Make Yourself Big & Everything Will Be Fine

Recently US auto industry is taking a heavy blow. The Big three(Chrysler, Ford and GM) share plunged as GM said it will need a big help from government to inject money or it will fall.

Amazingly, a lot of expert say yes to this and urge government to take action as fast as possible. According to them, Auto industry is too big too fail.

First of all, total worker in the auto industry is small relative to health care or real estate. Only 3% of American work in the auto industry.

Furthermore, even senate reject the bill of 34 billion loan, Bush Administration still want to use TARP money to save them.The 700 Billion TARP now only left 60 Billion and if Government loan 34 Billion to The big 3, that's mean only 26 Billion left and frankly 26 Billion is as useless as my toilet paper which again mean another big bill coming?

Don't think 34 billion loan will save them, it only ensure them to survive till March so they can get out with a restructuring plan. Does that mean they will need a much bigger loan March 2009?

GM is in talk with Chrysler to merge as a new company for 1 reason and 1 reason only: to make them big enough so government won't let them fall just like financial companies. For Chrysler case, it is even ridiculous. The Owner of Chrysler, Subaru said they don't want to help Chrysler so Subaru ask Chrysler to get help from Government. I mean if Chrysler still has hope of making a profitable business, I am sure Subaru will step in.

The reason they can't fail: too big. They are too big to fail. The same situation happened to Financial companies, Banks, IB and now auto company. Couple of months ago most Banks are into Merge and Acquisition. They merge just to make itself big enough. Bank of America bought Merrill Lynch after accessing ML balance sheet for a day. How can a company buy another company as big as ML after only reading its balance sheet for a day?

Tomorrow FOMC will decide interest rate and it is widely expected to be cut to zero or near zero. Furthermore, Federal Reserve also said they will gear up the printing press.

Anybody remember Zombie Companies and Zombie Banks from the Japanese in the 90's? Jim Rogers mention it many times on TV. In the 90's, Japanese Government won't let anybody fail and bailout everybody. As a result, Japan stock market today is 80% lower than in the 90's and still recovering from it.

However Japan is different as Japanese government is one of the biggest creditor in the world and Japanese work hard and save a lot. US is in exact opposite scenario.

So do you know why government won't save you and me? because we are not big enough. So next time when you make a bad decision, make sure you are big enough so that Paulson and Bernanke will answer you call.