interest on $85 billion To their credit they did pay back $2.3 billion this week, because they could now borrow from Fed discount window. Terms have to be palatable for auto industry and AIG

When you add the 6.5% and growing unemployment rate plus the loss in jobs that a collapse of the auto industry would bring you = well beyond an 8% unemployment rate. We will probably get to 8+% anyway. The loss in bonds who be devastating on the overall bond market and spread to stocks. Still to come is credit card companies & others who will get impacted by the unregulated Credit Default Swaps market.

The downside to all of this is what is happening to the growing national debt.

Bottom Line – This is NOT going to be your typical 8 month long recession, but something far worse even with an ideal bailout plan of the US auto industry.

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