Just Say No!

November 18, 2008


With regard to saving the auto industry, there are at least two broad possibilities that have not been broached much by the media:

  • Merger with and/or buyout by a foreign auto manufacturer, say, Toyota or Honda.
  • Government aid not related to manufacturing operations but to the retirees that in large part are sucking the automaker dry.

I was not in favor of a financial bailout and I am not in favor of a direct auto bailout, either.  Management and the unions have only themselves and each other to blame for their predicament.  Americans voted with their pocketbooks years ago; it’s not like anyone other than GM management didn’t see this coming.

So instead of a bailout, consider those options above.

A buyout by a strong foreign manufacturer, however unlikely, is something that would change domestic management culture overnight.  A buyout (as opposed to a bankruptcy) would help to salvage the hundreds of parts suppliers on whom the foreign automakers rely just as heavily as the domestic auto companies.  The show-stoppers are health care, retirement obligations and the unions.  Especially the unions, who have far less leverage today than during strong economic periods; so if Toyota was to make a move, now would be a good time to buy into the domestic industry on the cheap.

The second idea is to improve competitive costs against foreign manufacturers by relieving the auto industry of a $1,500 per vehicle levy – retiree benefits – by taking them off the automakers’ hands, in return for ownership in the company.  Socialized health care and pensions for retirees.  Let’s call that, hmmm, Medicare and Social Security, respectively.

GM management will fight tooth and nail against the former, and the unions the latter.  So instead, Congress will be hard pressed not to take the easy way out and simply give the automakers a blank check with few strings attached.  It is the worst possible option, and the one they are likely to take.


The House Bailout Bill

October 3, 2008

The House of Representatives added to and otherwise modified 34 sections of H.R. 1424, the so-called bailout bill, passed by the Senate two days ago.  They then voted on and passed it and the President signed it into law about two hours after that.  It took $150 billion in earmarks to sweeten the deal enough for 59 Representatives to change their votes between Monday and Friday.

All told the Bush Administration and Congress have added roughly $1.4 trillion to the national debt since January.  This does not include the 2008 budget deficit, which will add between $200 billion and $400 billion more.  The Dow Jones responded with joy by only dropping another 157 points.

We have crossed the line from Capitalism to Socialism.  Capitalism when the markets are adding to the coffers of the wealthiest institutions, Socialism when taxpayer-funded bailouts are needed to shore up those same institutions because of those markets.  I notice that suddenly, no one is using the term Socialism, but there it is.  Stan O’Neal is probably busting a gut on his yacht right now, laughing at all those Congressional patsies.

One must wonder that a bill, written in a few days with 170 sections and 450 pages, could possibly be cohesive and not swiss-cheesy.  Do you think that big financial companies with leagues of lawyers and accountants will spend a lot of effort to find all those loopholes that will benefit them the most?  I do.

They got their Christmas bonuses early this year.  We got coal.

The Senate Bailout Bill

October 2, 2008

President Bush’s bailout bill was 3 pages in length.  The one that the House of Representatives defeated was 106.  The Senate bailout bill passed on October 1st is 451 pages.  Historians will note that this is a mental health bill with a few additional provisions.

Only the first 113 pages of the Senate bill are actually related to the bailout.  The remainder are essentially pork barrel provisions attached to get Senators to vote for the plan, including:

  • Renewable energy credits
  • FUTA surtax
  • Alternative minimum tax relief
  • Tax breaks for teachers
  • Investment in Washington, DC
  • Something about wooden arrows and children
  • and on and on

There are 101 energy, tax, mental health, Federal land and disaster provisions – something for everyone.  It has essentially become an energy and tax credit plan with an oh-by-the-way bailout attached to the front of it.  This is how we legislate.

Read it here if you’d like.  It’s a PDF document.

Yet the non-bailout riders in the House plan will wildly top this.  I am wildly disgusted and will torture myself by poring through the House bill as soon as I can find it.


September 30, 2008

Okay, so the Dow is finishing up 485 points after being down 777 yesterday, and the government still hasn’t done anything?

Oh, wait.  The government hasn’t done anything about this pending crisis for the five years that it’s been pending since Wall Street began putting bows on shit.  I’m finding myself in the camp of those who think we should just sit on our hands a little longer and watch the market take care of itself.  After all, if a government bailout is so good for the public, then why aren’t major investors lining up to invest as well?  Maybe it’s because they’re so close the smell is getting to them.  Maybe it’s because they know better.

I understand there is a long line at the Lowe’s near Wall Street for hemp rope.  And that Darien, Ct (median income:  $168K) is really going to suffer from the fallout.

Big Numbers

September 26, 2008

My head is just spinning from all the big numbers.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

The Treasury spokeswoman is referring to the $700 billion Wall Street bailout number.  Which in reality could be any really big number, like a trillion dollars or even more, or maybe less but probably not.  Doesn’t matter, as long as it’s big.

I appreciated the $600 rebate check that I got from my government last May.  But given the cause of the ongoing economic crisis I don’t see how giving me money (and spending $170 billion total) could possibly have been a solution to it.  But it was only $170 billion.

Then the government gave $29 billion to JP Morgan, $200+ billion to Fannie/Freddie and $85 billion to AIG and is about to give a whole bunch of money to Wall Street; to the same financial institutions who gave themselves $38 billion in bonuses last year while losing $74 billion for their shareholders.  We’re about to reward their greed, and their failure, with a really big present.

There is one group that has publicly stated

We do not support government bailouts of private institutions.

But they will, along with everyone else in Congress because this three-year-old debacle has now turned into a crisis so large that there is no way out.

So the past 72 hours have seen a Congressional debate of historic proportions, based on a number that someone pulled out of his ass, to salvage a set of institutions that gifted their executives in one year more than the entire budget for the National Institutes of Health.

Hmmm.  Very generous.

Sallie Mae and Freddie Mac: The Pending Bailout

July 10, 2008

For sale signs

For sale signs (courtesy http://realagile.wordpress.com/)

A frugal investor that I know very well, someone who doesn’t buy what he can’t afford, will once again pay for the sins of those less frugal than him.  That him is me.

I saw this coming five years ago and I didn’t try to do anything about it. My bad.

Congress is currently mulling a bailout for Sallie Mae and Freddie Mac which will, no doubt, get one unless the housing market does a huge turnaround in hurry (it won’t).  Mark Zandi, chief economist for Moody’s Economy.com told NPR:

“Unless you’re a shareholder I wouldn’t be worried because there is no chance that the federal government would allow these institutions to fail — to stop doing business. It would just be catastrophic for the system, for our economy. It’s just not going to happen.”

Bloomberg’s web site was a bit more cautious, indicating that a taxpayer-fueled bailout was a last resort:

“The government would not step up to support the enterprises until they’ve exhausted all options, including acceptance of significant shareholder dilution,” [Joshua] Rosner, whose research firm is based in New York, said in a telephone interview. “And if the government did have to get involved, I would expect equity holders would lose everything.”

What irks me is that this is a repeat of the S&L crisis of the late 80’s, prompted by the deregulation of the banking industry, which eventually led to 1) a recession and 2) today’s banking system where savings accounts earn a whopping 0.3% a year while credit cards cost you somewhere around 1 ½ to 2% a month for outstanding debt. The subsequent S&L $157 billion bailout plus interest, to save the industy, came courtesy of Congress.

This decade the mortgage credit industry learned to wrap their riskiest tranches in sweet-smelling language, leaving the rotting carcasses for whatever investor was at the end of that food chain.  Typically, that is the small investor, you and me.  (Stan O’Neal, Merrill Lynch’s former CEO, only got $161 million when he resigned after leading his company to an $8 billion dollar loss in a single quarter; his shareholders got coal in their stockings.)

I am unclear on the concept of not letting foolish investors suffer the risks of foolish investment.  I am unclear on why one should receive any kind of reward for buying a house that wasn’t affordable in the first place.  Is there something wrong with a free market economy? Congressional attempts to prevent the greedy from taking advantage of the less-greedy seem filled with loopholes that allow the greedy to 1) become greedier and 2) shoot themselves in the foot knowing that they’ll probably get some kind of bailout anyway.

Today’s mortgage crisis was perpetrated by greed all the way around.  Any bailout will guarantee that I will pay for that greed twice, by living through the recessional fallout and paying for the bailout.  Ugh.