GM Rolls into Chapter 11
In possibly the least shocking lead story of the year, General Motors today filed for Chapter 11 bankruptcy protection, marking the largest industrial bankruptcy in U.S. history and the fourth largest bankruptcy period (Lehman Brothers is #1, Enron is #5 for a little perspective.) In a widely telegraphed move, GM will receive at least $30 billion in additional government financing through the bankruptcy and emerge from bankruptcy, the US Government will be the majority shareholder with minority interests from the Canadian Government, the UAW Pension Fund and all of the bondholders whose claims will be exchanged for equity in the new company.
So, the bad news is that when all is said and done, the Feds will have sunk at least $70 billion into GM and Chrysler and they will have still gone bankrupt. The good news is that it appears Chrysler is close to emerging from bankruptcy in record time with a new debt and capital structure that may actually allow it to be successful as a much smaller company. We can hope for the same with GM. If these companies emerge successfully, the government will be able to sell its share and recoup some or all of the bailout money.
All of this (bankruptcy) should have happened months ago, as I have repeatedly advocated, but late is better than never. The Chrysler experience is proving that Chapter 11 was not the catastrophe that some claimed it would be, but rather the best, most orderly way for fixing fundamentally broken companies. In fact, had this action been undertakening back in December and January, I believe the new Chrysler and GM would be better positioned to compete in the economic recovery, as they would have emerged from bankruptcy already and be in a position for an effective 2010 model year launch.
It is scary how much of our former titans of industry the government now has a huge stake in: Citibank, Bank of America, GM, Chrysler, Fannie Mae, Freddie Mac. I hope there is a plan at the end of this to disentangle the government from the free market. Many of these actions were probably necessary (even if I think the auto bailout was sorely mishandled by both President Bush and President Obama), but long-term involvement has chilling reprecussions. We need an exit strategy.
Okay, GOP, How About that Stock Market Now?
On the day that the sixth largest company in the United States (per the Fortune 500 list, with over $183 billion in sales last year) filed for bankruptcy, the S&P 500 was up 2.6%. So what gives?
First, as I mentioned, the GM move had been telegraphed for weeks, so the market had largely "priced in" the bankruptcy, although it is worth noting that GM stock was still trading for $0.75/share last Friday and those shares are now worth, in the words of Animal House, "0.0", so it was not fully "priced in".
The real motivation behind the move was some good underlying economic news which can, at least in part, be directly traced to the stimulus. Disposable incomes increased by 0.5% last month in spite of the fact that gross incomes were flat. The reason? The tax credits in the stimulus package. Additionally, construction spending rose in May, another product of stimulus spending.
Remember when Republicans were saying that the stock market was a gauge on President Obama's performance? The S&P 500 is now up almost 13% since the President took office. Is the President now doing a stellar job? Bear in mind, the stock market declined a total of 37% during President Bush's 8 years in office. Do I now contend that the stock market is a real time barometer of a President's economic performance? No. As I've said in the past, long-run stock market returns ARE a good barometer of overall economic policy performance, but short-term results don't mean much.
The Obama Date Night
Congressional Republicans have criticized the President for using government resources (namely Air Force One and a helicopter) to take his wife to a Broadway show. What a stupid statement. The President doesn't have the option to take the bus, because of security concerns. How exactly do you think that President Bush got to his ranch in Crawford the dozens of times he went? Going to a Broadway play once and maintaining some sense of family normalcy while working 100 hours a week is certainly something to which the President is entitled.
That's all the virtual ink I can stomache devoting to that.
The Pro-Gay Marriage Dick Cheney
Many were shocked when former Vice President Dick Cheney stated clear support for legalization of gay marriage. Mr. Cheney also stated that he believed it was an issue that should be individually decided by the states. I agree with him on both points (although I oppose strongly the Defense of Marriage Act signed by President Bill Clinton that allowed states to disallow marriages from other states between gay couples, an exception that causes married people to become unmarried when they cross state lines that is not extended to teenage marriages, marriages between cousins or any of the other quirky marriage laws around the country.)
I was not among those shocked by Mr. Cheney's position. It has been well-publicized that has a gay daughter. In the 2000 Vice Presidential debate with Joe Lieberman, he expressed clear empathy for gay Americans and came out strongly for Civil Unions (although stopped short of endorsing gay marriage.) Dick Cheney was never a culture warrior. I've hated his foreign policy and civil liberties positions for 8 years, but we are in complete agreement on this one and I respect his courage in opposing the vast majority of his party and his defenders in coming out with this decisive stand. Good for him, for once.
Stimulus Update
Latest numbers from the government:
Money Authorized: $126.3 billion (25.3%), a $10.2 billion (2% of the package) increase from last week
Money Spent: $36.6 billion (7.3%), $5.5 billion or 1.1% of the package spent in the past week
The government will need to spend just over $5.3 billion per week, every week between now and the end of the year to meet the target of 40% of the package being spent by the end of this year.
Site Updates
This site finished the month of May with 210 visitors for the month, meaning that we have had more than 200 visitors every month since I put the counter up in January. Thanks for reading and referring your friends.
A few readers have noted as of late that I've had some incorrect spelling and grammar in my posts. I apologize for any gramatical and editing errors. I have been largely writing the blog from the road as my business travel schedule has been crazy and I don't always get a chance to fully edit my posts.
Note that I have added a search bar at the bottom of the site. Please feel free to use this for all your searching needs and consider bookmarking this site for your searches.
I appreciate your continued support, and please tell your friends about us!
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