I started churning through the articles, the country is baffled by this insanity with the automakers.  If anyone is confused about my opinion, here's a quick summary.  I'm 100% against any bail out, subsidy, or even a loan.  I however, with what I know about the history of the Union, The Federal Government, and GM itself I can't bring myself to blame GM entirely for this mess.  If I was going to call a split of responsibility it would go like this;  Union 30% of blame, Federal/State Governments 30% of blame, and a whopping 60% of the blame is on the shoulders of GM itself.

For more summary of my take on this situation, here's some quotes and their respective articles;

Why America Is Shunning GM by Rick Newman

There was, for instance, that little exploding gas tank problem on the Pinto, which Ford denied for years. The Vega came with a cheap aluminum engine that couldn't withstand its own heat and often warped or melted before the car reached 50,000 miles. On Detroit creations like the Citation, the Nova, the Omni, the Aspen, the Fiesta, the Mustang II, the Skylark, the Cavalier, the Cimmaron, and many others, fenders rusted after just one or two winters, engines seized up, radiators leaked, switches broke, headliners drooped. In short, bottom-rung benchmarks were set. Millions of customers—many from families with a long history of loyalty to Ford or Chevrolet or Chrysler—swore off domestics forever. Detroit builds better cars today, but many spurned customers from the past don't care. To them, Detroit's predicament isn't a national emergency. It's justice.

I agree, it is justice.  That list of cars just reminds me of the embarrassment they've put us, the citizens of this country through.  How COULD someone have pride in companies that build such unbelievable crap?

Detroit lost its lock on Congress. When Congress approved $1.5 billion in aid to help Chrysler avoid bankruptcy in 1979, the vote in the Senate was a comfortable 53 to 44. In the House, it was even more decisive: 271 to 136. As there are now, there were critics who argued that a failing company should work out its own problems. But the automakers had factories in many states and deep leverage in Congress.

This just points out how the market works.  No matter how much you egg something on, it doesn't guarantee success.  LET THEM FAIL.  The business model is outdated.  We've subsidized the bloody freaking auto industry long enough.  Open up real transportation markets again.  Let it get cut throat.  NEVER again should America ever rely so heavily on a single company in such a way.  Let the viciousness of the market kill it, and also let that market provide alternatives!

All told, foreign-based automakers build cars or their components in more than 20 U.S. states, accounting for more than 150,000 jobs. And they buy parts from many of the same American suppliers that serve Detroit.

Get that now, 150k people employed by the new American manufacturers!  We don't really think it a problem to not have any legitimate TV manufacturers that are American anymore, why keep a car company?  Yeah, it's sad, but why cut our legs off so that we can keep our nice fur coat.  Weird analogy but it makes the point.  Aside from that, if the Domestics die, which really it looks like Chrysler and GM area going, not Ford.  But if they go, that just means that much more demand for Toyotas, Nissans, Hondas, and maybe even some high end BMWs and low end Hyundais.  Either way increased demand means more jobs at those factories.  Someone will build those cars and it will most likely be Americans in American factories working for cars built by one of those non-American companies designed for an American audience.

Another article by Rick Newman titled The 7 Worst Ways to Rescue Detroit is great.  The italics are my immediate responses.

1.  
   1. Treat the Detroit 3 all the same.  - Yeah, definitely not a good idea.  GM != Ford != Chrysler.
   2. Force them to build "green vehicles."  -  Yup that's stupid too.
   3. Pre-empt the possibility of bankruptcy.
   4. Appoint a federal car czar.  -  Wow, couldn't agree more on how dumb this is.  The Big Three Domestics are building BAD CARS as it is still, they don't need an entity (The Federal Government) with a PROVEN track record of inefficiency and poor ability to operate in a business context.  The Government IS NOT A BUSINESS.  Never will be, never can be, and will always operate at the LOWEST ability of all entities.
   5. Place the whole restructuring burden on Detroit. - They've screwed it up this far, don't let them continue.  If a restructuring occurs, maybe a board made up of people from some automotive tuner shops, some people that definitely know the business, and general all around smart people should be put together to reform this (and the others) company.
   6. Subsidize cars.  - That's disgusting.  We have a dead transportation industry.  A single choice, automobiles, that is available in large part because of already massive subsidies in the realm of infrastructure, world stability, and other costs.  There is ZERO reasons, since the competitors (transit, rail, etc) have been destroyed by assistance from the Government already, to encourage something that was already artificially pushed on society (look more closely at serious history if you don't believe me).
   7. Penalize their competitors. - Hopefully no one in Government would even contemplate this.  As mentioned in a quote above, 150k people are employed, AT ECONOMICALLY SUSTAINABLE INCOMES, and do not deserve to be haphazardly attacked.  They did this with rail workers and hundreds of thousands of them lost their jobs or were displaced by the harsh onslaught of trucking companies.  No reason to repeat that and then shuffle it under the carpet of history.

Then another article, again by Rick Newman, 4 Myths About Free Markets—and Their Demise really brought up the standard apologetic auto fan.  He brings up the fact that we haven't been in a free market in decades.

They're unregulated. In theory, the less government regulation, the freer the market. But the economy we're used to has multiple layers of regulation that have formed over decades, with general approval from most corners of society. Teddy Roosevelt interfered in free markets by helping break up mammoth monopolies in the oil, railroad, and banking industries—to great popular appeal. After the Depression, we got bank deposit insurance and dozens of other free-market intrusions that most people still favor. The "free market" of just one year ago—before anybody was talking about a bailout—featured all manner of government intervention, from unemployment insurance to federal car-safety standards to an activist Federal Reserve able to pull various levers to keep the economy humming. So when people invoke the power of the free market, which free market are they talking about? The one of 150 years ago, with very few consumer protections? Or the one of a year ago, already heavily regulated?

Fact is, automobiles became accessible because of Government involvement.  Only the upper incomes (as in the past in the US, and even now in Europe) would have been able to get them, and only after decades of pooling the riches money would real road systems been built (like the Interstate, but I'm sure it would be 10x better).  If we'd left the market to do that we'd have vastly more capable infrastructure as we did in the past, often owned and expanded by railroad and transit companies.  Companies that at the time didn't suck off the teet of the Government, but now are authorities with Government powers acting like companies.  Auto manufacturers won against these companies because the Government kicked off the auto age by funding the infrastructure and even the initial exploration for oil and protection of foreign interests.  To me, that doesn't, nor has it ever, sounded like a good deal.  Simply put, we've been getting ripped off in massive ways, the more money an individual makes, the more that individual has to pay for even the simplest of transportation.

It's all really disgusting from and immoral from an ideological perspective.  But back to the articles.

Last article of this write up is by Horacio Marquez titled Buy, Sell or Hold: GM's Too-Big-to-Fail Myth.

When I downloaded the balance sheet for General Motors back in the third quarter of 2000, I was stunned. Something just wasn’t right. These numbers I saw just couldn’t be correct.

“Surely I had made a mistake and downloaded the wrong one,” I thought to myself. “I must have downloaded a subsidiary’s or maybe the parent company’s unconsolidated balance sheet.”

I checked and re-checked. I had the right one. The company’s equity-to-assets ratio was only about 2% – and that was before counting its under-funded pension liabilities. With that deficit factored in, GM had negative equity.

In other words, the leading U.S. car maker was technically bankrupt.

That last sentence really tells the story.  The US car maker has been bankrupt for a long time now.  They've only stayed afloat by a lot of accounting magic (kind of like Enron probably).  Not that I'm against a little accounting magic here and there, but when it is this freaking obvious, it just isn't worth saving when it gets to the point that it is now.

At this juncture I'm done writing about this automobile debacle for a while.  I'll be off to new topics soon.

I've reviewed a little of the bailout, of course, I do agree with one single part of the whole package.  Most politicians have said, "this is only the beginning".  Yeah, it absolutely is.  There are also some fallacies I've noticed already, with the bill just barely out of the gates.

1. The bailout isn't so much a bailout as a whole host of things.  Most of it is nothing more than stop gap band aid fixes to much larger problems.
2. The bailout isn't going to help people foreclosing or in any type of financial ruin for months.

There are some major consequences that are lining up to happen pending we just keep towing the stupid currency as is.  I do understand that it is almost impossible to change our mechanisms for leveraging our fiat currency without assuring a major collapse.  With the Government in so many corners of the economy, with so much interconnected that it can't even keep up with, there is no hope of an easy fix by returning to a good money policy.  We're debt  based, and considering the median American is in debt 2x their annual salary by the Government, about 10k in credit card debt, and probably sitting on an average of 10-20k of college debt, forget it.  There is no real way right now without massive write downs to return to an honest savings based money scheme.

The one stop gap solution that the bailout it supposed to provide might be somewhat successful.  Kind of like the bum on the street asking for change.  The bailout is going to in the end, expedite the depreciation of our currency so that even the bum on the street doesn't want the change anymore.  So just to list the possible successes:

1. It might curve bank failures to some degree and it would save a few people from ruin.

No lets cover the negative things that could start occurring very soon now.

1. It will encourage some, even though it is probably the worse time to do so, to get loans they can't afford.
2. It will encourage a continued debt based lifestyle by extending a little bit of easy money out further and enable people to keep digging the hole we're in.
3. Many rich people, will figure out a way to abuse it, and abuse it.  It is after all, written by a bunch of politicians - they're not known for being able to write legislation or think about a real solution to a problem.  They band aid station attendants, not doctors.
4. It will make it harder for the banks that do survive, to be competitive, forcing them to lower their prices or make other unwise decisions to encourage further bad market behavior by citizens of the nation.  Basically lining us up for a repeat of what is occurring now.

The real shame, is so many stuck they're heads in the sand for so long, ignoring the likes of Ron Paul as a crack pot.  Now America realizes, as it should, that he was right.  He didn't know the dates, he wasn't making bets, but he knew a collapse was coming because of bad money policy.  People stated in the 30s very intelligently why the changes weren't going to work.  Why handing out easy money for houses wasn't going to help.  The MARKET provided these things to those who could afford them.  Giving away houses at rates that shouldn't be provided, via indirect coercion didn't help the situation.  Now, we have the mess we're sitting in.  The socialist policies didn't help in the great depression of 29-39 and they won't help now, especially in the long run.

Overall I'm rather bummed about the situation, but I can't say I didn't know it was coming, because I definitely did.  Labeled the economist nut, the negative, the pessimist, and all sorts of other things, but I know what I know and can't simply ignore the reality.

Over the next few months I'm sure, along with millions of others, I hope to see some avenues of getting through this debacle.  I just hope the other end doesn't include jack boot thugs, me having to leave the city, or any of those civil conflicts.  The last one wasn't kind to this country.

Americans don't know their own history, I suppose we're destined to repeat our mistakes.

Panic of 1873-1879

Lead Up
The Black Friday panic was caused by the attempt of Jay Gould and Jim Fisk to corner the gold market in 1869. They were prevented from doing so by the decision of the administration of President Ulysses S. Grant to release government gold for sale. The drive culminated in a day of panic when thousands were ruined - Friday, September 24, 1869, popularly called Black Friday.

The Coinage Act of 1873 changed the United States policy with respect to silver. Before the Act, the United States had backed its currency with both gold and silver, and it minted both types of coins. The Act moved the United States to the gold standard, which meant it would no longer buy silver or mint silver coins.

In September 1873, Jay Cooke & Company, a major component of the country’s banking establishment, found itself unable to market several million dollars in Northern Pacific Railway bonds. Cooke's firm, like many others, was invested heavily in the railroads. At a time when investment banks were anxious for more capital for their enterprises, President Ulysses S. Grant's monetary policy of contracting the money supply made matters worse. While businesses were expanding, the money they needed to finance that growth was becoming more scarce.

Cooke and other entrepreneurs had planned to build the nation's second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing, and ground was broken for the line on February 15, 1870. But just as Cooke was about to receive a $300 million government loan in September 1873, false reports circulated that his firm's credit had become nearly worthless. On September 18, the firm declared bankruptcy.

Problem
In Vienna and Berlin, Paris and London, St. Petersburg and New York, the business cycle had run its course. The failure of the Jay Cooke bank, followed quickly by that of Henry Clews, set off a chain reaction of bank failures and temporarily closed the New York stock market. Factories began to lay off workers as the United States slipped into depression. The effects of the panic were quickly felt in New York, more slowly in Chicago, Virginia City and San Francisco.

The New York Stock Exchange closed for ten days starting September 20. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876, during a time which became known as the Long Depression. Construction work lagged, wages were cut, real estate values fell and corporate profits vanished.

Resolution
This financial panic resolved itself after 6 years.  Wages dropped, but prices did more during this period also creating continued efficiencies in the overall economy.  Unemployment reached 14%.  No reserve, no federal bail out.

Panic of 1907

Lead Up
The crisis occurred after an attempt by Otto Heinze to corner the market in United Copper, a company that had collapsed that October. When the bid failed, banks that had loaned money for the scheme experienced a number of runs which in time spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Company. With the collapse of New York's third largest trust company fear spread throughout the city's trusts and across the country as regional banks pulled deposits from New York and as nationwide people withdrew deposits from their regional banks.

Problem
The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis which occurred in the United States when the stock market fell close to 50% from its peak in the previous year. At the time the economy was in recession and there were numerous runs on banks and trust companies. The panic's primary cause was a retraction of loans by a number of banks in New York City, and the sentiment quickly spread across the nation leading to the closures of both state and local banks and businesses.

Resolution
The panic may have been worse if not for the intervention of J.P. Morgan, who convinced other bankers in the city to provide a backstop for the crisis.

This financial panic resolved itself after a short period, about a month.  Wages and prices did not fluctuate drastically.  Unemployment did not get out of control.  No reserve, no federal bail out.

Depression 1929-1939

Lead Up

The Clayton Antitrust Act of 1914, (October 15, 1914, ch. 323, 38 Stat. 730, codified at 15 U.S.C. § 12–27, 29 U.S.C. § 52–53), was enacted in the United States to add further substance to the U.S. antitrust law regime by seeking to prevent anticompetitive practices in their incipiency. That regime started with the Sherman Antitrust Act of 1890, the first Federal law outlawing practices considered harmful to consumers (monopolies and cartels). The Clayton act specified particular prohibited conduct, the three-level enforcement scheme, exemptions, and remedial measures.  This act is what actually gave the Sherman Act actual capability to act upon.  Before the Sherman Act was so vague that much legal discourse over how to actually take action limited its usefulness

Federal Reserve Created.  Created in 1913 by the enactment of the Federal Reserve Act, it is a quasi-public (government entity with private components) banking system composed of the presidentially appointed Board of Governors of the Federal Reserve System in Washington, D.C.

...this enabled one of the major causes...
Debt - A major problem with our current economy - is seen as one of the causes of the Great Depression, particularly in the United States. Macroeconomists including Ben Bernanke, the current chairman of the U.S. Federal Reserve Bank, have revived the debt-deflation view[citation needed] of the Great Depression originated by Arthur Cecil Pigou and Irving Fisher:[citation needed] in the 1920s, American consumers and businesses relied on cheap credit, the former to purchase consumer goods such as automobiles and furniture, and the latter for capital investment to increase production. This fueled strong short-term growth but created consumer and commercial debt.

Problem
The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as a benchmark on how far the world's economy can fall.

Extending the Problem
The Smoot-Hawley Tariff Act (sometimes known as the Hawley-Smoot Tariff Act) was an act signed into law on June 17, 1930, that raised U.S. tariffs on over 20,000 imported goods to record levels. In the United States 1,028 economists signed a petition against this legislation, and after it was passed, many countries retaliated with their own increased tariffs on U.S. goods, and American exports and imports plunged by more than half. In the opinion of most economists, the Smoot-Hawley act was partially responsible for the severity of the Great Depression.  Once again, another bad example of Government intrusion doing more harm than good.

Short Summary:

In all these cases, the most severe of financial issues occurred, and took longest to recover, when there was much more extensive Government involvement from the Federal Reserve, to the Anti-Trust Acts, to the reinforcement of those, to price controls.  In the most severe economic failure listed a distinct and large involvement by the Federal Government could easily be pointed to as part of the problem, if not at least extending the problem further along than otherwise would have occurred.

Government oversight is ok sometimes, but rarely does it truly help the situation.  I fear we might be heading that same direction with the bail out being pushed for today.  I fear we haven't really learned from the past and are ill-prepared to face this problem now.

Ben Benanke, being no idiot, but also not having much to work with is definitely in a tight position.  The Republican and Democratic leaders of the nation are also just spinning their wheels figuring out how to add more oversight, more regulation, and even more Govenrment beauracracy to the whole problem.  Adding band aids, is not going to stop a major arterial from bleeding out.  In the end, band aids still leave us dead.

I'd prefer the economy come alive again, do we have any leaders, who would possibly get a clue about what to do?  It doesn't appear so at this juncture, but I haven't written the country off yet.

Sound money.  $1 buck plus another $1 is $2 dollars.  If you have $2 dollars you have more than if you have $1 dollar and can of course purchase more things with that $2 dollars.

If someone then wants to borrow 50 cents from you, from your $2 dollars, you'll end up with $1.50.  Say you loan them that 50 cents, and they offer to pay you back the next day at 75 cents.  You'll then have $2.75 pending you don't spend any of that money today.

Now say you loaned out that 50 cents, and then another friend comes and loans another $1.40 from you.  They tell you they'll give you $3.00 bucks tomorrow.  You loan it to them, but know they'll probably not pay until a week or more, not the next day.  You're left with 10 cents.  5% liquid assets at that point with the prospect of having a payout around the end of the week of $3.75 cents.  Just shy of the $2.00 dollars you started with.

But now you remember you borrowed a quarter form a friend yesterday and he's now approaching you.  That friend wants his 25 cents, he's got some bubble gum to buy and he's not waiting.  You're over leveraged and now stuck letting your friend down, he won't be able to get his bubble gum.

You break to him the news, you only have 10 cents.  So he then demands his 10 cents.  He doesn't mind that you don't have the full amount, he figures he'll just take that out now and retrieve the rest later.  No need to have anymore money deposited in the account than he needs right?  Why prop you up because you've loaned all your money out and are left with little liquidity.  Well he takes his 10 cents and you're now out of money.  You've got nothing.

Another friend then approaches you and wants to borrow 50 cents since he let you borrow 50 cents a few days ago.  Well, you tell him you don't have it but he could borrow it from your other friend that borrowed some money from you.  He says okay.

So now we have a web of loans, no liquidity, and people owing you money, with no tangible prospect of paying up.  The metaphor isn't exact, but it really is that simple.  This is how the United States of America's Financial System has screwed itself, and us, the citizens of the nation.

How do we fix it?  Well long term we make sure those kids of our nation don't go loaning out everything they have.  The first kid that gets lashes - the United States Government for going around and requesting all the kids loan out all their money, so everyone can have their bubble gum immediately.

We also can't control the friends of the kids.  We can't do this, but we can setup the monetary system so that it doesn't provide over extension like this.  Property laws should dictate how these things go, and shouldn't let people default so easily.  There is structure that has existed before, most based on simple common sense, that should be put in place.  No need to heavily regulate, create new committees and boards that won't do anything useful, no need for continued nonsense!  Just make sure that people are held accountable for what they do and the mess will clean itself up.

Bail em' out, and we've just prepped ourselves for the next utter catastrophe.