GM Bail-Out– Spread the Pain

It is pretty clear to most Americans that the failure of GM would not be in the national interest.  Yes, Republicans, this is a matter of national security, not an academic test of economic theories. 

The GM bail-out should have five basic priniciples:

  1. Management and the Board are fired Replace management with Lou Gerstner and Jerry York.  Elect Bill Gates the Chairman of the Board.
  2. Common stockholders get wiped out.  The US Government buys collaterized convertible debentures ranked senior to common and preferred stock.  The current  stockholders only recover their investment if the company rebounds like IBM did.
  3.  UAW cuts wages and benefits 10% immediately.  The Democrats need to bring the UAW to the table.  Otherwise the pain is not evenly distributed and the general public will not support the deal.  "We’re here not because of what the auto industry has done," said UAW President Ron Gettelfinger today, "We’re here because of what has happened to the economy."  Give us a break; how stupid do you think the American people are?
  4. Dealers relinguish rights to sue GM.   The current GM dealers give up their right to sue if the company closes down a brand, so that the company can restructure its product lines. Annette Sykora, Chairman, National Auto Dealers Association, it is time to step up, even though you are a Ford dealer. 
  5. Local governments grant two-year real estate tax holiday and sales tax exemption.  This would boost GM’s cash flow and effectively lowers the price of a car, hence boosting demand.  Unfortunately, there is no national organization of local governments other than the The National Conference of Mayors chaired by Manual Diaz, Mayor of Miami – like he cares about bailing out the auto industry. 

If these five tenets of a bail-out were to be adopted that would be a whole lot of pain distributed amongst the stakeholders.  My guess is that the stakeholders don’t have the stomach or political will or time and stamina to make the necessary concessions so the company will fail. 

But then again we will have to wait and see what our leaders come up with next week.  It is up to them – George Bush, Barack Obama, Chuck Schumer, Hillary Clinton, Nita Lowey, Ron Gettelfinger, Annette Sykora and Manual Diaz. 

Actually, there is a legal process that can bring all the stakeholders to the table immediately; it called bankruptcy court.  So our leaders are really deciding if the legislative and executive branches of US Government can serve the function of the judicial branch, i.e., a bankruptcy court, and bring all the stakeholders to the table now.  It is not in the national interest for GM to go bankrupt, but it may be the only way to spread the pain — and fast.