General Motors, The Feds.

This article will take approx 2 minutes to read.

In the early days of this blog, I wrote a lot about political issues. Frankly, when I was getting going in the blogging world almost five years ago, it was about the only thing I knew to do. Political blogging was huge and it was about the only kind of blogging that registered on the radar. Over the years, I’ve found my niche and it is clearly what you find here today. However, today I need to address a huge issue facing the American public, small businesses and every aspect of the American fabric of society. I must get this off my chest, because it matters to business in a way that nothing else in our lifetimes has.

As time goes on, I have gone from extreme right wing conservative to moderately progressive and still trend right on some issues. It doesn’t really matter though, because the principles that I believe in are firmly based in a sense of pragmatic, if not downright cruel, reality.

Over the weekend, the Obama administration did something completely unthinkable that will have a longterm negative impact on the enterprising and innovative American markets. The federal government made board level decisions on behalf of a publicly-traded company, General Motors.

It is clear to any objective mind that the General Motors (and to a lesser extent Chrysler) proposal for restructuring in the face of bankruptcy, and to secure taxpayer funds, was less than adequate. In fact, some rumors from within the company suggest that GM essentially sat on their hands as they approached the deadline originally agreed to with the Bush administration. Clearly, this is less than acceptable. Clearly, this mindset believes that they truly are “too big to fail” and that the feds would simply swoop in and rescue them yet again.

Clearly, clearly, clearly. Yet… none of this is clear.

The Obama Administration suggested a change to threatened the GM board of directors that they had to remove CEO Rick Wagoner.

I understand why. If Wagoner was too sluggish in his behavior, or “sat on his hands pending an Obama bailout” then he certainly needed to be removed. All evidence points to only positive results from his removal. However, the federal government directly intervened in the private sector governance of a publicly traded company.

This outrage is enough, but somewhat legal if they own a portion of the stock. IT’s expected that, as shareholders, the government would want a say.

However, here is the part that no one is talking about. In essence, General Motors has become a Wholly Owned Subsidiary of the United States of America. While your Orwellian alarms go off, let me rub salt in the wound. The SEC is supposed to regulate GM. That’s right, the Securities and Exchange Commission, a fully functioning independent agency of the U.S., is now tasked with regulating itself.

Can anything good come from this? I think not.

In an ideal world, one filled with unicorns and gryffons and other mythical creatures, the SEC executes their funtion without privilege or bias. In an ideal world, GM adheres to the same regulations put in place by the SEC that governs the market. In an ideal world. Since when has self-policing ever worked? Especially with the SEC.

To make matters worse, in an effort to stimulate company growth and remove government ownership of the company (yeah, right), the Feds are likely to make moves that will help GM, but may undercut the market. For instance, cutting the MSRP of automobiles by a certain percentage to stimulate sales. These kinds of actions are generally regulated by the Justice Department (as well as the Commerce Department) and fall under unfair trading practices.

At what point is a U.S. owned company able to compete on the open market without undercutting market tensions and forces, and at which point does the “adherence to market principles” mean the destruction of the company?

My feeling is that the longterm ramifications of bailing out and direct government intervention into the governance and conduct of a company is a dangerous precedent. Beyond a dangerous precedent, I believe it will only exacerbate the complete destructive collapse of the economy.

There will be some who call me crazy. Who call me a sensationalist. That tell me I am too conspiratorial. Remember this post when my predictions actually come to fruition. Within six months.

Comments

    • says

      Suggest, not mandated, the change. Let the board really make the decision without strong arming, provide a 15 day extension to provide a viable alternative solution for reorganization and if at the end of 15 days it didn’t work… let them go into bankruptcy. Mandating a change at the top is not the place of the Federal government.

      • says

        Don’t you think a “suggestion” from the entity with the power (and obviously the inclination) to pull them up from the depths would be taken as a mandate?

        I agree a bad precedent was set here. GM should have been allowed to go under – that’s business. If you can’t stay viable you die, your workers and managers move on, other businesses are started, life goes on.

  1. says

    It’s almost bumpersticker language, which I detest, but it is almost true: “Too big to fail is just plain too big.”

    I understand that there are heartwrenching economic consequences to letting these big automakers fail, but the ramifications you mention are exactly why these bailouts were an ill-conceived idea. I agree wholeheartedly with your objections.

    I was on the phone with a Silicon Valley, dyed-in-the-wool Obama supporter last night – lifelong Democrat coming from a family of folks who’ve been Democrats since they emmigrated to America to escape the holocaust.

    The ham-handed, establishment-preserving solutions of the Obama administration have actually caused him to utter the words: “I’m considering switching to the Republican Party.”

    • says

      There is nothing wrong with conservative ideals – they are the ideals I believe to be closest to those of our founding fathers. However, I don’t think the profile of the current Republican party even comes close to espousing those ideals.

  2. says

    I think the most ironic thing is that Michael Moore (a voice for the far left) got his docu-start picking on GM for closing plants during the last economic downturn.
    The interesting part of all of this is how the government moving forward will manage to push the labor unions into concessions, and push GM to trim it’s operation.

  3. says

    When you consider big business is the best friend of Uncle Sam, when legislative pockets are linked with lobbyist lint, and when many elected/appointed officials used to work in management or in lobbyist roles for said firms, are you truly surprised by the Obama-Wagoner turn of events?

    I’m not.

    Former IMF chief economist Simon Johnson said this in so many words about 10 hours ago on NPR’s “On Point” program–namely, that America’s bankers are an influential oligopoly: http://www.onpointradio.org/shows/2009/03/are-the-banks-running-america/ and that it will take a l-o-n-g time to change the system.

  4. says

    So no one blinks an eye when union contracts are forced to be renegotiated or just plain broken, but when the gov comes down hard on executives who are asking for handouts are asked to do the same for the managerial class, then there’s a problem?

    Okay. That’s out of my system…

    Part of the problem of with the SEC is that it has been so decimated over the past 28 years. And I am including the Clinton administration in this. for years we’ve had politicians who rail against the inefficiency of government, get elected on that premise, and then prove it. Namely, take a look at the Graham-Leach-Bliley Act and it’s effects on the financial industries. For instance, tell me what regulator oversees AIG, why they oversee what is primarily an insurance company, and what it’s staffing is like. Once you’ve done that, you may have a better idea of how much deregulation and “letting the market settle itself” has completely fucked us.

    GM has been emblematic of the problem as well in the same stream of thought. Rather than advocating for universal health care, which would almost eliminate their legacy costs, especially compared to Toyota and Honda, where the majority of their already retired workers are covered by their respective countries national heath care system. Furthermore, GM fought tooth and nail the idea of fuel efficient cars such as hybrids, EV, and the like for decades. GM fought seat belts, fought airbags, fought safety glass because they would “increase the cost of the car”, but instead has saved millions of lives and perhaps billions of $$$ in injuries related to accidents. They say that they are following what the market wants, but still spend a ton of cash on advertising promoting the idea of taking your bug suv out to remote wilderness to camp. and I would say that advertising is probably the more influential factor there. See Douglas Rushkoff. If you don’t have any of his material handy, check out this: http://www.pbs.org/wgbh/pages/frontline/shows/persuaders/view/

    • says

      So no one blinks an eye when union contracts are forced to be renegotiated or just plain broken, but when the gov comes down hard on executives who are asking for handouts are asked to do the same for the managerial class, then there’s a problem?

      Nope. I’m coming down on the government getting involved in a private matter, regardless of whether the merit of the action is true or false. It’s a procedural flaw that will have widespread economic ramifications.

      If the government forces union renegotiation in the same manner that they did with Rick Wagoner’s forced resignation, I would have a problem with that too.

      • says

        We were having that discussion last December with the original consideration of the auto bailout. And several times in the past decade. Where was the outrage then?

        part of the issue is that because of the bailouts of both the auto makers and the financial services industries, the government is becoming a significant shareholder, if not, the majority shareholder. The government would be negligent if they didn’t address management competency just like any private entity who is a stockholder in a company. Your arguments ring hollow methinks.

        • says

          With all due respect, I said that. You’re repeating what I said. It is a good move on it’s face and the government should be as any other shareholder. My problem is the root of the mess and that is that there should not be government involvement (shareholder) in any privately held company. Period. Of course, now that there is, then one thing follows another.

          What needs to happen now is to allow the demise of non-viable companies. Stat. No bailouts. No purchase of common or preferred stock. If they can’t make it, they go into bankruptcy. Certainly, the government can help facilitate a soft landing (i.e. controlled bankruptcy) but if these publicly traded companies can’t make it, they need to die. The only cure for a depression is a depression and we can’t avoid a depression at this point. Government involving itself in the private sector is only prolonging the inevitable (as we’re seeing with GM and the Obama administration suggesting bankruptcy now).

          My argument is not hollow and it’s not an easy argument to make.

  5. C. Schmidt says

    I think another point that needs to be addressed is the fact that no one on the bank side of this bailout is having the government interfere with their businesses. There is a double standard going on in this sense. http://www.newsy.com/videos/autos_vs_banks_bias/ looks at this bias from a couple of different news sources. I think they convincingly argue the point, why not anybody else?

  6. says

    Great points, and I could not agree more. I am an old timer and believe that you should let things run their course. I do believe that some stimulus is helpful in areas like housing, but that is about it. Banks that got in to trouble should deal with their mistakes, the government has insurance to protect against banks going out of business – so why bail out banks

  7. says

    Although I agree that it would cause hardships to a lot of Americans to let the big 3 auto companies close their doors, I’m not sure that the bailout is going to work, either. It will be interesting to see what happens.