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The most worthless bailout yet?



December 30, 2008 – Comments (7) | RELATED TICKERS: PEIX


The Wall Street Journal ran a piece a couple of days ago about the government bailout that the ethanol industry is pushing the government for, An Ethanol Bailout?.  Ethanol producers are really hurting right now (I guess that's what happens when you produce a worthless product...which is exactly what fuel made from corn is in its current form).  The price of ethanol fallen from $2.90/gallon to $1.60/gallon over the past several months.   Even with the absurd government subsidities (more than $25 BILLION worth over the past two decades) that are already in place, producers are barely breaking even.

The industry's lobby group, the Renewable Fuels Association, is petitioning the government for $1 billion in immediate short-term credit and an additional $50 billion in loan guarantees to finance expansion (that's all we need is more ethanol plants, good grief).

Possibly the worst part of the group's proposal is its request that the government raise the current 10% limit on how much ethanol can be added to gasoline for conventional cars and trucks.  Wait a minute...perhaps this isn't a bad idea after all.  We could kill two birds with one stone.  By eliminating the cap on how much ethanol can be blended with gas the government would help out ethanol producers and automakers.  The producers would sell more ethanol and automakers would sell more cars...when everyone's car breaks!  Other than the GM cars that can run on E85, the cars that are on the road today are not made to run on that much garbage fuel!!!!

Even after being as beaten up as they have been, I still think that the public ethanol producers make great CAPS shorts.  Riding VeraSun into bankruptcy certainly was a winning trade.  The only thing that scares me here is the potential for additional government involvement.  That's why I would never put real money into shorting an ethanol company (if I could even get shares to short).

It will be interesting to see what the new administration does on this front.  Ethanol companies have been a major supporter of Obama.  I wonder if he will be willing to throw them a bone.


7 Comments – Post Your Own

#1) On December 30, 2008 at 7:11 AM, TMFDeej (97.71) wrote:

Man there I go misspelling the word subsidies again.  I must have some sort of mental block with that darn word.


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#2) On December 30, 2008 at 7:29 AM, wuff3t (99.65) wrote:

This is the trouble - once a government starts handing out subsidies to keep failing industries afloat they're all going to try to get a piece of the cake. 

The second problem is that we now have to rely on the common sense and integrity of politicians to give money only to those industries that are truly vital to the economy....

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#3) On December 30, 2008 at 8:28 AM, outoffocus (23.12) wrote:

The second problem is that we now have to rely on the common sense and integrity of politicians to give money only to those industries that are truly vital to the economy....


Thats a kneeslapper. 

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#4) On December 30, 2008 at 10:50 AM, eldemonio (98.07) wrote:

What's next, an oil company bailout now that record profits are falling? 

How can we expect to come out of this mess ahead, if we pump money into keeping the trash around?  Long term economic success relies on recessions to purge the garbage.  Avoiding recession by dumping billions into keeping failing companies around will only lead to long term problems. 

I'm a dumbass and I get it, why don't our politicians?

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#5) On December 30, 2008 at 12:06 PM, carcassgrinder (34.45) wrote:

The "dumbasss" level of intellect is light years ahead of our politicians intellect.  Politicians do not make decisions based on rational thought and common sense....they make decisions based on their agendas, which are generally proliferating the wealth of themselves and their cronies.  Nothing more.

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#6) On December 30, 2008 at 1:40 PM, 4everlost (28.70) wrote:


Maybe you don't need to confess to misspellings.  You could claim that you invented a new, sarcastic word.  One that combines subsidies with absurdities, you know, subsidities.  In the end, that's what all this bailout stuff is, right?

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#7) On January 01, 2009 at 5:41 PM, SacramentoE85 (< 20) wrote:

The U.S. government has no qualms about supporting the health of its food and agriculture sector, and its energy sector.  These are basic necessities that our consumer economy thrives on having in cheap abundance.  If the public didn't want abundant, cheap food and energy products they would not elect politicians that support subsidizing them to keep them competitive with the other nations that subsidize their own agriculture, food, and energy sectors.  Whining about it on a blog isn't going to change the realities of the global economy and politics.  Go take some college courses on these topics and then write something newsworthy.  With each improved technology and as time passes, ethanol is becoming more inexpensive to produce and bolsters our domestic fuel supply.  It is part of our energy solution and will lead to ever improved domestic fuels.  Sticking with gasoline is not an option, while ethanol is the only option in cheap abundance that we have figured out for now.  The other technologies are too costly at this point.  Again, please take some classes on these topics and write something newsworthy.  By the way to anyone still reading--many of the allegations in this article are either falsehoods or are spun in a certain fashion.  Don't trust this source.

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