Wednesday, December 31, 2008

Zombie Economics...Part 1: "How about A New CAR!...if the Price is Right" (The Auto Bailout)

*Whether bailing out the Auto Industry is a good idea or not is not the purpose of this post. My ideas are geared towards the assumption that it is going to happen anyway, esp. after Obama takes office.

Since it appears that we are headed towards semi-Nationalism in some of our industries via bailouts and "Rescue Plans" and also towards semi-Socialism with more Stimulus Checks and handouts, I was thinking today of maybe how it could all be handled better since it's going to happen anyway.

The U.S automakers definately have problems. They made cars that either people didn't want, were too expensive and/or (more recently) could not get financing for. Now "The Big Three" do not have sufficiant cashflow (or credit) to pay their employees or even stay in business. Giving (or even lending) them money will only help in the short term and the overall problems will still exist once that money has all been spent.

GM, et al, will still be saddled with huge inventories of unsold cars. They need to unload current stock before they can even think about making more Hybrids (which is what Obama wants) plus there needs to be something of value to back up the bailout money or else it is just worthless printed paper.

There are, however, millions of Americans who would love to buy a new U.S. made car but cannot get financing and/or do not have a large enough down payment to get affordable payments. The Credit Companies though, do not have enough capital to give out loans and/or need to charge rediculously high interest rates.

My Solution>-----------COUPONS!

Send every fulltime-working, legal American citizen a Stimulus Check in the form of a Government Guaranteed Coupon (GGC). The GGC is like a Cashiers Check but can only be spent at your (semi) local car dealership. Pay to the order of General Motors/Chrysler/Ford are the only options. The local car dealer also gets a portion of the GGC, as does each State with tax & liscensing fees.

The GGC is transferrable tho, because not everyone needs or wants a new car and/or would rather have the cash. The GGC can be traded in at the Financial Institution(s) that handle the auto loans...for a percentage. The "bank" keeps 10% of the GGC off the top (thus raising capital) while the "customer" keeps 80% to stimulate the economy elsewhere. The remaining 10% is put in a Federal Individual Retirement Account (FIRA) and gets added to the value of the GGC. **(more on that later).

($20,000 is the figure I had in mind but if there is any merit at all to this "plan", better minds can figure that out.)

So every qualified (tax paying) citizen gets a GM/Chrysler/Ford Coupon good for $20,000 on a new car or truck. The remaining value can either be paid with cash or financed thru GMAC/WaMu/Whatever. Cars sold + Fed Rescue money based on car sales + "real" money infused into economy thru cash and/or financing. The "new cars" can also be resold for much less (but still a nice profit) on the open market (with taxes).

Every citizen who "cashes in" the GGC gets a $16,000 Debit Card to spend as they please, pay bills, pay for college (or a college loan), downpayment for a home, home repairs, rent, food...any business that accepts GGC Express. You can even have money from your paycheck applied to your GGC Card or you can have a portion or all of it added to your FIRA (which collects interest of course thru more home loans, college grants , small business loans, etc.)

The FIRA can be cashed out early but like an IRA, only with stiff penalties. At retirement age tho you get the full ammount minus capital gains tax. The government will likely have made a profit from the initial $20,000 investment between the FIRA loans (plus interest), the CapGainsTax and other (normal) taxes on the whole economy.
** The GGC is now worth $22,000?!

Yes, the value of the GGC was 20k, however only 18k was paid out. 16k to the citizen, 2k to the bank and 2k to the FIRA. The GGC still has a face value of 20k and can be purchased for 20k, but in return you get that "extra 2k" on paper anyway. You are essentially buying a $20,000 Bond guaranteed to pay out $22,000 (at full term) but most likely more thru interest and dividends.

The GGC's themselves continue to rise in value not just thru interest but also thru the purchasing and trading of the Bonds either in real value and/or thru speculation. The FIRA accounts continue to grow thru the influx of trading money and CapGains taxes. The Federal Government gets a return on it's investment. Banks/Creditors have positive cash flow. Traders make money. GM/Chrysler/Ford are able to retool and restructure while staying liquid and moving inventory.

And I get "A New Car!"...if the Price is Right.