GM

[Apex Motorsports]

Originally Posted by fielderLS3

The government put in $49.5 billion, and got out $15.8 billion so far. $49.5B-$15.8B=$33.7B left to go.

Only part of the $50 billion GM received was in the form of a loan and they have paid that portion off. In return for the balance you mention, the government received $2 billion in preferred stock and 61% of the company's privately held common shares (that has since been reduced to something like 35%). The US Treasury (tax payers) is made whole (or as close as they will be) as GM continues to perform well and their position is sold off.

[TOMS1SS]

Originally Posted by 2010-1SS-IBM

It's not really salaries, though. Many US states are extremely unfriendly to businesses (environmental regulations, labor rules, taxes, etc...).

In the OP's original article, GM is spending $540 million on factories in Mexico that will only add 500 jobs. Clearly, the employee salaries are peanuts compared to what they're spending on equipment, land and development.
Why couldn't they do that in the US?

Probably because they'd have environmentalists up their wazoo as soon as they announce construction plans, lord knows how many local construction regulations to hurdle (if they are allowed to build at all, see oil refineries), labor regulations creating uncertainty on whether the plant will be able to produce year in, year out (Boeing just had the same questions with their new 787 Dreamliner plant), and lots and lots of other shakedown artists targetting them.

I said what I said to see what kind of reaction it would get. I come from a GM family and know damn well how overpaid people have been in the past and present. Its not just pay its health benefits as well, with Americans being so grossly out of shape physically that isn't a winning proposition. Throw on top all the other stuff you just said and its easy to why our white collar jobs are disappearing. We did this to ourselves, we have nobody to blame but ourselves. If we want blue collar jobs to come back a lot of things gotta change starting with all of us.

[a_Username]

Originally Posted by fielderLS3

I disagree. Our nation's industrial revolution happened at a time of protective tariffs, and that history is repeating itself with China, India, etc. What we have now is anything but free trade. It is "managed" trade at best, and the managers are not us.

Correlation is not causation.

Amen. Give reciprocity or get nothing. That sound be the fundamental demand of any trade agreement. Otherwise, it won't work (at least not for us).

Originally Posted by Robert Murphy

A country ultimately pays for its imports with its exports, and so to "save jobs" in the steel industry by raising tariffs will only destroy jobs in other exporting industries when foreigners have fewer American dollars with which to buy our products. And having to pay the tariff—as with any tax—leaves fewer resources available for job-creating investment.

Protectionism is absurd at its core.

[8cd03gro]

Originally Posted by Apex Chase

Only part of the $50 billion GM received was in the form of a loan and they have paid that portion off. In return for the balance you mention, the government received $2 billion in preferred stock and 61% of the company's privately held common shares (that has since been reduced to something like 35%). The US Treasury (tax payers) is made whole (or as close as they will be) as GM continues to perform well and their position is sold off.

The Fed was not legally allowed to liquidate the remaining holdings in GM (IIRC, just about 33%) until May 22nd, two days ago. If the Fed sells it's holdings at current PPS values, $30.83 at market close today, the taxpayers would lose a hell of a lot of money and the dillutive effect of selling those shares into the float would only drive PPS way lower. The conversion into common stock was made at a valuation near $60 PPS. The IPO was made too early at too high of a PPS imho.

[Number 3]

Originally Posted by fielderLS3

The government put in $49.5 billion, and got out $15.8 billion so far. $49.5B-$15.8B=$33.7B left to go.



Yes, because ANOTHER $500 was borrowed. If you paid back the loan by simply handing back $500 to the creditor, the debt is paid. BUT, if you paid back the original $500 loan by refinancing (borrowing a second $500 at a better interest rate to pay off the first $500), you still owe $500. You "paid" the first loan back, but now you have the second. If you refinance your mortgage to a lower interest rate, do you not still have a mortgage? This is what GM did. They paid off the "bailout" loan with a refinance loan, and have yet to pay back the refinance loan.

.

Again, stock sale is the other portion. If the government sells at a loss, is that GMs fault? Hardly.

And I believe you are now making up another loan to make your case. Everyones problem was GM used the original loan money to pay back the loan. Now you are making up another loan that didn't happen.

GM paid back all money that was borrowed. The remainder was traded for stock. It's really pretty simple.

What I think you are trying to do is continue to make the stock that the government holds a loan when it isn't. GM took 9 billion, held it and then paid back the loan with it. I've never heard a different complaint until now.

So just to be clear, you are saying GM borrowed 9 billion from the government, then borrowed another 9 billion from the government and then paid back the 9 billion to the government?

And just to be clear, if you look at GMs balance sheet there is no 9 billion debt to the government. GM carries 5 billion in debt as of the last quarter.

[Apex Motorsports]

Originally Posted by 8cd03gro

The Fed was not legally aloud to liquidate the remaining holdings in GM (IIRC, just about 33%) until May 22nd, two days ago. If the Fed sells it's holdings at current PPS values, $30.83 at market close today, the taxpayers would lose a hell of a lot of money and the dillutive effect of selling those shares into the float would only drive PPS way lower. The conversion into common stock was made at a valuation near $60 PPS. The IPO was made too early at too high of a PPS imho.

I am in no way defending the bail out or how it was conducted. In fact, I would prefer for the government to stay completely out of the market. But they chose to get involved and it is done. I am just trying to explain what happened because there seems to be a lot of confusion. Like all shareholders, if the Treasury's primary concern is to turn a profit it is their responsibility to play it in a way that is most profitable. In this case that was not their motivation, their primary concern was not to make money but to save a gigantic US employer at a time when our economy was falling apart. In that respect, their investment paid off because GM is alive and well.

[8cd03gro]

Originally Posted by Apex Chase

I am in no way defending the bail out or how it was conducted. In fact, I would prefer for the government to stay completely out of the market. But they chose to get involved and it is done. I am just trying to explain what happened because there seems to be a lot of confusion. Like all shareholders, if the Treasury's primary concern is to turn a profit it is their responsibility to play it in a way that is most profitable. In this case that was not their motivation, their primary concern was not to make money but to save a gigantic US employer at a time when our economy was falling apart. In that respect, their investment paid off because GM is alive and well.

I agree with you completely. I only see one train of thought with any logic that would view the way the loans were repaid as negative. The loans could have been used to accelerate GM's recovery and give them an advantage in the market, possibly resulting in a better post-IPO performance by their common stock among other things. If that were the case, the loans would still have been repaid in full, with earnings rather than from the TARP escrow, at a later date and the PPS likely wouldn't be falling with the end result being taxpayers losing a lot of money. It's all very debatable and I think anyone that expected all of the bailout money to end up back in the Fed is naive. From an auto-enthusiast standpoint I could and would like to see GM stock going up in the future, but unfortunately the trader side of me doesn't see anything bullish about GM stock at all. Actually, I've been considering shorting it since the Fed is now allowed to liquidate their assets and that means a huge increase in the float if they decide to.

[fielderLS3]

Originally Posted by a_Username

"A country ultimately pays for its imports with its exports, and so to "save jobs" in the steel industry by raising tariffs will only destroy jobs in other exporting industries when foreigners have fewer American dollars with which to buy our products. And having to pay the tariff—as with any tax—leaves fewer resources available for job-creating investment."

Protectionism is absurd at its core.

You have it 100% reversed. Demand for reciprocity is not protectionism, it is common sense. What is absurd at its core is to freely allow a known currency manipulator, copyright violator, patent office key thief, and counterfeiter to dump what are in many cases our own products on our shores, while putting up barriers preventing our products from be sold in their country. This openness is what is killing jobs here, because with the Chinese import barriers, we are not paying for our imports with exports because we don't have exports. Our industries are being hurt and jobs being lost because we are sending dollars overseas that are not coming back, leaving us as the ones with fewer dollars which which to buy our own products and invest in our own businesses.

Originally Posted by Number 3

So just to be clear, you are saying GM borrowed 9 billion from the government, then borrowed another 9 billion from the government and then paid back the 9 billion to the government?.

That is along the lines of what I am saying. The TARP loan from the government was paid back out of an escrow fund that itself was set up by the government. They paid back the money they borrowed from window A by refinancing at window B of the same "bank". They have paid back window A, but still owe money to window B.

Originally Posted by Apex Chase

I am in no way defending the bail out or how it was conducted. In fact, I would prefer for the government to stay completely out of the market. But they chose to get involved and it is done. I am just trying to explain what happened because there seems to be a lot of confusion. Like all shareholders, if the Treasury's primary concern is to turn a profit it is their responsibility to play it in a way that is most profitable. In this case that was not their motivation, their primary concern was not to make money but to save a gigantic US employer at a time when our economy was falling apart. In that respect, their investment paid off because GM is alive and well.

The Treasury paid tens of billions for stock that at the time was known by all to be worth nothing. That is not an investment, it is a bailout. If it was not a loan, then it can only be described as a "gift." No matter how you spin it, there is no denying that GM got billions of dollars in "free" (at least free to GM) money from the government that GM will never pay back, and the US taxpayer will never recover.

If the government decided today to simply give Exxon hundreds of billions of dollars because it is a big employer by buying some of their stock at $500 a share, everyone would rightfully see it as a handout. Why when it is GM should the same situation be looked at differently?

[Apex Motorsports]

Originally Posted by fielderLS3

The Treasury paid tens of billions for stock that at the time was known by all to be worth nothing. That is not an investment, it is a bailout. If it was not a loan, then it can only be described as a "gift." No matter how you spin it, there is no denying that GM got billions of dollars in "free" (at least free to GM) money from the government that GM will never pay back, and the US taxpayer will never recover.

If the government decided today to simply give Exxon hundreds of billions of dollars because it is a bit employer by buying some of their stock at $500 a share, everyone would rightfully see it as a handout. Why when it is GM should the same situation be looked at differently?

They shouldn't be and they aren't. I'm not disputing any of that. I started my last statement off by saying I completely disagreed with the bail out and that I believe the government should have stayed out of it. But none of that changes history or how the US Government decided to respond. GM fulfilled their obligation under the terms of the deal and are free to operate in a manner that is in their best interests like any other business.

[DGthe3]

Originally Posted by a_Username

I wouldn't call those methods an advantage in the least. The first thing you have to do is convince people that government is better at allocating resources than the market. The inherent assumption here is that the (international) market failed, and it did not optimally allocate resources to say the (United States') manufacturing industry. I believe Krugman, who I might add is not your typical "free market = answer to everything" kind of guy, says it best about the manufacturing industry's "decline,"



Krugman is simply applying the allocative ability of the market to a specific industry. This has happened primarily because the manufacturing industry is requiring less and less workers for its required output. And it is this high productivity that demands both higher paid and more skillful jobs to be fulfilled by the most productive. A side effect of this increased productivity means that capital can now be invested more in the service industry.



The "currency devaluation" method, for example, may increase exports, but it does so at a relatively high cost to consumers (really everyone). Consumers lose purchasing power thus reducing the amount of goods they can buy, which in turn results in a lower standard of living. So, how does buying fewer goods than before help strengthen our economy? Would you identify a regressing standard of living with economic progress? In a real world application, it is probable that Japan's infamous "Lost Decade" may not have happened without a government so keen on devaluing their currency combined with uncontrolled credit expansion and making its manufacturers "competitive" at the expense of making its citizens poorer.

I believe we all know why banning "free trade," which I must say is nonexistent in this country and any other, is bad for our economy. In short, yes I do believe that unhampered free trade will only make us richer, more competitive, and better off in the long run.



I would advise you to look up the division of labor and trade. These two phenomena are primarily what leads to economic growth; economic growth has never been the product of government policy. Also, you have nothing to fear, considering it is mostly comparative advantage and not absolute advantage that drives trade. That is, no country will ever have an absolute advantage in the production of automobiles, which means that the United States will likely always have at least a few automakers. But the comparative advantage may shift from country to country.

For the sake of consistency of the protectionist argument, what if we take this argument to its logical conclusion? Specifically, where is the outrage at the "trade deficit" between Tennessee and Kentucky or any other two states? Should Tennessee not impose laws to "equalize" wage rates by imposing tariffs on the "inexpensive foreign labor" of its northern counterpart? Also, does this mean that consumers can never patronize low-cost firms because it is "unfair" for them to have lower costs than inefficient competitors?



Continuing on the example above, would the retaliatory tariffs made by the Kentucky government not "sit well" with you either? Of course, you don't have to take my word for any of this; I believe Smoot and Hawley knew very well the harmful effects of tariffs and quotas.



I'm interested in the consumer. I have no interest or sympathy to whom try their hand in the market and failed.

Currency devaluation is merely one method to attempt to improve your exports. And taxes/wages aren't really a form of protectionism in my mind. They're a cost of doing business in that country, sure I accept that. But the way to fight it is to try and raise the standard of living in other countries, not reduce your own or try to impede their growth.

That said, there are plenty of other ways to protect a market, import taxes/tariffs, tax breaks for domestics, quotas, subsidies. And its absurd to argue that when a nation like South Korea or Japan has millions of guaranteed domestic auto sales it doesn't provide a competitive advantage in the global market place. Toyota, Honda, Nissan, and Hyundai/Kiacars are all clearly up to the standard of what buyers in the US and around the world want, so for them its not a case of propping up failures. I can almost support protectionism when a nation is trying to establish its own industries and their own fledgling attempts to stand on their own without getting swamped by big international competitors. But that hasn't been the case in Korea for years, or Japan for decades. Instead, you have Toyota selling more cars worldwide than anybody else, when there is only a single major market where they sell more than GM: Japan. Meanwhile, the JDM also allows smaller manufacturers like Suzuki and Mitsubishi to keep building cars.


Also, with my equal trade idea it would usually be in the other nations best interest to simply remove their own trade barriers. Afterall, the Korean auto industry would take a severe hit if they lost ~400,000 units of export to the United States, far bigger than what they would take by allowing the unimpeded import of US automobiles. Afterall, their market is at best 1/6 the size of the US market. Assuming that the combined US automakers would have a comparable market share in South Korea as Hyundai/Kia have over here the 'trade rate' on cars would be somewhere around 6:1 (currently its something like 66:1). So Korea would stand to lose either 65,000 sales by allowing US automakers in or lose 400,000 by being shut out of the US. I would rather Korea open up, but I wouldn't be terribly saddened if they got shut out either. Same with China, Japan, or an number of other countries.

[The_Blur]

Originally Posted by a_Username

Yes, but imposing tariffs, devaluing the currency, outright banning free trade, or dabbling in a little state capitalism is not the way to "stay competitive"; these policies actually lead to the opposite of what you want to happen. Not saying you specifically proposed or even implied these views, but it was just a general implication that I got from reading a few replies to this thread.

I did not suggest that the government should do any of those things. I only suggested that GM made a smart decision to invest in Mexico. My personal views on free trade, currency devaluation, and state-supported businesses are quite contrary to what you imply. I want GM to be a raging success because its cars are the best. When its cars are the best and it is still not a success, that says something is wrong to me.

[a_Username]

Originally Posted by DGthe3

Currency devaluation is merely one method to attempt to improve your exports. And taxes/wages aren't really a form of protectionism in my mind. They're a cost of doing business in that country, sure I accept that. But the way to fight it is to try and raise the standard of living in other countries, not reduce your own or try to impede their growth.

I never said taxes or wages were a form of protectionism, but the difference between wages, such as the usual "inexpensive foreign labor," is cited as an argument for protectionism. Your last statement is curiously out of place with your other assertions; free trade raises the standard of all and not just one certain country. That is, as explained in your Microeconomics 101 class, trade is beneficial to both parties, or it simply would not occur. This is contrary to what was said by mercantilists, of whom asserted that one person "wins" and the other "looses." And as you'll notice, this is what is asserted everyday by the ones who believe a simple 25% tariff on Chinese goods will save our economy. Fortunately, Adam Smith put that argument to rest in 1776.

That said, there are plenty of other ways to protect a market,
import taxes/tariffs, tax breaks for domestics, quotas, subsidies.

I'm aware of them, considering I mentioned a few of them earlier. However, they only divert resources away from more competitive U.S. firms into inefficient firms being protected by some special privilege granted by government. It is these types of firms that would fail; it is these types of firms that must fail if your goal is increased employment, productivity, and standard of living.

- Tariffs/Quotas I have already been over.
- Tax breaks are yet another example of special privilege. Why is it that GM deserves a tax break and your small restaurant owner in Louisiana does not?Not only does this violate equality before the law, but it (coercively) redistributes wealth to GM.

And its absurd to argue that when a nation like South Korea or Japan has millions of guaranteed domestic auto sales it doesn't provide a competitive advantage in the global market place. Toyota, Honda, Nissan, and Hyundai/Kiacars are all clearly up to the standard of what buyers in the US and around the world want, so for them its not a case of propping up failures.

It's not absurd at all when taking into consideration the opportunity costs and how these jobs are kept afloat. Perhaps the Japanese government can answer, as you failed to in your response, the following:

Originally Posted by Robert Murphy

The crudest justification, namely that tariffs "save jobs," is incredibly naïve: A country ultimately pays for its imports with its exports, and so to "save jobs" in the steel industry by raising tariffs will only destroy jobs in other exporting industries when foreigners have fewer American dollars with which to buy our products. And having to pay the tariff—as with any tax—leaves fewer resources available for job-creating investment.

Not only do tariffs fail to create employment on net, they also channel workers into less productive lines, and hence reduce overall output and consumption. After all, Alaska could certainly "create jobs" in its agricultural sector by banning all imports of fruit. At the artificially high prices, it would then be profitable for firms to open greenhouses in Alaska in order to grow apples, oranges, and other fruits that were previously imported. But does anyone think that this policy would be good for the average Alaskan?

I would enjoy a response to the logical conclusion of protectionism I mentioned in my last post. That is, what about the "trade deficit" between the states, cities, or even individual? Finally, having a trade deficit with one country overlooks the fact that you can have trade surpluses with others to offset the aforementioned deficit.

Originally Posted by Robert Murphy

To see this, imagine a simplified scenario where Japan sells automobiles to the U.S., the U.S. sells software to Kuwait, and Kuwait sells oil to Japan. In this fictitious example, the U.S. would have a trade deficit with Japan but a surplus with Kuwait, Kuwait would have a trade deficit with the U.S. but a surplus with Japan, and Japan would have a trade deficit with Kuwait but a surplus with the U.S. In terms of currency flows, Japanese automakers would probably accept U.S. dollars in exchange for their products, and then sell these dollars on world currency markets against Kuwaiti dinars. Then the Japanese could use the dinars to buy Kuwaiti oil, while the Kuwaitis would use the dollars to import American software.

I can almost support protectionism when a nation is trying to establish its own industries and their own fledgling attempts to stand on their own without getting swamped by big international competitors.

I believe the argument for protection of infant industries would be stronger if those proposals defined what the duration of the "temporary" tariff is. To many economists, it shows how little thought proponents of the infant industry argument put into their proposal. The problem is that these tariffs almost never go away due to what I believe Friedman said best, "There is nothing as permanent as a temporary government program." Of course, the argument is a lot deeper than simple practicality and government inefficiency. Another very basic thing that is overlooked is the mechanism that the market has to adress this issue: loans. In the short-run, nearly all businesses lose money, but if they expect profit in the future then they can take out a loan and repay it with those future profits. The individuals of the market will decide rather or not these expectations are correct by choosing to invest in them or not. If not, then its current loss of resources is not sufficiently compensated by its future gains (assuming there are gains). Here is another analogy that illuminates the absurdity of the infant industry argument:

Originally Posted by Robert Murphy

The absurdity of the infant industry tariff can be illustrated by considering an "infant worker" tax, which would be a tax levied on experienced workers in order to encourage businesses to hire younger workers with less experience. After all, without giving the young workers such help, how would they be able to survive during the years of training in schools? Clearly we need to tax older workers in order to encourage the development of human capital in our infant workers!

But that hasn't been the case in Korea for years, or Japan for decades. Instead, you have Toyota selling more cars worldwide than anybody else, when there is only a single major market where they sell more than GM: Japan. Meanwhile, the JDM also allows smaller manufacturers like Suzuki and Mitsubishi to keep building cars.

It's no secret that Japan has played with what is known as "state capitalism," but this state capitalism falls short of lassiez-faire. Actually, I'm not sure I would trying to duplicate Japan's economic model as implied here; does the Lost Decade ring a bell to you? I wouldn't call economic stagnation for 10+ years progress. Also, the citizens of Japan are only being hurt by their government's refusal to let competition in.

Also, with my equal trade idea it would usually be in the other nations best interest to simply remove their own trade barriers.

History has shown very well what happens with the implementation of tariffs; there will be retaliation. For example, see the Smoot-Hawley tariff. Again, the market is the only form of equal trade, considering every tariff will eventually have to be paid by taxes. This leads to the well known "crowding out" effect on private investment that you also refused to respond to.

Afterall, the Korean auto industry would take a severe hit if they lost ~400,000 units of export to the United States, far bigger than what they would take by allowing the unimpeded import of US automobiles. Afterall, their market is at best 1/6 the size of the US market.

Assuming that the combined US automakers would have a comparable market share in South Korea as Hyundai/Kia have over here the 'trade rate' on cars would be somewhere around 6:1 (currently its something like 66:1). So Korea would stand to lose either 65,000 sales by allowing US automakers in or lose 400,000 by being shut out of the US. I would rather Korea open up, but I wouldn't be terribly saddened if they got shut out either. Same with China, Japan, or an number of other countries.

You're correct that the Korean auto industry would "take a big hit" if they opened up to competition. They would no longer be shielded by heavy subsidization and currency devaluation and would succumb to market forces. You would see the international division of labor at work and see their global market share decrease drastically. However, as I explained above, these methods don't protect them.

Another thing to take into consideration is GDP per capita. GDP by itself isn't really useful but combined with a "per head" count, then it's usually a good indicator of economic performance. So, what you will see the United States always in (at least) the top 10, while South Korea and Japan do its best to crack top 25. China? Usually in the 90s.

[liquidsmoke]

Money

[a_Username]

Originally Posted by fielderLS3

You have it 100% reversed. Demand for reciprocity is not protectionism, it is common sense.

Protectionism, IIRC, is protection from "unfair trade." Putting up tariffs and the like is (an attempt to) protecting yourself from these mythical threats. Also, if it is common sense, then you won't have any trouble refuting it. Or will you?

What is absurd at its core is to freely allow a known currency manipulator, copyright violator, patent office key thief, and counterfeiter to dump what are in many cases our own products on our shores, while putting up barriers preventing our products from be sold in their country.

Again, the Japanese have paid for their manipulation, hence the Lost Decade. Their citizens standard of livings is being reduced, while their manipulation is actually helping us more so than them. As explained below:

Originally Posted by Jonathan Catalan

China's central bank is not subsidizing the Chinese exporter but the American importer. Furthermore, ongoing inflation will only hurt both the Chinese consumer and the Chinese saver, as prices go up and savings are confiscated by depreciating their value. This is an economic fact whether the economy is growing or crashing.

How is it subsidizing us? The undervalued yuan allows us to buy more yuan with the same dollar.

This openness is what is killing jobs here, because with the Chinese import barriers, we are not paying for our imports with exports because we don't have exports. Our industries are being hurt and jobs being lost because we are sending dollars overseas that are not coming back, leaving us as the ones with fewer dollars which which to buy our own products and invest in our own businesses.

Why are you assuming the only two countries in the world that trade with each other is China and the United States? Assuming this "trade deficit" is bad, which it isn't, this still overlooks the fact that we have a "trade surplus" with other countries.

I must also question your knowledge of the exchange rate.

Originally Posted by Jonathan Catalan

Chinese goods are usually valued in yuan. The Chinese producer is interested in selling his goods only to make an income so that he may purchase either consumer or capital goods. Given that the producer lives in China, the only currency that is generally valuable to him is the yuan. An American, on the other hand, usually only holds dollars, because that is the most widely accepted unit of currency in the particular area he usually trades in. It thus becomes necessary for the American to buy yuan from someone interested in holding dollars, so that the American can turn around and use the yuan to buy the goods from the original Chinese producer. The price of the yuan in dollars, or vice versa, is known as an exchange rate. The dollar–yuan exchange rate is decided roughly by the supply and demand of either unit.

It does not necessarily follow that the average Chinese individual will then save dollars. The dollar, as previously established, is not particularly useful to the Chinese individual. In China, goods are sold and purchased in yuan. So, a dollar is only useful for buying American goods or buying corporate bonds and other types of private securities. In all cases, the dollar is returning to the United States.