Sunday, April 26, 2009
Liquidity Crisis or Solvency Crisis ?
The auto industry is where the argument that this crisis is one of liquidity alone breaks down. Increasingly, people are discovering that even with tens of billions of dollars in money from the US federal government, the auto industry is just not viable. Why? Because citizens (aka "consumers") are turning away from automobiles and in particular automobiles made by failed automobile companies.
Liquidity crisis it may also be, but ultimately it is the solvency of such companies as GM and Chrysler, together with the many outer-suburban sprawl related real estate industries (and the banks that supported them and lent to them) which is in question here.
We can only hope they all are liquidated before more money is wasted trying to sustain a failed business model, so that the government can spend its money productively helping to build the new, sustainable green economy rather than propping up old mistakes from a former era when the automobile industry was King.
Does that sound radical? Perhaps, but it might also be said that there are two kinds of radical ideas in the world: the kind that would take us on a path which diverges significantly from that which we have followed to date (for better or for worse); and the kind which diverges significantly from the generally accepted practices or beliefs of the population.
If you read the next post here about Norway considering a ban on fossil fuel burning automobiles from 2015, you will note that these ideas is increasingly only radical in the former sense - that it marks a departure from previous behaviour, but with increasingly strong popular and legislative support.
at 7:11 pm