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I came across this headline while browsing an old edition of the Journal:

“Greenbrier Argues General Electric Benefits From Federal Spending as it Enlists Lawmakers Help”

So GE had a contract to buy $1.2 billion of railroad cars from a rail-car maker (Greenbrier) but because of the weak economy GE decided to cancel the purchase. Greenbrier is now seeking to force GE to make good on the purchases anyway. It has pressured Congress to pressure GE … in a lettter to GE the lawmakers indicate,

“it is disconcerting that GE might cancel or delay some of the 11,900 cars covered by the agreement. (Those) manufacturing jobs are crucial to the American economy … and GE has more than $45 billion of cash on hand and receives the benefit of numerous federal programs.”

GE has benefited from the ability to issue corporate bonds secured by the US government at below market rates, and it also will generate up to $100 billion in revenue from sales and contracts related to the economic stimulus package. The story also indicates that right now, 400,000 of the nation’s 1.5 million rail cars are idled. James Taggert is smiling somewhere. Best part of the story for me is that the rail cars are actually made in Mexico, but Congress is worried that by not buying cars from Mexico, American jobs will be lost. But I thought trade was supposed to be bad for American jobs?

As I have said dozens of times, once you open Pandora’s box and let the government get involved in even the most miniscule of ways in the private sector, the roaches will crawl out from behind the stoves to argue that any and everything is in the national interest. If UR wants to eliminate my position, I can press Congress to have me reinstated because my students receive federal grant money and our school receives tens of millions in federal research grant money … and that my job and all those tied to me is critical for the American economy. Wait, that has already happened! For those econo-geeks who like game-theory and micro-modeling, it might be fun to ponder what the equilibrium conditionin such an environment looks like.

One Response to “Rocks Rolling Down Hills”

  1. Harry says:

    You call that an old edition of the Journal? An old edition of the Journal is one that is a yellow-brown color.

    I just wish the government would call a truce and say for the next month or so they would stop fiddling. OK- if they want to fiddle with making taxes lower and stop wasting money on you name it, I could tolerate that.

    I have to say, however, that I don’t want them to fiddle with bond indentures and the wherewithal companies have to pay back their interest and principal. But I don’t want them to kill GE. At least until 2014.

    I was talking to a retired utility executive not long ago, expressing my horror about the implications of cap-and-trade, and I got a surprisingly nonplussed reaction, like his former company would work through this, playing the game and crossing fingers. I think he hopes his defined benefit plan will survive, at least until the next few rate cases, assuming the fund did not own too many GM bonds.

    Another question: what the hell is GE doing buying $1.2 billion of railcars? I know they make electric locomotive engines, but they are not in the railroad business. Could they be absorbing a committment their customers made?

    There’s a novel somewhere in this story. James Patterson w/Speedmaster, co-authors?

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