Today's announcement that GM is about ready for a "surgical bankruptcy" encapsulates once again the government's policy to pick economic winners and losers. First, while President Obama has certainly embraced this policy, he by no means started it. In fact, this policy was embraced back in May of 2008 when then President Bush along with Fed Chairman Bernanke made sure that Bear Stearns was bought out rather than failed. It continued with subsequent bailouts and it was finally ingrained when Lehman Brothers was then allowed to fail.
While President Bush certainly became fond of choosing winners and losers, President Obama has given it a life of its own. It's most startling casualty was the CEO of GM, Rick Wagoneer. President Obama is determined to micromanage winners and losers. He is determined to create a "green economy". As such, any company or product that the government deems "eco friendly" will be given all the benefits of government support, while all "eco unfriendly" products will be punished into non existence.
Make no mistake, just because a cause is noble doesn't mean it is wise. We all want a clean environment and we all want to create eco friendly products. That doesn't mean that government imposing its will makes any sense whatsoever. The president is determined by hook or crook to make us eco friendly. Whether a product has any mass appeal, if it is eco friendly, it will get all the support necessary to succeed. Even if a product has mass appeal and is cheap, it will be punished out of existence if it is determined to be eco unfriendly. Such idealistic nonsense leads directly to economic disaster.
The president doesn't stop there. He has determined that AIG is too big to fail. As such, they will continue to bleed tax payers until their debts are paid. Meanwhile, while he initially thought the same thing about GM, they have now been deemed not so vital that they can't go through bankruptcy. He has however determined the U.S. auto industry itself too big to fail, and thus, he has gone to the extraordinary step of making government guaranteed car warranties.
He has also determined that mass foreclosures is something that is unacceptable, and so he has created government sponsored loan modifications. He's also determined that mortgage brokers are villains and so you can expect new regulations that will put them (and by extension me) out of existence.
The president has also determined that health insurance is a right. As such, if you don't have any or can't afford, it will be provided for you free of charge. At the same time, he has determined that if you make $250,000 or more, you make too much and so it's government's job to take more. So, your increased taxes will go in part to pay for free health insurance of those that can't afford it.
Such is an unprecedented government intervention to decide which succeeds and which fails. We've never seen the moral judgement on such matters the way it has occurred so far under the Obama administration. The administration has decided that it knows better than the markets. In my opinion, this is an unprecedented display of political and philosophical hubris. The market is always the best determinant of what should succeed and what should fail. Yet, that is not what the Obama administration wants to do. They have decided they know what should succeed and fail, and they will impose their will to make sure their vision is realized.
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That might be the case, but G. Richard Wagoner is a loser in any economy.
And don't worry, Red Ink Rick will still get his $20 million bankruptcy-proof pension, not to mention that the White House appointed Wagoner's hand-picked successor, Fritz Henderson. There can be no clearer sign that GM is going Chapter 11.
Moral of the story: Accountants can't build cars, and they can't sell cars.
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