No Bailout ... no real surprise

I have to confess that I'm surprised that so many people seem surprised that the auto bailout failed.

First, you have to remember that the TARP wasn't wildly popular at the time and the logic behind the auto bailout was even more tenuous.

Second, you've got to think that there are some p*ssed off Republican senators looking to settle some scores and show (in a very public fashion) that they're not dead yet, not going away, and not going to rubber-stamp everything the new Congress/Obama administration wants. So, I look at this as a shot across the bow (or, perhaps, into the bow).

Third, and in in line with the first point, look at how the TARP has worked out. Paulson (and Bernanke) went to Congress and said "give us a boatload of money and minimal supervision ... and we're going to use the bulk of the money to buy distressed assets off of bank balance sheets".

In practice, though, we've all seen that the truth is far different -- the TARP has been used as a bank stabilization fund. Now, politicians lie all the time, but they really don't like being lied to (in other words, so long as they're the ones doing the lying, everything is kosher for them). So, I've got to think that a lot of Congressmen are/were thinking "hey, you fooled me once..." and are not inclined to tick off their constituents a second time only to see another BS proposal go south.

So, what do the auto companies do now?

If things are as bad as they say, they go bankrupt. And maybe that's not so bad over the VERY long haul (in the short run, it's bad for all of us).

There have to be rewards for success and consequences for failure, and bankruptcy is arguably the ultimate consequence for corporate failure. IF the afflicted automakers can seize the opportunity (and get strong, forward-thinking management in place), then they can restructure their business and find a cost structure, product line up, and business philosophy that makes sense.

If not ... well, life goes on.

Auto Bailouts -- Damned if you do, damned if you don't

So, now the auto companies reportedly want even more money from the gum'mint -- now the bailout request is up to $34B. That's a curious strategy ... if at first you don't succeed, come back and ask for more.

Has this worked for anybody? I mean, when you were a kid and unsuccessfully asked your parents for a toy, did you come back and ask for a more expensive toy after you were told "no"?

Still... I'm not sure the economy can afford the estimated 6M+ job losses that would come in short order if the automakers are allowed to fail. So, that puts us all in the terrible position of having to hold our nose and do "something".

Now me, personally, I'd favor simply having the government step up and promise to provide whatver DIP (debtor-in-possession) funding the companies need if/when they go into bankruptcy. BUT ... there are those who say that consumers wouldn't buy from a auto company that had gone bankrupt, since they wouldn't trust that the warranty would be honored.

I guess that's where the comparisons to the airline industry starts to fall apart. It's true that airlines have been in and out of bankruptcy for decades and it doesn't seem to present much of a hurdle to people buying tickets. But here's the thing -- when you buy an airline ticket, your liability is clearly defined and it's short term (you know exactly how much you've spent, probably less than $1,000, and you know exactly how long you're at risk (until your trip is complete)). With a car, though, you're looking at a much larger expenditure and you never really know when you'll need that warranty to come through for you.

Maybe Paulson is going to announce that he's taking TARP money and establishing a new federal warranty guaranty program. After all, it wouldn't be the stupidest thing that man has done yet (more's the pity...).

Here's a final parting thought -- if the U.S. automakers are gasping now, what happens over the next few years as Chinese and Indian automakers start entering the U.S. market? Tata is coming ... Chery is coming ... and they're bringing friends.

Unless the auto companies have serious and far-reaching plans to fundamentally alter the way they do business, and that includes competing with still more low-cost competitors, this is just an inefficient means of assembling money into a nice, big pile and then torching it.

Frankencapitalism At Your Local Bank (GS, MS, BAC)

This was written for Investopedia:

http://community.investopedia.com/news/IA/2008/Frankencapitalism-At-Your-Local-Bank-GS-MS-BAC1015.aspx

Strange days indeed.

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