@sigmundringeck: Obama intends nothing less than an American version of the Chinese Cultural Revolution.

We do hope it is less violent than the original but there is no guarantee.

When a rent a mob of 40 ACORN troublemakers can get massive worldwide media attention for their protest outside AIG executives homes and the tens of thousands of people attending Tea Party protests are ignored it is clear evidence that the media will support whatever form of witch burning Obama has in store for the rest of us.

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Interesting.

So now after Obama’s interference, we have one rich, probably pissed off Republican with an axe to grind. Said pissed off Republican has mucho economic chops, and coupld probably easily take on the congressional drone in his district (or buy a house in any damn district with a vulnerable Democrat; which they all will be in 2010).

Keep it up, President Obama. When you sow the wind, you’ll reap the whirlwind.

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@Gaffa,

The government’s intervention wold not be necessary if the free market was allowed to function properly. Bankruptcy has always been THE tool for misallocated capital to be reallocated. If an automobile manufacturer kills itself by not constantly adjusting to meet a volatile market, it is an overall drag on the economy.

You aked if we should let a huge auto manufacturer to ***** of be artificially boosted for a period of time by the government. Maybe the following analysis of a simulated model will help explain how a free market responds to the downfall of a major institution: The simplified model makes it easier to see the effects, but the model scales up as the complexity of the situation increases.

The scenario: Two auto manufacturers (Alpha and Beta) exist in a fictional economy, and they have equal market share, but Alpha hasn’t kept up with changing times, and for other reasons has to cease operations. Since both companies made all the cars for the economy, all new car sales will go to Beta. Beta can’t make enough autos to keep up with the increased demand, so it invests in more manufacturing space and hire enough workers to meet the increased demand. Most of the people who lost their jobs when Alpha went bankrupt will stand a good chance to work for Beta. The same events occur for the companies that supplied parts for Alpha and Beta. Beta’s suppliers have to supply twice as many parts, so they expand just like Beta did, or Alpha’s suppliers change their product lines to be able to supply parts for Beta.

The system is self-correcting, as long as government doesn’t decide it needs to “help.” In general, as long as demand can be met by supply, it doesn’t matter if the number of suppliers changes. If overall efficiency, costs, demands, etc. do not change significantly, the system is completely auto-adjusting and self-correcting. If Alpha decides to restructure, it will correct its mistakes, even INNOVATE and become more COMPETITIVE, and has the ability to win back its customers and its workers. As long as demand doesn’t decline, and other manufacturing and economic metrics don’t change significantly, a company that is able to adjust to the ups and downs of an active (even volatile) economy will be able to make the necessary changes to stay in business.

I know I’m being repetitive, but it bears repeating: in a free market society, as long as government or other entities do not interfere and impose unnecessary obstacles and costs, the market can self-correct. The simple model/scenario above shows how it can happen. And for the most part, the U.S. market has functioned much like this for decades upon decades.

It’s only when unnatural (i.e. man-made) obstacles develop that the market suffers. There are a lot of factors that can tip free market economies toward expansion or contraction, but the suppliers and customers who act wisely and build in buffers to ride out highs and lows are what improve the health of the economy. Excessive intervention from government or any other external agency can stress markets past the point of recovery. Bankruptcy (as shown above) is the most expedient way for unhealthy entities in a market to get flushed out. To the extent that outside agencies attempt to control any but the simplest of markets, they inevitably delay or prevent the healing effects of bankruptcy and other free market tools from restoring the economy to its normal state of dynamic stability.

We can have a separate conversation about the various factors that have kept our economy from functioning as a healthy free market economy. The above simulation was intended to dispel some of the myths surrounding the adverse affects of bankruptcy in a free market economy, particularly the issue of unemployment during bankruptcy. In most cases, as long as the market is allowed to correct itself, unemployment due to bankruptcy can be kept low without artificial means.

Jeff V

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Gaffa, in comment #15, you erroneously leaped to the conclusion that a BK results in the complete disappearance in an industry and it’s jobs. I pointed out to you that a BK is a “bailout” without the taxpayer cash, and done by our court BK trustee system, and not the POTUS and his self-appointed auto-czars who don’t know anything about that business.

Then you come back with an article by the MSNBC *travel* columnist who whines that the airline BKs were just another money grabbing scheme by the airline execs. Let’s get a few specifics straight here.

Mr. Leocha might well stick to talking about the different values of cruise trips than to wander into the BK area. He effectively condemns all BKs, laying the blame at the feet of the “court” in general. Obviously the man knows nothing about BKs. There is a trustee that is in charge of handling the proceedings. And while it is entirely possible that some trustees are better than others, it’s no reason to condemn a process that has keep many a business operating that would have otherwise failed… and without the taxpayers bailout.

At the heart of Mr. Leocha’s complaint is his misleading, populous headline – which was timed to piggy tail on refueling the AIG exec persecution.

Bankruptcy courts have just about rolled over and played dead for airline management. I can’t remember the last time I heard pilots, flight attendants or other union members had been favored in any court decision that involved a confrontation with management.

Consider the damage. Stockholders have been wiped out. Pensions have been abandoned by the bankrupt companies. Flight attendants have seen their work rules changed dramatically. Pilots are being squeezed for more and more flight time. Aircraft orders have been canceled. Contracts with suppliers have been torn up. Terminal leases with airports remain unpaid.

All of these results are part and parcel of *every* restructuring. And that includes what Obama and his know-nothing auto czars are demanding of GM and Chrysler. When a company is operating at a cost above it’s income (like our federal government…) it has to streamline.

Whether the banks, the auto industry, or any other company, we have to face that fact that some are going to have to severely cut back. There will be pensions lost, their labor regulations changed (mentioned above in a suggestive “attendants have seen their work rules changed dramatically”) However all this can happen *without* another $20bil of taxpayers money, and without a President who insidiously inserts his unConstitutional power into micromanaging business affairs by bypassing our bankruptcy court system.

Here’s the real corker that shows this guy’s populous, “hate the rich” mentality…

The only parties in the current spate of airline bankruptcies that seem to be flourishing are the airline executives, the lawyers and a handful of bankruptcy financing firms. This greedy triad has been working the bankruptcy system to line their pockets — and to hell with the rest of the players.

Do we hear this guy’s rage for the attorney’s getting rich off healthcare lawsuits, driving up the costs? Does he even have a clue that those in Congress hold a special place in their hearts for trial lawyers as most of them are law grads?

Nope… I’ve long said these companies need to go thru our BK court system to restructure, and let a BK trustee make the decisions. I have no idea what power Obama is using to assume the power of a BK court, as well as a human resources department head for these companies. But this stuff is unbelievably bad juju overall.

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I really feel sorry when I see all this happen.
This is really going back to where we were last time. It’s for sure not as bad, but it’s getting there….enforced volunteerism, private companies taken over by govt and forced to make so-called green vehicles…..

On a more primitive, extreme and brutal scale we are describing the mainland in the 70s.

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@GaffaUK: There have been occasions when poor management has been replaced by the stockholders (though we are all still waiting for Jeff Immelt at General Electric to get the boot). But I can’t recall an instance of where Union bosses have been thrown out of office. Perhaps someone can, but I cannot.

To me at least the Unions are the ultimate Oligarchy. Leaders are elected for life, or at least until retirement age, and there is very little accountability to their membership.

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Under US Law, Chapter 11 Bankruptcy guarantees accountability and order to restructuring under DUE Process, which may be a foreign concept to those that are not familiar with US Law.

Industry that is nationalized is terminal. It just goes away.

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@MataHarley

Gaffa, we’ve already had many airlines declare bankruptcy… they are still flying, still employing staff. Bankruptcy is often just a restructuring, but without the taxpayers bailout money. This is why most are suggesting they declare BK. Saves the taxpayers bucks, but they are still around – perhaps in a leaner/meaner operational mode

Check this article out…

http://www.msnbc.msn.com/id/17858408/

Whilst I don’t mind out of control, over demanding – unions being cut down to size – there are still poor management decisions and excesses which are also out of control…

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“Given the history, a change in management could hardly hurt and might do some good,” Sen. Charles Schumer, D-N.Y., said Sunday.

The unmitigated GALL of these people in government! As if this same statement, times about 1,000, wouldn’t apply to them!

The Obama administration calls its task force “a cabinet-level group that includes the secretaries of Transportation, Commerce, Labor and Energy. It will also include the chairman of the President’s Council of Economic Advisers, the director of the Office of Management and Budget, the EPA administrator, and the director of the White House Office of Energy and Climate Change. The Task Force will be led by Treasury Secretary [Tim] Geithner and [National Economic Council] Director Larry Summers.”

Why not add Bobby Kennedy and Nancy Pelosi’s son as well? What the heck, they’re good “car men” too, aren’t they?

Madness. Pure madness.

On the other hand, I look forward to watching their guidance of GM/Titanic, under their watch. But no doubt, this same crew will continue to blame it on W for years to come.

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I would rather see the Big 3 got thru bankruptcy and fix their organization and get the UAW to actually control their wanton disregard for operational effects from their gigantic benefits they are demanding. Yes, they lowered the pay, but still have a couple Billion in benefits that they are paying their retired workers. Think about SS is going to be also. When you have more money going to the retired than to actual workers, you are going to run out of money. And when the UAW owns a golf course and gets the big 3 top pay for the maintenance for that golf course, you have problems also.

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