Wednesday, November 17, 2010

CNBC Showcases Senator Debbie Stabenow's Misleading Untruths Re: GM

On the eve of tomorrow's much-ballyhooed GM IPO, CNBC is trotting out all manner of political and business people who want to bask in the limelight of the topic.

This morning, Michigan Senator Debbie Stabenow got her turn. Trouble is, the bulk of Stabenow's statements were either grossly misinformed, or lies.

This sort of segment is the reason I only watch/listen to CNBC for actual market news and the occasional bona fide pundit. For the most part, the network's morning programming has managed to sink to the level of Pravda before perestroika.

Before I discuss Stabenow's comments, let me quote the relevant lines from her own biography concerning her credibility and aptitude on matters concerning GM, macroeconomics and energy. If you scroll down to the very end of Stabenow's bio page, you will find this extensive description of her pre-government experience,

"She attended Michigan State University, where she received her Bachelor's (1972) and Masters (1975) degrees. She worked with youth in the public schools before running for public office."

That's it. She was either a teacher or counselor in the Michigan public school system. She won her first elected post in 1974, which suggests she did a part-time MSU masters while commencing her real career- politics. Wikipedia lists her graduate degree as an MSW. I don't typically rely on that source, but in this case, it's ostensibly more detailed than the Senator's own bio page.

My point is, Stabenow doesn't appear to have any economics or business background. Like so many in Congress, of either party, she had a brief, post-college career in public education, followed by a quick exit into a 30+ year career in politics. So I think it's safe to say that the bulk of what Stabenow voiced this morning was probably collected and prepared by her staff. She is, in effect, a mouthpiece.

For contrast, recall that Phill Gramm and Dick Armey were PhDs and professors of economics. Newt Gingrich was a history professor and PhD. Even New Jersey's geriatric Democratic Senator, Frank Lautenberg, once, long ago founded and successfully built payroll processing giant ADP.

Stabenow isn't close to being in a league with any of those other past or present Congressional members.

Never the less, Stabenow assured one and all that a failure of the government to bail out GM two years ago would have brought down the economy, wrecked all its suppliers and, with them, our defense sector. Additionally, she contended that the only way we can have a viable American middle class is to preserve GM-like 'manufacturing' jobs.

Stabenow next assured viewers that GM's workers sacrificed so much to keep the failed auto maker alive. Yes, the UAW was a force for good, and never was a factor in the firm's demise.

Then the Senator swung to the 'green jobs' front, alleging that the US must lead the world in this job-creating sector. And, of course, Michigan is going to lead in that. With, did she mention- no- overly-generous helpings of federal subsidies. And state investments. No, the way in which Stabenow couched these subsidies was government-private sector 'partnerships.'

There may have been more whoppers, but I don't recall them. I'm sure you could see them for yourself over on CNBC's website this morning, before the video disappears behind a paid subscription wall.

So much for Stabenow's tall tales. Here are more truthful versions of her contentions.

The alternative to the manner in which the federal government, under both presidents Bush and Obama, assisted GM, was not to do nothing. Thus, the alternative outcome for the economy, GM's UAW members, vendors, and auto- and defense-related competitors was not bankruptcy, dissolution and widespread economic ruin.

As I have written in many posts, found under the labels 'GM,' and 'Government Intervention,' a well-managed, conventional, Constitutionally-provided Chapter 11 filing by GM, without government ownership or coercion of the firm's legitimate bondholders, could have easily avoided all of the catastrophic consequences mentioned by Stabenow and others. I won't go into the same detail here as in prior posts, but merely sketch the alternative scenario.

Rather than pump tens of billions into a failed management structure, the federal government could have, for much less money, sent direct payments to idled workers. A conventional bankruptcy would have allowed GM's operations to continue under court protection, while they were reorganized. Some operations would have been closed, and some may have been sold or spun back out separately. If private sector banks declined to fund the interim operations, the federal government could have provided loan guarantees, rather than direct aid, in order to facilitate those private loans.

Further, by not strong-arming bondholders to rescind their rightful status, in favor of the politically-connected UAW, needless uncertainty for future fixed income investors regarding bankruptcy actions would have been avoided.

By maintaining some operations under bankruptcy, the process would have kept the various suppliers and the competitors which also relied on those suppliers in business.

The US economy need not have collapsed simply because the federal government declined to pump upwards of $50B into a failed GM.

The UAW, far from making noble sacrifices, was bailed out by a Democratic administration, to the detriment of legal bondholders. Stabenow is not telling the truth when she paints the union's GM workers as saints who gave unstintingly in a worthy cause. In fact, they came away far better thanks to the federal bailout of GM than they would have in a conventional bankruptcy, under which their labor agreements could have been suspended and forcibly renegotiated.

On the subject of electric cars and other 'green' business initiatives, one only has to read this week's excellent Wall Street Journal editorial by George Gilder to understand how wrong-headed and false Stabenow's contentions on this topic are. By deliberately reducing energy efficiency and requiring cumbersome new energy networks to move from gasoline to electric vehicular propulsion, we will be lowering US living standards. Even Boone Pickens' vehicular natural gas plans make better economic sense than Stabenow's simple-minded regurgitation of false, ill-conceived and misleading left-wing green energy platitudes.

Further, Stabenow blithely blesses the unholy strategy of extreme reliance on subsidies by the green energy sector. Gilder skewered Silicon Valley venture funds for turning from private sector-financed computer- and information-technology businesses, to favor investments in green energy startups whose major revenue sources are government loans, grants and subsidies. You cannot hide the fact that the green energy push is not market economics at work, but merely old-fashioned government-directed and funded economics using taxpayer money to subsidize politically-popular technologies and pet projects.

Almost nothing Stabenow said this morning was true on its face.

Shame on CNBC for allowing such political grandstanding without serious challenges to any or all of her contentions.

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