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An Enormous Blunder

March 30, 2009, 2:43 pm

It is becoming increasingly clear that Obama has made an enormous blunder, driven in part by his best-and-the-brightest-style hubris, in taking personal ownership of GM.  Not because it will be an enormous waste of taxpayer money, because I don't think he cares about a few tens of billions of our money.  It is a blunder because GM may not be fixable, and if it is salvageable in some smaller format, it will require painful compromises by politically powerful groups Obama really does not want to square off with.

Obama's stepping forward and claiming ownership for GM's success strikes me as roughly equivalent to someone stepping forward in March of 1945 to take ownership of the German war effort.   The decision is all the dumber because there was a perfectly good alternative -- ie the bankrupcy courts -- with far more experience (not to mention authority and legislative mandate) to handle these type of situations.

Megan McArdle has a good roundup of what challenges face GM and the Obamacrats.

Update: Obama seems to be hinting that a bankruptcy may still be in the cards.  The key challenge for him will be to deal with the obvious accusation of why he didn't allow this before spending $20 billion or so of taxpayer money.  Expect the administration to be focus-grouping and trial-ballooning various euphamisms for chapter 11 to disguise this problem.

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Category: General Business, Politics
  • ben

    Obama’s stepping forward and claiming ownership for GM’s success strikes me as roughly equivalent to someone stepping forward in March of 1945 to take ownership of the German war effort.

    I don't understand this point. What success? Is there any prospect of good news to be had from GM?

  • Allen

    Seems like anything short of disappearing is "good" news when it comes to GM. But that "good" news isn't going to be very good in the grand scheme of things.

  • Sol

    ben: I believe he means the analogy from the German point of view....

  • http://www.tinyvital.com/blog John Moore

    Didn't he also guarantee its warranty program and say it should go into bankruptcy? If so, this may not be that bad a move.

  • geo

    I'm not sure but I think the warranty guarantee might be considered a govt subsidy if so not sure the WTO wont come out against it.

    Toyota may have a case on that one.

  • ben

    ben: I believe he means the analogy from the German point of view….

    Oh... lol. I took it as meaning from America's German war effort!

  • http://elambend.com elambend

    GM actually has good business, outside the US. It's especially strong in China and Brazil. Notably, some of its initial 'bailout' money when to finish its most high-tech and automated plant, which is in Brazil. It's a mess in the US, where it is tied down by over-capacity in production, over-valued, overly complicated labor contracts, health insurance liabilities and knuckle-headed management. It's problems could be fixed by bankruptcy (real bankruptcy). The problem is bankruptcy could have been done last fall, in the courts, without shoveling money down the hole. Also, for the reasons Warren laid out above, I don't foresee a true bankruptcy that makes the hard decisions and cuts in the works.

    Geo, that's the first thing I thought when he said it.

  • A Real Hoser Eh?

    I too was reminded of Germany, but not circa 1945. More like the earlier years, when their leadership tried to fix things with increasingly strong economic and legal measures. The more they tried to do, the worse it got, the more people had to be conscripted to keep them out of trouble (voluntary national service dontcha know), and the more necessary it became to find scapegoats on which to blame the inevitable failures of socialist nationalism.

    Germany tried to help its car industry with the Volkswagen program, a forced-savings boondoggle in which workers were compelled to put aside money for a new car. Instead their money got stolen for the war effort and they ended up being forced to fight in a pointless war for "change".

    So don't worry. If he continues the trend he has established, Obama will have his Stalingrad and his Berlin 1945 apocalypse.

    To learn more about Obama's modus operandi, try reading "Hitler's Beneficiaries: Plunder, Racial War, and the Nazi Welfare State" by Gotz Aly, and "The Vampire Economy: Doing Business Under Fascism" by Gunter Reimann.

    P.S. Lest anyone think I have a special dislike of Obama, let me state for the record that I realize that his policies are only the next step in the path laid down by his predecessors, notably one George Walker "Dubya" Bush.

  • http://travismonitor.blogspot.com Patr

    If GM goes BK, which is now inevitable, the Republicans who opposed the earlier bailout will have been proven right.
    We are throwing good money after bad.
    And sadly, Obama and his henchman are destroying GM not helping it. Why? This is all about bailing out the UAW, and you cannot fix GM
    without getting it out from under the thumb of the UAW.

    So in effect, the doctors working on GM will say 'the operation was a success but the patient died'.

  • DaveK

    My cynical take on this is that our President would readily support the Chapter 11 process if he could guarantee that the UAW and their cronies won't lose anything substantial from their Wage/Benefit/Work-rules package. I predict he'll come up with some very complicated scheme that will be called a "bankruptcy process" but will just be yet another expensive (to the taxpayers) shuffling of the deck chairs for a sinking corporation.

  • ElamBend

    DaveK: I'm with you, particularly after his [the President's] comments that there may be bankruptcy followed by a pledge to preserve jobs, etc. pretty much as they are.

  • MikeB

    I think you are wrong about this being bad politically. Obama's move is intended to prove that he tried really, really hard to save GM and save auto worker's jobs before sending them to a modified type of bankruptcy with a bunch of extra UAW protections and salvaging green vehicle development. I think Obama knows GM must go thorugh bankruptcy, but this allows him to pick and choose what will remain and chart a path for the remains that he can rely on as a political asset.

  • Scott Wiggins

    Who cares about tens of billions going to GM when the CBO has forcast a 1.85 trillion dollar deficit for 2009 and the public merely yawned...Obama and the dems won, don't you get it? Get ready to be a slave to the Feds for a generation as they desperately try to pay for all the stimulus and bailouts and new entitlements...It will get ugly as foreign purchasers of our debt will likely disappear in the next few years. No matter, we will buy our own debt. Kinda like a big dog licking its own balls...