Friday, November 14, 2008

Pigs Feeding at the Trough of Government Largesse

It was only a matter of time. Now that the Congress and US Treasury have decided that it is legitimate for the Federal Government to spend $700 billion "bailing out" various banks and financial companies, the line is getting longer of those holding their hands out for free money from heaven.

First, we were told that if the Federal Government didn't spend $700 billion (a figure pulled out of thin air) to buy "toxic assets" from failing banks, that the world would end. Then, this week, we are told that they don't plan to buy any toxic assets at all. Instead, everyone and their brother is holding their hands out to get more free money from the government.

General Motors is in dire straights as they burn through $2 billion in cash each month because they are such a colossal failure of a company. But hey, who cares, let's lend them another $10 billion or more to keep the doors open, even though they already have a negative net worth of over $59 billion. Just because they've lost $75 billion over the last few years and they can't pay the bills as it stands, borrowing more money from taxpayers, when no bank in the universe would do so, is a sure way to fix things, right?

But wait, don't look twice. Now cities are asking for bailout money. That's right, the City of Detroit is asking for $10 billion to shore up their budget. That's in addition to Philadelphia, Phoenix, and Atlanta. More to come, just stay tuned.

Next, our own City of Grand Rapids admitted this week that their financial manager, apparently having the intelligence level of a monkey with a typewriter, has lost $225 million of pension funds since May. Nowhere in the discussion was mention of firing the idiot who has lost that much. No, instead they discussed how to dump an additional $10 million into the fund next year. Oh, and they promise they won't raise taxes to do so (wink wink).

Folks, this is the worst financial crisis since the Great Depression and the moronity in Washington (and Lansing) seems to be at an all time peak. These bailouts do not come without consequence. Bad companies need to fail. Cities need to get their financial decks in order. Unsustainable pyramid-scheme defined-benefit pension plans are destined to fail. It's just that no one wants to face the facts now, they prefer to defer those problems to future ill-informed politicians.

Well, the cows have come home, and we have yet to see any real intelligence shining through the political class. No, instead we have the Michigan House of Representatives ramming through a law to ban wine retailers from shipping to Michigan residents. Ah yes, priorities.

It looks like the national debt is going to increase by $2 trillion or more next year as the US Treasury issues debt like there's no tomorrow. The next problem is that foreign countries will slow their buying of US debt. We're already seeing a decrease in demand for treasury issues. Countries like China and Japan are more interested in spending money on their own people than buying US Treasury securities. The stuff is coming even closer to intersecting with the fan.

Folks, this problem was created by government in the first place. We have a federal reserve that prints money out of thin air, encourages malinvestment through artifically low interest rates, and encourages leverage through fractional reserve banking. This house of cards is beginning to fall. Government can not spend its way out of this. In fact, government is making things worse.

Stop the bailouts. Stop the futile "stimulus" discussions. Reduce taxes and spending dramatically. Phase out the Federal Reserve, Fannie Mae, Freddie Mac, and all the pseudo-government entities that created this mess in the first place. It will be painful and rotten, but it will clear out the cancer of perverse government incentives in the market and allow our economy to heal itself.

But, frankly, there is no hope of any of that happening. That's why we ain't seen nothin yet.

Wednesday, November 12, 2008

Bailout GM Now!

We must bail out Ford, General Motors, and Chrysler because they are far too large to fail. This short video does an excellent job of explaining how it will all work:

Friday, November 7, 2008

Have a Few Extra Dollars? Time to Short GM Stock.

Ford and General Motors release their earnings numbers this week. The important bits of information to look at are the cash flows. GM and Ford are rapidly burning through their cash reserves. GM Burned through $6.9 billion in cash during the third quarter of 2008 (that doesn't include October, when things reallly got bad). GM now sat with $16.2 billion at the end of September. Ford is fairing slightly better, but not much.

GM Is warning that they may run out of money to pay the bills by the end of this year. Essentially, they will be insolvent. Check out a few important stories on the subject:

What's going to happen? Most likely, GM will file for bankruptcy some time this year. Of course, they are angling for another $50 billion in low-interest loans from the governmet (in addition to the $25 billion already approved). This is the wrong thing to do. Why? Because GM and Ford (and Chrysler) failed to keep themselves solvent. They made bad decisions and they should pay for them.

A GM bankruptcy will not put the company out of business. It will allow them to reorganize, shed unprofitable lines of business and contracts, and emerge more fiscally sound. You don't see Toyota with its hands out for government money. They have run their business well. Even though they are affected by the current economic mess, they can survive it because of past good decisions.

These bailouts just prolong the pain. One or more US car companies will fail, it's just a matter of when. What happens to these loans if/when these companies goes under? The taxpayers get stuck with more bad debt. The national debt is already over $10.5 trillion (almost three times higher than when George Bush took office). The government can't (and shouldn't) try to fix everything. Let the market work.

Monday, November 3, 2008

Election Day Guesses

Nope, no predictions. Just guesses.

President - Obama 53% - McCain 44%

Proposal 1 - 60% Yes, 40% No

Proposal 2 - 52% No - 48% Yes

We didn't write an article on Proposal 2 because it just seems pointless. Moral arguments aside, why amend the state constitution to allow one specific form of scientific research? Several other states have already done so and there's got to be only so much embryonic stem cell research to go around. It seems extremely doubtful that any significant new "business" would choose to reside in Michigan if this passes. Prop 2 seems like a poor reason to amend the constitution. Many other forms of stem cell research continue to show promise. Why single out only embryonic research?