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General Motors And General Electric Were Both Victimized By The Same Ponzi Scheme, And They Are Both Telling Us The U.S. Economy Is In HUGE Trouble

Michael Snyder
November 27th, 2018
The Economic Collapse
Comments (66)
Read by 4,185 people

This article was originally published by Michael Snyder at The Economic Collapse

America’s twin economic “generals” are both in very deep trouble. General Electric was founded in 1892, and it was once one of the most powerful corporations on the entire planet. But now it is drowning in so much debt that it may be forced into bankruptcy. General Motors was founded in 1908, and at one time it was the largest automaker that the world had ever seen. But now it is closing a bunch of factories and laying off approximately 14,000 workers as it anticipates disappointing sales and a slowing economy. If the U.S. economy really was “booming”, both of these companies would probably be thriving. But as you will see below, both of them have been victimized by the exact same Ponzi scheme, and both firms are sending us very clear signals that the U.S. economy is heading for troubled waters.

Whenever you hear the word “restructuring”, that is always a sign that things are not going well for a company.

And it turns out that GM’s “restructuring” is actually going to cost the firm 3.8 billion dollars

General Motors said Monday it plans to effectively halt production at a number of plants in the U.S. and Canada next year and cut more than 14,000 jobs in a massive restructuring that will cost up to $3.8 billion.

Of course GM doesn’t have 3.8 billion dollars just lying around, and so they are actually going to have to borrow money in order to close these plants and lay off these workers.

Needless to say, President Trump is not very happy with General Motors right now…

Trump said he spoke Monday with GM’s CEO, Mary Barra, and ‘I told them, “you’re playing around with the wrong person”.’

He told reporters as he left the White House for a pair of political rallies in Mississippi that the United States ‘has done a lot for General Motors. They better get back to Ohio, and soon.’

There is no way that Mary Barra should have ever been made CEO of General Motors, and now the entire world is getting to see why.

In addition to the elimination of about 6,000 factory jobs, GM will also be cutting about 8,000 “white collar jobs”

In addition to the production cuts, GM said it will reduce its North American white-collar workforce by about 8,000. The deadline passed last week on a voluntary buyout for those workers, and GM spokesman Pat Morrissey told the Free Press that only 2,250 employees have asked to take the offer, meaning as many as 5,750 workers could be cut if the company keeps to its announced total. Analysts told the Free Press to expect involuntary cuts in January.

So why is General Motors doing this?

After all, if the U.S. economy really is “booming” that should mean increased sales for all of the major automakers in the coming years, right?

Unfortunately, the truth is that hard times are already here for automakers. In fact, Bob Lutz told CNBC that “we’ve got a demand problem on cars”…

Former GM Vice Chairman Bob Lutz said the automaker historically would have raised sales incentives to try to sell more cars before resorting to plant closures.

“Nowadays GM looks at the hard reality, says we’ve got a demand problem on cars, what are we going to do about it. We have to shut some facilities and move production to truck plants,” Lutz said on CNBC’s “Halftime Report.” “So I think what we are seeing is a fast-acting and reality-oriented GM management.”

In other words, sales are not good and so now is the time to shut down factories.

Of course GM is not the only one that is shutting down facilities and laying off workers. If you doubt this, please see my previous article entitled “U.S. Job Losses Accelerate: Here Are 10 Big Companies That Are Cutting Jobs Or Laying Off Workers”.

But if General Motors had been much wiser with their money, they wouldn’t have had to initiate a “restructuring” so quickly.

Over the past four years, General Motors spent a staggering 13.9 billion dollars on stock buybacks.

GM executives were able to prop up the stock price for a while, but at this point the stock is down about 10 percent from where it was four years ago. The following comes from Wolf Richter

During this four-year period in which GM blew, wasted, and annihilated nearly $14 billion on share buybacks, the price of its shares, including today’s 5.5% surge – getting rid of workers is always good news for shares – fell 10%.

These stock buybacks are a massive Ponzi scheme, and everyone that was involved in blowing such a giant mountain of cash at GM should be fired.

And now thousands of hard working Americans are going to lose their jobs, but it didn’t have to happen.

General Electric has also been victimized by the exact same Ponzi scheme, and at this point they are in a struggle for survival which they are probably going to lose.

On Monday the stock slid another couple of percent, and so far this year it is down a total of 58 percent

Not a day passes lately without GE stock getting hit by some unexpected development, and today was no exception.

GE shares, which are down 58% YTD, dropped over 2% on Monday, after sliding as much as 4.1% earlier in the session and approaching its financial crisis low of $6.66, following a research report by Gordon Haskett analyst John Inch which prompted fresh questions about the treatment of goodwill at GE Capital.

In the end, GE is probably heading for total collapse.

But if GE had not blown 40 billion dollars on stock buybacks in recent years, they would be in far, far better shape. The following comes from the Marketwatch article that I quoted the other day…

GE was one of Wall Street’s major share buyback operators between 2015 and 2017; it repurchased $40 billion of shares at prices between $20 and $32. The share price is now $8.60, so the company has liquidated between $23 billion and $29 billion of its shareholders’ money on this utterly futile activity alone. Since the highest net income recorded by the company during those years was $8.8 billion in 2016, with 2015 and 2017 recording a loss, it has managed to lose more on its share repurchases during those three years than it made in operations, by a substantial margin.

Even more important, GE has now left itself with minus $48 billion in tangible net worth at Sept. 30, with actual genuine tangible debt of close to $100 billion. As the new CEO Larry Culp told CNBC last Monday: “We have no higher priority right now than bringing those leverage levels down.”

Combined, General Electric and General Motors have blown more than 53 billion dollars on stock buybacks, and now both companies are in huge trouble.

The executives that gutted the finances of both firms by engaging in these sorts of Ponzi tactics should all be fired and should never be hired by anyone else in the corporate world.

For years, big corporations have been borrowing massive amounts of money to fund reckless stock buybacks, and that has helped to fuel an amazing bull market run.

But now the game is imploding, and the unraveling of this massive Ponzi scheme is not going to be pretty.

***

Michael Snyder is a nationally syndicated writer, media personality and political activist. He is publisher of The Most Important News and the author of four books including The Beginning Of The End and Living A Life That Really Matters.

GetPreparedNow-MichaelSnyderBarbaraFixMichael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream

If you want to know what is coming and what you can do to prepare, read his latest book Get Prepared Now!: Why A Great Crisis Is Coming.

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Author: Michael Snyder
Views: Read by 4,185 people
Date: November 27th, 2018
Website: http://theeconomiccollapseblog.com/

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66 Comments...

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  1. “Too big to fail” comes to mind.

    • taddie says:

      tell that to the dinosaurs

      • john stiner says:

        Through the Obama years these companies were able to get zero interest rate loans and use them for stock buy backs.

        It looked like the businesses were doing fantastic because stock dividends were going up (because there were less open stocks because of the buy backs)

        Free money is over and the FEDS are raising rates.

        Now the bill is coming do and nobody has any money, and you can’t borrow free money anymore.

        • Infidel says:

          Calling GM and GE “victims” is like calling Obama a saint and Hillary an angel.
          No, GM and GE are perpetrators of their own mess.

          • Panther says:

            Infidel, you’re right. Neither of these companies are victims. And the only thing they’re telling us is that they’re companies are in trouble. Why wouldn’t they be? They both make shitty products and greedy GM took the gubmint bailout to the length that the gubmint owned upwards of 60% of GM. So for them to say our economy is in trouble just cause they’re run by pathetic managers and no creative planning tells me they’re led by the same kind of corruption that the country endured in the 8 years preceding our current president. If I ran my personal finances the way they run their companies, I wouldn’t get any bailout. I’d be told to bite the bullet and suffer the consequences. FUCK THEM

    • Anonymous says:

      UNION BUSTING comes to mind.
      GM keeping Mexican Plants open.

      Last GM car my friend had was crap. Always in the shop. Dealer Always said issue not covered by warranty.

      They sold GM Caprice. Got a Hyndai Korea made pos.
      No problems with the car. Go figure? Suprised me.

      GM has a quality issue with thier cars.
      They used to be great. What happened?

      I will not buy a Mexican Motors GM. Hear that GM?
      I buy American made.
      I support business that Love America.
      No knee takers get my money. Hear that NFL? No NFL for second year. Canceled cable TV.

      Starbucks, have you missed my money, my employees money?
      Starbucks wanted to be social warriors, bum hang out, and hire 10,000 muslims. No thanks Starbucks.

      USA media and movies hate America. So I avoid ALL TV and Movies. USA Media are Leftist LIARS. NEVER will I buy a movie ticket.

      Move more GM production to Texas for trucks. I’ll buy one or maybe 10 for business. But I will not by a Mexican Motors GM. Clear?

      Toyota Tundra trucks are made in San Antonio Texas.

      • john stiner says:

        By the way, has anybody priced these vehicles lately!

        What a rip off.

      • Neon Revolt’s last two articles have been based around a guy named Franklin Leonard who has founded a company for Hollywood script-filtering that essentially automates the elimination of all conservative thought or characters from consideration for film making through the use of algorithms. But the articles are much more than that (they’re both long), delving into how this same Soros-funded clique is running the world’s pedophile networks by supplying children under the cover of “humanitarian” organizations. This is much bigger and uglier than we ever knew, and so far Trump’s efforts to stop it have barely scratched the surface. If the anti-American output of the media and Hollywood disgust you now, you will have an abiding hatred of them if you find out what they’re really doing.

    • TharSheBlows says:

      Yep they got a lot of free bail money, they rewarded themselves with large bonuses, and blew the rest of the cheap money on stock buy backs, instead of investing in technology. Now the stock is in the shitter and they are bankrupt.

      The dumped all their cash on Red, spun the wheel and it came up black. You loose, go home, game over.

      Auto manufactures used to blame the Unions, when it was their own bad management and failures to focus on the future. Shut the rust belt down. Can’t blame Trump, he gave them all the advantages on tariffs on imports.

    • Deplorable Neal Jensen says:

      They arent “victims” of anything… They were WILLING PLAYERS IN THE HIGH RISK STOCK GAMES.

      THEY threw their loyal workers under the bus as they collect obscene profits and bonuses..

      FFS nobody tells the truth anymore.

    • durangokidd says:

      “Combined, General Electric and General Motors have blown more than 53 billion dollars on stock buybacks, and now both companies are in huge trouble.”

      Both of these companies have been GROSSLY mismanaged. In the case of GM it begins with the production of UGLY, SMALL,& UNRELIABLE cars.

      Then there is the “VOLT” a complete and total disaster. It’s a car that GM should have never tried to mass produce. An electric vehicle with NO RANGE and NO BUYERS !!!

      With GE it was a case of dismantling and selling the income producing assets and pouring all of its cash into …. wait for it …. nuclear energy: a completely obsolete and destructive technology that cannot compete with green technologies like solar, wind, and water turbine tech. The CEO made terrible decisions.

      Snyder is right about one thing: neither of these CEO’s should ever run a public company ever again. 🙂

  2. M Edward says:

    GE and Sears have been doing stock buy-backs and that is a legal form of asset-stripping that leaves shareholders ‘holding the bag’…… an empty bag. I’m sure GM has been doing the same.

    Ponzi scheme ?

    Not likely.

    • You’re right. I would just like to comment on the Sears situation, for one.
      Many claim Sears went bankrupt because of a failed business model. No, it went bankrupt because of a successful business model. The Sears Corporation was bought out by venture capitalist Eddie Lampert. He re-organized the company, Sears Holdings, lent it his own money and used Sears assets as collateral. He took all the real estate and put it into a division called Seritage Growth Properties and leased the stores back to the retail division. He spun this Seritage division off in 2015 from Sears. He is the largest shareholder of Seritage. He did this all over a period of years to avoid the “lookback clause” to prevent illegal conveyance. He spun off the Craftsman brand and sold it to Black and Decker but kept a royalty clause for ten years on the Craftsman name.
      So now he owns the real estate and royalties on the Craftsman brand and Sears holdings is left with a failed retail enterprise and the whole pension obligation that will go away for the pensioners when bankruptcy finalizes. He stripped it and filed bankruptcy on the carcass.

      This is what vulture capitalists do. They buy up and reorganize stressed businesses and asset strip them and unload them through bankruptcy.

      • Anonymous says:

        JRS,
        It’s not what you know but who you know when it comes to great wealth. Seems Lampert joined the Skull and Bones crowd.

      • Yahooie says:

        I noticed when I was out today that the local K Mart has store closing sign on its walls. That store has been there for over 30 years. I suspected they were in trouble a year or so back when I went there for plastic tubs or some such. It seemed like half the store had empty shelves.

    • M Edward, agreed — “Ponzi scheme” is an inappropriate naming of what has happened. But I don’t have a better one, perhaps because nothing like this combination of events has ever happened before. The stock buy-backs wouldn’t have happened without ZIRP Fed money. If we fall back on the old wisdom that value isn’t destroyed, it merely changes hands, then the next question is, who got the value? And the next question after that is, can they be sued or prosecuted for it? The words “fiduciary responsibility” come to mind.

  3. blinky says:

    14,000 good paying jobs. Gone.

    • Genius says:

      Well gee whiz, you mean there isn’t a constant supply of people that can afford overpriced POS cars? Who would have thought? Toyota makes better cars/trucks for less and many are made in the US. Toyota forklifts are made in Indiana, they are 10X better than Hyster or Clark crap. My canadian made Ford f-150 has 230K miles on it and still going strong. I like old chevys but newer stuff can blo me…

      • The Deplorable Renegade says:

        Genius, I only made $44,000 gross income last year and that’s not enough money for me to qualify for any financing according to a lot of people. That’s why to this day I still go to a private owner for cash and it has to be something at least 20 years old. Shortly I’ll be looking on CRAIGSLIST for another old truck. That’s the only place I can go to. I don’t meet the criteria in any of the credit policies. Well, so be it. Don’t need the extra bill anyway.

        • Genius says:

          I make about that too (by choice). I could double that but I would have to live closer to work and work a lot. I used to work a lot and made great money and didn’t waste it on crap. EVERYTHING I have is paid for. I have NO rent. NO mortgage, NO car payment, NO credit cards, Just fookin property taxes and utilities. I have a job that I can work 6 months a year only if I choose. So why would I wait till retirement age to have time off to enjoy the fruits of my years of labor? Screw that, I don’t want to be the richest guy in the graveyard! I don’t recall ever hearing anyone on their deathbed saying ” I wish I would have spent more time at work.” Ya working less will cut down my pension but so what. I can do lots of things to drum up cash. You must live in a high cost of living place because thats actually not a bad income. I haven’t used credit in 17 years and I do just fine.

          • The Deplorable Renegade says:

            Genius, I don’t even have any credit cards and don’t want them. Where I live is not TOO bad for cost-of-living compared to some other parts of the country. I’ve just had too many people tell me without the right kind of income or credit history I’ll just have to keep buying cars for cash so that’s what I do. People with credit problems don’t have the best options available to them. So be it. I don’t really want a stinkin’ car note anyway. You don’t know how many people give me crazy looks when they hear me talk about buying a car for cash. You would’ve thought I just came in from the freakin’ moon, LOL. NOT everyone out there qualifies for credit.

    • john stiner says:

      14,000 good paying jobs. Gone.

      They were white people jobs, so it is OK.

  4. These corporate thieves know exactly what they are doing. They use company liquidity to buy back shares, thereby raising the share price. Since their bonuses include stock options, and a percentage of stock price increases, they themselves benefit directly (and indirectly from stockholders perks) from the increased share price. And since they have insider information on stock buybacks, and corporate financials, they know when to sell their shares….They care nothing about the “little people” that work for the company. The golden parachutes written into their contracts insure the transfer of corporate wealth into their personal retirement accounts. These pigs would layoff their own mothers if they could profit from it.!!!

  5. rellik says:

    I’m well known on this site and others as
    a Democrat hater. GE and GM are Democrat
    run companies. Let them die. They earned it.

  6. Nope. Not going to believe the sky is falling today. Lets see what tomorrow’s economic doom story will be and I’ll go from there.
    rofl

  7. aljamo says:

    Just like the unemployment rate is around 4% per the liars, lmao, when in reality it is past 20%. Capitalism meets its end game of greed.

    • john stiner says:

      4% unemployment and about 57% of the nation waiting on their Social Security Disability to start paying.

    • Fortunately, it isn’t capitalism that’s failing. If we had capitalism GM and GE would have been down the tubes decades ago. The beating heart of capitalism is the cost of renting, or rate of return, on CAPITAL (money). As long as there is a central bank “setting” (falsifying) interest rates, or banks that can create “checkbook” (thin air) money, also known as “fractional reserve banking”, or a government that can pick winners and losers with subsidies and bailouts, any real capitalism is impossible. At this point our economic system is lost in a hall of mirrors, which is why GM and GE are going bankrupt.

  8. no name says:

    This has got to be a joke! GM and GE are not victims nor have they ever been victims of anything. GE is top of Fortune 500 and pay zero tax, GM bailed out by tax payers (thanks queer Obama) and GM used to employ millions of workers, now only thousands because of foreign outsourcing and plants. Fck them!

    • john stiner says:

      GE is doing a stock scheme where the stock is rated to zero and bankrupt, then a fake company buys them for nothing and …. boom, they are back and own nothing.

      Just like K-mart when they were bought out by Sears.

    • bb in GA says:

      No company anywhere in the US pays any taxes.

      Taxes are paid by individuals.

      If you look at any Corporate Income Statement in the ‘Expenses and Losses’ column you will find Taxes (of all kinds) as an Expense.

      Expenses are covered by three groups of people individually or or in combination:

      1.) Customers – the Price for the Product or Service ordinarily covers all the Costs/Expenses and may reflect part or all of the Taxes

      2.) Employees – the Salary and Wage Structure – not getting an increase might cover some/all of the Taxes.

      3.) Stock Holders or Owners – might take a smaller dividend or profit (Yeah right :-))

      Companies collect Taxes for the various levels of Government – YOU pay all Taxes.

      <bb

  9. Beaumont says:

    Why do you keep calling it a scheme and a tactic and not the way the country works. This is how business used to happen, for some generations.

    • john stiner says:

      Business used to have major established companies like AT&T, Southwestern Bell, IBM, Ford, GE.

      People would work at a company their entire life, then have a nice retirement.

      Those days are gone.

      You have to make your own retirement now.

  10. Beaumont says:

    Do buybacks occur at predictable intervals, and is the refund worth more or less than what you originally paid for the stock.

  11. “GE was one of Wall Street’s major share buyback operators between 2015 and 2017; it repurchased $40 billion of shares at prices between $20 and $32. The share price is now $8.60, so the company has liquidated between $23 billion and $29 billion of its shareholders’ money on this utterly futile activity alone.”

    GE is making me look fiscally responsible !

    Anytime your wife (or husband) hassles you about spending money on a firearm or some other toy, you can just point out how much more frugal you are than FVCKING GE.

    This is almost like Microsoft going belly up. I’ve been in the GE military division in upstate New York, a bunch of hard working folks.

    OK so now you can go buy that 50 BMG revolver for $10,000.

  12. Jimbo says:

    Have a 97 ford escort wagon w/5 speed manual. The car has 180k, so started looking for a newer vehicle. After checking hundreds of car photos & prices decided to put more money in the escort and keep driving it. (New clutch)
    Owned GM’s decades ago. Seems they were made better then.

    • The Deplorable Renegade says:

      Jimbo, good decision. I’m not a fan of small cars but to each his own I always say. I’m looking on craigslist for something. Only place where people with credit problems can go for a car it seems.

  13. Steadfast says:

    When GE shipped my job as a crane operator to Mexico along with nearly every other job at my local plant in the USA when NAFTA first began, I stopped purchasing GE anything and never went back, that was 1981-82.

  14. Nobuddy says:

    When GM & GE executives took billions in ‘bailout’ money after the crash of ’08 they basically gave the finger to every one..

    I would rather walk & stumble around in the dark before I spent another dime or another minute worrying about the ‘profit margins’ of these companies.

    These companies who felt they were ‘too big to fail’ need to fail miserably for what they did.. & shame on any one who has forgotten this ‘lesson’ we learned.

    What’s bad for Wall-street is good for Main-street.. let’em all jump.

    Strange daze indeed..

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