Tag Archives: Big Three

Dog Bites Man And Govt. Motors Pays Itself

Those headlines would deserve  equal credit as to newsworthiness in a sane world.  But over the last 18 months or so since the current administration took the reins of power such news is heralded as the most wonderous of events.  I watched some of the “ceremony” at GM this morning as they breathlessly announced their repayment of 5.8 billion to the US and Canadian governments as though that was some stupendous achievement.  There was lots of hoopla and all that was lacking was the confetti and balloons.  All that happened in reality was that the government paid itself.  Not one darn bit different than if you wrote a check to yourself out of your checking account and then deposited it right back.

The fact of the matter is that Government, Inc. owns GM.  It is merely paying itself.  The fact that they have been able to make a profit should come as no surprise to anyone with an IQ higher than weeds.  You could take almost any major company from the Standard and Poors 500 that had lots of debt and do the same thing as occurred with GM.  I mean the “new” GM came out of the government mandated Chapter 11 with nothing but assets.  All its debts were left behind with the old GM.  Is it remarkable at all that given that scenario it has made a profit?  The surprise would have been if it made only a small profit. 

Don’t forget that in addition to the 5.8 billion in direct loans during the Chapter 11 that GM had a capital infusion of about 50 billion.  Give me a company with no debt and a fresh 50 billion to play with and I will guarantee you a profit even if I was selling buggy whips.   Also don’t forget that GMAC its partner in crime also got I believe it was over 40 billion in Government funds to continue its financing arrangement.  This was conveniently done under TARP when GMAC during the holidays of ’08 was converted into a “financial” institution with a bank charter from the Feds.  

The power brokers and czars in Washington must think we really have a short attention span or they are contemptuous of our ability to reason.   Speaking of czars, you have surely noticed that Mr. Rattner who lead the government team doing all the negotiating with creditors of GM has run into his own buzz saw of accusations recently.  Really nice to know we had such an honorable fellow carefully selected by the White House to run that show and ram through the Chapter 11 of GM.   This entire situation is another example of the danger of the too big to fail syndrome that has consumed Washington since the fall of ’08.  The financial regulations being proposed by Dodd, of Countrywide fame, does not solve this problem but only exacerbates it.  Please read it for yourself.  The fine print gives authority to bureaucrats appointed and funded by the politicians  the say to determine who is a systemic risk and what should be done.  It allows them to determine who will be paid and how.  Worst of all it allows for unlimited government backing of the credit of a failing company.  If it quacks like a bailout, walks like a bailout, it is a bailout regardless of the headline news and the disclaimers of Dodd.   Geithner defends it so you know it must be a really bad idea. 

Every time you buy a GM car or part you are supporting the gang in Washington.  It is not a private company but a captive of government and in turn the auto unions which were the real raison d’etre behind the bailout of GM in the first place.  I hate it that I can’t support them anymore.  Years ago I loved my Suburban.  Unfortunately they have become part of the problem with our economy and government and not any contribution to the solution or a better path for the country.  The Democrats got themselves even more loyal ground troops for the political wars.  They already had the overwhelming majority anyway but now they have tens of thousands of cadre to send out on the political warpath.  Even better for them every GM car sold is nothing more than a political contribution for the largest political PAC supporting Democratic candidates there ever was.

The great pyramids in Egypt are quite something to behold.  More remarkable is the preciseness of the engineering that was employed with only the most rudimentary of tools. They had no GPS or laser  controlled measuring or surveying devices.  Line of sight, plumb bobs and string and knowledge of basic geometry is what they worked with.  The Great Pyramid near Assuan was about 150 yards high and was about 250 yards wide on each side of its base.  Those blocks weighed a lot.  There were 7 yards long and hand to be man-handled to the top.  Amazingly, the engineers were so good with their limited tools that the mean error of the base line was only 6/10’s of an inch in length and 12 seconds in angle from a perfect square.  I wonder if we could do that well today.   http://www.olcranky.wordpress.com

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The Miracles of Man and Nature Will Save Us–If

The House has passed out of committee the Cap and Tax law to reduce carbon and other emissions.  This is in conjunction with and in addition to the CAFE standard increases that have  been announced by the White House to great fanfare.  All of this is done to protect us from ourselves and to save the world from Global Warming.  These folks raise their importance too high.  They believe that Man is a match for Mother Nature and can control the elements of the earth like fine tuning a watch.   They believe that Man is the cause of alleged Global Warming and that only Man can offset the cycles of the earth.   They say they believe in science but they won’t take science to its logical conclusion.  Our history is replete with advances at the most unexpected times that did revolutionize our industries and our behavoirs. 

Depending on your source the Industrial Age began in the late 18th century or the early 19th century and it brought great advantages to the life of all ordinary people.  Products and services that were only dreamed about became real.  Clothes were cheaper and more varied, transportation was upended and released from the speed of the horse by the Iron Horse.  Pots and pans and the telegraph came along and so did the telehone and the dramatic rise the in the life expectancy and wealth of the ordinary people.  Lordy, yes there were problems to be sure.  All you have to do is read your Dickens to see some of them.  But the steam boat and the transalantic cable came along with that poverty and the poverty of those ages was much less than it had been before.  All those advances were not schemed out  by Government but they were developed by the minds of men in their individual workshops, labs and homes around the Western World.   If you have read Sherlock Holmes then you are familiar with the pea soup fogs that engulfed London for decades.  That was a fact as they burned enormous amounts of coal for heat and power for their steam engines.  London was dirty and gritty but it did not last forever.  Have you been to London recently?  The sky is blue and the grit is long gone.  

I think these bureaucrats and little boys crying wolf are throwing the baby out with the bath water.  They talk on the one hand of the potential for new alternatives sources of power but they are going to enforce changes before those sources are ready and drive us back to a stone age existence.  They are going to build cars that no one wants, that no one will be able to afford and that costs more than the people can or will be willing to pay to save the world.  They talk of wind, solar, natural gas, geothermal,  clean coal technology and even nuclear power on occasion but they d0n’t have any conviction of their promised belief in these or they wouldn’t be mandating draconian measures.   They have such little faith in us.   Pour the money and energy into research or at least logical alternatives like natural gas which is abundant and a proven technology for engines at little cost.

I have an idea to save the planet and improve our health at the same time.  We could kill all the livestock and mammals.  The cattle, camels, sheep, goats, bears, elks, deer, horses, lions and tigers and of course all those pesky cats and dogs should be put to the sword to save mankind.  We are assured that it is a matter of life and death.  Well, better those animals than us.  That would save millions of tons of CO2 and methane emissions a year and we would all live on cereals, fruits, vegetables and fish.  The doctors would say that is a great idea and it would even save billions on health care.  We wouldn’t need to worry about those astronomic rises in health costs because we would all be so much hardier that the cost for high blood pressure, asthma, heart attack and stroke, obesity, etc., would drop like a stone.  That could be our energy program and health care program all wrapped into one.  The thrid world countries would just have to toe the line and conform.  We would be killing their livestock for their own good and to save the polar ice caps.  I am sure they would understand and cooperate. 

We could continue to drive our polluting cars and trucks on gas until the next Edison or Bell comes along with a new power source.  Once found you can be assured the market will disburse it quickly and efficiently.  Just like we did with the telegraph, locomotive, and penecillin we will have those steps in progress at our doorstep without the need of government decision or action. 

We are better and smarter than they think.   The best and next generation of energy production will come along in due course and the earth will endure as Mother Nature sees fit.  I don’t know if we will have an ice age, a period of severe volcanic eruptions or solar flares that fry our electronics but we will endure until the end times.

A dreamer is worthless but a man without dreams is worth less.

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Political Potshots From the Great Unwashed

The elites over the years have often referred to the common man or public as the “great unwashed public”.   Well, we may not have the sophistication of our betters but we can tell the difference between the real deal and poppycock more often than not.  We get fooled sometimes for a bit but usually sooner or later we see the little man behind the curtain that is pulling all the strings and notice the King has no clothes.  So as we embark on a new round of political intrigue and proposals for our own good, we throw up a few thoughts that might hit a bullseye even if only by random chance.

Our new Treasury chief will be Geithner is appears.   I wonder how well his application would have been received if he had been seeking a mid -level job with the IRS as some regional director or whatever and the fact that he had not paid taxes due came out.  Do you think he would have been hired?   I mean he is an expert in financial matters and economics according to all his defenders and he will not only be the one in charge of the Treasury and its TARP money but he will be the head of the IRS for gosh sakes.  If you had a dispute with the IRS he would be the ultimate authority that could rule on your appeal.   Maybe his appointment is a reflection of lots of guilty consciences by those who have fudged on their own tax returns and they want a kindred spirit in charge.   You do note that even after he was audited he still didn’t pay the taxes for ’01 and ’02 until after his appointment by the new fellow.    He was one of the architects of the TARP program.  How do you think that is working out so far?   Well,  God bless his crooked little soul, I guess we need to hope he will do something right even if it is by accident.   The hypocrisy of it all is staggering.

I watched a very recent interview with Gettlefinger, the UAW chief, about the bailout for the Big Three.  He promised in Dec. when they needed the money that the union would do its part and work to reduce costs very quickly.  In the interview last week he said there was no hurry that they were waiting to renegotiate with the new administration and that the Feb. deadline was not realistic.  When he was asked about the difference in compensation between his union members and those of foreign auto workers he said it was too difficult to calculate.  That you couldn’t come up with a number of what it costs per hour or car.   I bet if they would let you and I have a look at the books of the Big Three we could come up with an estimate in less than one day that would be within 1% accuracy.  This is basic math, not sending a man to the moon.   They clearly are planning of giving nothing up.  They are cashing in some of their political chips with the new bunch.  If those unions keep doing the same thing then we will have the same result all over again just like deja vu as Yogi would say.  We, the taxpayers, will subsidize their good life for years on end and get very expensive cars that most people don’t even want.  He lies but he doesn’t deceive, he is very open about where he is going and not going with his union.  The common good?   That alleged goal of the unions will be attained at the risk and cost to others.  It is pure greed.  That is one of the seven sins and will get its just reward in the end.

I note that C. Kennedy has decided she doesn’t want to be Senator anymore after all that hoopla and campaigning the last month.  Now it comes out that it is due to tax issues and nanny issues.  That makes more sense rather than the announced “personal reasons”.  That family never cedes any power unless it is pried out of their hand.   Now she can go back to that heavy work load on  charitable boards.  Don’t you just wish that you had enough stashed away that that sort of activity was your “work”?   I always worry about someone being in charge who didn’t grow up carrying out the trash, doing the yard and their own laundry.

The battle of Agincourt in 1415 was a tremendous victory for the English over the French.  I have written a more detailed account of that battle earlier.  Today it is important to remember that the battle was part of the Hundred Years War and that the French were stunned by the defeat.  It was Pearl Harbor magnified many times over.  Their best and brightest were slaughtered and leadership was decimated.  There were even some calls for accomodating the English.  There was little strategy propsed by the French after the defeat.  They were on the floor.   But some time passed.  The English mismanaged their own affairs and the French eventually found resolve again.   It did take a long time.  But with a little inspiration from Jean D’Arc and future heroics the French were the ultimate victors in the Hundred Years War.  The English were not able to establish hegemony over great swathes of western France and ended up with only the 5 channel ports.   Maybe the Republicans should read this history lesson with care and hope.  The Democrats ignore its lessons at their own political peril.

Of all the judges depicted in fiction or who ruled in real life who would you rate the most famous of all?  Learned Hand, Judge Roy Bean, John Marshall, Lord Black, Solomon and others come to mind.  Clearly I think the most well known judge on record would have to be Pontius Pilate.  Many of your may never have heard of the famous jurist listed above but I bet every one of you knows who Pontius Pilate was and the trial he conducted.   He was an appellate judge actually if you remember the story correctly.  Christ had already been tried by the Sandhedrin and found guilty.  Pontius could revoke or enforce that death sentence.  Read that story of the passion again it is one of the most insightful tales into the hearts of man written.

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Back to the Future, Again (I’ve read this chapter before)

It is amazing how folks of any generation or era believe they can get everything right because they are the smartest guys in the room and their predecessors didn’t have the depth of understanding that they do.   That attitude is manifesting itself now with the new administration in Washington with regard to their ability to deal with the economy.  They are like a bunch of teens yapping and bouncing all around saying
“let me have the keys to the car”; they are so confident they can drive it better than anyone else before them.   How many times in the last couple of months have you heard about how smart they all are.  They are intellectuals by their own account and plan to take a very data driven approach using empirical methods to determine the correct course of action for the future.   Do they really believe they are smarter than Alexander Hamilton or J. P. Morgan?   Their arrogance boggles the mind and is also frightening.  With their Blackberries or whatever and computer models they will divine the right steps to take if only we let them have those keys and run the economy as they direct.   As written yesterday they don’t want to referee the game in the free market but rather dictate the outcome of the game as not only referee but a participant.

This is not the first time that a new group of activists have descended on the White House.   It happened with FDR.  His administration was filled with Harvard and Yale types who truly believed they were the intellectual superior of their political foes and also that they knew better than the Average Joe what he wanted and what was good for him.   They created a lot of motion but damn little progress toward fixing the Great Depression.   Too many new ideas thrown willy nilly out into the market place by Governement fiats that skewed the functioning of the market.   Government intervention always skews the market.  There will  be some winners in that intervention if they are the ones properly connected to those in power in Washington.   The most recent example of that is Barney Frank intervening on behalf of the bank in Boston to make sure it got some of the TARP money.  He only suggested it would be a tragedy if that bank didn’t get help.   Well, how to you think the bureaucrats responded to that suggestion.   That is only one small example of how Government programs control the market.  I use it because it is current and hopefully people can relate to it.   Multiply that example by the thousands and you see the impact of Government in the market.  I have no idea if that particular bank deserved the money or not but rest assured it was going to get the  money regardless of merit.   The market does a wonderful job of separating the meritworthy from the fluff and failures.   Government picks friends and constitutients who fund campaigns and get out the vote i.e., the Big Three.

When Kennedy first came to office the same attitude prevailed in Washington about how bright and smart these guys were who would be running the administration.  They had learned all the latest techniques for outcome analysis.  They were driven by data and projections.   Yes, they all had wonderful academic backgrounds except for the Attorney General who qualified for the job because he was the President’s brother.  Robert McNamara was the Sec. of Defense for Kennedy and he was retained by Johnson.  He was the leading proponent of this cost analysis approach to everything and running the numbers and data and using scientific models to build the armed forces and for the employment of them.   Kennedy started the real conflict in Viet Nam.  Yes, I know the first troops sent there were under Eisenhower.  But that was only a few hundred and they were truly advisors, not active participants in the struggle with the North.   Comparing what Ike did to Kennedy is like comparing a Wren’s egg to an Emu’s egg.  They are both eggs but one weighs less than an ounce and the other weighs pounds.   As we sent troops to Viet Nam under Johnson by the hundreds of thousands McNamara and his boys were completely confident that they could control the conflict and win based on pure analysis and science.  Emotional factors like courage, loyalty and bravery were irrelevant to the outcome in their opinion.   There was even a book written about these folks you may have heard about–The Best and the Brightest.    Read it.   I don’t like much  about that book but read it.   War is somewhat like a large economy because there are so many little decisions by the thousands constantly being made that don’t match the prediction.  People can’t be pidgeon-holed that easily in conflict or in an economy.  The market can embrace the unpredictiable, such as TV,  and make it useful.   The market has a way of smoothing out those decisions over time.   An unenforceable consensus is reached in the market place about the right direction to take, what works and what doesn’t.  McNamara and company ignored the realities on the ground because it didn’t match their predictions.   How well did letting these smart people run the war work out for us?   War–the mission is to win and let the best ideas and leaders carry out the mission.  Economy–the mission is to prosper and we should have the Government there to make sure everyone has an equal chance in the game to prosper, but never to give mandates about how the economic game is to be played.  Let the players pick and choose their own strategy.  Those that are best will prevail and that is good for all of us.   Henry Ford, Microsoft, IBM,  and Google all came to the fore because they were allowed to develop there own game plan and employed hundreds of thousands of our citizens in the process.  Let’s hope that somehow we can overcome the intrusion of Government now and defend our right to succeed or fail and make our future economy better than before.   The problem with Government mandates is that it doesn’t affect only one company, it affects everyone.  When a mistake is made it hurts us all.  When a company makes a bad decison only it suffers; or at least that used to be true before we became Bailout Nation.

So often people can’t seem to get priorities straight.  Knowing what is more important than something else is key to success in any endeavor.  Like my uncle used to say “don’t worry about the mules, load the wagon”.

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Mercantilism Modernized?

The direction our Government is taking toward the current economic difficulties brings to mind the intervention of European governments a few centuries ago.  Just today it is announced that another of our largest banks is being granted further aid by the Feds at the costs of billions.  Along the way the Government will also now become the single largest shareholder of the Bank of America.   The Government is getting very involved in the operation of that bank and that has been made even more abundantly clear by the statements of the administration to be and the members of Congress.  They have stated that they will mandate the loans they expect the bank to make.   They haven’t gone so far yet as to say the exact name of an entity or person they expect to get a loan but will that be far behind?   Would you be surprised if in the next couple of months the government told B of A that it had to make loans to the Big Three in Detroit?   The politicians could really rack up points with that gambit.  They would be mollifing the unions (their most consistent constituent base), saving all those jobs they talk about, controlling the auto industry with their own vision of what that industry should be and produce, and along the way they wouldn’t even have to put the money advanced on the Government’s books.   The loan would technically be private and therefore the Feds could say the loans were not a “bailout” and that it wasn’t costing the taxpayers a dime.   After all the bank will be theirs to do with as they please and direct.  If I can think of this you can be assured those now in power will think of it too.

From the 16th century to well into the 18th century the concept of mercantilism was the dominant economic philosophy of many European nations.  The US didn’t really have an economic philosophy of our own yet because we were colonies of the Mother Country for most of that era and we were so small on the world trade scene as to not matter in any event.  Gold and silver were the standard of wealth at that time and trade was the key to market success and the accmulation of gold stocks.   It was the hope for increased trade that inspired all the trips during the age of discovery.  Columbus was sailing west not only for the adventure of it all but seeking a more beneficial and faster trade route to the East.  As were all those other early explorers–Diaz, da Gama, Drake, etc.   The basic idea was to have more exports to other countries (or colonies) and to import cheap raw materials and luxury goods such as pepper and other spices.   England was a democracy but it was limited and restricted to only the upper classes.   The government in charge was basically the Crown and those in Parliament who controlled the power of the purse.   But the Government or (Crown) had one great advantage, it could grant rights to explore and settle and trade in the nether reaches of the world.  This lead to the British East India Company for example.   The Crown would be given a slice of the profits in exchange for the grant of rights to a company or individual.  Recall your history of the early colonies in the US.   They were created by grants from the Crown.  The people who got those grants owed the Crown.  The same was true all around the world.   The Government did not directly control the operation of the business of these traders and merchants as they explored and opened up the markets around the world but it had tremendous influence because of its power to regulate and tax.   The companies were dependent on the Government for their very existence and beholding to them for the right to earn future profits.  Government bureaucrats had great power due to their right to grant contracts or rights to these companies.  It was believed that bringing in the trade was for the common good of all classes.  It wasn’t socialism exactly and it wasn’t a nazi approach but it was the Government exercising great control over the affairs of commerce.  It worked; that is it functioned.   It didn’t provide the spread of wealth to all the people as promised.  It did collect power into the hands of the elite and the “connected”.    It was an opague way of operating.  There was never any formal debate about the advantages or disadvantages of the system.  There were no statutes directly outlining this method of operation.  It evolved.   If you had the right connection or influence you could prosper and if not then you were not allowed into the party.  It was shadowy but real.  Favoritism and cronyism were the hall marks.   There were many failures and bungles along the way i.e, the South Sea Bubble.  (and you thought “bubbles” were something new?)  It did provide a certain stability for sure, but so did Joe Stalin in Russia.

It occurs to me we might be embarking on another age of Mercantilism in disguise and with an overlayer of socialism to demand even more overt control of commerce and industry and  individual lives.   I think that would be the worst of both worlds and a real loss of our freedoms.   It won’t be the Crown making decisions about winners and losers in the world of trade and commerce but a Government bureaucrat who can dispense waivers, grants and contracts that comply with Government policy.  That policy will be set by the lowest common denominator in our Congress.  At least under the original mercantilism the decisions were made by the best and brightest even if it was to their own advantage.  

As always I don’t ask you to agree without thought or facts.   There are many wonderful books on the period–good biographies and histories.  I would recommend you consider the diary of Samual Pepys.  It is a fascinating look at the early days of this period.  He was mid level official with the Admiralty and accordingly had the power to dispense contracts and favors and thus he met and mingled with people that were really above his station but they all were nice because of his bureaucratic power.  It is a great insight into the English world just after the Restoration of Charles II.  He writes of the Great Fire and the plague of the 1660’s.  Those accounts alone are worth the reading.

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Mad Scientists To Run Economy

We have embarked upon a dangerous road of Government intervention into the private market place in the last few months.   The scope and scale of that intervention is staggering.   The Government seems to believe it can run the market and pick the new products we all want.  It has been picking winners and losers for several months now since it let Lehman Bros. fail but conversely decided it wouldn’t allow the Big Three to fail even though their business model is a failure and has been for a few decades now.  The Government is picking the type and source of our energy supplies.  Abundant energy is the very lifeblood of any modern industrial and technological society.   Virtually everything we make or use is available directly or indirectly because of an energy source that produced it or delievered it to us or moved the workers who made it to and from their place of work and ran the machines they use.   Even computers are energy dependent.    With the lineup of industries and special interest groups growing daily with their hand out for the Governement and the apparent eagerness of the Government to comply with those requests we need to ponder carefully how much we want the Government to be involved in our economic affairs.  

I wrote only yesterday that we should look to Europe to see what our future will be in so many vital areas because it has been the birthing place of most societal and economic alterations over the years.   The Government is now running the large banks, the auto industry and very shortly the energy industry to an even greater extent than it already does.  Airlines, coal and even real estate loom on the horizon as potential targets of Government intervention.   Great Britain went through a similar experience and experiment after the War.   Perhaps that episode can give us some clue as to the success or failure of having the Government be the lead horse in all matters economic.  

After the War Great Britain was in dire financial straits from the strains and pains of six years of war.   You know we formulated the Marshall Plan  to rejuvenate the European  Economy.   Part of that process was providing capital to Great Britain to get its domestic economy moving again.   Socialist tendancies were all the rage among the elite class in Britain at the time.  They wanted an active and involved Government in the affairs of industry and commerce for the good of the common man.  It even had a name like all such movements do–the New Jerusalem.  I don’t know why that was picked exactly but that was the movement’s moniker.    The shibboleth of the movement was “full employment” and that meant to them that the Government had to run most of industry.   When Britain did receive its share of the aid it spent it on the Welfare State rather than on giving it to private industry to rebuild its industrial infrastructure.  It was a redistribution of the wealth controlled by the Government.  That is where most of the money went.   The Government proceeded to take over coal mines, radio and media, the Bank of England, gas, railways, electricity, steel and aviation among other industries.  The unions were given pretty much free rein.   The unions naturally wanted more wages for less work and the consequence was the inevitable reduction in productivity.  That constant decline in productivity resulted in Britain becoming less and less competitive in the commercial and industrial world with its products and services.  This approach lasted for a about 30 years.  But the Welfare State flourished.  Time was when Britain had some of the best car manufacturers in the world.  Jaguar, Astin-Martin, Rover, Bentley to name a few.   How many are owned now by British interests?   None of them.   While the British were investing only about 9% of its GNP in industry and infrastructure the Germans were investing on average about 19% of their GNP in those areas.  Which country had the better rebound from the end of the War until 1980?

Naturally the Government could not predict new markets with any accuracy like the private market.  They were not innovative.  Job security was the goal in and of itself as opposed to customer service and making a product that people wanted.  All of those industries became stagnant and declined in pr0duct quality and profits with the passing years and became a burden on the taxpayers of Britain.  They had to be subsidized by the Government.   To maintain their enterprises and the Welfare State  the Government had to borrow money to keep those industries in operation.   They borrowed lots money by issuing long term bonds.  This circumstance lasted for a couple of decades but no one was willing to make a change because so many voters were now addicted to the Welfare State operation.   Those bonds had to be paid off by future taxpayers of Britain.  They were mostly issued by Attlee.  Those bonds were not finally retired until 2002.   Of course with inflated currency. 

How did that experiment work out for Britain?  Well, their industries continued a steady decline and even the staunchest defenders of the Welfare State finally began to see that that system couldn’t continue or the entire nation would go bankrupt.   It was put to rest with the election of Thatcher primarily.  The Government began under her to get out of industry and return it to the private markets.  Britain has done much, much better in the last 25 years than it did in the 25 years after the War.   Its industry was revitalized and  productivity and prosperity grew for all classes of its people.   Government makes a lousy boss and an even lousier merchant or entrepreneur.   I don’t ask you to take my word for any of this.  You can do your own reading of that period.  But like Reagan said “facts are a stubborn thing”.  

I hope that many members of Congress and that new administration will look not only to our experiences of the Great Depression but also review some of the history I have rendered here.   Looks to me like we are about to repeat that grand mistake of the Brits.  History can be a wonderful teacher but you have to know it to learn anything.

As a side note, it was because of those loans we made to Britain at the end of the War that made them go along with the Bretton Woods agreements to regularize monetary systems around the world and create the IMF.  The British negotiator for the first of these loans for the British was none other than John Maynard Keynes.  Yes, that Keynes.   He didn’t much like us Americans.   He thought we were socially degenerate and not as aware and advanced as the socialist leaning elite of Britain.  He is quoted by Lady Carter as referring to Americans as “a rare breed of sub dagos, speaking no known language intelligently”.

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Overstimulating the Bailing

The headlines are filled everyday with another bailout or stimulus discussion or proposal.  It is really beginning to be hard to keep them straight even for someone like me who does try to stay abreast of these matters.   The array of actions taken or projected to be taken by the Fed, the Treasury and Congress has mushroomed and what is scary is that there seems no end in sight.  I have found when faced with severe time pressures and urgent needs it is all the more important to make sure you formulate a list of priorities and then work out the proposed plan of action for each one with careful thought to the consequences for each.    Hasty and hurried actions rarely result in the desired outcomes.  When they do it is often a matter of luck as much as anything else.  It is not a good idea to trust our economy to luck.   I realize all these people think they are smart and know better than we do; that assumption may even be true.  But very smart people can still make very bad decisions.   Mere motion is not the same thing as progress.  You are also reminded that many times when you are faced with a dilemma the best course of action is to do nothing.   I am obviously not talking about the wreck on the road or hearing the sound of a falling bomb but rather those business and personal decisions that affect your welfare at home or work.   How many times has a difficulty faded away when you did nothing but watch?   It happens all the time.  Things have a way of straightening out if we let “nature take its course”.

Yesterday the Fed announced it was going to invest up to 500 billion in buying mortgage backed securities.  I am confused.  Is this new or is this part of the 600 billion package that was announced by them a few weeks ago to buy mortgage backed securities and the 200 billion for consumer loans like auto and credit card debt?  Unfortunately I fear that it is something brand new and is to be added to the other plans already announced.   This will be even more money that is printed up and created out of whole clothe.   Last night I heard a spokesman for the transition team talking about the need for the new stimulus package being put together and defending the use of the money for what are clearly nothing but “pork” projects.   You know, those swimming pools, tennis courts, snow making machines for Minnesota, and the list goes on and on.   This person had at least the honesty to say it didn’t matter if the projects were needed or not but that it would put people to work temporarily.  The worth or merit of the projects was of no consequence.   What an open invitation to Congress to pour on even more of these useless projects.  Alternatively, if they are important to the local folks then let them pay for them with state or local tax revenues.   Why do I care if they have heated swimming pools in Hawaii?   Part of that stimulus is to give money directly to the states to cover their shortfall.  I have nothing against California, indeed I like it, but what is the justification for my tax dollars bailing them out of their deficit when they have a bloated state payroll that has exploded recently and they will do nothing to rein in their spending.   Will no one take responsibility for  their own actions anymore?   Also New Jersey and New York are beating at the door with their hands out as well as Michigan.    We have a Federal system of government, or at least that is the way it was designed, and those states must see to their own economic well being.    If the Federal government taxed all of us less then the states would have more money to meet their needs.  Why must we first filter the money through Washington then back out to the states.   When it comes back it is always with Federal strings attached–a political agenda that might not be what the folks in a particular state desire.

Now GMAC has become a bank overnight and it too is receiving some of our Federal dollars.   It will be more billions.   The first of the direct loans to GM have also gone out and there is no commitment from the unions that they will do anything to adjust costs.  Indeed they have made it clear they intend to do nothing until the new administration takes office.   The free market would have worked all along if the government had remained on the side line.   It could work again if permitted.   I ask you to think back  over all the laws and regulations that have been imposed on that industry over the years.   Yes, the big three made many mistakes but they also had to work in a very regulated envoirnment.   Was it smart for the government to regulate the mileage of cars?   By doing that the government ignored one of the basic tenets of the free market system.  That system as you know is based on supply and demand but also a vital third element–value.  By that I mean you are making something that people desire and thus it has a value.   You could manufacture a gazillion buggy whips now and have a tremendous supply of them and they might even be very cheap.   But no matter how cheap if no ones wants them you still won’t sell any and your business will fail.   For supply and demand to work properly there has to be that element of value.   It is just like our dollar.  It has to be “valued” to have value.   Simply printing money gives a bold letter announcement to the world that it isn’t really that valuable–look we’ll just print up more!  The government can mandate all it wants but if they make Detroit produce a specific car that is overpriced or has features that the consumers don’t want then the product will not sale and we will have a subsidized industry functioning at a loss.   Those Tata cars are only about $3000 but who would want to buy one of them here?   If there were a million of them here tomorrow how many would sell?

We need to get a grip.   Slow down and  give some grown up thought to what we are doing and not let ideologs take over the direction of our economy.  We have too much at risk.  I always try to be the optimist and am by nature and wish I thought the coming years would show improvement but with the indicated direction I have serious worries.   Not the least of which is the inevitable inflation that can ‘t be gainsayed because of the government’s creation of money without value behind it.

There are 25 time zones in the world, not 24 as we would all assume.  Don’t take my word for it, check it out yourself.   It has to do with not wanting the same time at the International dateline.   It can’t be noon on both Tuesday and Wednesday simultaneously.

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Big Three bailout or Ch. 11–truth vs. fiction

I listened with great interest to the testimony of the executivies from Detroit and the legislators the last couple of days regarding the Big Three request for a bailout from Washington.   I was particularly taken with the comments by the GM CEO that they have not seriously looked at a bankruptcy Chapter 11 scenario  because the market research revealed that consumers would not buy products from a company in “bankruptcy”.   He acted  like they had no plans whatsoever for considering such a course of action.  I found that amazing given the fiduciary responsibility he and the board has to the shareholders of the company.  After all that is who they work for and whose benefit they are supposed to be protecting.  Bankruptcy law and its operations happens to be something I know a little about having spent over 40 years as a specialist in that area of the law.   To say they over state the case of the downside of a Chapter 11 is like comparing a bb pellet to a 16″ shell from a battleship.   I understand the need for discretion in public comments but I think the matters now have gone well past posturing by the Management and Unions and straight talk is needed.

First, there are different proceedings in bankruptcy.  The Chapter 7 proceeding is for a straight liquidation of all the assets of the company and then a distribution to its creditors according to the priorities of the Bankruptcy Code.  Generally the shareholders are at the back of the line and lose everything and the unsecured general creditors are in front of them and behind the secured creditors and behind the taxing authorities.    That priority schedule is the same in Chap. 7 or a Chap. 11.   Unfortunately most people think of this proceeding in the Bankruptcy Court when they hear a company as filed for “bankruptcy”.  Technically, a Chapter 11 is not a “bankruptcy”.  It is a reorganization and rehabilitation section implemented to restore a company to health and maximize its payments to creditors, maintain its viability and retain value for its shareholders.   Some are failures and don’t accomplish the goal at all; others are partially successful and pay most or all of the creditors but value out the shareholders or seriously diminish their value.   I don’t have access to the books of GM but I would wager it is solvent at the moment and has very good prospects for being able to be profitable in the future.  The shareholders have a right to expect their board to do everything to protect and enhance their share value rather than knowlingly avoid a course of action that could accomplish that end.   Admittedly, Chapter 11 can’t make a silk purse out of a sow’s ear, but it can protect value and allow a company to reorganize its operations to maximize profits and thus pay not only its creditors but retain some value for the shareholders.  There naturally has to be a viable business to operate.  If you were trying to operate a buggy whip factory these days your chances for success would be pretty minimal because the demand would be zippo, no matter how good your product.

There is clearly a market for American made vehicles for all the Big Three.    To say they would have to shutter their doors if they don’t get the bailout money and that they couldn’t file a successful Chapter 11 is the height of irresponsibility.   There is now and always will be a substantial marker for SUV’s and trucks.  Remember that there are actually several million of us who do live west of the Hudson.  Civilization doesn’t really stop there even though some on the Upper West Side might think so.    California is one of the biggest markets for these vehicles because of it vast rural and agricultural spaces as are many of the other western, midwestern and southern states.  That market is there and will continue to be there and in fact the Big Three make great SUV’s and trucks.  Industries and transportation companies will need trucks.   The military will need Hummers.  There will always be a market for Jeeps, they are a great vehicle for their intended use.   And, of course there will be a market for fuel efficient family cars and smaller cars.  Point being that there is a market for American made cars.   Don’t forget too that there will be a demand for repairs and relacement parts.  That wouldn’t disappear overnight and there is lots of money to be made there.   People will continue to buy the cars while the Big  Three work out their Chapter 11proceedings.  For a price someone would want that American market share that will exist for at least decades.   After downsizing the non productive assets could be sold in an orderly manner.

A business model could be developed to show viability for all the Big Three.  They can make good products and sell them.  Yes, maybe their market share would drop substantially.  I don’t know how low but it would be there.  Collectively maybe they would only have 25% of the market in the future but that could still represent billions in annual sales and  thousands of jobs.  I won’t at this time go into all the details about how to work out a successful Chapter 11 plan but I assure one could be done.   Labor and management talk about all they have done in the last few years to reduce costs and become more competitive but you know what?  It is and was too little too late.  Sorry but there comes a tipping point and the industry can’t undue the damage of years of mismanagment and union greed overnight.   If the manangement and unions both take a really big, and I mean big, haircut on their compensation the industry could survive.  I would guarantee it.   It might be smaller and employ less people but it could be profitable.  Our American SUV’s and trucks are the standard for the world.  Our sedan’s and smaller cars can be built with the same quality as any others produced.   This industry can be saved but we don’t need the management and unions crying wolf and telling us it is the bailout or nothing but liquidation.  That is not honest and it is not factual.   They will have to file a Chapter 11 if there is not bailout or their shareholders would sue them from hell and gone and rightfully so.  They would have a very winnable case for such dereliction of duty.

Why should we tax payers have to foot the bill for others’s mistakes and greed?   They have a real and workable alternative in Chapter 11; they just don’t like the costs to management and labor.   Hey, there are things I don’t like either but I have to endure and move on.   A smaller more efficient and competitive Big Three (or Big Two) can emerge from Chapter 11.  Don’t for one minute believe the stories about it taking years to work out the Chapter 11; that is eyewash and a scare tactic for the uninformed.   It could be done in a matter of months at most.   To not start negotiating now with their constitutient creditors groups  is a violation of the duty of upper management and the board.   I have done the same thing many times over the years with substantial companies both public and private.   I wish as Debtor’s counsel I had had some of the inherent advantages of the Big Three going into the negotiations with creditor groups.  They can do it.   I hope Wall Street is smart enough to realize that an auto industry will be here  for the foreseeable future even if smaller.   Let’s not be suckered by the Big Three are those politicians in Washington pandering for votes or worse outright paying a “bribe” for future votes with your tax money.

Thanksgivng is looming and with all the negatives of the past several months it might do us all well to start thinking now about what we can be thankful for.  I know lots of folks would say that can’t think of much this year.  But give it some reflection, you may surprise yourself  and thinking of those joys in life will at least ease the pain of your 401.

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Filed under Economics, Politics