So, previously, I attempted to show that currency is not an asset- it is not wealth, but simply a “note” or deed representing ownership of an asset. The currency can be destroyed without harming the underlying asset. The reason this matters is because of GM. The banks and Chrysler, too, but I was inspired to write this on the umpteenth iteration of hearing “Osama bin Ladin is dead, and General Motors is still alive.”
The machine in the picture above is a metal stamping press. Actually, it’s a fairly small one by auto industry standards! The guy standing in front of it isn’t just a lackey, he’s a skilled metalworker. The general idea of it is, put in steel, skill, and power and out comes a metal thingymabob that’s worth more than what you just put into it.
So, to break it down- and don’t start busting on me, I’m making some assumptions and throwing out some rough numbers: in one day, this this might go through $500 worth of steel sheet, $20 worth of electricity, and $150 worth of skilled labor. Also, whether it’s running today or not, it used $40 worth of air-conditioned, well-lit floor space, and the payment on the loan to purchase it (one day’s worth) was $35. So, if it’s Sunday and the plant is closed, it cost $75 just to have that machine. If today is Monday, it cost $745 to run it, but it made, say, 2,000 thingymabobs.
Now, if we can sell a thingymabob for $1, we have a profit. We can pay dividends and bonuses, and save up to buy a bigger machine. The customer is also benefitting from this arrangement- say, for instance, that the old handmade thingymabobs cost $2. That’s called productivity. If a thingymabob will only fetch 40 cents, we can at least keep the business going (2,000 x $0.40 = $800). If our thingy is such a POS that nobody will pay more than 25 cents for it, we’ll be out of business! That effect is called the “invisible hand.” Nobody has to come and announce to us that we’re out of business, we just know it when there is a pile of unsold product and a stack of unpaid bills, neither of which we can deal with. Time to sell off the assets!
Fortunately, with a (fairly) simple punch and die change, this machine can be converted to make anything from spoons to helmets to barbeque grills. Any stamped metal shape that will fit in it. Maybe the folks down the street that make thingamajigs will want this press.
What this means is that GM could not turn raw materials and labor into a product that could be sold at a profit, so they went bankrupt. The invisible hand of the market didn’t say “no,” it said “hell, no! *slap*” But the building didn’t fall in when that happened. The machine didn’t crumble into a pile of rust. The metalworker was still standing there, having not turned into a drooling idiot. The market said ‘your product isn’t worth what it’s made from,’ but all the assets were still there. The market said, ‘we’re taking that asset away from you.’
GM might have become something else, and might not have even been called “GM” any more, but it would have still been there. Maybe Toyota would have bought them- those two have been butt-buddies for years now. But it would have been saved. By the market. The market wants those assets. Instead, GM was “saved.” By taxpayer dollars. Dollars that said, ‘go ahead and make turd cars that nobody wants.’ Taxpayer dollars that said, ‘cash, we’ve got- GM, we want!’
In the end, in the (unConstitutional) (unlawful) (unconscionable) Supreme Court decision, the secured bondholders (the rightful owners of the assets) got screwed. The unions were the ones that taxpayer dollars “saved.” Substitute “mortgage assets” for “stamping press” and “banks” for “GM,” that’s the same story.
I wrote this because I have run into quite a few people who turn into blubbering mush on hearing the “Osama is dead and GM is still alive” bit, knowing that something isn’t quite right with that but not understanding quite what. Besides, didn’t OBL die several years ago from some rare kidney disease? Oh well, that’s a different topic.
Now, for music that does not suck- I couldn’t think of anything to fit confiscating billions of dollars from the taxpayer and throwing it against a wall like monkey poo, but I could think of something to fit Detroilet: