Well, while I was gone this week, GM asked the government for another $21.6 billion, on top of the $17.4 billion taxpayers handed them just two months ago. Reading between the lines of GM statements, it is probably not crazy to assume they are burning cash at the rate of $5-$8 billion a month, which means this new infusion would likely get the company only through May or June. This burn rate should not be surprising, as GM was burning $2.5 billion a month before the recession even really started, and they have really done nothing substantial to restructure the company. By throwing the company to Congress to help save its managers and equity holders, the company has subjected its restructuring not to hard-headed bondholder representatives in a bankrupcy, but to the vagaries of the political process:
When the president's auto task force meets today to begin trying to fix the broken U.S. auto companies, it must balance dozens of competing demands.
Yeah, I am sure that will go well. GM can have its money as long as it puts a factory in West Virginia and names it after Robert Byrd. The bondholders are pissed, as well they should be. The senior debt holders have first claim in a bankruptcy, so another way to look at this political process is that it is the action of all the other constituents of GM (employees, equity holders, managers) who are trying to get Congress to interrupt the typical subordination of interests in a bankruptcy and allow them to get ahead of the senior debt holders in the line for what limited value remains in GM's shell.
I am tired of Keynsians and their assumptions setting the tone of the economic debate. Here is the question I would ask them:
I understand that you Keynsians think that there are under-employed assets in the country, and that you think the government can redeploy prvate investment capital to more productive use.
Ignoring the individual liberties issues assosiated with this approach, as well as the fact it has never worked in the past, answer me this: How are we going to turn around the economy by forcing capital to flow to the assets, industries, and management teams that have proven themselves to be the least productive?
We send money preferentially to the industry (autos) that has been showing some of the worst returns on capital in the entire country, and in particular to the company (GM) that has performed the worst in the industry. If we really wanted to create auto jobs, wouldn't we send the money to the company that has historically invested money the most productively? It would be as if venture capitalists were about to complete their 27th round of financing to keep Pets.com afloat. I have been in a company that eventually failed and couldn't get new financing. At the time we were trying to convince the investors that they should give us just one more round, one more chance to prove the thing out. In retrospect, I am embarrased they funded us as long as they did. They should have pulled the plug way earlier. Investors have a saying "your first loss is your best loss."
And don't even get me started on housing. A deader, less productive investment asset can't possibly be identified. A million bucks spent on a house produces 30 jobs for 6 months. A million bucks spent on a factory expansion produces 30 jobs indefinitely. For years, Democrats have hammered the Republicans over the jobless recovery of this decade, which in fact has shown a fairly unique jobs profile. I wonder how much of this could be traced to the myriad incentives that were put in place to pour our available capital into these dead assets? And now, with the bailout and the new mortgage bailout, the government is investing even more money to prop up the value of these non-productive investments.