Wednesday, May 13, 2009

GM Total "Protection"

In the throes of (as we are constantly reminded by the media) "the worst economic crisis since the Great Depression," GM, a company itself teetering on the edge of a very steep precipice, announces its “Total Protection” program, designed to get you into a car and have you keep it if you lose your job.

Let me get this straight.

I don’t think it takes any Milton Friedman to acknowledge that the way we got into this mess in the first place is by providing financing vehicles to (sometimes unsuspecting) consumers which should have never been created in the first place. Negative amortization mortgages, effectively unsecured “NINJA” loans, pre-approved credit cards (with usurious rates) – all the effect of financial engineering run amok.

Now, a dangerously unstable organization, one that recently announced it will drop an entire brand (Pontiac which, by the way, gave us classics like the GTO and the Firebird), is proposing to instill confidence in them by offering a plan to sell you something you can’t afford. And just what will happen to GM’s balance sheet when people start defaulting on their car loans under the “Total Protection” program? They should call it the “Total Destruction” program

I strive to keep this column apolitical – easy for me, one of the least political people on the planet. However, it boggles my mind to think that the solution to our economic crisis is to encourage more spending of money we don’t have. How about we reconcile our accounts first? The new administration’s plan is to rescue ourselves by spending more? Don’t get me wrong, I know this is a big problem, and that people who know a lot more than me about macroeconomics and finance, and who know how to use words like “debenture” correctly are working on it. But isn’t there a fairly simple approach? What if we stop spending what we don’t have? Let’s get the government out of the business of business. I have no issue with taxes supporting legitimate expenses that we, as a society, agree should be covered. I do, however, have a major issue with emergency or temporary programs that become institutionalized, and with government handouts that reward stupidity.

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