By DAVID MOON, Moon Capital Management,
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
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
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
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
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
Without a handout, the leading U.S.
automaker says it will run out of operating cash in the first half of next
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
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).