Every so often we need to stand back from the issues at hand and regroup.
My case in point for today is the bailout of General Motors. I challenge you to forget whatever we may have done for Chrysler in the past or present. What works for one company doesn’t necessarily work for another. We can’t group all of the fruit together and call them all apples.
After propping GM up with $20 billion in bailout loans the New York Times is reporting today that the federal government will conservatively need another $50 billion just to make GM through bankruptcy.
So let’s total that up real quick, and we get $70 billion in “loans” that by most accounts will never be paid back. There simply is no way that initial $20 billion will be repaid, because it will be forgiven in bankruptcy court. There also is little doubt that any significant portion of projected $50 billion needed to maintain the company through bankruptcy will ever make back into the taxpayers hands as well.
So now take the time to step back.
If you look at Fortune Magazines Top 500 for 2008 you will find that GM employes 266,000 employees. Certainly that figure is lower in 2009, but if you apply that number and divide it into the conservative projection of $70 Billion invested to get GM through bankruptcy. The figure you get is over $263,000 per job saved at GM. Now that assumes that none of these 266,000 jobless won’t find a job and will be considered unemployable. In reality almost all of these people will find other sources of income either at a competitor or somewhere else in the economy.
Whatever happened to the notion that if one company failed the market would fill in the gaps? You can argue that GM is too big to fail, but logic dictates that the market void will be filled by the survivors and they will benefits from GM’s missteps. Capitalism is self healing so to speak.
So I guess as we get to the bottom of the barrel we have to ask ourselves two questions.
1. Should we pay over a quarter of a million dollars per employee to save a sinking ship?
2. Would these same employees spend a quarter of a million dollars to save my job?
It is all in how you look at it, I say cut our losses and let the system correct itself.
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