by Peter Whoriskey

If a new General Motors emerges from bankruptcy as planned, U.S. financial aid for the company will expand to nearly $50 billion, but neither the government nor the company is forecasting how much of the public money will be repaid.

It’s sure to be a stretch. For the United States to fully recover its investment, the value of General Motors stock will have to reach levels it has never before attained.

“I’m not going to predict it — that’s not my job today,” GM chief executive Fritz Henderson said in a recent interview.

“I don’t know how much we’re going to recover,” a senior Obama administration official said as the company headed into bankruptcy last month.

This uncertainty stems from the difficulty in valuing the 60 percent GM stake that the United States will receive in exchange for the public investment. The government also gets preferred shares and other compensation.

The stake will be worth enough to fully cover the government’s direct investment only if GM’s stock rises above $68 billion. Even at its recent 2000 peak, GM’s stock was worth only $56 billion.

“I don’t see GM hitting those benchmarks in a very long time,” said Maryann Keller, a veteran automotive analyst and author of “Rude Awakening: The Rise, Fall, and Struggle for Recovery of General Motors,” which was published in 1989.

She noted that global competition will continue to squeeze American automakers. Though the world’s factories can produce about 100 million vehicles a year, demand for them only stands at about 55 million, and the gap will push prices and profits down, she said.

“It’s very unlikely” that the government will recover its money, said David Whiston, auto equities analyst at Morningstar. “GM will be a smaller company after the bankruptcy and there are going to be more foreign automakers entering the market that will make GM’s efforts more difficult.”

Both administration and GM officials assert that after the company springs from bankruptcy — newly streamlined and freed of most of its debts — the automaker will reverse its financial fall. Its recovery will pay further, hard-to-measure dividends by supporting the U.S. economy, they add.

The company’s own internal analysis, prepared by Evercore Partners and presented to the company’s board on May 31, shows how the government could recover its investment. According to that presentation, the equity value of the company in 2012 will range from $59 billion to $77 billion. If the stock value rises to the high end of that range, the U.S. could recover all of its investment.

“We have certainly looked at scenarios where, over time, a very substantial portion and potentially all of the taxpayer investment in General Motors will be returned,” Ron Bloom, a senior adviser to the administration’s auto task force, told a Senate committee earlier this month. “But I certainly by no means would say that I am highly confident that that will occur.”

Bloom and GM chief executive Henderson have suggested that by shedding so much of its debt through bankruptcy, the company’s value would be less encumbered and its stock prices freer to rise.

Henderson said it would be easy to envision GM’s stock rising to levels high enough to cover the government’s investment if the company’s revenues approximate what they were before the economy faltered.

“Can a company with $100 [billion] to $140 billion of revenue have $70 billion of market cap?” Henderson said in an interview last week at the company’s headquarters. “Yeah.”

He said, “It’s a function of how we execute, and do we get the margins out of the business that we need?”

As the auto rescue has unfolded, the question of whether the government will be repaid has taken on increasingly political overtones, as partisans debate whether the Bush administration or the Obama administration has handled the industry better.

The Bush administration began the GM bailout in December, offering the company emergency loans that grew over the coming months to nearly $20 billion. The loan terms called for the company to be restructured.

The Obama administration called the company’s restructuring efforts inadequate and steered GM toward bankruptcy, from which the company is expected to emerge in July.

The government is planning to give the automaker an additional $30 billion as part of the plan to revive the company through bankruptcy.

In exchange, the government gets the 60 percent equity stake, and GM will also owe about $6.7 billion in secured debt and about $2.1 billion in preferred shares.

Assuming the government is repaid the debt and preferred shares, the value of the company’s common shares would then have to rise to roughly $68 billion to pay back the remaining $41 billion in direct GM investment.

These calculations do not include the billions of dollars that the United States has put into GMAC, GM’s financing arm, and into aiding auto suppliers. On the other hand, it does not capture the likely returns of those investments, nor do the calculations include the stock dilution caused by options, which could raise the break-even point.

In announcing the government’s intention to put another $30 billion into the company earlier this month, President Obama said, “We’re making these investments not because I want to spend the American people’s tax dollars, but because I want to protect them.”

How long it will take to recover them may not be clear for years.

by Dom Armentano

An editorial in the July-August 2009 AARP Bulletin repeats the same bromide heard almost nightly on the MSM news: That there are currently 47 million Americans without health insurance. The AARP editorial goes on to argue that this situation is disgraceful; that all Americans should have “affordable health care choices”; and that in terms of reform, “the time to act is now.”

The sad tale of the 47 million uninsured is, perhaps, the most emotionally persuasive argument put forth for national health care reform. But is the alleged number of uninsured reasonably accurate? Or is it, instead, a purposely misleading statistic designed to advance a specific reform agenda?

The 47 million uninsured number is generated by an annual U.S. Census Bureau report. However, that report also states that the 47 million uninsured includes roughly 10 million illegal aliens without health insurance. Thus, if we subtract out the illegals, the number of uninsured American citizens without health insurance declines by more than 20%…to roughly 37 million.

But is it accurate to assume that even 37 million Americans cannot afford health insurance? Absolutely NOT. Even Hillary Clinton during her presidential campaign once admitted that 25% of the uninsured could afford health insurance but chose not to purchase it. The Census Bureau reports that there are roughly 17 million people who make more than $50,000 per year and who, for whatever reason, decide not to carry health insurance.

In short, with two reasonable adjustments, the number of Americans who cannot afford health insurance has been reduced from 47 million to approximately 20 million.

But is the 20 million figure itself reasonably accurate? Probably not. Individuals moving between jobs lose their (employer provided) health insurance and when they do the Census Bureau counts them as “uninsured.” Technically true. Yet during normal times, roughly half of these individuals will have re-acquired (in about 4 months) health insurance coverage with a new employer.

Finally, there are millions of adult Americans and children who have (nearly free) access to medical care benefits through Medicaid and other government programs who don’t really need the direct cost of “insurance” and who don’t carry any.

Thus, with reasonable adjustments, there are in fact less than 10 million individuals who are so-called “chronically uninsured.” (The Kaiser Family Foundation says the number could be as low as 8 million). These are individuals who have been unemployed for over 2 years and/or people from households that are too poor to afford non-employer health insurance premiums and who, for whatever reason, have limited access to taxpayer-supported health services.

So let’s grant that there are between 8 to 10 million Americans (total population: 307 million) who cannot afford health insurance and that this situation may require a marginal public policy adjustment. (Most states mandate expensive benefit coverage; curtailing those mandates would lower the cost of health insurance.) But whether that situation requires some massive, Washington D.C. health care reform – with new regulations and mandates on health care providers, insurance companies, and drug manufacturers – is entirely problematic.

Politicians and interest groups, eager to remake your medical world over to their liking, would do well to respect the Hippocratic oath administered to physicians: “First, do no harm.”

by Lyubov Pronina

Proposed Global Currency

July 10 (Bloomberg) — Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a “united future world currency.”

“Here it is,” Medvedev told reporters today in L’Aquila, Italy, after a summit of the Group of Eight nations. “You can see it and touch it.”

The coin, which bears the words “unity in diversity,” was minted in Belgium and presented to the heads of G-8 delegations, Medvedev said.

The question of a supranational currency “concerns everyone now, even the mints,” Medvedev said. The test coin “means they’re getting ready. I think it’s a good sign that we understand how interdependent we are.”

Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the U.S. dollar’s future as a global reserve currency. Russia’s proposals for the G-20 meeting in London in April included the creation of a supranational currency.

by Llewellyn H. Rockwell, Jr.

It was common on the left to intimate that George W. Bush was like Hitler, a remark that would drive the National Review crowd through the roof but which I didn’t find entirely outrageous. Bush’s main method of governance was to stir up fear of foreign enemies and instigate a kind of nationalist hysteria about the need for waging war and giving up liberty through security.

Hitler is the most famous parallel here, but he is hardly the only one. Many statesmen in world history have used the same tactics, dating back to ancient times. Machiavelli wrote in his Art of War advice to the ruler: “To know how to recognize an opportunity in war, and take it, benefits you more than anything else.”

But what’s the point of studying Hitler’s rise to power unless it is to learn from that history and apply the lessons? One lesson is to beware of leaders who come to power in troubled times, and then use foreign threats and economic crises to bolster their own power. Unless we can draw out lessons for our own times, history becomes nothing but a series of dry data points with no broader relevance.

Certainly Bush used 9-11 to consolidate his power and the neoconservative intellectuals who surrounded him adopted a deep cynicism concerning the manipulation of public opinion. Their governing style concerned the utility of public myth, which they found essential to wise rule. The main myth they promoted was that Bush was the Christian philosopher-king heading a new crusade against Islamic extremism. The very stupid among us believed it, and this served as a kind of ideological infrastructure of his tenure as president.

Then it collapsed when the economy went south and he was unable to sustain the absurd idea that he was protecting us from anyone. The result was disgrace, and the empowering of the political left and its socialistic ethos.

The talk of Hitler in the White House ended forthwith, as if the analogy extended only when nationalist ideology is ruling the day. What people don’t remember is that Hitlerism was about more than just militarism, nationalism, and consolidation of identity politics. It also involved a substantial shift in German domestic politics away from free enterprise, or what remained of it under Weimar, toward collectivist economic planning.

Nazism was not only nationalism run amok. It was also socialism of a particular variety.

Let’s turn to The Vampire Economy by Guenter Reimann (1939). He begins the story with the 1933 decree that all property must be subject to the collective will. It began with random audits and massive new bookkeeping regulations:

Manufacturers in Germany were panic-stricken when they heard of the experiences of some industrialists who were more or less expropriated by the State. These industrialists were visited by State auditors who had strict orders to “examine” the balance sheets and all bookkeeping entries of the company (or individual businessman) for the preceding two, three, or more years until some error or false entry was found. The slightest formal mistake was punished with tremendous penalties. A fine of millions of marks was imposed for a single bookkeeping error. Obviously, the examination of the books was simply a pretext for partial expropriation of the private capitalist with a view to complete expropriation and seizure of the desired property later. The owner of the property was helpless, since under fascism there is no longer an independent judiciary that protects the property rights of private citizens against the State. The authoritarian State has made it a principle that private property is no longer sacred.

The rules begin to change slowly so that enterprise could no longer make decisions in the interest of profitability. The banks were nationalized. The heads of major companies were changed. Hiring and firing became heavily politicized. The courts ruled not on justice but on political priorities. It was no longer enough merely to obey the laws. The national will must trump economic concerns:

The capitalist under fascism has to be not merely a law-abiding citizen, he must be servile to the representatives of the State. He must not insist on “rights” and must not behave as if his private property rights were still sacred. He should be grateful to the Fuehrer that he still has private property. This state of affairs must lead to the final collapse of business morale, and sound the death knell of the self-respect and self-reliance which marked the independent businessman under liberal capitalism.

Price controls were next, enforced intermittently and with them grew up a large gray economy, with businesspeople spending more time getting around the rules than producing wealth. “To increase his prices a dealer must have a special permit from the Price Commissar. A request for a price increase must first be certified to by the group leader; it must be accompanied by a detailed statement of necessity and other pertinent data, such as production and distribution costs.”

State production mandates were next. Goods were to be produced according to political goals. “Backed by the General Staff of the army, Nazi bureaucrats have been able to embark upon schemes which compel the most powerful leaders of business and finance to undertake projects which they consider both risky and unprofitable.”

Bankers were required to act as state actors. “Under fascism, big bankers, formerly independent – except, of course, ‘non-Aryans’ – have become State officials in everything but name. They are often in high and influential positions, but they are all members of the compact, centralized State machine. Their independence, their individual initiative, their free competitive position, all the principles for which they once fought fervently, are gone.”

If you think that the parallels stopped after Bush left power, consider this passage from Reimann: “The totalitarian State reverses the former relationship between the State and the banks. Previously, their political influence increased when the State needed financial help. Now the opposite holds true. The more urgent the financial demands of the State become, the stricter measures are taken by the State in order to compel these institutions to invest their funds as the State may wish.”

Once the banks were forced wholly under the control of the government, they became the means by which all property became subject to the state: “The totalitarian State will not have an empty treasury so long as private companies or individuals still have ample cash or liquid assets. For the State has the power to solve its financial difficulties at their expense. The private banks themselves, the financial institutions which previously dictated the terms on which they were willing to lend money, have built up the system of siphoning off liquid funds. This financial system is now utilized by the totalitarian State for its own purposes.”

So it was for the stock market, which was regarded as a national asset. Speculation was forbidden. Public companies were entirely subject to bureaucratic rule. Order replaced the old spontaneity, while speculation of the old sort became an entirely underground activity. The largest companies didn’t entirely mind the course of events. “The disappearance of small corporations gives rise to a tendency among small investors not to risk their capital in new competitive enterprises. The larger the big corporations grow and the closer they become connected with the State bureaucracy, the fewer chances there are for the rise of new competitors.”

So too for insurance companies, which were compelled to buy government paper.

The tendency toward ever more economic regulation resulted not in socialism as such but fascist planning. “The fascist State does not merely grant the private entrepreneur the right to produce for the market, but insists on production as a duty which must be fulfilled even though there be no profit. The businessman cannot close down his factory or shop because he finds it unprofitable. To do this requires a special permit issued by the authorities.”

The national demand for “stimulus” replaced private decision making entirely, as businessmen were required to produce and avoid any economic downturns that might embarrass the state. “The Nazi government has expressly threatened the private entrepreneur with increased State coercion and reduction of personal rights and liberties unless he fulfills adequately the ‘duty to produce’ according to the State’s demands.”

But stimulus could not and would not work, no matter how hard the party officials tried, because the very institutions of private property and competition and all market forces had been overwritten. “The totalitarian regime has annihilated the most important conservative force of capitalism, the belief that private property ought to be a sacred right of every citizen and that the private property of every citizen ought to be protected. Respect for private property has penetrated the spirit of the people in all capitalist countries. It is the strongest bulwark of capitalism. Fascism has succeeded in destroying this conservative force… People still have to work for money and have to live on money incomes. Possession of capital still provides income. But this income is largely at the mercy of State bureaucrats and Party officials.”

Reimann sums up: “In Nazi Germany there is no field of business activity in which the State does not interfere. In more or less detailed form it prescribes how the businessman may use capital which is still presumably his private property. And because of this, the German businessman has become a fatalist; he does not believe that the new rules will work out well, yet he knows that he cannot alter the course of events. He has been made the tool of a gigantic machine which he cannot direct.”

The regime also dramatically increased social and medical legislation, providing lifetime pensions to friends and conscripting doctors in the service of its dietary and medical goals.

Now, if any of this sounds familiar, it is because the principles of intervention are universal. The Nazi regime represented not a unique evil in history but rather a now-conventional combination of two dangerous ideological trends: nationalism and socialism. We know both all too well.

The letter which I read on the air yesterday, sent to some listeners in Provo, Utah from Senator Orrin Hatch, has raised some questions and resulted in several emails.  I was hesitant to send out the original letter because of the receiver’s names and address being prominently attached to that letter, posing potential privacy problems.  The letter I have is a scan of the original, in PDF format.

In order to placate those who are inquiring, however, I gave the letter to Aaron Turpen to see if he could extract it and/or remove the names.  He’s done both.  Below, I’m pasting in the text of the letter (sans greetings and salutations), as well as a scan of the document with complete headers and so forth included.

Thanks for listening!  Here’s the letter text:

Thank you for writing to express your support for legislation that would abolish or regulate the Federal Reserve Board, essentially removing Federal regulation of banking and returning the nation to the “gold standard.” I appreciate hearing from you.

There have been a number of bills introduced in both the Senate and House addressing the Federal Reserve.

You may be interested in the Federal Reserve Transparency Act (H.R. 1207, S. 604). H.R. 1207 was introduced in the House of Representatives by Rep. Ron Paul on February 26, 2009. Rep. Paul has long been a vocal critic of the Fed and has supported its abolition for some time. H.R. 1207 and S. 604 would amend title 31 of the United States Code, to reform the manner in which the Board of Governors of the Federal Reserve System is audited by the Comptroller General of the United States and the manner in which such audits are reported.

A Senate bill, S 513 was introduced by Senator Bernie Sanders on March 3, 2009. S. 513 would direct the Board of Governors of the Federal Reserve System to publish on its website, with respect to all loans and other financial assistance it has provided since March 24, 2008.

All the Senate bills have been referred to the Senate Committee on Banking, Housing, and Urban Affairs where they are pending. The House bills are pending in the House Committee on Financial Services.

Since the Federal Reserve Act was signed into law in 1913, the Federal government has had a role in ensuring the integrity of our country’s financial system in order to protect American investors and consumers against such problems as bank failure. The Federal Reserve System is a mixture of public and private entities. The Federal Reserve Board has been granted the authority by Congress to set monetary policy and to regulate commercial banking activities. While the Federal Reserve System was established as an independent agency, the President of the United States appoints the seven members of the board with the appointments subject to confirmation by the Senate. Congress also has the power to modify the Federal Reserve System.

The system also receives extensive feedback from representatives of the public through frequent meetings with members of the Executive Branch and appearances before congressional committees.

While many people have questioned the constitutionality of the Federal Reserve System based upon provisions in the Constitution which give Congress power to “coin money and to regulate the value thereof,” the Congress has appropriately assigned these authorities to government agencies. For example, the Internal Revenue Service (IRS) has been given authority to collect taxes. Similarly, the Federal Reserve System has been delegated the authority to establish monetary policy.

The Federal Reserve System is responsive to the needs of the economy, especially the stock market. Compared with virtually all foreign central banks, the Federal Reserve System appears to be very forthcoming in disclosing policies and open to receiving suggestions. Therefore, I am hesitant to support proposals to further erode the independence of the Federal Reserve System or to intrude on the setting of monetary policy. Over the last 25 years, the level of inflation has been quite stable and low, even compared to the period before we created the Federal Reserve.

Rest assured that I will keep your comments in mind should this legislation be taken up by the full Senate.

Again, thank you for writing.

And a scan of the document: