From Naked Capitalism…..

So let’s play out my variant of how a bankruptcy goes. The three ring circus described in The Deal moves forward. The story anticipates the bankruptcy process lasts till late 2010. I tell you what happens in the meantime: there are just about zero car sales. No normal prospective car buyer is going to have any confidence with a process this protracted and uncertain and will take his business elsewhere. GM runs through its DIP money faster because neither it nor any of its dependents are getting any dough, The assumptions going in, made with unduly optimistic assumptions about sales (no allowance for customer revulsion) are way way off base.

But now that GM is in Chapter 11, there is no turning back. Its cash hemorrhaging has grown far beyond what was ever envisaged even in supposed worst case forecasts. The only options now are nationalization (to what end? The brand has been destroyed) or liquidation. And liquidation takes down the parts suppliers, which in turn makes most of the foreign transplants unworkable.

So for the hatred of UAW and the stubbornness of some GM creditors we destroy the entire US auto sector.

This is silly. The health of the auto industry is ultimately dependent on the financial health of the consumer, not the Big Three. As long as there are people buying cars in America there will be an auto industry in America. As long as people need to drive cars they will need to fix cars. This means that parts suppliers will still be selling parts.

This issues of not wanting to buy from a bankrupt company is a red herring. Of course nobody wants to buy a vehicle from the Big Three if they are going bankrupt at current prices. But the whole point of bankruptcy is that it cuts your operating costs. This means that the Big Three should be able to dramatically lower their prices after a bankruptcy. Companies like Hyundai broke into the American market despite their previously bad reputation by dramatically improving their cars and selling their cars for dirt cheap. If the Koreans can do it, the Big Three can do it.

And if they can’t, why bail them out?

From Naked Capitalism….

Over a weekend, word leaked out that AIG is paying yet more retention bonuses. This move is making a complete and utter sham of the supposed punitive elements of the rescue. But clearly, there was not enough of an adverse reaction to the earlier announcements of retention bonuses to deter the giant insurer. A few Congressmen saying bad things hasn’t deterred exhorbitant CEO pay, so why should it be more effective here?

Some readers have written in to say they have friends or family at AIG who had worked very hard for many years and continued to work hard, and deserved better.

I hate to say it, but the party line on capitalism is that the participants are supposed to bear both risk and reward. Top people at AIG were very well paid just on a cash basis. Yes, it is sad if savings in the form of stock holdings are wiped out, but the government is not supposed to be in the business of saving private enterprise from its bad decisions. There were hardworkng people at Enron and Bear who were not at all culpable in the demise of those firms, but they had their savings wiped out.

I lot of people have made some good arguments in the comment section that some people at AIG needs to be paid bonuses or the business will just collapse. This may or may not be true. I don’t know enough to say for sure.

I have to say that even though many of the people arguing in favor of some of the bonus seem like intelligent and knowledgeable people, I have hard time buying their argument. I can’t help but notice that white collared people are quick to get outraged at the high wages that the blue collar auto workers make. But when it comes to bankers they think that it is critical that they keep their high pay come hell or high water.

My gut feeling is that if a operation can’t be run by paying people the same kinds of wages and benefits that they would get for government work, the the government should not be running an operation. Put it another way, if you have to pay people at AIG more money then you pay the head of the Federal Reserves, then it must be that AIG is to complex for the Federal Reserves to bail out.

But what do I know? I never wanted AIG to be bailed out to begin with.