Everyone looking for piece of The Plan

By DAVID MOON, Moon Capital Management, LLC
November 16, 2008

A friend recently called and asked me about some of the mortgage-relief programs he had been reading about. He doesn't have a mortgage on his $500,000 house, but wanted to know if he borrowed some money against it, might he be eligible for one of the government debt-forgiveness plans if he immediately got behind on his house payments?

He was serious.

I told him that the government would probably expect him to sell his Destin house, boat, North Carolina cabin and hunting dog before he would be eligible for a government give-away.

You could hardly blame him for wanting to get some money - it seems like everyone else is. If all else fails, Uncle Sam wants you'to get some money. The line forms to the left.

Congress and the President spent weeks arguing over a $700 billion bailout plan for the financial industry. Then they changed the name to 'rescue plan,' although most people simply refer to it as The Plan.

For weeks, The Plan dominated discussion in barber shops, grocery stores and health clubs. 'Do you think they'll pass The Plan?' It was as if The Plan was a reverent program that would solve all economic ills ' so massive that it required actual rare honest debate among legislators.

Weeks after approving The Plan, the Treasury loaned insurance-giant AIG $85 billion in an effort to keep it solvent. There was no debate or discussion. Nor was there any debate only weeks later when AIG had burned through the original $85 billion and the Treasury loaned it another $40 billion.

In a third step announced last week, the government has increased the size of the AIG bailout to $150 billion.

If one company could get $150 billion without any vote or debate, why was it such a big deal to approve $700 billion for an entire industry?

Now comes the auto industry.

Ford and General Motors now want access to The Plan. If you want to see $700 billion disappear quickly, put it on an automobile company balance sheet.

Yet there is congressional and incoming-executive support for providing assistance to this failing industry. The federal government has already given $25 billion in 're-tooling' loans to these companies, but GM burned through almost $7 billion of cash in the last 3 months.

Without a handout, the leading U.S. automaker says it will run out of operating cash in the first half of next year.

At least when CircuitCity filed for bankruptcy last Monday it didn't claim that plasma TVs and laptops were essential to our national security, or some other nonsense.

Of course, the U.S. government has a history of bailing out failing companies and industries. The airline industry in 2001. The savings and loan industry in 1989. Continental Illinois Bank in 1984. Chrysler in 1980. New York City in 1980. Franklin National Bank in 1974. Lockheed in 1971. Penn Central Railroad in 1970.

Adjusted for inflation, those bailout plans totaled less than $350 billion ' a bargain compared to today's plans.

Who knows? Maybe there is a program somewhere that would pay my friend's mortgage.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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