Bailouts

[GoldenRivet]

Wrote my congressman about this bailout business.

Here is what he wrote back. perhaps it is a "canned response" but it is a response none the less... and i agree with every word he says, especially those i have bolded.

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Dear Mr. GoldenRivet, :88)



Thank you for contacting me regarding the future of the automobile industry. I appreciate having the benefit of your views on this issue. I am also quite grateful that you and I share the same basic concerns with such a taxpayer bailout.

As you know, the American automobile industry is truly in trouble. However, Congress has twice been asked to throw billions of tax dollars into the private sector, without any longterm plan by the top executives, other than that they will need to come back and ask for more money in the near future.

Nationalizing a significant part of our auto industry into federal government ownership is not the answer to the automotive industry ills. It is true that years ago the government LOANED Chrysler money to get back on its feet to support a very specific plan by Lee Iacocca to streamline the company and make it profitable. As I have watched the current executives and listened to their testimony, I do not find any similar proposals that will address the longterm situation and I see no Iacoccas seeking assistance. Too many companies are becoming addicted to the taxpayer money "fixes". We must encourage free market selections by individuals, instead of having the government pick and choose winners and losers. This way, we can stimulate the economy while keeping our strong democratic principles intact. Temporary financial assistance could merely delay much needed restructuring, and as a consequence could result in even more private companies seeking government bailouts. It is imperative that we find free-market alternatives to taxpayer-funded bailouts, reduce the tax burden on Americans to allow them to maintain more of their own income and stimulate the economy by encouraging savings and investment.

Over the course of this crisis, I have introduced several pieces of legislation aimed at ending our nation's growing reliance on government intervention and bailouts. First, I recently introduced legislation that would provide a tax holiday for the months of January and February in 2009 to all Americans so they can use their dollars to vote which companies deserve bailing out and which do not. Think about how much you would have if you didn't pay federal income taxes for January and February. Hard working Americans could take and invest their own money where they believe it should go - to paying down mortgages, buying a new car, or making credit card payments. The economy would get relief where it is needed the most. Under this legislation, instead of bailing out corporate executives who fly on private jets to beg for taxpayer bailouts, we will give the money to those who will best use it - the American people themselves.

Furthermore, I have introduced an alternative solution to stimulating the automotive industry without giving the mismanaged companies an enormous bailout. The Consumer and Automotive Recovery (CAR) Act of 2008 would provide a $1,500 tax credit to those Americans with an income of less than $250,000 a year if they purchase a new car that is substantially manufactured in the United States. Please note that this bill uses President-elect Obama's own proposal of a tax credit for Americans who earn less than $250,000 a year. The car would have to be purchased within 6 months of the bill's passage to qualify for the tax credit. The CAR Act will give a significant boost to the auto industry, while preserving freedom of democratic principles and providing a tax credit during this very important season. My desire is for the American taxpayers to decide who they want to assist.

I voted against the automotive bailout. The thought of asking my constituents to pay for automakers' poor management and many of the currently untenable union positions is deeply troubling to me, just as bailing out the Wall Street corporations was disconcerting and I voted against it as well. I firmly believe that it is a grave mistake for the US to socialize trillions in private sector losses by continuously bailing out companies. The same government that eliminates the chance to fail WILL ultimately take away the chances to profit individually. Chapter 11 bankruptcy was created to allow failing companies to reorganize, pay down debt, and streamline operations. Though I would continue to push to insure auto dealers all over the country are not punished for abiding by their end of their contractual agreements, and that the money currently owed to them is returned. There is even important analysis now that indicates the Great Depression of the 1930's may well have been lengthened by Roosevelt's federal intervention, as none of the market indicators ever improved despite the massive social programs until after World War II began.

As you know, the automotive bailout was passed by the House of Representatives with a vote of 237-170 on December 10, 2008, but failed to overcome a Senate filibuster on December 12, 2008.

We have some difficult days ahead, but if we do not abandon the principles that made us the greatest nation in history, we will come out of this difficulty even stronger. Thank you so much for your understanding, your input, and your devotion to this nation. If I can be of service, please do not hesitate to let me hear from you again. It is a true honor to serve you in the United States House of Representatives.

[AVGWarhawk]

Yes, probably a canned response for anyone who writes his/her congressperson. But this congressman is correct. Throwing good money after bad is not a good practice. As a free market, these automakers should be allowed to fail. Under most circumstances, a better company replaces the defunct company. As this person has written, the auto industry is addicted to the taxpayers money. Although Iaacoca had a business plan,giving Chrysler the money started a bad trend. Why bail them out because they suck? Makes no sense. But the automakers are pulling a fast one by stating all of these workers will be without jobs and the subsidiaries that supply the factories will shut down. That is a shame but not my problem nor the governments problem. Management slept at the helm, the UAW strong armed more money far better then what the job called for. Let the factories close and the UAW leaders can figure out how to dispurse the unemployment checks to the union workers. When that is exhausted and the workers are still out of work perhaps they will realize that some concession should have been made to save a company and save their jobs. Just my opinion on the matter.

[UnderseaLcpl]

That sounds a lot like the letters I got from my Congresswomen, basically just telling you what their platform is, and how they are properly addressing the situation.

I do have to disagree with his CAR, idea though, since I am firmly against any form of subsidy, tax breaks, tax penalty, etc etc.. or other incentive of any type offered by the Government. That would be "picking winners" so to speak, and is not only unconstitutional but harmful to proper competitive practice as well.

Nice to see someone actively participting in their government, though.:up: :up: :up:

[Aramike]

Yes, probably a canned response for anyone who writes his/her congressperson. But this congressman is correct. Throwing good money after bad is not a good practice. As a free market, these automakers should be allowed to fail. Under most circumstances, a better company replaces the defunct company. As this person has written, the auto industry is addicted to the taxpayers money. Although Iaacoca had a business plan,giving Chrysler the money started a bad trend. Why bail them out because they suck? Makes no sense. But the automakers are pulling a fast one by stating all of these workers will be without jobs and the subsidiaries that supply the factories will shut down. That is a shame but not my problem nor the governments problem. Management slept at the helm, the UAW strong armed more money far better then what the job called for. Let the factories close and the UAW leaders can figure out how to dispurse the unemployment checks to the union workers. When that is exhausted and the workers are still out of work perhaps they will realize that some concession should have been made to save a company and save their jobs. Just my opinion on the matter.Exactly.

And anyone who feels bad for the workers, THEY are the problem (or more specifically, their union).

The reason these companies are in trouble are due to a thing called "legacy costs". Primarily, this refers to pension packages. So what happens is that these companies are paying 2 workforces - 1 productive and 1 not productive. That puts them at a distinct disadvantage against foreign automakers who can produce cars for far less.

The bigger problem with legacy costs is that they don't get smaller. They are always increasing, far outpacing inflation.

The ONLY bailout I would consider is this: the automakers abandon all current pension plans in favor of retirement savings (401K, IRA, etc). Leave them on the hook for current pension dollars as they would decrease as there would be no more costs incurred.

Finally (here's the bailout part), allow the government to supplement the auto worker's retirement accounts with an amount calculated based upon a national average of employee retirement savings via tenure. That way, workers depending on a pension won't be completely up the proverbial creek.

Going this route, surely there would still be struggles. But, those would be limited if the companies develop a solvent business model. If they don't, they go out of business.

[UnderseaLcpl]

Yes, probably a canned response for anyone who writes his/her congressperson. But this congressman is correct. Throwing good money after bad is not a good practice. As a free market, these automakers should be allowed to fail. Under most circumstances, a better company replaces the defunct company. As this person has written, the auto industry is addicted to the taxpayers money. Although Iaacoca had a business plan,giving Chrysler the money started a bad trend. Why bail them out because they suck? Makes no sense. But the automakers are pulling a fast one by stating all of these workers will be without jobs and the subsidiaries that supply the factories will shut down. That is a shame but not my problem nor the governments problem. Management slept at the helm, the UAW strong armed more money far better then what the job called for. Let the factories close and the UAW leaders can figure out how to dispurse the unemployment checks to the union workers. When that is exhausted and the workers are still out of work perhaps they will realize that some concession should have been made to save a company and save their jobs. Just my opinion on the matter.Exactly.

And anyone who feels bad for the workers, THEY are the problem (or more specifically, their union).

The reason these companies are in trouble are due to a thing called "legacy costs". Primarily, this refers to pension packages. So what happens is that these companies are paying 2 workforces - 1 productive and 1 not productive. That puts them at a distinct disadvantage against foreign automakers who can produce cars for far less.

The bigger problem with legacy costs is that they don't get smaller. They are always increasing, far outpacing inflation.

The ONLY bailout I would consider is this: the automakers abandon all current pension plans in favor of retirement savings (401K, IRA, etc). Leave them on the hook for current pension dollars as they would decrease as there would be no more costs incurred.

Finally (here's the bailout part), allow the government to supplement the auto worker's retirement accounts with an amount calculated based upon a national average of employee retirement savings via tenure. That way, workers depending on a pension won't be completely up the proverbial creek.

Going this route, surely there would still be struggles. But, those would be limited if the companies develop a solvent business model. If they don't, they go out of business.

:hmm: :hmm: :hmm:

I'd be the first to admit that the Unions are partialy at fault here. Having been a member of both the United Transportation Union and the Brotherhood of Locomotive Engineers, I can attest to the fact that they are often not as productive as employees who have to be productive to avoid being fired.

However, I think the impact of pension funds or retirement packages or what have you is pretty negligible in a well-managed company. Company plans, be they for insurance, retirement, disability, or whatever, have the distinct advantage of having a lengthy period of time to develop. As long as employees pay into their retirement fund or insurance plan, the money can be invested elsewhere, be it in bonds, mutual funds, commodities, whatever.

The example I am most familiar with, Railroad Retirement, actually generates income for the major railroads. Even better, it exempts us from social security tax so we have the money to spare. The only time this system has ever failed, to my knowledge, was when the Government "borrowed" the collected capital and then never payed it back. Now I have to pay twice, once for me, and once for those whose money was lost.

U.S. automakers failed, and have been failing for a number of reasons. First amongst these is simply the inability to provide a desireable product. Ford's questionable marketing strategy when gas prices surged upwards was to keep doing what they had been doing. Predictably, sales dropped sharply and now they need money.
Expensive and ultimately fruitless (in terms of financial success) programs to develop and manufacture Hybrid cars were also a big mistake. Yeah, there are hybrids, but how many do you see in any given commute to work? I'll bet anything that ICE vehicles far outstrip them. The market was not ready for the concept, it's too expensive, and it failed.
Increasing regulation in vehicle safety and emissions standards not only increases costs, but undermines the reliability of the vehicle. Vehicles do not need airbags. They do not need "crunch zones" They do not need catalytic converters, computerized fuel control systems, fault sensors, or ethanol-diluted fuels.
But, all these implementations, all of which are mandatory in virtually every state, are expensive to manufacture and/or maintain. Simple supply and demand. All other things being equal, when your stuff is expensive, you sell less of it.
I'm always amazed at how the state so easily imposes its' will upon industry for reasons of safety, but does relatively little itself, and no one seems to care. Many of the manufacturing safety regulations we have would be uneccesary if getting a driver's license involved more than a ridiculously simple written test and perhaps an examination where you need only prove that you can get a car from point A to point B without violating about 2 dozen requirements. IMO, a license should require the ability to maneuver a vehicle forwards and backwards through an obstacle course with a time limit, at night, while staying in your lane and using turn indicators when neccesary, as well as at least 100 hours of road-time under an instructor. The state doesn't even need to provide this. Abolish every part of the DMV besides licensure and let all driving schools be privately operated. Let them pay a tax that goes toward paying for whichever private oversight agency is selected by local election as needed. BAM! Suddenly, you don't need excessive safety regulation because people aren't crappy drivers.
Well, that's a bit of a utopian view, but practically anything has got to be better than what we have now. Drive down the freeway during rush hour and then come back and tell me if you don't agree.

American automakers, and their unions have certainly proven themselves deserving of the failure they are headed for, but the state has played its' part in that as well.

Only the market can determine how succesful and profitable a product is. The state simply cannot, and it has demonstrated this on many, many occasions. Solution to the American Industrial and Financial crisis; let the market work.

Predictably, I have a lot more to say about this, but for the sake of mousewheels everywhere, I'll stop now.:roll:

[subchaser12]

The congressman never sees your letter. They have office staff that respond to all that stuff, usually unpaid interns. If you want a congressman to hear what you have to say better have a fat wallet on you.