Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Armageddon Prevention Bailouts- Big Bank Vs. Big Auto

Companies / Credit Crisis Bailouts Dec 05, 2008 - 01:56 PM GMT

By: Andy_Sutton

Companies Best Financial Markets Analysis ArticleIn watching what could easily be considered a three-ring circus weren't the implications so dire, the latest push for access to bailout billions has commenced. GM, Ford, and Chrysler executives piled into the most fuel efficient models in their fleet to begin a second pilgrimage to Washington DC. The move to hybrids which was somewhat humorous was brought on after Big Car execs were chastised by members of Congress for the use of private jets and also for a lack of candor about past mistakes. At stake, at least according to the execs, is the future of the US auto industry.


The tactic, at least on the surface, sounds awfully familiar. We were told just a little over two months ago that if a bank bailout plan wasn't passed immediately that the entire financial system would implode. Sure we haven't seen financial Armageddon yet, but you sure wouldn't know it by looking at the retirement accounts of most Americans. Amazingly, $700 billion of bailout money and subsequent trillions in Federal Reserve loans found their way to Wall Street banks, but it seems like you'd have to travel pretty far to find a penny that hit Main Street.

Now we are assured that a Depression will ensue if Big Car is allowed to fail. While this is not the forum to nitpick over which failure would be more catastrophic, it would seem that given the relative importance of the productive base in a properly functioning economy that Big Car is infinitely more important than Big Bank. Congress, on the other hand, seems to feel the opposite.

So really, what gives? Inquiring minds want to know. It cannot be disputed that Big Car has done a thoroughly stupendous job of shooting itself in the foot. From the jobs bank to legacy costs to a complete and utter failure to interpret signals from their market niches, Big Car has been a textbook case of what not to do.

And in similar fashion, Big Bank has done essentially the same thing although they were considerably better at making money prior to D-Day. However, their implosion has been a completely spectacular failure on financial steroids thanks to the miracles of leverage. The ramifications have already been felt in every corner of the globe and keep in mind that this has been the case despite massive financial intervention by central banks on 6 continents. Iceland has already gone bankrupt with more countries likely to follow.

But perhaps most ironically, little has changed about the way Big Bank conducts business other than the nagging fact that they're hoarding bailout dollars for themselves or buying US Treasuries while essentially choking off the real economy. Clearly, Big Bank wasn't forced to put even an iota of thought into how they might reform, nor have they taken any meaningful action other than to layoff scads of ‘non-essential' employees.

The real question at issue has nothing to do with how much Big Car is asking for, if they ever hope to pay it back, or what sort of business plan they have. It has to do with how Congress can get away with showing absolute contempt for an industry which is inextricably linked to the real economy and average Americans while giving what has amounted to a free pass to a banking system that produces nothing but trouble and rides upon the back of the US Economy like an $8 Trillion albatross. Add to that the absolute hypocrisy of our elected representatives who criticized Big Car CEO's for the same transgressions they themselves commit each and every day. There used to be an old saying that you shouldn't throw stones from a glass house. I would take this one step further and assert that Congress is using a flamethrower from within a house of cards.

The decision to either bailout Big Car or let it fail would be a pretty easy one if it weren't for the three million manufacturing jobs that would be lost if these firms cease to exist. In addition, the loss of many millions more in related industries must also be considered. Unfortunately, given their current dire financial straits and an absolutely rotten economic outlook for the foreseeable future, Big Car may fail even with a bailout. Even the strongest of companies will be severely tested in the coming months and years. Those already in need of life support will likely need frequent and repeated cash infusions. So once again, we walk the slippery slope just a few short weeks after the last time. We talked about the bailout mentality in an early 2007 column . The financial rescue has already grown by a factor of 10 in the 9 weeks since its passage. Enough emphasis cannot be placed on the fact that this is only the beginning of the bailouts.

Perhaps Chrysler CEO Bob Nardelli, formerly of Home Depot has unknowingly helped coin the perfect slogan for the current dilemma: “We can do it – you'd better help.”

If you are interested on cutting edge analysis on the auto and financial sector bailouts and their many implications, go to Contrary Investor's Café and listen to our weekly Internet radio segments ‘Spin Cycle' and ‘Beat the Street'. This week, we discuss the trillions in bailout dollars, where they're going, and the likely unpleasant consequences of these realities. We also tie in oil prices and the impact on the real economy. If you want to know where things are headed, these are episodes you cannot afford to miss. To listen, please visit: http://www.contraryinvestorscafe.com

By Andy Sutton
http://www.my2centsonline.com

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit www.suttonfinance.net

Andy Sutton Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in