As a student of history, I found this quite interesting and reasonably reassuring. This is a video from Dent Asset Management that provides a historical context of our current economic crisis.  Context is always helpful for a crisis and I think this helps put our challenges in perspective.  Somebody famous once said “we shall overcome” and I gotta believe that’s the case!  Enjoy the video and have a good weekend.

Its an age old question – is the glass half full, or half empty?  Conventional wisdom has held that an optimist believes the glass to be half full.  A pessimist believes otherwise.  Personally, I have always considered myself a realist, one who recognizes the glass has being neither  half full or half empty – it has water in it.  Its up to you to determine what it should be.

With that being said, far more important than the perception of the glass of water is what you want to accomplish with the water.   If you want to empty the glass, the opportunity is there because half the water is gone – the challenge is how do you get the rest of the water out?  Alternatively, if you want to fill the glass, the opportunity is there because the glass is already filled halfway – the challenge is figuring out how to get it full.

Personally, I’m trying like hell to fill the glass.   How about you?

Since the whole bailout process began, I have had the opportunity to engage in countless conversations about the fate of the auto industry.  The message I’ve primarily heard – “let em fail” is a non-starter and in my mind too simplistic a world view.  Now that bankruptcy has occurred, there is no reason to get into a discussion about that theory.  If you want to let me know why that was the best course of action, please post your thoughts.

Rather, I’ve been quite intrigued with the conversations I’ve had lately about the composition of the new “owners” of General Motors – the US & Canadian governments, the bondholders and THE UAW!  I can’t begin to tell you how many times I’ve heard the term “socialism” tossed around during these discussions and people bemoan the end of capitalism.  Needless to say, its been interesting to hear the various views on the topic.

Personally, I am very excited about the reconstituted of General Motors.  Rather than being an affront to capitalism and the onset of socialism, I believe that this only illustrates that capitalism is coming back stronger than ever.  There are two reasons why I believe this bankruptcy and new ownership is an indication of capitalism at its best:

1. What the union and the government have done is no different than what any capitalist would do.  Creditors can force companies into bankruptcy – happens all the time.  When it happens, secured creditors more often than not convert a chunk of their liabilities into equity.
2. It is not uncommon for creditors or stockholders to hold companies accountable or take action that adversely impacts management while theoretically benefiting the company (or their interests).  Banks and bondholders put covenants into their agreements to ensure companies maintain certain standards of performance.  Likewise, stockholders have proxy votes to get board seats so they can control the direction of the company. The government had covenants built into its loans and exercised them.  is this any different than what anyone with leverage would do?

To me, it appears that the forced bankruptcy and restructured ownership are very capitalistic tactics and let’s face it, if it was a bondholders and a consortium of banks leading the charge rather than the government and union, we would be cheering the move. That being said, what really excites me about this, and what I believe will be the ultimate demonstration of capitalism at work is the recognition that the union is in charge.

Think about this for a minute.  For the past X number of years, management has blamed the union for its troubles and the union has blamed poor management for the Company’s failures.  Now, the union gets the opportunity to prove it – they are running the company.  Even better from my perspective is that they have substantially all of their assets tied up in the the Company.

Consequently, the union has no choice but to make GM successful. If its fails,  it not only ruins the lives of hundreds of thousands of current and future retirees but it will effectively kill unions.  After all, if it can’t successfully execute  its labor friendly philosophies as management/ownership it will be case study #1 as to why unions are bad.  Every time a employees think about unionizing, ownership will point to the failure at GM & Chrysler and say “see what happens to companies when unions come – jobs get lost”.

Its going to be fun to see which way it goes.  If the union is successful, the company will likely be sold to the public and traded which will make the union and government a lot of money.  If it fails, it will be the death blow for any discussion about alternatives to capitalism.  Either way, capitalism wins.

Oscar Wilde once said “the only thing worse than not getting what you want is getting what you want“.  We are about to see this principle in action.