Auto industry wants a piece of the bailouts

[Tiz]

As you listen to this news, please remember that companies have gone bankrupt and restructured their debts for a long time. Hard times can also motivate the company to find a buyer, sooner rather then later. All of the steps that can be implemented when companies go this far down the tubes, are set aside if the government is standing in the wings with bailout money. There is no incentive to make hard decisions, like fire your incompetent CEO, or pay a reasonable wage, if they think all will be taken care of. Remember, this bailout money is not our money, not taxpayer money, but money the government will borrow.
I heard over the weekend, on a financial show, that the calls against the first bailout ran 18 to 1 against. That was the bailout as it first appeared, a couple of pages, not the 400 plus page plan, full of goodies, that Congress eventually approved.

No more bailouts. If we don't let the chips fall where they may, we will bankrupt our country. It will be gone.

[HoustonFarrier]

Remember, this bailout money is not our money, not taxpayer money, but money the government will borrow

Or money they will PRINT...thus de-valuing the dollar world-wide...either way, it IS our money.

Wonder if I can get a piece of the pie before it's all gone :p:p

Steve

[Tiz]

I mean the money isn't there, all bundled up in some huge government safe, just waiting for that rainy day.

Remember 4.39 for a gallon of gas? Thank you, weak dollar.

Steve, even if you are that mythical "too big to fail" type, I think the pie will be gone, gone, gone.

[HoustonFarrier]

Remember 4.39 for a gallon of gas? Thank you, weak dollar

I really don't think the dollar had anything to do with it(high gas prices)...I think it was simple supply/demand. The value of the dollar really has been fairly static over the duration of the gas ride/fall.

Steve

[JackieB]

I agree. This is disconcerting. What I'd like to know is who supported those Democrats in the first place? That's my question.

Just trying to inject a little bit of humor there. But I agree. We can't just keep bailing out one industry after another. Perhaps we do have to provide some low-interest loans, but it is scary.

I can understand the government wanting to try to do what it can to keep us from plunging into a deep recession that lasts years. For example, so much of the State of Michigan, where I live, is connected to the auto industry in one way or another. If GM went bankrupt next summer as they are claiming would happen, the entire state would be devastated I suppose.

So, I guess it's like a parent with a kid in deep financial trouble. Do you tell the kid to tough it out and learn from his/her mistakes if that particular financial problem could ruin the kid's life for many years to come? Or, do you loan the kid the money with some strict requirements? I don't know. Honestly. I really don't know.

It is true though that whenever the government lines up with a bailout program (which was widely supported in a bipartisan fashion, so we can't really blame it on the Dems even though I was joking about that), the biggest, most capitalistic, right-wing, "conservative", add whatever adjective you want, companies are right there first in line to get their money. And they do know full well that they don't have to try to tough it out in the marketplace with Uncle Sam helping.

I don't know. I don't like this stuff very well myself either, but I'm not yet prepared to say it's a disastrous mistake on the part of the country.

[JackieB]

I really don't think the dollar had anything to do with it(high gas prices)...I think it was simple supply/demand. The value of the dollar really has been fairly static over the duration of the gas ride/fall.

Steve

Agreed. And on top of that was the speculation that kept the price of a barrel of oil high even when demand started to taper off.

[Tiz]

From US News and World Report...

Why Gas Prices Rise as the Dollar Falls

March 10, 2008 11:21 AM ET | Rick Newman (http://www.usnews.com/Topics/tag/Author/r/rick_newman/index.html) | Permanent Link (http://www.usnews.com/blogs/flowchart/2008/3/10/why-gas-prices-rise-as-the-dollar-falls.html) | Print (http://www.usnews.com/blogs/flowchart/2008/3/10/why-gas-prices-rise-as-the-dollar-falls_print.htm)
Here's one of those complex economic truisms the financial press assumes everybody understands: A big reason oil and gas prices are hitting record highs is that the dollar is hitting record lows. Got it? The world's petroprinces evidently do. The limp dollar has prompted a bickerfest between President Bush, who's been urging the OPEC oil nations to produce more oil so prices will fall, and OPEC leaders, who say the problem isn't limited production but the weak dollar and economic woes in the United States.
Makes perfect sense—as long as you have a Ph.D. in economics. For those who don't, I asked Kristin Forbes, a professor at MIT's Sloan School of Management and former member of the White House's Council of Economic Advisers, to help explain how exchange rates affect gas prices:
Let's discuss why the dollar is so low in the first place.
Economists have been predicting for years that this was likely to happen, and now it is happening. As the U.S. economy has been weakening, interest rates have been falling, and when interest rates fall, investors want to hold less of that currency, because they can get a higher return someplace else.
Basically, that's simple supply and demand, isn't it?
The price of the dollar is falling, in terms of the amount of other currencies it takes to buy one dollar. So you're paying less in euros, for instance, to get one dollar.
So in that equation, the price of the dollar is the same as the value, and as the value falls, there's less demand for it?
Yes. But a bigger reason for the falling dollar is that the United States is running a massive current account deficit, which we're funding by borrowing from the rest of the world. We've been able to borrow at low rates, but that can't go on forever. A falling dollar is an automatic adjustment mechanism, which means there's an increase in exports from the United States and lower imports into the country, which helps rebalance the deficit.
And now that we're in an economic downturn, or maybe even a recession, what does that have to do with it?
When you have weaker economic growth, the Fed usually lowers interest rates—one of the things that lowers the value of the dollar.
So how does a falling dollar contribute to rising oil prices?
It's a little bit complicated. Oil is priced in dollars on the world market. When the dollar is weaker, foreign currencies are stronger, by definition. That means people in other countries can buy more oil for the same amount of money. So let's assume oil is $100 per barrel, and $100 is equal to 70 euros. If the euro appreciates against the dollar by 10 percent, then instead of 70 euros it will take only 63 euros to buy one barrel of oil. So that oil becomes cheaper to foreigners, and they can buy more.
And do they buy more?
Usually, yes. There are other factors obviously, like in many countries taxes are such a big portion of the cost of oil that the savings aren't that dramatic. But it would still make sense to buy more if the price in your own currency goes down.
So for those of us stuck with the dollar, why does that make the price of oil or gasoline go up?
As people in other countries buy more, demand rises, and it drives up the price in dollars, which, again, is how the price of oil is denominated on world markets. So in the United States it looks like the price is going up sharply, in dollars, while in other countries it's actually going up by much less or staying about the same.
Which other countries, and currencies, are most important in this equation?
Certainly the euro, the Canadian dollar, and some of the Asian currencies, such as the Chinese yuan and the Japanese yen, although the Asian currencies have strengthened less against the dollar.
There's another whole effect we're starting to see recently. As people become more worried about inflation, they're investing more in commodities in general, including oil. And that also drives up demand and prices.
So concern about inflation is indirectly driving up the cost of oil, which in turn is contributing to inflation?
Seems ironic, but yes. Although I doubt that this is as important as other factors driving up the price of oil—such as strong growth in parts of the world such as China and India.
Another important issue is that in a lot of countries, like India, China, Indonesia, and some Arab countries, the price of oil and gasoline is subsidized, to keep the domestic price low, usually to prevent social unrest. That matters because if oil prices were allowed to be set at market prices, demand would fall, and so would prices. So demand in those places is artificially high.
So do you think oil prices will stay where they are? Or are they artificially high and likely to fall?
I think oil prices are distorted on the high side. If they stay high, new supply will come onto the market.
Because it makes sense to increase supply if you can sell it at a high price?
Right. And if prices stay high for long, we'll start to see oil companies begin to extract some of the higher-cost oil, like from the oil sands in Canada. More supply will reduce the price.
What about the U.S. economic slowdown? Isn't that supposed to reduce demand a bit, and theoretically lower prices?
It depends on whether we see increased demand for oil in other countries. The big question is whether the slowing of U.S. growth spills over into other countries or whether those countries continue to grow rapidly and demand more oil.
The decoupling question.
Right.
What's your best guess about whether we're going to experience a recession?
I think it's a close call whether we're technically in a recession. The second quarter may be tough, but I think by the third and fourth quarter we're going to bounce back. We'll be feeling the effects of the huge fiscal stimulus and the interest rate cuts by then.
You mean new cuts the Fed may yet make? Or cuts the Fed has already made?
Cuts the Fed has already made, which usually take six to nine months before they fully impact the economy.

[Tiz]

Bankruptcy doesn't necessarily mean the company goes away. Debt gets restructured, the company sells, ect., ect.
Michigan relies on building cars probably much like Oregon relied on wood products. Environmentalists shut that industry down, and the portion of the state that relied on those jobs is still, all these years later, in a depression. Entire towns are gone.
I read recently that a UAW worker costs $65 per hour, so I'd say the union gets most of the credit for the automakers demise.

[gaited07]

I read recently that a UAW worker costs $65 per hour, so I'd say the union gets most of the credit for the automakers demise.


Thats a lot of greedy pockets filled! WOW, Thats STRONG!

[HoustonFarrier]

I got to see up close and personal, the UAW 'effect" on the American auto industry. Back in the 1990's, I worked for a company in Cincinnati, who developed and marketed a TDMS (Technical Document Management System). Our primary customers were the Aerospace Industry and the Auto industry. We were installing the system in the engine plant at Romeo, Michigan. We needed to run a network cable UNDER the false floor of the computer room. As I started to pull op a few squares of the floor, one of the managers came running into the computer room and told me I had to STOP immediatly. Union contract REQUIRED them to call in a UAW Union guy to do this. He ended up being a sub-contractor and it cost Ford about $1000 for this guy to lay and connect the cable......$1000 for what would have taken me 10 minutes to do, at no cost.

Unions.......

Steve

[Tiz]

"Unions......."


Long past being useful.