Dumb and dumberer

So yesterday U.S. President George W. Bush announced his plan to offer a bridge loan to the Detroit auto manufacturers, which allocates roughly $9bn to GM and $5bn to Chrysler immediately. So far I had spoken against it but in fact, as it stands, the latest deal is actually quite reasonable the for time being. Indeed, handing out a crumbling auto industry to a new administration would not be a good thing at all and in any case the loan is conditional on the two automakers coming up with a restructuring plan by March. Otherwise the loans will be called and the U.S. Treasury will have first priority over other creditors to recuperate its assets. Unlike with the deal to buy bad mortgage securities, in this case the U.S. is making sure it cannot lose money in the end, which is a very good thing indeed.

On the whole, though, this changes nothing to the fact that one cannot turn GM into a Toyota overnight, especially at a time when even Toyota itself is experiencing its first losses in over seventy years. So the question is, what next? this is of course where things get very tricky, as there are no good options I see for the Big 3 right now. Indeed, one cannot imagine the U.S. Treasury having to dole out $2bn a month to each one of the Detroit 3 over the next five years. This would amount to burning as much cash as for another Iraq invasion. Sadly enough both George Bush and Barack Obama seem to be paying heed to this phoney argument that bankruptcy would mean the end of the car companies, because if they go bankrupt then oh-my-god nobody will want to take the risk to buy their trucks anymore because they might not be able to honor their warranties if they go bust for good. On the contrary, it seems to me this would be a perfectly good time to have GM file for Chapter 11, as nobody is buying their gas guzzlers right now anyway.

Yet in these tough economic times it is hard to see how one could possibly revive talks with Renault-Nissan for a buyout of either GM or Chrysler, which would have been the best solution for them. Undoubtedly it would really take a Carlos Ghosn at the helm to restructure the Detroit automakers and precisely what GM really needs is oversight from a parent company or a partner that really know how to build small, fuel-efficient vehicles that the public want to buy. Either Renault-Nissan or Toyota would be the very best suitors to this end-there are not many others to begin with. Or perhaps-Tata, anyone?

Which brings me to the totally depressing realization I am going through in this end of 2008: that the Bush administration has been an economic and diplomatic disaster for eight years but my early doubts about Barack Obama's economic (and even diplomatic) know-how are now becoming very real. Mr Obama seems intent on bailing out the U.S. economy by having the U.S. Treasury manage the restructuring of GM and generally bailing out everybody else by spending lots of money on infrastructure and public service.

The problem is, determining what the long-term infrastructure needs of America precisely are is not so easy as it seems and in spending too much money too quickly one is running the risk of building plenty of bridges to nowhere. Civil engineering is not a trivial task, although in some cases it can be a very good thing. But rather than spending money on infrastructure I would call for the U.S. government to save as much money as it can, as follows:

1. pull out of Iraq and Afghanistan immediately. Neither of these wars can be 'won' in the long run and in fact a prolonged American presence in two conservative muslim countries will only serve to keep the Jihadi movement going forever. Bin Laden managed to escape to Pakistan and you won't catch him there, so get over it and send the troops home.

2. cut military spending drastically. It's not like Canada and Mexico are about to invade the U.S. and this would also be a good opportunity to get back to nuclear disarmament negotiations with both the Russians and the Chinese. Then refocus the government labs like Los Alamos and Livermore to researching energy problems of the peaceful kind, e.g. solar energy and fuel cells.

3. tax the rich! even Warren Buffett is advocating this and it only makes sense. Instead of asking the rich to lend money to Uncle Sam, it is much cheaper for the Treasury to simply tax them more. This is done most effectively by taxing luxury goods and capital gains on Wall Street above a certain limit. In the end this is a good deal even for the rich themselves, as a crumbling financial system is doing them no good anyway.

4. cut down drastically on social security and medicare. This generation of seniors and the upcoming Baby Boomers have had it too easy their whole lives, they've stashed plenty of money on the side and it's totally unfair that my own generation should have to pay to keep their decadent lifestyle going. And if people insist on drinking beer and eating plenty of sugar and bread, it's their problem if they get diabetes when they hit 50. Just don't make younger, health-conscious people pay for your stupidity, fellas!

5. if you're going to invest public money into the American industry, at least invest it in the most reliable and productive way possible. That is, invest it into promising business sectors. Like, don't invest in GM, invest in Google and solar energy companies. Even oil companies are a better investment, as oil is not about to go away as an energy source and it's really burning coal that's causing global warming for the most part!