Would You Buy a Used Car From Barack Obama?

Posted by Paul J. Amore on 05.03.2009

How about a car company? Only sold one car, to a little old lady in Pasadena.

The big news right now is that Chrysler is filing for bankruptcy. So, being the astute, up-to-date pundit that I am, I want to talk about. . . General Motors. (My fingers instinctively typed General Morons; make of that what you will.)

There's a plan in the works whereby GM will get more bailout money and in exchange will give up ownership to the federal government, bringing their share above 50%. This means that the feds would have controlling interest. In my 13 years on the road, 12 of them have been spent in GM cars—first a Saturn, then a Chevrolet.

If this passes, why on Earth would I ever buy another GM car in my life?

Suppose the scenario that Ed Norton described in Fight Club comes to pass: that a car has a design flaw making it a rolling death trap, and either a recall must be done, or an awful lot of money must be dedicated to settling wrongful death suits. Whence comes the money? Government can get money in only one of three ways: tax it, borrow it, or print it (which means inflation). In other words, if my 2011 Obamamobile catches fire because someone at the plant attached the gas line to the air conditioner, I get compensated by future generations, by the Chinese, and by some business owners. The guy who actually screwed up probably gets 4 weeks paid leave for an investigation.

And that doesn't even take into account the conflict of interest when a government judge has to preside over cases where a government-controlled company is the defendant. In the nightmare scenario, the juries are prepared to award tobacco-like sums to victims, only to have either the judge or a bureaucrat determine that it's too dangerous to do so. After all, if any organization is too big to fail, it's the government.

But that's not even the whole story. Under this plan, GM bondholders would receive stock in the company, as would the UAW, which also holds bonds. Private investors, currently with $27 billion in bonds, will receive 10 percent of common stock. The union, currently with $10 billion in bonds, will recive 40 percent of common stock.

Even if you have a justification for that—even if you really think that the hard-nosed American laborer is truly the backbone of this country and that the unions fairly represent that fellow—can you not imagine how that will affect the investment market?

The purpose of a corporate bond is to provide an investment that is safer than stock, but still grows with the company. In the event of bankruptcy, bondholders get paid off first before stockholders. Why on Earth would I now buy the bonds of Coca-Cola, or General Electric, or Microsoft, when I now know that one reversal of fortune can result in my paper being torn in thirds, two of which will be given to the company's employees, and the residue of which I can get in line for payment on?

I try not to get mired down in the stories of the day. News is merely a vehicle for ideas. What I take from this is a question: does anyone in our government, Democrat or Republican, incumbent or hopeful, have any inkling of a hint of a clue that their actions have consequences? That they're not living on Mount Olympus or acting in a vacuum in which they can make one move on one company and the rest of the economy goes on without noticing? That there are people in this country who don't share their values, and who will act against them to bring all their well-laid plans to rack and ruin?