Fool Blog: Government Bailout for GM and Ford?

The following is from a recent blog post written on Aug. 5 by Fool analyst Anand Chokkavelu, who goes by the moniker TMFBomb on Motley Fool CAPS, the Fool's investing community.

First, the government teamed up with JPMorgan Chase (NYSE: JPM  ) to bail out Bear Stearns. Then IndyMac needed help. This was right around the same time as the Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) bailouts. Leaving moral hazard issues for another day, I at least get all of those moves. When banks fail, the credit market dries up, and the whole economy suffers. 

But bailing out the likes of bumblers General Motors (NYSE: GM  ) , Ford (NYSE: F  ) , and Chrysler? Really?

Bloomberg reports that a Michigan Congressman is seeking to speed up the implementation of a $25 billion loan program for the U.S. automakers. That figure's eerily similar to the combined quarterly losses reported by GM and Ford recently. Sorry, dad, I crashed the car (company). Can I have money for another?

OK, I know this plan to help GM et al convert some of their factories over to alternative-fuel vehicle production was put in place back in December. But the U.S. carmakers' fortunes weren't so rosy back then, either.

Under the plan, the government would lend $25 billion for up to 25 years at Treasury rates. How much of a discount is that? Well, the market thinks GM debt is so risky that it charges GM almost 13% more than comparable Treasuries. Compare a rate in the high teens to what you pay on your mortgage. Talk about a subprime loan!

It seems like free competition has a very subjective definition these days. While the government has been socializing losses among its chosen children, it took 17 months to allow Sirius and XM to merge into Sirius XM Radio (Nasdaq: SIRI  ) . Unlike these other folks, the satrad guys weren't asking for a bailout or a handout. They just wanted the government to acknowledge what we all knew – that two companies that are bleeding money while competing against free alternatives (terrestrial and Internet radio) and the mighty Apple does not constitute a monopoly. 

I know I'm combining the actions of a lot of different government agencies here, but I can't discern any semblance of an overall game plan. It feels very arbitrary and reactive. As a guy who generally favors more government regulation over financial landmines like derivatives, investment banks, and hedge funds, these latest movements make me wonder how forward-thinking and skillful that regulation would be. 

Agree? Disagree? Voice your opinion on Motley Fool CAPS now. CAPS is 100% free.

Anand Chokkavelu owns shares of Sirius XM Radio. His other CAPS blog posts can be read here. JPMorgan Chase is a Motley Fool Income Investor pick. Apple is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy rules Fools.


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  • Report this Comment On August 06, 2008, at 6:07 PM, Brettze wrote:

    Anand

    you want to complain about GM and Ford, ? OK? We can instead ask Big Oil to bail out GM and Ford after all what GM and Ford did for Big Oil with millions of SUVs and PickUps for years.Where were you back then? It wouldnt have happened if you had wrtten about the foolishness of building SUVs and PickUps. This is not a "too bad" economy, you mind? Ok? Alright?

  • Report this Comment On December 03, 2008, at 7:47 PM, rrs1220 wrote:

    Please read

    Good morning. First of all, before you ask, I flew commercial. Northwest Airlines. Had a bag of peanuts for breakfast. Of course, that's Northwest, which just merged with Delta, a merger you, our government, approved -- and one which, inevitably, will lead to big bonuses for their executives and higher costs for us. You seem to be OK with that kind of business.

    Which makes me wonder why you're so against our kind of business? The kind we do in Detroit. The kind that gets your fingernails dirty. The kind where people use hammers and drills, not keystrokes. The kind where you get paid for making something, not moving money around a board and skimming a percentage.

    You've already given hundreds of billions to banking and finance companies -- and hardly demanded anything. Yet you balk at the very idea of giving $25 billion to the Detroit Three. Heck, you shoveled that exact amount to Citigroup -- $25 billion -- just weeks ago, and that place is about to crumble anyhow.

    Does the word "hypocrisy" ring a bell?

    Protecting the home turf?

    Sen. Shelby. Yes. You. From Alabama. You've been awfully vocal. You called the Detroit Three's leaders "failures." You said loans to them would be "wasted money." You said they should go bankrupt and "let the market work."

    Why weren't you equally vocal when your state handed out hundreds of millions in tax breaks to Mercedes-Benz, Hyundai, Honda and others to open plants there? Why not "let the market work"? Or is it better for Alabama if the Detroit Three fold so that the foreign companies -- in your state -- can produce more?

    Way to think of the nation first, senator.

    And you, Sen. Kyl of Arizona. You told reporters: "There's no reason to throw money at a problem that's not going to get solved."

    That's funny, coming from such an avid supporter of the Iraq war. You've been gung ho on that for years. So how could you just sit there when, according to the New York Times, an Iraqi former chief investigator told Congress that $13 billion in U.S. reconstruction funds "had been lost to fraud, embezzlement, theft and waste" by the Iraqi government?

    That's 13 billion, senator. More than half of what the auto industry is asking for. Thirteen billion? Gone? Wasted?

    Where was your "throwing money at a problem that's not going to get solved" speech then?

    Watching over the bankers?

    And the rest of you lawmakers. The ones who insist the auto companies show you a plan before you help them. You've already handed over $150 billion of our tax money to AIG. How come you never demanded a plan from it? How come when AIG blew through its first $85 billion, you quickly gave it more? The car companies may be losing money, but they can explain it: They're paying workers too much and selling cars for too little.

    AIG lost hundred of billions in credit default swaps -- which no one can explain and which make nothing, produce nothing, employ no one and are essentially bets on failure.

    And you don't demand a paragraph from it?

    Look. Nobody is saying the auto business is healthy. Its unions need to adjust more. Its models and dealerships need to shrink. Its top executives have to downsize their own importance.

    But this is a business that has been around for more than a century. And some of its problems are because of that, because people get used to certain wages, manufacturers get used to certain business models. It's easy to point to foreign carmakers with tax breaks, no union costs and a cleaner slate -- not to mention help from their home countries -- and say "be more like them."

    But if you let us die, you let our national spine collapse. America can't be a country of lawyers and financial analysts. We have to manufacture. We need that infrastructure. We need those jobs. We need that security. Have you forgotten who built equipment during the world wars?

    Besides, let's be honest. When it comes to blowing budgets, being grossly inefficient and wallowing in debt, who's better than Congress?

    So who are you to lecture anyone on how to run a business?

    Ask fair questions. Demand accountability. But knock it off with the holier than thou crap, OK? You got us into this mess with greed, a bad Fed policy and too little regulation. Don't kick our tires to make yourselves look better.

    Contact MITCH ALBOM at 313-223-4581 or malbom@freepress.com. Catch "The Mitch Albom Show" 5-7 p.m. weekdays on WJR-AM (760).

  • Report this Comment On July 23, 2009, at 12:20 PM, sumitibow wrote:

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  • Report this Comment On July 23, 2009, at 12:21 PM, sumitibow wrote:

    The people are losing their moral while becoming modern. The society needs to be attentive that moral values. Well things needs to be modernized but keeping intact with moral values.

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  • Report this Comment On July 23, 2009, at 12:23 PM, sumitibow wrote:

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