The Obama Motor Co. from WSJ

Today’s article of the day comes from The Wall Street Journal:

Back in December, in an economy far, far away, then-CEO Rick Wagoner tossed out the scary cost to taxpayers of $100 billion if General Motors wasn’t saved by the government. Well, GM was saved in December and again in March, and as early as today the feds will rescue it a third time in a prepackaged bankruptcy that is already costing at least $50 billion, and that’s for starters. Welcome to Obama Motors, and what is likely to be a long, expensive and unhappy exercise in political car making.

Taxpayers have so far put up nearly $20 billion, which was supposed to be a loan at market rates but under Treasury’s forced restructuring will mostly be converted into equity in the new GM. The feds are also putting up $30.1 billion in “debtor in possession” financing and will effectively nationalize the once-mighty auto maker by taking roughly 60% ownership. (That’s not counting $12.5 billion to save GMAC, the company’s financing arm.) The Canadian government will go along for the ride for 12% of the new GM, the UAW will get about 17.5%, and the hapless bond holders have to settle for 10%.

The Obama Treasury is portraying this as the best solution to the mess it inherited, leaving GM with much-reduced legacy costs for health care, a cleaned-up balance sheet, a humbler UAW that has forgone some performance pay, and a more efficient dealer network and product line. GM, we are told, will now be able to make a profit and some day even return money to taxpayers. If you close your eyes and imagine that GM’s private managers would be able to make decisions based solely on business judgment, you can even start to believe.

But then you snap out of it.

Every decision the feds have made since December suggests that nonpolitical management will be impossible. First they replaced Mr. Wagoner — whom they are nonetheless still paying — with the more pliable Fritz Henderson as CEO and Kent Kresa as Chairman. The latter are good at playing Washington but unproven in making popular cars. Then Treasury bludgeoned the bond holders in both Chrysler and GM to take pennies on the dollar, which will not make creditors eager to lend to the companies in the future.

There’s also the labor agreement that the UAW approved last week, which goes some way toward reducing costs but probably not enough to make the new, smaller GM competitive. The new agreement simplifies some work rules and job descriptions but makes no reductions in hourly pay, pensions or health care for active workers. The agreement must also be renegotiated in two years by an Obama Administration running for re-election and weighing the need to keep Big Labor happy against the risks to taxpayer-shareholders. Who do you think wins that White House debate?

The Administration’s concessions to the UAW also restrict the company’s ability to import smaller, more fuel-efficient cars that it already makes overseas. UAW President Ron Gettelfinger boasted on PBS’s “NewsHour” last week that “we, quite frankly, put pressure on the White House, the [auto] task force, the corporation” to bar small-car imports from overseas. GM is also selling its Opel operation in Europe as part of this restructuring, and the Washington Post reports that one of Treasury’s sale conditions is that Opel’s new owners must stay out of the U.S., and even out of China, where GM’s business is strong.

This is raw trade protectionism. It is also textbook cartel behavior and would be an antitrust violation if practiced by a business. But the benefits for GM are illusory because the import limits mean the company will have to spend even more to retool its domestic plants to make the little green cars that President Obama and Congress are demanding. No one knows if Americans will buy such cars, even if GM can make them competitively in the U.S.

The Administration promises to wield a light ownership hand, but it’s only a matter of time before Congress starts to micromanage GM’s business judgments. Every decision to close a plant will be second-guessed, much like a military base-closing. And what about buying parts from foreign suppliers? Will those also be banned when Mr. Gettelfinger demands it, even if the costs are lower? GM’s managers and directors will have one eye on enhancing shareholder value, but the other on pleasing their political minders in Washington.

The Obama Administration has been whispering to the press that it could start selling its stake within a year to 18 months, and that it hopes to be out of the business entirely in five years. But even assuming that the taxpayer investment stops at $50 billion, GM would have to be worth a cool $80 billion for taxpayers to break even on their 60% stake. By way of comparison, GM’s market capitalization at its recent peak in 2000 was only $56 billion.

The larger corruption will be when government tries to vindicate its ownership by favoring GM over Ford and the other auto makers that aren’t wards of the state. The TARP legislation contained one blatant example in the form of a $7,500 tax credit for consumers who buy GM’s new electric car, the Chevy Volt. Expect more such favoritism, including huge new subsidies for green cars if consumers prove resistant to their charms.

Mr. Obama likes to say he’s a pragmatist who only prefers a government solution when it will work. But in resurrecting an industrial auto policy that even the French long ago abandoned, the President has made himself GM’s de facto CEO. Our guess is that he’ll come to regret it as much as taxpayers will.

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Published in: on June 1, 2009 at 6:02 pm  Comments (2)  
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Think first, recycle second by Anonymous

Today’s article of the day comes from yesterday’s Union Leader in New Hampshire on Earth Day:

Today is Earth Day, the fake holiday on which the government attempts to guilt us into “saving the planet.” This year the guilt trip is more tedious because President Obama has made it his mission to change our energy consumption habits by force of law.

Of course, wasting energy is a dumb idea. It’s not dumb because it’s somehow harmful to Mother Nature, but because leaving the light on in the living room when you are eating dinner in the dining room wastes money. And recycling is good (as long as it’s more cost-effective than dumping) for the same reason. Throwing away something that has cash value is the same as throwing away money.

That said, Earth Day takes these common-sense behaviors to absurd levels. Reducing, reusing and recycling really are about economics, not morality. If we use more energy to recycle something than to make a new one, we’ve done more harm than good. If we install “environmentally friendly” toilets that use less water, only to have to flush twice, thus using more water, we’ve done more harm than good.

So when President Obama says we have to pay hundreds of billions of dollars to reduce carbon emissions right away, the correct response is to ask whether it is cost-effective. Burning fossil fuels emits only 3.27 percent of atmospheric carbon dioxide, according to a report by Drew Thornley of the Manhattan Institute. Is the payoff really worth the price?

Every transaction involves tradeoffs. Environmental policy is not exempt from that rule. Before cheering for certain policies just because politicians call them “green,” stop to make sure the benefits are worth the cost. Otherwise, you might hurt the environment instead of help it.

Published in: on April 23, 2009 at 6:18 pm  Comments (1)  
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One more step in the right direction: Cuba

Even though it was a Democrat (Kennedy) who put in the Cuban Embargo Act, it has been a Republican supported issue. The embargo is not gone but President Obama has taken a step into the right direction. He has lifted restrictions of travel. This from the Financial Times:

“President Barack Obama on Monday took a big step towards relaxing sanctions on Cuba, lifting all travel and remittance restrictions on Cuban-Americans and permitting US telecoms companies to offer services directly to the island.

The end of the restrictions, which Mr Obama promised during his campaign, means Cuban-Americans will be able to travel to the island state when they like, as opposed to once a year, and send as much money as they want to relatives, as opposed to $75 a month. Mr Obama also said he would permit Cuban-Americans to pay for US-provided telecoms services to relatives living in Cuba.

“Clearly, the Obama administration is re-examining US policy towards Cuba,” said Peter DeSchavo, analyst at the Centre for Strategic International Studies. “It would be an understatement to say that the embargo has not achieved what it was supposed to achieve.”

It is good that we are finally recognizing that it is free trade and not embargos that actually further freedom and liberty. Trade restrictions have done nothing but give Castro a reason to blame us for their economic woes. This blog hopes that even though Obama believes that Socialism is the best course for us that he will recognize trade is the best course for them (to become less socialist).

The rest is here.

~PCCapitalist

Deliberately Misplaced Blame by Sean Malone

The article of the day comes from Mises.org:

Let’s play a game. I have a not-so-famous quotation to share with you, and then you guess who said it:

We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic.

I’ll give you a hint; it was spoken by a sitting US president. Not quite enough? How about multiple-choice? Was the speaker

  1. Current president Barack Obama
  2. Overseer of the first-round, $700 billion bailout George W. Bush
  3. New Deal designer Franklin Delano Roosevelt
  4. “Hands-off” free-market supporter Herbert Hoover

Ponder that for a minute or two, and we’ll come back to the answer later on.

Geesh! Free-market, laissez-faire capitalism sure has been taking a beating in the press lately. The official story seems to be that everyone knows the financial crisis represents a failure of the capitalist system, and now only a “gigantic program of economic defense” will save us.

I suppose that would make plenty of sense, if only the details we’re being told day in and day out were actually true.

It’s rather amazing the lengths to which many of the people chronicling the economic crisis are willing to stretch the truth in order to ascribe blame to those they wish to be responsible, all the while ignoring those who actually are. One depressingly common tactic, seemingly en vogue at the moment, is to falsely claim that a person said or believed certain wrong-headed things in order to denigrate the person about whom one is making the claim. Examples abound, but the case du jour is Thom Hartmann’s traducement of laissez-faire’s “intellectual roots” in the Huffington Post:

The intellectual forefathers and mothers of the insane conservative economic policies that have brought us to where we are include Ludwig Von Mises, Friedrich Von Hayeck [sic], Milton Friedman, Alan Greenspan, Tom Freidman [sic], Robert Rubin, Larry Summers, and Ayn Rand.

Hartmann will likely get away with this slap-dash conflation of names, simply because the people he impugns are mostly dead and relatively unknown to the average reader. Hartmann isn’t alone either; it seems almost daily we read another set of distortions, myths, and outright lies trotted out by similarly minded writers.

The reality, quite unfortunately for Mr. Hartmann and friends, is that his claim is built on a wobbly foundation of misinformation. Why? (more…)

Is Barack Obama The “Moral Alternative” To Capitalism? by Austin Hill

The Article of the Day comes from Townhall.com:

Who ever imagined that in the year 2009, the President of the United States and the protesters who sought to disrupt the G-20 Summit would actually agree on something?

“Capitalism is immoral” was one of the phrases scrawled on several of the banners carried outside the summit meetings this past week. And although he has never said this in so many words, indeed President Obama would seem to be in lock-step with that assertion, or at least with the sentiment that the assertion entails.

But whether you’re a protester or the President, to assert (or even to simply “imply,” as Mr. Obama does) that “capitalism is immoral” is to invite a slew of crucial questions. And the first and most obvious question that this raises is, “what does this assertion mean?”

Presumably, protesters – – and those who think and believe like them – – intend to convey with their “capitalism is immoral” statement that the mechanisms of the free market have failed to produce “moral” economic outcomes. Executives earn too much money, non-executives earn too little. Business owners exploit their employees, and as a result the employees can never “get ahead” and gain new ground with their personal finances.

And it’s not just protesters outside the G20 Summit who believe these things. I suspect that a great many Americans think and believe that the free market has produced “immoral” outcomes, as well. But it is not sufficient to simply say “the free market is immoral.” If one really believes this, then one must ask themselves “what system would make for a better alternative?” Yet without formally asking this question about “alternatives,” most people who believe that the free market is immoral presume, almost instinctively, that an economic system with more government controls and mandates can produce a more “moral” outcome.

So let’s assume for a moment that this is true, that more government controls and mandates on business can produce a more “moral” outcome for the economy, and for the broader society. If this is so, then one must also answer this question: who is the individual person that is so wise, so all-knowing, so just and so good, that they can make all the decisions necessary to produce this “more moral” economy?

Don’t kid yourself – – this is high-stakes stuff. If the mechanisms of the free market – – that is, private persons and organizations who, driven by their own natural interests, seek to acquire the best possible goods and services at the lowest possible prices, and who seek to sell their goods and services for the highest price they can get for them – – if the decisions and behaviors of individual private citizens don’t produce a desirable outcome, then which individual can make all the “right” decisions, and mandate all the “right” behaviors, so we can all enjoy a desirable outcome?

People of the “protester mentality” don’t often consider these more detailed, more delicate, and more difficult questions. Yet, world history is replete with kings, queens, dictators, and – – yes – – even Prime Ministers and Presidents – – who are certain in their own minds that “as long as I’m making all the decisions, then things will turn out good.”

This is precisely the certainty that President Obama displays. In the past three weeks, alone, our President used his influence to oust the C.E.O. of the General Motors Corporation, and now appears to be more-less hand-picking a new board of directors for G.M. As was noted in a Washington Times article two weeks ago, Mr. Obama’s Treasury Department appears to be creating a new position in our government – – the office of the “U.S. Executive Compensation Specialist” – – a government appointee who will determine how much money business managers and executives will be “permitted” to earn, and who will also seek to take away earnings from Americans who are believed to have been paid “too much.” It also appears that, via the Treasury Department, Mr. Obama intends to have other CEO’s removed and replaced as well.

So is this the pathway to a “more moral” U.S. economy? Nobody questions that there have been serious failures among many American corporations. But does this one man, Barack Obama, know the banking, and insurance, and automotive, and healthcare, and energy businesses so well that he, alone, can determine what are “fair” wages, and prices, and practices in all situations.

Such an assumption of the U.S. President defies the limitations of the executive office as set forth in the U.S. Constitution. But constitutional limits don’t seem to matter to our current President.

So now it is left to the American citizenry and the U.S. Congress to determine if this one man, Barack Obama , is so wise, so all-knowing, so just and so good, that he can make all the decisions necessary to produce this “more moral” economy. How will the American people respond to this all-important question?

Stop the Outsourcing… to robots?

First, this from Wired.com:

Robots are stealing American jobs. In a 76,000-square-foot zone of the 832,000-square-foot Zappos warehouse in Shepherdsville, Kentucky, 72 robotic “drive units” organize and deliver shelves of goods—from argyle socks to handbags. People remain in charge (for now), because it takes human dexterity to pack items into a box for shipping. But the bots still have plenty to do, picking up the slack on boring tasks like shifting inventory.

The droids roll at 3 miles an hour, navigating via barcodes stuck to the floor and commands from a central server. And they’re buff, able to lift half a ton.”

and from Reuters:

” A vending machine that bakes fresh pizza in minutes for a few euros has got Italian chefs in a whirl before it hits the streets in the coming weeks.

The bright-red “Let’s Pizza” machine uses infra-red rays and technology developed at the University of Bologna to knead flour and water into dough, spread it with tomato sauce and a choice of topping, and cook it — all in less than three minutes.”

We better get Obama on this! How could we ever keep inefficient human in place of these robots that do not even work for wages. And you thought outsourcing to lower wages was bad. Okay, enough joking around. It is time to wake up, people. Businesses using low cost robots to replace humans is a good thing in the long run. In the short-term there will be problems because of employees having to retrain. This is the natural progression of society. We become more and more efficient. If you do not believe me, get off your computer because it destroys jobs. Then go get a feathered pen made by hand, some parchment also made by hand and write me a letter. That way the jobs lost to computers and emails will not suffer.

Technology has made us wealthy and to be against outsourcing is to be against technology.

~Marxsevelt

Published in: on April 6, 2009 at 12:38 pm  Comments (1)  
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Two-faced Obama

cagle00

~PCCapitalist

Published in: on April 4, 2009 at 1:52 pm  Leave a Comment  
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No More Auto Bailouts by Richard Cohen

The article of the day comes from The Washington Post:

When I was around 12, I was a paperboy for the now-defunct Long Island Press. One Thursday, when the paper was heavy with shopping inserts, a storm hit, and my papers and I wound up in a puddle. My customers would not pay for a paper not delivered, and the Press insisted on billing for those I had received. The CFO of my company, aka my father, took one look at my books and pronounced me bankrupt. He would say the same thing about General Motors and Chrysler.

This is not a complicated concept. GM and Chrysler do not have the money to pay their bills. They are, in fact, deeply in debt and have almost depleted the $17.4 billion the federal government — which is to say, you and I — loaned them only last December. Now they are asking for billions of dollars more — $16.6 billion for GM and $5 billion for Chrysler. Life itself instructs that it will not end there.

The Obama administration has warned both companies that it may let them sink into bankruptcy. In the meantime, though, more money is probably on the way — along with some cosmetic management changes. Rick Wagoner, GM’s chief executive of blessed memory, has already been pushed out and the company’s directors are heading in the same direction. Still, somebody — God only knows who — is supposed to come up with yet another plan to save GM and do it in 60 days. Maybe they’ll outsource it.

It beats me if either company can be saved. Both have proved themselves to be singularly incompetent over the years, but lately some brain waves have been detected. GM, in particular, has been developing energy-efficient cars and, according to the administration’s own auto task force, could survive if it further cuts its expenses. Chrysler, in contrast, can only survive if it more or less merges with Fiat — a company once renowned for poor management. See: anything can happen.

Here I must introduce Tim Geithner, the hapless-cum-brilliant secretary of the Treasury. He not only proves that conventional wisdom is a half-truth, but that in certain matters, it is best to be first. Geithner got confirmed by the Senate even though he had failed to pay some taxes; Tom Daschle later had to withdraw his Cabinet nomination for a similar offense. As always, timing is everything.

So it is with this auto industry bailout. It comes too late. It comes after the government has substantially taken over some big banks and that financial house of horrors called AIG. Taxpayers are now deeply in hock for trillions of dollars, some of it incurred to bail out the thieves and rascals who bought $1,000 bottles of Cristal champagne at New York clubs or put the GDP of small nations up their noses. With the various stimulus packages, we are adding an additional $9.3 trillion in debt over the next 10 years.

The auto industry is not only late to the table, it comes with a bad rep. We may not understand what AIG did — what’s a credit-default swap, anyway? — but we sure as hell know what GM did: It made a lot of lousy cars. So did Ford and Chrysler. They made cars with utter contempt for the customer. The industry at one time even opposed seat belts and air bags, and designed cars that were not safe. I know things have changed, but I remember. I remember.

Finally, we have yet another application of the Geithner Rule. Recall his confused explanations of how he learned of those AIG bonuses. Those of us who cannot find our keys in the morning ought to have nothing but sympathy for a man who is now running a large part of the American economy. Of course, he might not have been paying attention. He can’t pay attention to everything.

This is where bankruptcy comes in. It slows things down. It’s a mechanism. It’s a process. It takes things step by step. It has been designed for situations such as the one the auto manufacturers face. It puts things into court and out of the political arena, where both the United Auto Workers and the Big Three can play the lobbying game. Bankruptcy can save the industry.

Is there a downside? Sure. No one knows if anyone will buy the cars of a bankrupt company. (The government could guarantee the warranties.) Will it further hurt the economy? Probably, but who really knows? But bankruptcy acknowledges a reality — GM and Chrysler are broke. I wish them luck — but no more of my money.

cohenr@washpost.com

Copyright 2009, Washington Post Writers Group

Published in: on April 1, 2009 at 6:28 pm  Leave a Comment  
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Economic Recovery: Are we there yet?

matson1

~PCCapitalist

Published in: on March 30, 2009 at 12:12 pm  Leave a Comment  
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Obama’s Executive Pay Plan

The International Herald Tribune is reporting that President Obama is considering putting massive regulations on corporate executive pay due to recent events:

“Increasing oversight of executive pay has been under consideration for some time, but the decision was made in recent days as public fury over bonuses has spilled into the regulatory effort.

The officials said that the administration was still debating the details of its plan, including how broadly it should be applied and how far it could range beyond simple reporting requirements. Depending on the outcome of the discussions, the administration could seek to put the changes into effect through regulations rather than through legislation.

One proposal could impose greater requirements on the boards of companies to tie executive compensation more closely to corporate performance and to take other steps to assure that outsize bonuses are not paid before meeting financial goals.

The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving U.S. government bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission. Last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses exceeding one-third of their annual pay.”

What is important to note above is that these new rules will cover all financial institutions. This includes those that are not getting money from bailouts. This is another attempt by the Obama Administration to ignore the reasons why the banks failed and come up with solutions that will not do anything to improve the situation. In fact, this could cause a bigger problem in the future. For example, pay caps will cause people of high expertise to find a different job in which could pay them what they are worth. These financial corporations will not be able to bid for the best of the best, thus causing them to settle for mediocre at best. This could ensure another crisis.

It is easy for us to pretend that we know how much a CEO is worth, but we don’t and if we did they would have already hired us to do just that and find the perfect guy for the right corporation.

The rest is here.

~PCCapitalist