New jobless claims up sharply as layoffs persist

obvious Child · Jun 20, 2010

Areopagitican said:
But that's Keynesian philosophy right there! In essence, you're shutting down an inefficient part of your economy, razing it to the ground (in an economic sense) and rebuilding it leaner. If you don't agree with demolishing factories to build them up again (better, stronger, faster) then you have to be 110% against Obama's policies which are, basically, rebuilding bridges or schools or whatever it is like a true Keynesian. Remember the old metaphor to explain it? Keynesian policy is a storm that destroys a window, and the economic stimulus is the owner buying a new one? That's all throwing GM and Chrysler would have been. Throwing their, old, broken windows to the floor and having new, fresh and optimistic companies replace them.

Not that I disagree with you from an economic stance in efficiency, but I'm focusing more on the cost and effects from the reduction in employment. In an ideal world, that's how we'd do it, but in our world having millions more unemployed is hard to stomach. Furthermore, the impact on unrelated industries from having such a spike in unemployment would in a sense, erase such efficiency gains. As you later point out the financial sector is a good example for both of us. Letting it fall and rebuild would put us on better footing for the future, but it would have taken down many industries and businesses all of which were unrelated aside from financing. In a sense we'd be sacrificing efficient companies to rebuild an inefficiency sector. Are we really any better off?

The longer we draw out inefficiencies in the market, the worse they'll hurt when it finally falls to pieces. For a reference, I point you to the recent financial crisis. You fix things before they get totally destroyed.

But what if in the process of fixing you get destroyed? The financial crisis is a no-win game. No modern economy can function without a banking financial sector. But at the same time not fixing the problems has produced a ticking time bomb. We are now more consolidated then before. IMO, the next financial crisis will be worse for that reason. We may have avoided total collapse now, but we've setup the next one.

I think everyone would get a piece. It doesn't really matter.

What makes you think they'd want a part of GM or Chrysler?

obvious Child · Jun 20, 2010

washunut said:
Hard to know where to start. For one thing there are not millions of Americans working for GM and Chrysler.

Fair enough. But there are millions indirectly related. From finished product suppliers, to financing, to raw materials and the millions who rely upon the spending of workers. It's pretty large.

Next most folks understand that when a company goes into bankruptcy protection, the company does not stop producing.

Chapter 7 bankruptcy. Furthermore, a legal guardianship to run it doesn't always appear, especially when there are no potential buyers.

In the bailout not everyone got to keep their jobs, a similar result would have happened if the company went under. My sense is that you know this but are having fun talking about stuff you know would not happen.

I'm not so sure it wouldn't have happened. Take overs of GM and Chrysler would have to deal with their business crushing legacy costs as well as unions. The sheer debt they were carrying alone is enough to discourge a take over. And the fact that many of their lines just sucked. The sheer capital required to bring them back, as we've seen, was immense. I don't know if anyone or any business would have been willing to take that chance in that time period, especially after Cebereus got burned.

washunut · Jun 20, 2010

obvious Child said:
Fair enough. But there are millions indirectly related. From finished product suppliers, to financing, to raw materials and the millions who rely upon the spending of workers. It's pretty large.

Chapter 7 bankruptcy. Furthermore, a legal guardianship to run it doesn't always appear, especially when there are no potential buyers.

I'm not so sure it wouldn't have happened. Take overs of GM and Chrysler would have to deal with their business crushing legacy costs as well as unions. The sheer debt they were carrying alone is enough to discourge a take over. And the fact that many of their lines just sucked. The sheer capital required to bring them back, as we've seen, was immense. I don't know if anyone or any business would have been willing to take that chance in that time period, especially after Cebereus got burned.

On the last point we have to keep in mind that in chapter the company could get out from under a lot of those legacy costs. That is the big difference between what Cebereus had to deal with. Debtholders would have had to take a haircut, common shareholders would have been wiped out. Let's remember that there is still a very large domestic market for the product these companies service. Proof is that, if I am not mistaken GM may be profitable as early as next year and go public again.

obvious Child · Jun 20, 2010

washunut said:
On the last point we have to keep in mind that in chapter the company could get out from under a lot of those legacy costs.

Of course. The problem is financing operations during the process of getting out. We're likely never going to recover our hundreds of billions. I don't know many companies that would have committed that much capital to at the time, a dead horse like GM, much less Chrysler.

That is the big difference between what Cebereus had to deal with

While that aspect is indeed different, Cebereus was running a company with poor product, bad labor conditions and generally unfavorable opinions. There wasn't much it had going for it. Not exactly a good investment. At least GM had its profitable European and Asian markets. Chrysler was stuck. And it is still stuck. Forbes had a good article circa 2007 about how GM should just spin off its profitable Asian/European from its Northern American operations. Made sense then. And it makes sense now.

Debtholders would have had to take a haircut, common shareholders would have been wiped out.

Which we saw with the bailouts. I just question if any firm was willing to pony up the kind of cash the government did to finance that. Even if GM does spectularly well, we're still unlikely to make our money back. That kind of profitable potential is a huge disincentive to invest.

Let's remember that there is still a very large domestic market for the product these companies service. Proof is that, if I am not mistaken GM may be profitable as early as next year and go public again.

Of course, but that doesn't mean you buy into a sinking ship. I'd be interested to see the structure of GM's profit. Profit from cost cutting is different from profit from increased sales.

washunut · Jun 20, 2010

obvious Child said:
While that aspect is indeed different, Cebereus was running a company with poor product, bad labor conditions and generally unfavorable opinions. There wasn't much it had going for it. Not exactly a good investment. At least GM had its profitable European and Asian markets. Chrysler was stuck. And it is still stuck. Forbes had a good article circa 2007 about how GM should just spin off its profitable Asian/European from its Northern American operations. Made sense then. And it makes sense now.

Granted Chrysler was/ is a dog. Not even sure how important it was to bail out. Let it fail and let other companies pick up whatever good stuff they had. Would have made GM even stronger.

Which we saw with the bailouts. I just question if any firm was willing to pony up the kind of cash the government did to finance that. Even if GM does spectularly well, we're still unlikely to make our money back. That kind of profitable potential is a huge disincentive to invest.

Investment would have been less as they would have done a big number on the debtholders and the pension fund would have to take less.

Of course, but that doesn't mean you buy into a sinking ship. I'd be interested to see the structure of GM's profit. Profit from cost cutting is different from profit from increased sales.

I think we are seeing both cost cutting and increased sales. Let's remember that when they were in real trouble the domestic market was under 10 million units annually if I recall correctly.

Areopagitican · Jun 20, 2010

obvious Child said:
Not that I disagree with you from an economic stance in efficiency, but I'm focusing more on the cost and effects from the reduction in employment. In an ideal world, that's how we'd do it, but in our world having millions more unemployed is hard to stomach. Furthermore, the impact on unrelated industries from having such a spike in unemployment would in a sense, erase such efficiency gains. As you later point out the financial sector is a good example for both of us. Letting it fall and rebuild would put us on better footing for the future, but it would have taken down many industries and businesses all of which were unrelated aside from financing. In a sense we'd be sacrificing efficient companies to rebuild an inefficiency sector. Are we really any better off?

The only reason we have to make such a sacrifice of collateral damage is because we've put the hard decisions off for so long. If we just let GM and Chrysler die a long, long time ago (like, when they had their first bailouts) then we wouldn't be having this discussion today. And likely, because the government can't make hard decisions right now, we'll be having this discussion again in the near future. The collateral damage just gets bigger and bigger the longer you draw it out. Any gains in efficiency the nation recieves in keeping the companies is offset every extra day they continue to hobble on; every day they make the inevitable crash that much more painful.

But what if in the process of fixing you get destroyed? The financial crisis is a no-win game. No modern economy can function without a banking financial sector. But at the same time not fixing the problems has produced a ticking time bomb. We are now more consolidated then before. IMO, the next financial crisis will be worse for that reason. We may have avoided total collapse now, but we've setup the next one.

It's a moot point because letting the sick twins of Detroit fail won't destroy America.

What makes you think they'd want a part of GM or Chrysler?

I meant of their market share. No one actually wants their factories, workers, models or marquees.

obvious Child · Jun 20, 2010

washunut said:
Granted Chrysler was/ is a dog. Not even sure how important it was to bail out. Let it fail and let other companies pick up whatever good stuff they had. Would have made GM even stronger.

Probably. I'd agree that Chrysler probably should have been let go. Their overall impact probably wouldn't have been that large compared to GM.

Investment would have been less as they would have done a big number on the debtholders and the pension fund would have to take less.

But the common shareholders and the debt holders were basically all but wiped out as it was. How many firms could pony up $100+ billion on questionable profit potential? That's more then the capitalization of most firms in the US.

obvious Child · Jun 20, 2010

Areopagitican said:
The only reason we have to make such a sacrifice of collateral damage is because we've put the hard decisions off for so long. If we just let GM and Chrysler die a long, long time ago (like, when they had their first bailouts) then we wouldn't be having this discussion today. And likely, because the government can't make hard decisions right now, we'll be having this discussion again in the near future. The collateral damage just gets bigger and bigger the longer you draw it out. Any gains in efficiency the nation recieves in keeping the companies is offset every extra day they continue to hobble on; every day they make the inevitable crash that much more painful.

Perhaps so, but you seem to be under the impression that once a firm is bad it cannot fix itself. Apple comes to mind as an example of that clearly not being true. And as Ford has shown, a company with bad prospects isn't doomed. I still don't see how sacrificing good companies, possibly even entirely good industries to rebuild another leaves us with a net benefit. IMO, this is really a no-win situation.

It's a moot point because letting the sick twins of Detroit fail won't destroy America.

No, but letting the banking/financial sector would have. And you know full well that no politician aside from maybe Dr. No would have let the economic damage that would have arisen from a dual bankruptcy actually go through. Many fake Conservatives here clamor that Republicans would have done something different, except people with brains know that Republicans will not just sit there as tens of thousands lose their direct jobs and hundreds if not millions lose theirs from indirect spending.

I meant of their market share. No one actually wants their factories, workers, models or marquees.

Again, long run view. Not looking at that right now.

American · Jun 21, 2010

ptif219 said:
Obama is doing a great job of helping the unemployed.

New jobless claims up sharply as layoffs persist - Yahoo! Finance

The number of people filing new claims for jobless benefits jumped last week after three straight declines, another sign that the pace of layoffs has not slowed.

Initial claims for jobless benefits rose by 12,000 to a seasonally adjusted 472,000, the Labor Department said Thursday. It was the highest level in a month and overshadowed a report that showed consumer prices remain essentially flat.

The rise in jobless claims highlighted concerns about the economic rebound -- especially after a report earlier this week said home construction plunged in May after government tax credits expired.

If layoffs persist, there's a concern that the June employment numbers may show a decline in private-sector jobs after five straight months of gains, said Jennifer Lee, an economist with BMO Capital Markets.

"We've definitely seen the economic recovery hit a wall," Lee said.

First-time jobless claims have hovered near 450,000 since the beginning of the year after falling steadily in the second half of 2009. That has raised concerns that hiring is lackluster and could slow the recovery.

It's the Republicans fault, they keep stopping all the help for the unemployed from reaching Obama's Blackberry.

New jobless claims up sharply as layoffs persist

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