Congress Votes to Bailout Big Three Automakers with $15 Billion Cash Injection

By: John_Browne

Today, Congress signaled its intention to use $15 billion in public money to bail out the "Big Three" automakers with a so-called "bridging" loan. You would think that after becoming a major issue during the presidential campaign, politicians would have become wary of "bridges to nowhere."

GM, Chrysler and Ford are all operating at losses. They have failed business models. Sadly, they do not employ people in a profit-making enterprise. Rather, they "misemploy" people to manufacture losses, and have been doing so for decades.

The "Big Three" represent all that is bad in American industry. They may be past the point where even radical surgery can help. However, like an organ donor, many of the resources now poorly utilized by these companies could offer tremendous value to more vibrant manufacturers.

For years, the Big Three have rolled over in the face of trade union threats. On a per car basis, these companies today endure costs that are on average $600 higher than those faced by foreign competitors for cars that they manufacture in the United States. How is it possible for any bailout to counter this acute competitive disadvantage?

GM already owes debts of some $42 billion and Ford some $32 billion. How is it that an injection of a mere $15 billion of public money will succeed? It won't. The Big Three are a financial "Black Hole."

If that were not so, why is it that Cerberus, the private equity company that owns Chrysler, will not put in another penny? These financial and business "wizards" clearly see that the Big Three cannot survive without massive and long-term public subsidies. Clearly, they also see a "Black Hole."

Despite its promotion as a "bridging loan", the Congressional plan is a bail-out, pure and simple. It will likely be the first of a series of continuing subsidies to privileged, misemployed workers whose sense of entitlement and blindness to the changing economic conditions around the world has broken their companies. Having bled their parent companies to death, the UAW now wants to bleed the American public.

The problems with the Big Three are emblematic of very serious challenges that confront America. But the crisis also is a once in a lifetime opportunity. Restructuring the American economy is long overdue and is now urgent. It will be painful and difficult. It will require leadership of an extraordinary quality. It will also require political conditions that will allow for stringency. Finally, it will require money: bucket loads of it.

At long last, the recession we have been long predicting is being officially recognized. The public is becoming aware of the magnitude of the crisis, and I feel that they are psychologically prepared for tough remedies. Given the mandate for change that propelled Barack Obama into office, President-elect's impressive rhetorical abilities, the public could be inspired to accept the necessary pain that would accompany a meaningful restructuring of the American economy.

The polls indicate that the American public clearly opposes any public bail out. The public has it right. Why should other workers, including employees of other profitable American auto plants, fighting for their jobs, approve of the public financing of their privileged competitors?

If allowed to unfold along lines dictated by the marketplace, the current recession will unwind the excesses of the past. The entire auto industry will suffer, but it will die if all the attention is showered on the terminal cases rather than setting the conditions for the healthy companies to produce automobiles profitably.

To prop up our failures is to succumb to the politics of Socialism, which has proved countless times to be the politics of economic decay. Why would an American Congress agree to essentially nationalize the Big Three in face of opposition from the majority of Americans? The answer is fear.

It is clear that Congress is scared stiff of the pain required to achieve the restructuring that is vital to the regeneration of American wealth and power. Unabashed, it appears likely to pour massive amounts of dollars into the failed sectors of the U.S. economy. They are not choosing to create new employment, but to continue misemployment.

Should President-Elect Obama fail to use his great skills and his considerable grass roots support to inject some backbone into Congress, all holders of U.S. dollars and U.S. equities should beware. They stand to be robbed by Congress.

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By John Browne
Euro Pacific Capital
http://www.europac.net/

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John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

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