The Auto Economy

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AIG argument

We’re arguing about AIG v. GM on the Cheers and Gears site. The argument started over an article by the Baltimore Examiner that compares the situation of the two companies.

One member posted this:

In the interest of “keeping it real”:

1) The AIG money has given the US partial ownership. So if you want to pretend the auto loans aren’t a bailout, then I suppose you could do the same thing for the AIG buyout.
2) AIG used to make money and has a good chance of making money again. GM hasn’t made money for a long time and likely will never get out from under their debt.
3) A failure by AIG by all accounts that I have heard would be catastrophic. GM’s failure will be hard but is a much less substantial affair.
4) The eventual cost to save GM will likely be in the 100 Billion range. I have trouble keeping up, but I believe they have already received 14 Billion + 6 Billion to GMAC + future 16 Billion + future retooling money + EREV subsidies. Also they are worth -86 Billion as of the end of 2008. Given the cost/risk as compared to AIG, AIG is where the money should go.

I will agree that the union being blamed for GM’s problems is just silly and the AIG bonuses are horrible. But that is US-capitalism for you.

My response here:

1) We paid $180b to own 80% of a company with a market cap of $3.3b and that has outstanding liabilities of $807b. For comparison, with $180b, the Feds could have purchased the entire liabilities side of GM’s balance sheet and had about $3b in change.

2 a.) AIG has a poor chance at making money again. Their name is permanently tarnished. They’ve had to take down their sign on their NYC headquarters. They have about as much chance of making money again as Enron does. BTW, I also use the term “making money” very loosely. AIG never “made” money……. they “made up” money sure… but most of the money “made” by them was imaginary.
2 b.) If by a “long time” you mean two years… then sure. GM had a quarterly profit of $891 million dollars in 2Q 2007. Net income, excluding one-time items, was $1.4 billion.

3 a.) Catastrophic to whom? DeutcheBank? Royal Bank of Scotland? Barclays UK? That’s where the bailout money went. Of the 15 banks that AIG made payouts to, only 4 were US based. All of which already received TARP funds.
3 b.)General Motors, it’s dealers, suppliers, and affiliates employ millions of people. The hit on employment in this country and others would be catastrophic. Not even Toyota wants to see GM liquidated because in the process it would take out suppliers that Toyota relies on. The quickest way to kill Ford and Chrysler would be through an uncontrolled G.M. bankruptcy. You don’t think that would be catastrophic?

4.) If $180b were to be extended to GM as a long term, low interest loan. The government would get it’s money back, with interest, Iaccoca style. We are getting a grand total of $0 back from AIG… because they weren’t loans.

So sure…. I’m all for “keeping it real”

What I don’t understand is this attitude of “Yeah the AIG bonuses piss me off, but we had to bail out AIG. Let GM die.”

Someone care to explain?

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