We both deserved a holiday yesterday, but a relentless pursuit of truth, justice, and the American way knows no rest.
So if you missed yesterday’s column, it’s here.
Today’s is here:
It runs on air (sort of). And whether or not this is “the” breakthrough, it’s just one more sign that – if as a species we play our cards right – bright days lie ahead.
But in the meantime . . .
UNDERSTANDING THE CHRYSLER BAILOUT
The senior bondholders are getting almost nothing and the unions wind up with 55% of the company – how can that be?
It turns out this makes sense. You can read more detail here, but the essence is that Chrysler without the government bailout is being valued at $2 billion – and the senior creditors are getting every penny of that. (If you think Chrysler without a government bailout is worth more than $2 billion, step right up and make an offer.) The government is under no obligation to bail out bondholders, and sees no pressing national need to do so . . . so that $2 billion is all they wind up getting. Pennies on the dollar. But then, with “old Chrysler” dead and buried, with no remaining creditors as it emerges from bankruptcy, the government invests in new Chrysler, providing cash to give it a chance to remake itself. In exchange for a 55% stake in the new company, Chrysler’s workers agree to major contract concessions.
However it ultimately plays out (and perhaps similarly with GM), there is considerable thought behind the process. If it works, the taxpayers may even one day get some or all their money back.
39 MPG BY 2016
Meanwhile, the agreement to up fuel efficiency “CAFE” standards to 39 mpg for passenger cars by 2016 is a bold move toward reduced dependence on foreign oil and reduced carbon emissions. Predictably, the Wall Street Journal takes a dim view, noting that consumers have shown no interest in buying fuel efficient cars when gasoline is under $4 a gallon, and dismissing the possibility of our ever imposing taxes that would create such a floor. (In silly old Europe, gas always costs double or triple the price here, with that added tax going to pay for, oh, I don’t know – free health care?) But gasoline surely will cost more than $4, either because revived demand drives the price back up and/or because we come to our senses and – yes, I know this is America, but will we ever* do the smart thing? – tax it more heavily.
*Quoting a broken record on this point (myself): “Were we wise, in 1973, after the first OPEC oil shock, to keep the government from ‘intervening’ with a thoughtful reorientation of our federal tax system? Namely, by lowering the income tax on work and investment (both of which we want to encourage) and replacing that lost revenue by raising the federal tax on gasoline consumption (which we want to discourage) by, say, a dime a gallon per year – forever – thereby to encourage fuel efficiency? The failure of government to meddle in this way has had monumental, tragic consequences for our country. (And, by the way, we should still do it.) Had we taken this step in 1973 or 1974, our auto industry today would lead the world in fuel efficient technology; we would, as a nation, collectively be untold trillions of dollars wealthier (for not having had to send those untold trillions overseas to buy oil); we’d enjoy greater national security; Ford’s preferred dividend would be as solid as a rock.”
Quote of the Day
That I'm their competition.~Famed hedge fund manager Michael Steinhardt, when asked the most important thing an investor could learn from him.
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