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Monday, November 17, 2008

Darwin Must Be Respected!

Kid Various has been confused over the proposed $50bn bailout of the American auto industry and is glad someone has finally said it:

As of the close of business on Friday the market cap for General Motors was about $1.9 billion, Ford about 4.3 billion....Chrysler is privately held but it's a safe bet that their FMV is less than $2 billion...probably a LOT for approximately a lousy $7 billion....a rounding error for the federal budget...the government could simply BUY the entire U.S. auto "industry" --- actually, of course, it's just the U.S. nameplate manufacturers, but that's another story --- for what amounts to a pittance.

Basically, we're looking at throwing $50bn out to rescue companies that are worth a combined $7bn. That's ludicrous! Because they'd be shed of their crushing liabilities these companies are literally worth more bankrupt than they are as going concerns.

Kid Various supported the $700bn Wall St./Fannie-Freddie bailout, but not in order to save investment banks or the home mortgage sector. The problem was that the debt incurred in the housing sector was repackaged into credit instruments that were underlying the entire economy. Not bailing them out would not have affected solely the housing sector (in which case the Kid would've said - let it die) but rather was causing a complete collapse of the credit markets and thus threatening the entire economy.

The collapse of Detroit will be difficult for the auto sector, but it won't bring down the economy. Let them die...


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