Tag Archives: Bailout

Another Waste of Taxpayer Dollars

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UPDATE: Today on the Rush Limbaugh Show, Mark Steyn weighed-in on the absurdity of Chrysler’s ad last night:

Washington Examiner: Chrysler releases $9m Super Bowl ad while requesting more taxpayer dollars

You may have noticed that Chrysler released the longest ad in Super Bowl history on Sunday night, featuring the new Chrysler 200 driven by Detroit native rap star Eminem, an ad that CEO Sergio Marchionne says cost less than $9 million. But given that the company’s CEO also announced this past week that is seeking a “better deal” on government loans, it is likely that this ad had more to do with getting political support than selling cars. Besides, is spending millions on a Super Bowl ad appropriate for a company that received a taxpayer bailout to recover from a bankruptcy?

Maybe the ad wasn’t an appeal to car buyers, but rather politicians. According to the Detroit News, Chrysler is seeking a better deal on its bailout:

“I am paying shyster rates,” Marchionne said, noting that Chrysler had no choice in 2009 but to pay the high interest rates the government set as part of its $15 billion Chrysler bailout. “We had no choice… I am going to pay the shyster loans.”

He called the loans “a thorn in my side.”

Chrysler’s also in talks with banks to refinance its debt and plans to have an “agreement in principle” by end of March, he said.

Marchionne spoke at an auto industry conference sponsored by JD Power at a hotel here ahead of the National Automobile Dealers Association three-day convention. He said he is hopeful that the company can win an agreement in principle for $3 billion in low-cost Energy Department retooling loan — a move that is necessary for Chrysler to win private
financing, Marchionne said.

That’s right: Chrysler took $15 billion from taxpayers, to which it wasn’t entitled, and at an industry convention its CEO calls taxpayers a word that is defined as “someone who acts in a disreputable, unethical, or unscrupulous way, especially in the practice of law, politics and used car sales.” Message received: “Taxpayers’ money saved a car company from bankruptcy and all they got was this lousy Super Bowl commercial.”

And what a commercial. Chrysler turns to America to say that because Detroit has been “through hell and back” it has endured the “hottest fires which makes the hardest steel,” and that the reason people don’t know that is because newspaper reporters “don’t know what [people in Detroit] are capable of.”

A few things about that.

One: Chrysler didn’t go through the hottest fires. Unless, of course, “hottest fires” means “skipping bankruptcy” and asking for a handout to protect union pensions, which it got. And when Fiat was able to take control of Chrysler, it was because of a heavily politicized deal facilitated by the president’s auto task force. It even got $6.6 billion in exit financing by Uncle Sam. Most failing businesses have trouble finding buyers. Not Chrysler.

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Moral Hazard

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Last Sunday’s New York Times featured an article by David Segal entitled “Is Law School a Losing Game?“. In the piece, Segal profiles a number of law school graduates whom have been burred in debt, with little to no chance of paying back their debtors. The article is meant to be an exposé on the true value, or lack their of it, of a law school degree.

One recent graduate interviewed was Michael Wallerstein. Wallerstein graduated from Thomas Jefferson law school with a $250,000 debt, and few job prospects. His account of the time he spent at law school is strewn with stories of studies abroad, in Prague and France, and renting of a spacious apartment, all paid for with borrowed money.

However, Wallerstein had no desire to accept a true entry level position, and instead prefers to work temporary jobs and spend time with his fiancée. In fact, Wallerstein’s fiancée does not want to see her husband-to-be accept a “time-gobbling corporate law job.” Why? Because they “like hanging out together” she says.

When confronted with the fact that he could be earning more money if he had kept his job as a research assistant, not to mention be without any outstanding debts, Wallerstein says he’s still happy he went to law school:

It’s a prestige thing. I’m an attorney. All of my friends see me as a person they look up to. They understand I’m in a lot of debt, but I’ve done something they feel they could never do and the respect and admiration is important.

Wallerstein, a perfect example of the over educated NINJA generation (No Income, No Job, No Assets), says he doesn’t worry about his debt. He ignores creditors, threats of law suits, and updates on his credit score. How does he plan on getting above water? A bailout:

Bank bailouts, company bailouts — I don’t know, we’re the generation of bailouts. And like, this debt of mine is just sort of, it’s a little illusory. I feel like at some point, I’ll negotiate it away, or they won’t collect it.

The complete abrogation of any personal responsibility. Who could have seen this coming? And who could blame Wallerstein? The government has been bailing out companies that are “too big to fail,” why not assume that law school graduates are too big to fail?

Interestingly, the Times piece singles out federally backed student loans as “the gasoline that fuels the system” of massively increasing tuition fees. When consumers, students, are removed from the cost, they borrow with impunity, never stopping to ponder the consequences. Or, students expect their enormous debts to just disappear, courtesy of the tax payer.

How about an article extolling the virtues of a prudent individual, who works hard and saves his money, all to have it stolen by the government to bailout the person who went to law school without the means to pay?

Neatly tucked away in the 2,000 page Obamacare bill was a provision expanding student loans. With the government funding an ever increasing number of students, how long will it be before the government does decide to bailout underwater students?

If people have no “skin in the game,” they have no incentive to chose what would appear to be the common sense solution. If you can go to law school for half a decade, and be bailedout by the poor schlub who chose to go to work, why say no?

When the government bailsout companies that engaged in risky behavior because they are “too big to fail,” they encourage more bad behavior, evidently not just from corporations that are “too big to fail.”

The Law of Unintended Consequences

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Fannie Mae and Freddie Mac serve as perfect examples of what happens when the government intervenes in the private sector. The two mortgage giants were once called ‘government sponsored enterprises,’ which meant that profits were collected by Democrat apparatchiks, while taxpayers were on the hook for any and all losses. The purported mission of these enterprises was to add liquidity to the housing market. The great ‘right’ of home ownership was to be extended to everyone. That dream came to a nightmarish end in 2008, when the housing bubble finally burst.

Now Americans are forced to pay for politically motivated decisions. Fannie and Freddie no longer operate under the guise of being private businesses. As part of the never-ending slew of bailouts that have taken place over the last two years, Fannie and Freddie were given an unlimited line of credit from the government. Over that time period, the two firms have requested $150 billion. Freddie Mac has been responsible for $64 billion of those request, with no end in sight. Freddie needs an additional $1.8 billion from the Treasury, just to stay afloat.

What does the government get for this unlimited investment?

The second largest U.S. residential mortgage funds provider reported a loss of $6.0 billion, or $1.85 per diluted share, in the second quarter, including a $1.3 billion dividend payment to the government.

That compares with an $8.0 billion loss in the prior quarter and is the best three-month performance in a year. The firm lost $840 million in the second quarter of last year.

The lesson is obvious: the government should not intervene in the private sector. No matter how innocent or noble a cause the government supports, like home ownership, they do not account, nor can they, for the law of unintended consequences. The economy is far too diverse for the government to make tweaks around the edges, without effecting more than they could ever foresee. The free market will regulate and adjust itself. Government meddling hides problems, creates new ones, and perpetuates existing ones. The seemingly bottomless money pits that are Fannie Mae and Freddie Mac serve as a great evidence of crippling unintended consequences, born of seemingly noble intentions.

See the USA, Just Not in Your Chevrolet

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“The only people who are going to buy it are going to be very rich people who are going to park it outside their townhouse for ostentatious show of how virtuous they are while they drive around in their Cadillac Escalade.”

- Charles Krauthammer

The new Government Motors Chevy Volt is a godawful, hideous, grossly overpriced mess – or exactly what you would expect out of a car pushed by government bureaucrats. The New York Times describes the Volt as “exactly the kind of green-at-all-costs car that some opponents of the bailout feared the government might order G.M. to build.”

How much did this enviro-kook boondoggle cost you ask? Edward Niedermeyer reports:

Start with the $50 billion bailout (without which none of this would have been necessary), add $240 million in Energy Department grants doled out to G.M. last summer, $150 million in federal money to the Volt’s Korean battery supplier, up to $1.5 billion in tax breaks for purchasers and other consumer incentives, and some significant portion of the $14 billion loan G.M. got in 2008 for “retooling” its plants, and you’ve got some idea of how much taxpayer cash is built into every Volt.

There is almost nothing positive to say about the disastrous Volt. It costs $41,000 and “requires premium gasoline, seats only four people (the battery runs down the center of the car, preventing a rear bench) and has less head and leg room than the $17,000 Chevrolet Cruze, which is more or less the non-electric version of the Volt.” On battery power the car has a range of 40 miles. Seeing as charging stations aren’t exactly readily available, that means the Volt has an effective range of 20 miles, as you’ll need the remaining ‘juice’ to get home and charge the vehicle – for four to six hours. Not to worry, in order to preserve the warranty owners of the vehicle cannot drive more than 33 miles per day. Barack Obama and the Democrats’ car company has actually staked its success to a compact car that costs over $40,00, and is meant to compete with cars that cost less than half of that. Brilliant.

The left makes movies like Who Killed the Electric Car, in which trendy Hollywood leftist talk up the wonders of electric cars, while blaming: big oil, the automobile industry, General Motors, George W. Bush, Dick Cheney, Condlezza Rice… for ‘killing’ the electric car. Turns out the free market killed the electric car. No one wants to pay $40,000 for a plywood and chicken wire deathtrap. The technology is just not there. There is an abundance of oil on this planet. The internal combustion engine is more practical than battery powered cars at this time. If there were a demand for electric cars, car companies would build them. However, seeing as people tend to drive to destinations farther away than their next-door neighbor’s driveway, at speeds that exceed a brisk walking pace, they do not want electric cars. Moreover, people may not be excited about throwing $40,000 at a four-seater riding mower.

Of course, reality never gets in the way of the Left. They decided that people ‘want’ electric cars. And if people don’t want electric cars, the government will tell them they do. The government decided electric cars represent ‘clean’ energy – as everyone knows that the electricity used to charge the cars comes from magic, not to mention the effects of making and disposing of lithium-ion batteries. No matter, it was imperative, for national security no less, that America develop electric cars.

The Volt is yet another example of the disastrous effects of government intervention in the private sector. There is a reason Russians aren’t exactly pining for the good ol’ days of the Lada. The Times sums it up best: “If G.M. were honest, it would market the car as a personal donation for, and vote of confidence in, the auto bailout. Unfortunately, that’s not the kind of cross-branding that will make the Volt a runaway success.”

Here are some slogans for the Volt I thought of:

“See the USA, just not in your Chevrolet”

“Discover the Joy of Walking”

“The ideal car for an age of malaise”

“A $40,000 Riding Mower”

“The result of endless hours of collaboration between government bureaucrats and union thugs”

“The LADA’s triumphant return to the American market. An Amerikan Revolution”

“Chevy Volt: The Welfare Office is Never More Than 40 Miles Away”

“Don’t Laugh – You Paid For It Too”

If you have any other recommendations for the wizards at Government Motors leave them in the comments section.