11/11/2008

Political Investing 101

Expect more of this as the Federal government finances more and more businesses that are where they are because of business model and/or operating model failures (investment banks, car manufacturers, mortgage lenders). If politicians finance a business the company will become a political rent seeker, not an economic one.

Last point: Rep. Cummings in the linked story asks AIG's CEO if "having received this assistance, which has been nothing less than a lifeline for AIG, you have decided to continue to hold corporate parties as if nothing has fundamentally changed with your business?" (emphasis mine). Will he, or Congress more generally, ask the same question of GM stakeholders seeking government financing? If anyone anywhere voted for me (hey, it's possible. My representative has created a vacancy by becoming WH Chief of Staff) I'd ask questions like these:
  • What fundamental changes have occurred in GM's business/industry since the last time this government financed an automobile manufacturer?
  • What cost structure gives your company the best probability of returning to sustainable profitability?
  • What elements of your company's prior structure (labor costs, manufacturing footprint, compensation plans, branding, distribution) will you keep and which will you jettison?
  • Of those you plan to keep, in what ways did they help your current predicament from getting worse and in what ways will they help your company improve?
  • Specifically, how will this financing package help your company transistion to sustainable profitability?
Anybody think those questions will get asked?

2 comments:

Smplenfree said...

Not only do I think those questions will not be asked, but I don't believe any of the guys who should be asking know what they mean! And I know they wouldn't understand the answers. Very few politicians and/or government bureaucrats know anything about running a business.

Rational said...

Let's face it, the only real reason that the Dems support this bailout is to preserve the union jobs and pensions. the fiction that a bankruptcy is equivalent to the collapse of the business is a patent falsehood (see United Airlines). The bailout is a sop to union bosses who threw their considerable resources behind the Dem route of the House and Senate in '06 and '08 and the taking of the White House. Bankruptcy would give the company and the bankruptcy court significant power to unilaterally alter employment agreements and pension benefits (again, see United Airlines), something the unions cannot abide. I saw Thomas Friedman this morning promoting his book and saying this is the perfect opportunity to force the auto companies to make cars that are more fue efficient and environmentally friendly without once mentioning the labor side of the equation. Once again, the left has controlled the message and will distort economic realities in a way the will ultimately (although further in the future now) result in the collapse of GM, and Ford (Chrysler is already a zombie).