Why are we paying for GM's mistakes

With the “failure” of GM today we certainly have reached the end of an era… wait have we? A smorgasbord of news sites and stories talk about the end of the GM era, but I ask what has change? The real answer is American Debt. Somehow we just paid $30 billion for GM to go bankrupt. This isn’t bankruptcy like the common person believes it is. Think about it like this. If you or I were not able to pay our bills the lights get shut off, we get kicked out of our houses/apartments and they repo our cars. Now let’s look at the GM bankruptcy. GM will get an addition $30 billion in government support (in addition to the $19 billion they have already received) in addition to a reduction in debt from a startling $54.4 billion to $17 billion. Let’s count debt relief as income (as the IRS does for individuals). That means GM, for years of poor business strategy and union negotiations, has been rewarded with $67.4 billion. That’s almost as much as the total value of their Assets! America you are getting the SHAFT AGAIN. Oh wait, we get 60% of GM… who cares. The government is not in the business of, business. Yet somehow under the Obama administration, the Government (no us tax payers because realistically do we see any returns? No.) now runs banks, insurance companies and auto makers. Something seems very wrong.

 

America you need to wake up and realize that all these bailout will cost us dearly in the end. We borrow this money. It is not ours. Credit is not income, yet the government just like the people of this country continuously spends as if it was. We need to reign in this spending spree and let bad companies fail instead of saving them. I understand the consequences of letting a leviathan such as GM fail, but how is business going to change if it doesn’t? Lets look at the banks, people were shocked when they paid bonuses. Why are you socked? The people in power don’t change. The decision makers are still the 50-60 year olds that ran the company down into the ground. A CEO retiring does not change the direction of a company it changes the face. News flash America: unless we get really uncomfortable and have some serious ideological changes on how we do business because one day China is going to stop lending us billions and we are going to lose a lot more than an automaker, we are going to lose America.

Waterboarding Witch Hunt

Now the media has turned on Pelosi for what she did or did not know in 2002. Do I think she knew about it? Yes. Do I think she should step down because of it. Yes. However, I think we are all missing the bigger picture here. The Bush regime was the ones OK-ing its use. Shouldn't we get back on the task of prosicuting individuals that desided to shred the consititution and focus less on a media witch hunt? 

Hlthcr (sorry didn't have enough cash to buy the vowels)

America... you're getting gRaped by healthcare costs...

It is time to take a stand and talk about health care reform. The current system isn't working. With 40 million + Americans (depending on which talk show/radio show you are listening to) without health care. That's simply unacceptable. Even if you believe in a system without governmental support, shouldn't health care be a real possibly for any individual with a job? Many American are working in positions where they cannot get full time employment, but yet work 35+ hours a week (sometimes working jobs, both of which are not considered full time). So how do we offer these people coverage? If you don't want to hear this sob story, maybe its time to get financial and take a look at how the system in place cripples small and medium businesses, especially those that try and compete against international firms. We are battering our own business with the burdens of cost that are growing to fast for businesses' to absorb them. WE NEED CHANGE. Hopefully my grand reader base can make some suggests and spur some debate on what that change can be. Go.

A Battle Between Gentlemen (Its a long one)

So this blog finally grew a little bit and took on known reader number two. Very exciting that expansion is happening so quickly. Now enough with the emo stuff lets get down to politics. 

After having a discussion with a friend tonight several things were brought to light... including the age old question of whether or not planes would crash if don't have gravity. In all seriousness however, some good discussion got me thinking and writing again. The topic turned to how the government (both the current and past administration) had, because of their tampering with the free market, created the current vortex that this economy was in. While the discussion loomed very close to stepping over into the philosophical side, there was agreement of how things handled in the current Keynesian economic fashion were simply dead wrong. For all those out there, Keynesian principles were applied during the great depression as a way of validating FDR's New Deal government spending.  A simplistic view of this economic theory is that government spending makes up for the lack of consumer spending in order to stave off the cycle of job loss and further reductions in consumer spending. The problem here is that the current system isn't broken because of a lack of consumer spending, rather the opposite. The government is trying to pump money into a system that is fundamentally flawed. The reason we are in the situation we are in is not because people cut back on spending. Rather its that people were spending to much! Americans' average savings rate was NEGATIVE. Ask anyone that runs a business, a little debt is not that bad but you cannot continue to operate year in and year out on debt alone. Yet, despite this common knowledge, that's what we as a country were doing, both inside the beltway and on main st. 

Enter the first disagreement that mean and my friend had. I wanted to blame American culture for putting us into this mess. If you have ever been outside the US, people from other countries view us as gluttons. We eat to much, we buy to much and we spend to much. We drive our economy through this. Turn on the TV for five minutes and you will see 10 commercials that show you why you need product X and how you are not as good (or according to my span email box as big) as my neighbor. Thus we have the problem with people taking on to much debt in the form of cars, homes and other consumer items they couldn't afford. This mind you, is all in the name of the "American Dream." This is that dream that everyone is entitled to no matter what. Maybe that's the problem, Americans' look at the "American Dream" as an entitlement. Let me be the bad guy and say this. ITS NOT. You are entitled to no more then what you work for (maybe some health care and we'll get to that and the resulting angry comments from both sides of that argument later). You are not entitled to own a home or a car. If this depression 2 doesn't show you that, then not much will. This cycle of feeling the need to purchase and consume needs to stop. There are realistic financial measures and metrics that one is supposed to follow and let me tell you, having a negative savings rate is not one of them. A credit card is not income. Now to be fair, there are those people that get in debt for a lot of reason (someone gets sick or hurt). That happens; sometimes luck just hits you the wrong way. In those circumstances yes, I can understand both how you got there and why you need some help. I also can understand that realistically not all jobs pay a living wage. However, its not individuals in these circumstances that I am harping on, I am mad at people who take out student loans and buy a depreciable asset (i.e. a car). Wake up America, its time to change the way we live. Its time to start living in our means and to stop demanding 20% annual return. Your investments are not income. Your income is income (unless you have 10 mil + in the bank). 

Now that I have cleared my argument out and tried to pull a Lewis Black (thanks halfnelly for the reference). The other side of the argument my friend was making was that it is government to blame for stifling the free market. As he cannot defend his argument (I am writing this) I am not going to attempt to debate him on it as it wouldn't be fair. Rather I am going to do my best to explain it (hopefully he reads this and can comment on any mistakes I made) and let the reader think about it. That is the point of all of this by the way. I didn't start this blog to find a solution or to cure cancer, rather just to get people thinking and talking because that's how progress is made. Alright, back to the argument at hand. What was proposed was that the government had set back the free market. Rather then continuing to support the ideal that this country was in many ways founded upon. In many ways this argument has been applied before. It has been said that FDR's New Deal (the regulation and government spending) actually held back the American economy and not only prolonged but worsened the depression. I am unfortunately not as well read on this argument as I should be and I openly admit that. However, my friend's argument is not without some form of theoretical precedent. While this theory more accurately targets the current situation, based on the idea of the New Deal happening as a result of the crash it doesn't target the events leading up to the crash. This prior period my friend believes could have been avoided if the free market was allowed to accurately judge the credit worthiness of those being loaned to; in effect, if the Fed had not lowered interest rates after the tech. bubble burst, money would not have been as cheaply and easily loaned to individuals who had no place taking out loans. As a result of the Fed trying to start and stop the economy we now find ourselves in this current situation. The reason for this is that the economy would right it self (maybe taking larger dips and having higher peek) but eventually would find its own equilibrium instead of having the Fed try and create one. 

There are the two arguments; one blames the American attitude and the other the governmental influence. I have written far too much for one blog post and I hope that I have done my friends argument justice. Now it’s your turn... write something.

 

Can someone loan me the C for my Redit?

Today President Obama spoke about the easing of the recession. While I have already posted on that topic, I want to talk about credit. A lot of what has happened lately has been blamed on the lack of credit. Credit it seems is the lifeblood of the American economy. Without someone else to pay your bills for you, how could you possibly buy an extra car? Obama explained that credit was needed for the auto industry in order to stir up Americans to buy new cars. Wait... isn't this really the problem with had with housing? People buying things they didn't need and couldn't afford on cheap credit? Instead of patching up the holes in the economy, maybe its time for a restructuring, we seemed to have not learned our lesson from the great depression. Easy credit + to much buying = unattainable growth. Recently I saw a Ford commercial from a local dealer in town. The dealer was offer two forms of payment on new vehicles. The first was a standard loan with interest with a fixed payment over a fixed period. The latter was a lower payment that rose in the future. That sounds awfully familiar. How could that go wrong? Oh wait... housing market. Maybe its time we realized that excessive growth rates are not the way for this country to prosper. Maybe we realize that growth at only a few percentage points a year really is not that bad. Later I want to write a post about the demand of American investors for short term returns. That, however, is another post. Until then all I can do is quote a sign that hangs in a bar in one of my favorite movies The Blues Brother... "Credit Makes Bad Friends"

 

Things are getting better... but for us?

Today while listening to the radio, a talk show host made mention of how he feels things (the economy) are getting better. Who are they getting better for? Let me tell you, it is not us young people. While the stock market has continued to climb, a good sign, it does little to change the current employment rates, which should continue to climb until at least the later half of this year. What does the recent increase in the stock market actually mean? I hate to sound cynical, but in reality, not much. If you look back to the beginning of this recession, you see similar rallies that only left us in much larger down swings then before. While I don't believe this will happen, it might. The housing market, and related banks, may take another huge hit as unemployment leads us to more home foreclosures. Banks that already have been battered may see new losses. Going back to my point I made before, unemployment is the largest problem facing us young people. The more people that are laid off and the less jobs there are, the less chances there are for people graduating from college/grad school who have little to know work experience. A friend of mine made a comment to me recently about how we (young people) were in demand because companies could pay us less. Well here is a news flash, the 30 year old who just bought a house and has a kid, is going to take any job he can get to pay the bills. They are not going to scoff at a 40k job if they used to make 50k. 

 

So things are bad, what can be done? They say necessity is the mother of invention. I believe our generation needs to get thinking how we can make money. Notice I didn't say get a job. An increasing number of us do not have jobs. That means we have some extra free time. Let’s start getting creative. Our generation needs to make its mark, as the baby boomers did with the computer and the x'ers did with the internet (sorry Al Gore).  Let’s get out there and start making up something new because realistically, the same old same sold isn't going to cut it especially when it's ceasing to exist.

 

A First For Everything

Maybe it makes sense that my first post comes at a time where we have been told there is a "glimmer of hope." Something new is certainly needed in this country and just maybe it’s this blog. What I am hoping to do is to keep the discussion going as to where this country is going. Unfortunately, my generation seems increasingly apathetic to everything. Maybe it’s the music we listen to or the fact that we have had it the easiest of any generation. What ever it might be however, it is causing a lack of critical thinking and a rise of blind faith when it comes to government. I hope that this can be a constructive way to challenge my generation to stop the complacency and actively change a broke system that desperately needs help.