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View Poll Results: Should the government bail out U.S. automakers?
Yes 18 10.00%
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Old 11-12-2008, 01:28 PM   #21
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It is a rape of the taxpayer for the benefit of corporate greed. At least Obama will make the rich start paying taxes again (I hope). Otherwise the middle class will carry the whole load for generations to come.
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Old 11-12-2008, 01:35 PM   #22
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Originally Posted by Zathras View Post
I think you are exactly right in that the government would just be propping up a broken business model.
The auto companies need to show the government a well laid out plan for how to fix things. And I think a necessary part of that plan is to restructure their pension, health care and UAW contracts.
Then they have to figure out a way to restructure the companies such that they can change direction more nimbly as changing market conditions require them to.
I agree with this...they must show some sort of major change in the way they do business...and commit to it first. I think the fallout to all of us would be huge, although indirect. Even if you don't have any affiliation with Detroit/Michigan, I think everyone will feel this if the Big3 file Chap 11. Who do you think pays unemployment taxes? that's right...the taxpayers do...indirectly through price of goods charged by the companies that pay into it. What do you think will happen to home values if we suddenly have 50,000 more homes on the market in this country? Sure, it may not affect a far-away locale, but I still think the housing industry would be adversely affected. If the Big3 go down, who will pay the taxes to the US gov't that those hundreds of thousands of employees were paying? that's right, the rest of us working stiffs will have to do it.

I'd love to see the auto industry flourish, but they need to have a wake up call, make MAJOR changes, and finally admit they have lots of room for quality improvement.

I know many will disagree with me, but I believe the Japanese auto makers have superior quality, and have had for quite some time. I think the Big3 are getting closer, so that's good. But they need to admit they have in issue IMO (to this day they deny they have inferior quality...rather they refer to a "perceived" lack of quality on the part of the American consumer).

As a footnote, I used to be an auto mechanic and can point to very specific details of the quality issues I'm discussing. In my current job, I have tangential knowledge of the auto industry. I'm also a car enthusiast, and have owned a variety of musclecars, so I keep up on the inner workings of the industry pretty well.

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Old 11-12-2008, 01:36 PM   #23
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It is a rape of the taxpayer for the benefit of corporate greed. At least Obama will make the rich start paying taxes again (I hope). Otherwise the middle class will carry the whole load for generations to come.
What? Do you know how much of the tax burden the rich already carries?
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Old 11-12-2008, 01:38 PM   #24
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It is a rape of the taxpayer for the benefit of corporate greed. At least Obama will make the rich start paying taxes again (I hope). Otherwise the middle class will carry the whole load for generations to come.
It is a fallacy that the rich don't pay taxes. Anyone that thinks Obama will ONLY make the folks making over $250,000 pay more taxes under some empty-promises tax cut to the middle class is smoking something..........
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Old 11-12-2008, 01:50 PM   #25
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It is a rape of the taxpayer for the benefit of corporate greed. At least Obama will make the rich start paying taxes again (I hope). Otherwise the middle class will carry the whole load for generations to come.
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What? Do you know how much of the tax burden the rich already carries?
The Tax Foundation - Summary of Latest Federal Individual Income Tax Data

Summary of Federal Individual Income Tax Data, 2006

The top 10% pay 70% of fed income taxes.

The top 50% pay 97%, leaving only 3% paid by the lower 50%.

Sorry, not trying to turn this into a SoapBox issue, but if we are going to discuss the economics of this, we need the numbers. I'm not declaring those numbers 'fair' or not, but there they are. It does not seem to support the idea that the rich ever stopped paying taxes, or that the middle class is bearing the burden.

Specific to the bailout of auto cos - I don't know enough to know what is right, but I sense some orderly dismantling might be needed. An outright bailout would just be rewarding bad behavior. Do nothing may hurt too many. Either way, some people are going to get hurt in the short to mid term. GM can't be competitive and carry the mentioned $8000 per car in benefits. Something has got to give.

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Old 11-12-2008, 02:05 PM   #26
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It does not seem to support the idea that the rich ever stopped paying taxes, or that the middle class is bearing the burden.

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Agree, thanks ERD.
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Old 11-12-2008, 02:17 PM   #27
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Originally Posted by ERD50 View Post
The Tax Foundation - Summary of Latest Federal Individual Income Tax Data

Summary of Federal Individual Income Tax Data, 2006

The top 10% pay 70% of fed income taxes.

The top 50% pay 97%, leaving only 3% paid by the lower 50%.

Sorry, not trying to turn this into a SoapBox issue, but if we are going to discuss the economics of this, we need the numbers. I'm not declaring those numbers 'fair' or not, but there they are. It does not seem to support the idea that the rich ever stopped paying taxes, or that the middle class is bearing the burden.

Specific to the bailout of auto cos - I don't know enough to know what is right, but I sense some orderly dismantling might be needed. An outright bailout would just be rewarding bad behavior. Do nothing may hurt too many. Either way, some people are going to get hurt in the short to mid term. GM can't be competitive and carry the mentioned $8000 per car in benefits. Something has got to give.

-ERD50
Those pesky facts!

I'm not disagreeing with the numbers per se, but there was a time I was well below the 50% mark in income and I was still paying a good proportion of my income in taxes. It must be that this statistic refers only to straight federal income tax, and not social security & medicare. In addition, we all pay the same sales tax ( if applicable to your locale). Are the tax credits distorting this number? I suspect the 25%-50% are paying a goodly sum (for them) and the bottom quartile is throwing this number off with their credit checks.

Back to the OP, I voted "No" but now have started to lean to wanting to see the plan. I feel so screwed by the last bailout, as the $700 billion isn't going to be used for what they said it was, and meanwhile all the dire things they told us would happen didn't, and the banks still aren't lending to each other, and people are still getting evicted from their homes. Blows me away.
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Old 11-12-2008, 02:26 PM   #28
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The top 10% pay 70% of fed income taxes.

The top 50% pay 97%, leaving only 3% paid by the lower 50%.
Not to argue with your basic point, which I agree with, but these numbers are not correct because they do not include FICA. I know that this is not a "tax," but if it quacks like a duck ...
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Old 11-12-2008, 02:46 PM   #29
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Not to argue with your basic point, which I agree with, but these numbers are not correct because they do not include FICA. I know that this is not a "tax," but if it quacks like a duck ...
Getting closer to SoapBox issues - so just quickly - yes, there are no "pure" numbers, but FICA also pays out more to lower incomes, relative to what they put in. Which is OK, but it is not a one-to-one comparison. Ballpark-wise though, I think the numbers say a lot, relative to the original claim that was made.



Unless you were talking about these guys:

FICA - Fur Information Council of America

FICA - Fur Information Council of America

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Old 11-12-2008, 05:38 PM   #30
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I read one report that 3 million jobs (adding suppliers, auto dealers, related industries) could be at risk if the domestic auto manufacturers fail, so obviously that can't happen.
I'm highly skeptical of these figures. The big three only employ about 240,000 people . . . getting to 3MM unemployed is a huge, huge, stretch. The first faulty assumption that I think people are making to get here is to assume that bankruptcy means the companies shut down completely. And as a result of them shutting down, a bunch of the auto parts suppliers shut down, and so on, and so forth. More likely they'll file Chapter 11 and continue to operate in bankruptcy. Most of those 240,000 will stay employed and the auto parts companies will still need to supply Detroit. So I don't see how bankruptcy will cause 3MM people to lose their jobs (maybe there are that many in the "Jobs Bank" program . . . who knows?)

What WILL happen though, is the bankruptcy court will get to take a look at all the contracts, including the labor deals, and can use a very heavy hand in squishing down costs to within expected revenue. Something that has to happen if these companies are ever to become viable. Unfortunately, though, I imagine that is to be avoided at all (political) costs.
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Old 11-12-2008, 05:44 PM   #31
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I'm highly skeptical of these figures. The big three only employ about 240,000 people . . . getting to 3MM unemployed is a huge, huge, stretch. The first faulty assumption that I think people are making to get here is to assume that bankruptcy means the companies shut down completely. More likely they'll file Chapter 11 and continue to operate in bankruptcy. What WILL happen though, is the bankruptcy court will get to take a look at all the contracts, including the labor deals, and can use a very heavy hand in squishing down costs to within expected revenue. I imagine that is to be avoided at all (political) costs.
I agree that this a shock and awe number meant to push public opinion to support a bailout, but it's possible it could risk 1 million jobs, with half the jobs at the big three cut and all downstream and upstream jobs lost because of it. That would push unemployment up at least a % or 2.
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Old 11-12-2008, 05:53 PM   #32
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The canary in the coal mine here is all the talk about tying any government funding to requirements that the auto makers produce more fuel efficient cars. What do fuel efficient cars have to do with the solvency of the auto makers? Absolutely nothing (unless Congress has some kind of crystal ball to tell them what kind of cars will be in vogue 5 years from now). But it does seem to have everything to do with using private companies to push public policy goals . . . kind of like Fannie & Freddie, maybe?

If that is the angle, I think we all should get used to taxpayers owning a bunch of auto manufactures who are never expected to turn a profit, never go out of business, and are busy making cars the government thinks you should drive even if no one wants to actually buy them.
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Old 11-12-2008, 06:01 PM   #33
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So what does it take to be rich nowadays? The tax foundation tables indicate it took $108k AGI to be in the top 10% for 2006........is that rich?
Is income even a measure of wealth?
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Old 11-12-2008, 06:15 PM   #34
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Is income even a measure of wealth?
Nope, income is a measure of . . .income.

There are plenty of "rich" people who don't own squat. Even some of those "rich" investment bankers who've lately become "underemployed" are going to be getting acquainted with the repo man.
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Old 11-12-2008, 06:30 PM   #35
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As several other have stated a government bailout does nothing to fix a flawed business model. Chapter 11 bankruptcy may be the only way the big 3 automakers can shed their UAW contracts as well as retiree pension and medical benefits. Without radical changes they are doomed to fail.
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Old 11-12-2008, 07:01 PM   #36
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I've been in the "let them go into Ch 11" chorus. I don't believe there are 3 million jobs at stake. Even if the Detroit 3 stop making cars, the foreign companies have assembly plants in the US that would expand production, and they'd probably buy some of those idle plants.

However, there are complications .... Basically, GM is saying that their situation is so bad that they couldn't get the "debtor-in-possession" financing that companies use to cover cash needs in chapter 11. Their alternative is Chapter 7 which would mean liquidation. They would have to find buyers willing to take on entire brands to avoid shutting factories down. And their brands are very inter-dependent.

OTOH, some people say that it's possible to do a "pre-packaged" chapter 11 that would involve a negotiated deal before they ever go to court. It's possible they could cut the cash needs enough to get through without a lot of DIP money.

Any sort of bankruptcy could have a very big impact on revenue. GM claims to have a study that says 80% of potential car buyers would rule out any brand that is connected to the B-word.

GM's debt is so bad that long term bonds are trading below 30 cents on the dollar. If the gov't just bails GM out, the people who recently bought bonds will come out as huge winners. GM "burned" $5 billion in cash last quarter - $2 billion of that was interest payments. GM recently negotiated various "give-backs" from the UAW, but those don't all take effect immediately. If it stays in business long enough its labor costs should go down. They need one more downward ratchet to get their costs down to Toyota's US plants.

Oh, of course, GM is a global company that has subs in other countries, all with their own bankruptcy laws.

I can see where a re-structuring specialist could put together a package in which the gov't does the DIP financing, the stockholders are wiped out, the bondholders get equity instead of debt, the execs get replaced, the workers lose benefits but not jobs, and someone can make a credible case to the customers that the company has been "saved" for at least 10 years (long enough that you don't have to worry about owning an orphan).

I can also see where as soon as it looks like the gov't is going to put money into this, everyone gets greedy and assumes the gov't will provide a gravy train. The negotiations go downhill, the gov't is committed to "saving jobs", and the taxpayers fund a huge gift to a bunch of people who have been playing chicken with one another and with the taxpayers.

I remain pessimistic.

(I've also been a fan of the "just give the companies to the workers" option, but I don't know how to do that legally.)
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Bailout
Old 11-12-2008, 07:31 PM   #37
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Bailout

I never want to see anybody to loose their job. Remember all the Railroads that "were" in bus. back in the early 70's before gov. deregulation?? No bailout's for them ......it was get better, merger's, go bankrupt or go out of bus!! I remember it well, I worked for one of them that went out of bus. In my town of 200K people along a 2 mile strip there are 13 new car dealerships, with 4 or 5 used car dealers !! To many cars !!!
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Old 11-12-2008, 08:10 PM   #38
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I can see where a re-structuring specialist could put together a package in which the gov't does the DIP financing, the stockholders are wiped out, the bondholders get equity instead of debt, the execs get replaced, the workers lose benefits but not jobs, and someone can make a credible case to the customers that the company has been "saved" for at least 10 years (long enough that you don't have to worry about owning an orphan).
Yup, that would be my choice. And the chances of seeing that happen are something less than the chances of following a mermaid and a unicorn to the pot of gold at the end of a rainbow.
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Old 11-12-2008, 09:40 PM   #39
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One thing I have not seen anyone mention is the fact that GM is off loading there healthcare benefits to the union in the next year or so. Isn't this the kind of new business model you guys are talking about. I am not sure why it is alright to bail out the banks but not the auto companies. Last time this was done the goverment got repaid and the company lasted for another 30 years.

Granted I am bias I live in Michigan. However do not work for the auto industry.
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Old 11-12-2008, 09:51 PM   #40
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It is a rape of the taxpayer for the benefit of corporate greed. At least Obama will make the rich start paying taxes again (I hope). Otherwise the middle class will carry the whole load for generations to come.
They pay taxes now. Do you think they should pay more than the rest?
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