Tuesday, December 16, 2008

"Bush's Last Chance"

"We've already stepped forward and made enormous concessions," UAW President Ron Gettelfinger said Friday at a news conference. "But as we made it clear ... , we were prepared to make further sacrifices. But we could not accept the effort by the Senate GOP caucus to single out workers and retirees for different treatment and to make them shoulder the entire burden of any restructuring."

President Bush has one last chance to salvage what little shred of credibility his administration has left. He has presided over the worst collapse in U.S. history (politically and economically). A collapse that can be largely blamed on the government’s failure to effectively regulate private enterprise and mitigate economic risks. The UAW is playing a game of chicken with the rest of the country. They know that everyone now believes that an auto-industry bankruptcy is off the table. Thus, they are only willing to concede what little they feel they need to give up until a deal is done. Naturally, from a bargaining perspective this is not shocking, as they know the only outcome they fear will ultimately be avoided. So, why be the first to cave? In a worst-case scenario, the concessions that are being asked of them will be forced upon them by the government or a judge, and thus the current leadership will never have to take the blame for what will amount to life changing wages for hundreds of thousands of union workers. Best-case scenario, you get the money and only have to give up very little in the immediate term thus postponing the eventual reckoning for a later date.

It is for this reason that I think it is about time for the President to take charge and make a difficult decision. Will Bush stand firm, or will he usurp congress and allocate TARP(sect 102 limits the funds to financial institutions) funds to the auto industry? Reagan was willing to use drastic measures when the Air Traffic Controllers Union wouldn’t budge. This president should do the same. The solution is simple. Force the UAW and the Big Three to enter into a binding agreement under which the parties agree in principle to accept any future restructuring that is deemed necessary by and independently appointed “car czar” or committee. In exchange for this agreement, the government will extend temporary credit throughout this transition period that will allow the automakers to sustain their operations. The big three will agree to this agreement, if the UAW balks, dissolve the union under an executive order.

Btw- the trading in the common stock of gm is complete and utter nonsense. These shares represent an interest in a company that is no longer a going concern. How we get there is inconsequential. The new equity when and if it ever emerges from government control will represent a stake a very different company. That is the only way gm survives. The debt is worth cents on the dollar and the stock is worth zero. Any day is a good day to short this stock.

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