The Fireside chat for April 4, 2009

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Hard elbows...

There’s something of a pattern emerging in our collective quest to deal with the seeming imminent collapse of Western Civilization, a.k.a. the 2008-9 Recession.

Something happens. Something’s done about it. And then lots of people freak out.

That's not what I would have done...or...what I would have done was better...or you're not going far enough. Yadda-yadda-yadda...

Of course, it’s happening, again.

My fellow Liberals are indeed freaking out over what the President said today in regards his plan to deal with the American Auto Industry. Double standard is the term I keep hearing over and over again.

But to folks like Robert Kuttner, David Sirota (and basically all the Liberals that even I, another Liberal can’t stand), I have to ask the question…do you even read this stuff??

I hate to resort to a Basketball metaphor, but the Commander in Chief is a fan, and this one story seems particularly apt in for the occasion.

Bill Russell as a young Celtics star was, of course, talented…but also prone to having the snot beaten out of him in games because he didn’t have it in him to throw an elbow.

So one day, Red Auerbach comes up to him, and asks him to throw an elbow…but just one elbow…during a nationally televised game. He guaranteed that once you throw that one elbow, you’ll never have to throw another one again.

Russell did…and eleven championships later, the rest is history.

What we all saw today was our President delivering a nationally-television hard elbow to GM’s Bondholders, the rich bastages holding GM’s debt. Turns out they’re about the only party in this mess who has refused to sacrifice anything at the table. GM owes them a lot of money, and they want protection. They want to be first at the trough. Damn the consequences.

Well, the President just fired the CEO of GM. (He'll be fine, from what I understand he's walking away with 20 Million dollars in Retirement.)

The President also let the Boldholders know, in no uncertain terms, that GM’s plan is not complete, and that they have sixty days to fix it. So until then, no money.

Therefore, [President Obama] said, he is offering GM and Chrysler "a limited period of time to work with creditors, unions and other stakeholders to fundamentally restructure in a way that would justify an investment of additional tax dollars."

He expressed confidence that "this restructuring, as painful as it will be in the short-term, will mark not an end, but a new beginning for a great American industry."

He said he was "absolutely confident that GM can rise again, providing that it undergoes a fundamental restructuring." He stressed that the U.S. government "has no intention of running GM."

If GM is unable to restructure and Chrysler cannot strike a deal with Fiat, they might need to use the bankruptcy code "as a mechanism to help them restructure quickly and emerge stronger," Obama said. He said that could enable the companies to "quickly clear away old debts that are weighing them down," even as their workers remain on the job.

"What I am not talking about is a process where a company is simply broken up, sold off and no longer exists," he said. "And what I am not talking about is having a company stuck in court for years, unable to get out."

I wish Kuttner and Sirota would spend as much time finding out what happened, rather than flapping their gums. Their slavish devotion to Ideology-First is every bit as bad as all the Conservative scumbags we routinely bash on this site, and many others. It’s all there. They just have to keep reading. But I think in both their cases, they are more interested in cornering the market in Liberal Obama opposition than finding out what the hell is going on.

So, in summary: Obama’s message wasn’t so much to GM, but these Bondholders. You have sixty days to give up something, or face a structured Bankruptcy where you lose everything.

Their response?

“Our strong preference is to complete this restructuring out of court,” GM said in a statement issued after Obama’s speech on the U.S. auto industry. “However, GM will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process.”

Translation? GM is ready to go Bankrupt, if necessary.

“We look forward to working with the company and the task force to configure an exchange that will maximize the chances of a successful out-of-court restructuring,” advisers to the committee of GM bondholders negotiating with the company to restructure the automaker’s debt said in a statement. “All parties seem to agree that an out-of-court restructuring would be the preferred path to viability.”

Translation? Whooooaaa, slow down there, cowpoke. No need to get all hostile. Let's talk!

Also, it should be mentioned that Obama said Chrysler had 30 days to cut a deal with Fiat, or get nothing.

They cut a deal a few hours later. At least it was the framework for a pact.

Hard elbows in the paint. Seems they're the way of the world.

UPDATE 4:37pm Pacific: Slate's Daniel Gross (Senior Editor at Newseek, and frequent Slate.com contributor) agrees...and best of all has...umm...what do you call them again? Those things, little squiggly lines that didn't appear in the first draft of the GOP Budget Proposal?!?!?

Numbers! That's right, they're called numbers.

[GM] has loads of debt. The most recent quarterly results indicate long-term debt of more than $29 billion. And since the firm's credit ratings have been pushed deep into junk territory, that means most of the holders of this debt are hedge funds, private-equity firms, and other investment vehicles. (Many mutual funds and institutional investors like pensions or insurance companies eschew junk debt.)

GM's debt is trading at what is euphemistically called "distressed levels." As indicated here, bonds due in less than two years are trading at 20 cents on the dollar.

Many of those who bought GM's bonds did so because they hoped to 1) convert the debt into ownership in the case of bankruptcy filing or 2) see the bonds rise in value should the government step in and formally guarantee GM's corporate debt.

Obama made clear today what they suspected: No such guarantee would be forthcoming. While GM had tried to restructure, Obama noted, it hasn't yet done enough. "I'm absolutely confident that GM can rise again, providing that it undergoes a fundamental restructuring. Have they cleaned up their balance sheets, or are they still saddled with so much debt that they can't make future investments?" (If you answered this double question with a no and a yes, you're right!) The upshot: Holders of GM's debt, like other entities to whom GM has made financial commitments—dealers, the auto unions—are going to have to cut a deal, sooner rather than later, and accept less than they think they're entitled to. None of that AIG-creditor treatment for you.

Herbert Hoover for 2009

Who's the real Herbert Hoover in our current financial catastrophe? Is it George Bush...or is it Angela Merkel??

Chancellor Angela Merkel of Germany, an avowed friend of the United States and the leader of the European Union’s biggest economy, is diplomatic about the coming visit by President Obama. But she is clear that she is not about to give ground on new stimulus spending, stressing the need to maintain fiscal discipline even as she professes to want to work closely with the new American president.

The moment in Roosevelt's Presidency I bet he wishes he had back was 1937, when:

F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.

So what's Merkel, Amity Shlaes, and other worthless Conservative Ideology-Before-Country types suggesting? The exact same thing for 2009.

To again quote Krugman (and even though I'm pissed at him because he's overdoing it about his Bank-plan complaints, he knows his stuff, and I'll always listen to him):

Like many other economists, I’ve been revisiting the Great Depression, looking for lessons that might help us avoid a repeat performance. And one thing that stands out from the history of the early 1930s is the extent to which the world’s response to crisis was crippled by the inability of the world’s major economies to cooperate.

The details of our current crisis are very different, but the need for cooperation is no less. President Obama got it exactly right last week when he declared: “All of us are going to have to take steps in order to lift the economy. We don’t want a situation in which some countries are making extraordinary efforts and other countries aren’t.”

Yet that is exactly the situation we’re in. I don’t believe that even America’s economic efforts are adequate, but they’re far more than most other wealthy countries have been willing to undertake. And by rights this week’s G-20 summit ought to be an occasion for Mr. Obama to chide and chivy European leaders, in particular, into pulling their weight.

But these days foreign leaders are in no mood to be lectured by American officials, even when — as in this case — the Americans are right.

The financial crisis has had many costs. And one of those costs is the damage to America’s reputation, an asset we’ve lost just when we, and the world, need it most.

If Germany wants to fail, let 'em...but they should sink on their own.

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