Posted by
john on Monday, November 17, 2008 4:57:48 PM
That was the title of a piece by John Tamney in IBD last week. It made so much sense, I had to ask myself, "would Barry O pursue such a course?" Nah. I say there's no way he let's GM go down on his watch. Letting GM die would represent such a triumph of both courage and good sense, it would be positively Reaganesque. I'm given to understand, however, that Obama is no admirer of Ronaldus Magnus. Thus I'm watching out-of-the-money calls on GM. I wouldn't touch the common. I'd go for the leverage play in a situation like this in which one little bit of good news could double the share price. Understanding, of course, that with leverage lies risk. But it doesn't hurt that gas prices are cratering.
If GM were allowed to die, maybe we'd buy a condo in East Lansing near my in-laws. Such an event would surely mark the rock bottom of the dirt-cheap Michigan real estate market. Because, as John Tamney pointed out, GM's assets would be bought up "by competent foreign automakers eager to expand their capacity in ... the world's largest auto market." Just imagine what Toyota, Honda, or Nissan might do: (a) with a wealth of assets bought on the cheap, and (b) without the UAW!
But alas, we are going to be stuck with a giant, capital-sucking sink hole, propped up for the benefit of union thugs, at the (crushing) expense of the rest of the country. I had been at least a bit sympathetic to the idea that propping up the Detroit Three was probably the best of several bad choices, due to the likely negative multiplier effects on the general economy, emanating especially from the suppliers. But I got to thinking: if the assembly capacity was bought up by competent operators, wouldn't it make more sense to use any bail out money to keep competent suppliers afloat should their cash flow positions deteriorate to near-death status in the interim? Would that not be the more efficient allocation of scarce capital?
For me, all of this mess really highlights one inescapable conclusion. Big chunks of the American economy are likely to start looking more and more like pre-Thatcher Britain. When reasonable alternatives are shunted aside in favor of throwing gargantuan sums toward, as Michael Barone put it, "preserving in amber" decaying slices of an outmoded and uncompetitive America, for the benefit of no one save powerful interest groups, I have to wonder how long it's going to be before the U.S. is called the "sick man" of something.