Tuesday, March 31, 2009

News Analysis - For U.S. and Carmakers, a Path Strewn With Pitfalls - NYTimes.com

First off, I realize there are no easy answers here. None. People will lose jobs. People will lose their investments. But that said, it REALLY scares me when governments (any government) interferes with the running of a company (any company).

News Analysis - For U.S. and Carmakers, a Path Strewn With Pitfalls - NYTimes.com:
"He [Obama] made it clear that the White House would oversee, and heavily influence, decisions about what plants to shutter, what brands of cars to abandon and how much workers and managers will be paid.

And with no edge to his voice, he left hanging the threat that he might yet force G.M. into a quick, managed bankruptcy, if it was the fastest way to remake the company. That message was directed at G.M.’s reluctant bondholders, an unsubtle warning that they must negotiate to get 16 or 20 cents on the dollar — or risk getting far less.

Mr. Obama did not nationalize the company, at least in any technical sense."
I guess GM had is coming when they asked for government money. Money rarely comes without strings attached. But this does set a very scary precedent (yeah I know, steel makers in the 1950s). Dictating how a firm is run, who runs it, and how they are paid. Let's hope this does not catch on.

And yes, I know some so called experts are claiming this is good (and indeed it is better than what France did with Peugeot where as a condition of government money job cuts were outlawed). But the GM example is so bad that it could have lasting a deleterious effects on the economy for decades to come. (Take an extreme case, suppose you are a food processor that is federally inspected. Does this Federal inspection count enough that they could dictate business dealings, pay, who runs the firm?)

NOTE: This is not saying the government moves are right or wrong. Replacing the CEO may well be needed, but it should be the Board of Directors decision. The only way I see this not being a problem is to claim they are already in effective bankruptcy and the government is merely playing the role of a bankruptcy trustee that is operating in the best interest of creditors.

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