Friday, March 20, 2009

Washington "thinking"

Apparently, Treasury Department advisors think that GM and Chrysler might need more than the $21.6 billion that has apparently been allotted for their preservation. Let's think about this a bit; imagine that they come up with a "plan" to "save" General Motors with another $20 billion or so in debt--say at a "good" interest rate of 5% or so.

The annual interest, of course, is a cool billion dollars, or (given very generous market share assumptions) about $500/car on top of the UAW tax already paid by GM. What does it do? It delays Chapter 11 bankruptcy by a year or two, and risks placing the automaker into Chapter 7 (dissolution of the company).

In contrast, Chapter 11 bankruptcy would allow GM (and Chrysler or Ford) to shed the UAW tax, making them about $1000/vehicle more competitive immediately. This illustrates exactly whom is being bailed out.

The UAW, of course. President Khalidi Jackson Daley Blagojevich Wright Pfleger Ayers Obama is outdoing himself in his quid pro quo arrangements with his benefactors, I dare say.

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