Category Archives: Policy

Take That, GM Bashers

So many people I talked with last month online and in person couldn’t believe how strongly I was defending General Motors. Here were the talking points I heard day after day:

  • Serves them right for making cars no one wants to buy (well, they sold ~12 million cars last year)
  • Serves them right for fighting MPG increases (my 2 ton Saab wagon gets 30mpg fully loaded on trips and GM has more hybrid models available than any other manufacturer, as well as the first mass-produced plug-in hybrid ready to go out the door this year)
  • Serves them right for making crappy cars (quality has steadily increased over the years to rival the Japanese automakers)
  • Why should we give them money if they’re just going to go under in the spring? You’re just prolonging the inevitable (you didn’t read the December plan, did you…)
  • What they need is a government-backed, customized bankruptcy proceeding (would you buy a car from a company that was going bankrupt?)

Well, nothing is ever entirely certain, but after none other than George W. Bush came to the company’s rescue, GM today surprised everyone by announcing that even though it now has the money in hand that it was looking for, and even if its worst-case scenario of only selling 10 million cars in 2009 comes true, the company won’t need any further injections of capital from the government. What? You mean they actually got the money and they are still saying that they won’t need more? Why, I thought that as soon as they had that money, they’d be right back with hat in hand?

“I was really expecting them to go for a second round, so this comes as a surprise,” Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan, said in a Bloomberg Television interview. “If GM could stabilize their financing, we were projecting a sales rate of about 11.5 million vehicles in 2009. It’s not the catastrophic drop that ourselves and others were projecting if we had major bankruptcies.”

Chrysler on the other hand is facing more pressing issues. The latest Consumer Reports had a rundown of the positive and negative aspects of each of the Big Three automakers. Bottom line is that Ford and GM are making vehicles that have excellent fit and finish, good reliability, and features that people want. Chrysler (Dodge, Chrysler, Jeep) has the distinction of having NO models featuring a “recommended” tag by the magazine. The reason? Poor reliability, poor fit and finish, poor ergonomics and use of interior space. I would not be surprised to see a GM/Chrysler merger which effectively does nothing more than fold the Jeep name into the GM family.

Perhaps if that happens there will once again be a Jeep worth buying.

DC Says “No Loan” to GM, Chrysler

Never has $14 billion sounded like so little money. Last week, the executives of the Big Three automakers humbly drove to Washington in their hybrid cars, having been chastised by congress during their previous visit for arriving in corporate jets. They sought not bailouts, but bridge loans to get them through this difficult global economic slide.

But after allocating some $812 billion in a recent bailout package for banks and investment firms which included $112 billion in pork projects for representatives’ local constituents, the folks in congress suddenly got all question-happy when the automaker execs came into town. Senators from the south derided the car companies for making cars that no one wanted to buy and said the Big Three got themselves into their own mess. It was those damn unions — where blue-collar workers made $70 an hour — that were mostly responsible, they said. Of course, if you look at the automobiles manufactured in those representatives’ states, you’ll see that they’re in direct competition with Detroit and have an incentive to make sure no loans are given to Ford, GM and Chrysler. Yep. Lots of Toyota, Honda, Kia, Hyundai, BMW and Mercedes plants down there. Direct competition for Detroit. And hey, if they can bankrupt Detroit and kill the unions at the same time, they could be the new heroes of Republicans everywhere, and look like they’re being fiscally responsible in the process. Bankrupt the Big Three, kill the unions, show everyone they’re fiscally responsible. It’s the Republican Trifecta!

The stated reason the southern Republicans voted against the bridge loans today was because they wanted more concessions out of the UAW. They believe that it’s the Big Three’s ties to living wages for all employees that is causing the problem. It doesn’t matter that only one auto manufacturer in the world right now had sales last month that were up from a year ago. Nissan sales were down 42% in November 2008 from 2007. Honda was down 31%. Hyundai was down 40%. Even the golden child, Toyota, was down 34%. My favorite automobile manufacturer, Saab (admittedly, part of GM), was down almost 60%. Porsche, 48%. So was General Motors 41% decline really that out of line with the rest of the bad news? Is the trouble GM is facing right now really a product of its own making? Or will it just recover when the rest of the economy and the automotive industry in general recovers. Say, when banks start offering loans again instead of hoarding the money they were given from US taxpayers.

The answer is yes. GM would recover. If you read the viability plan that GM provided on its most recent visit to Washington, it creates a picture of a smaller, more nimble GM NOT in several years, but TODAY. While it was still raking in the profit from SUV sales, GM was preparing for the coming (now here) gas crunch by investing heavily in new technologies, including hybrids and the new Chevy Volt which was supposed to be out in 2010. In regard to its employees, GM had actually done the responsible thing and had slightly overfunded its pension accounts, even while it managed to cut legacy costs in regard to hourly manufacturing by almost $5 billion per year (from $5.6 billion in 2003 to $.7 billion in 2008). Overall hourly manufacturing costs were slashed from $18.4 billion in 2003 to $8.1 billion in 2008.

And yet we still hear about how much the hourly rate is for a United Auto Worker. $73 an hour we hear, right? Well the NY Times recently said that figure is totally bogus. Pennsylvania Senator Bob Casey said, “It’s a total lie. I think some people have perpetrated that deliberately, in a calculated way, to mislead the American people…”

According to the NY Times article:

The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)

The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.

The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix — dividing those costs by the total hours of the current work force, to get a figure of $15 or so — and end up at roughly $70 an hour.

The article goes on to say, “The Big Three and the UAW had the bad luck of helping to create the middle class in a country where individual companies — as opposed to all of society — must shoulder much of the burden of paying for retirement.”

So basically, GM, Ford and Chrysler get the shaft because the new guys coming into town (Honda, Toyota, etc.) don’t have to honor promises they made to workers in the 60s and 70s, on the account of they weren’t building cars here yet. Meanwhile, Republicans in the south are saying that since the Big Three automakers — big business — have shouldered the liability for workers retirement and healthcare (instead of the government), they should now be punished because they’re not screwing over the employees they made promises to.

These folks are just sickening. They’re not above letting the rest of the country and three million more jobs go down the tubes because they didn’t want to give The Big Three a LOAN for 1/60th of the GIVEAWAY they gave to the bands and investment firms.

There’s got to be a special kind of hell for congressional representatives who would just let 2-3 million blue-collar jobs hang in the balance for their own — I don’t know what… Enjoyment? Selfishness? Ego? Misguided principles? It doesn’t seem to matter much to them that they might just be taking the whole auto manufacturing industry in the US down with them. If GM and Chrysler go down, back payments to component manufacturers don’t get paid, and many of those companies will be forced to declare bankruptcy themselves, or just liquidate their leftovers and go bye-bye. If these reps don’t think that will affect their precious Honda and Toyota plants in their own states, they’re horrendously naive.

They’re playing with nothing less than the economy of the entire country. No one in their right mind would buy an automobile from a manufacturer in bankruptcy. Who will honor the warranties? Will parts be available? Will local dealers be forced out of business due either to the company in the process itself or due to lack of sales? Forget it. Time to buy a Subaru (they were down less than 10% in November and seem stable).

But who cares? These reps have Toyota and Honda in their states, and their buddies in the banking and investment industries already got their handouts. Screw the rest of us. Screw the workers. Screw the economy. They already got what they need to wait this out. The rest of us are just blue-collar suckers who don’t know the right people or work for the right company, right?

The Numbers Game

George W. Bush sat down with Charlie Gibson for an interview at Camp David recently. He seemed much more congenial, less combative than he has in most interviews in the past few years. Kind of like the old George Dubya that so many Americans voted for in 2000.

Among the questions Gibson asked him was whether or not he missed any warning signs that an economic meltdown was about to occur. Bush deflected any blame, noting that he was “sorry it’s happening, of course,” but that “I think when the history of this period is written, people will realize a lot of the decisions that were made on Wall Street took place over a decade or so, before I arrived in President, during I arrived in President.”

Brilliant.

So that “decade or so” would include eight years of George W. Bush, and two years of the Clinton administration. So who would you hold responsible?

I guess it’s always the Democrats and the Clintons for some people.

These are the same people that say it only took the Democrats two years of rule in Congress to kill the economy. Actually, if you want to believe the Democrats’ recent control of Congress is responsible for the current economic mess, you have to actually believe that they ruined it in less than a year, since the National Bureau of Economic Research released a report on Monday, December 1st noting that the current recession actually started in December 2007.

So if I’m to understand this correctly, the Republicans had total control of government from January 2001 until January 2007. At the end of January 2007 the Democrats came in and almost immediately set about plans to turn the country toward the third worst recession since the Great Depression. Remarkably, they accomplished this in a matter of ten months. Incredible. If only they’d put all their fantastic resources toward good instead of destruction.

Of course, Bush is probably referring to the 1999 repeal of the Glass-Steagall act, a move championed by Republicans, most notably former Senator Phil Gramm who led the Senate Banking Committee at the time.

That one act probably set the downfall in motion, but George W. Bush very conveniently has a short memory. Check out this October 2004 article from the Boston Globe entitled, “Zero-Down Mortgage Initiative by Bush is Hit.”

President Bush’s weekend campaign promise that he will push legislation allowing for no money down on some federally insured mortgages could cost taxpayers as much as $500 million over four years because of a higher rate of defaults, according to the Congressional Budget Office.

The election-year idea may appeal to those who can’t save as fast as home prices are rising. But some financial planners warn that increasingly common no- and low-down-payment programs can be ruinous for some consumers — especially if home values decline.

I think most of us would think $500 million would be a bargain right now. However, 2004-2005 is right around the time that the CDO market started maturing, if you can call the massive development of a dangerous shell game “maturing.” According to Wikipedia, the Securities Industry and Financial Markets Association claimed that aggregate global CDO issuance totaled $157,000,000,000 in 2004. By the end of 2006, this market had grown in size to almost $2,000,000,000,000 (that’s from $157 billion to $2 trillion, but I thought it looked more dramatic with all those zeroes).

I wrote about this in a previous article, but I think Sam Seder and Marc Maron explain this whole game perfectly in the video below. Sam & Marc have a one-hour show every day at 3pm on the internet at http://www.maronvseder.com. An audio podcast is available on iTunes. It’s a great show, probably the funniest on the “internets,” and it’s informative too. What more could you ask for?

America is NOT “Center-Right”

There has been a lot written in the past few days about how America is still a “center-right” country. This is basically the right-wing talking heads plugging their ears and saying na-na-na-na-na-na so they don’t have to listen to what’s going on in this country today — namely, the facade of conservatism crumbling to the ground.

The War Room at Salon.com had a few links today to some great blog posts and general thoughts about this.

Perhaps the best is Steve Benen at the Washington Monthly, who asks just when would a right-winger finally admit that the country is no longer center-right?

Would a Democratic Congress do it?

How about a Democratic President with a Democratic Congress?

How about a Democratic President, Democratic Congress, and a Democratic majority among the nation’s governors?

How about a Democratic president, Senate, House, governors, and polling data showing Americans support universal healthcare, are pro-choice, oppose the war in Iraq, and support the Democratic agenda on everything from the environment to the minimum wage to international diplomacy?

Most of us on the left have long known that America is really center-left, and the reason people don’t vote that way is simply because the GOP has — for far too long — been able to control the message and terms of discussion. But with the internet taking up much of the cause of the left, including holding the press accountable and actually keeping a running record of the absurd things the right-wing does and says on a regular basis, perhaps America is starting to wake up.

So is America really satisfied that it has now elected the 1st and 3rd most liberal Senators to lead the nation?

This article at CNN references a poll that shows Americans are generally fine with Democrats in total control of government, despite the threats aimed from the airwaves about dangerous liberalism/socialism of the Pelosi/Reid/Obama trifecta.

In a CNN/Opinion Research Corporation survey released Tuesday, 59 percent of those questioned think that Democratic control of both the executive and legislative branches will be good for the country, with 38 percent saying that such one-party control will be bad. View the public’s view of the parties »

“That much good will from the public opens a window of opportunity for the Democrats,” CNN Polling Director Keating Holland said. “But the public expects results and may not listen to excuses for very long if a Democratic Congress and a Democratic White House can’t get their act together in time.”

The poll also suggests that the public has a positive view of the Democratic Party, with 62 percent having a favorable opinion and 31 percent an unfavorable opinion.

That is not the case for the Republicans, with a majority, 54 percent, having an unfavorable view of the GOP and 38 percent holding a positive view.

Hear that, Hannity? Keep talking smack, and keep saying “no mandate,” because America has spoken, and the only people you’re reaching these days with your lies are those perpetually brainwashed by your GOP talking points.

Where the Money Went

If you’re like me and really didn’t understand why the taxpayers needed to fund this bailout — other than to “free up credit” so businesses could meet payroll, people could get mortgages, etc. — the article I’m linking to below should shed some light on the situation. It’s certainly given me an indication of how big this iceburg could be, and I’m only seeing the tip of it.

I’m starting to realize what “too big to fail” means.

These words have been thrown around a lot. Even if we’re not economists, we know the market is hurting. We know we’ve lost 30% of our retirement in a matter of weeks. We know our jobs are in jeopardy and we know the global economy is in crisis. We don’t need to know the details.

Or maybe we do. If I’m “learning” correctly, it seems that our elected officials are not giving us the straight story at worst, and at best they just don’t know what’s going on or how to tackle the problem and they’re just giving $700 billion to the Secretary of the Treasury because he claims he can “fix it.”

If you really want to know where your $700 billion plus is going in the “financial bailout,” the article I’m linking to (below) from moneymorning.com has the best explanation I’ve read about how we got where we are, particularly with the AIG situation and why at least part of that money has already been spent there.

What they’re not telling you, and what I’ve heard only a few commentators and economists note, is that this is just the beginning. And when you start looking at what’s causing the problem, the entire magnitude of this situation starts coming into focus.

I still don’t get it entirely, but I’m starting to. And I’m starting to think that we are just throwing antibiotics at a disease.

Anyway, I digress. To learn more, you should read about CDOs at Wikipedia, then Credit Default Swaps. It’s thick reading, I know, but it’s so worth it to try to understand what’s going on right now and where our money is going.

Then check out this NPR piece for a more simple explanation, and then this excellent, thorough article at moneymorning.com and see why no one knows (or seemingly *can* know) what we’re really dealing with when it comes to finding out how much this credit crunch and AIG crisis is really going to cost us, and then think about how quickly everyone in government has “reacted” to this crisis (the matter of a couple weeks at most):

Individually, CDOs are hard to value. Suffice it to say, legend has it that constructing the cash flow payments on the first theoretical 3-tranche CDO (the simplest type of CDO) took a Cray Inc. (CRAY) supercomputer 48 hours. Now try and value credit default swaps on them!

Because there are so many different individual CDO securities, and because there are so many credit default swaps on so many of these CDOs, and so many swaps on individually referenced entity debts and loans, the only way to value them in a portfolio is by indexing.

That’s right, there are indexes, and guess what? You can trade the indexes!

I wonder how many people knew about this $60 trillion COMPLETELY unregulated financial market? Certainly those who were making a lot of cash from it wanted to keep it from ordinary people — citizens who didn’t have investments and who were just working day-to-day trying to make ends meet — who might question what was going on. Of course, as long as the money keeps coming in, people tend to just turn a blind eye to this sort of wild speculation. And now no one knows how much these CDOs and swaps are worth, we don’t know who’s paying whom, and the American taxpayers just threw a paltry $700 billion to one guy in some frantic bid to stave off a recession or a total financial collapse.

What a racket these guys had going for them.

Now, AIG wasn’t in on this alone, and certainly not all $60 trillion of insured worth will need to be bailed out (presumably SOME businesses and individuals will continue to pay on their loans), but to get a perspective on how much $60 trillion is, Wikipedia says that “The total market capitalization of all publicly traded companies in the world was US$51.2 trillion in January 2007 and rose as high as US$57.5 trillion in May 2008 before dropping below US$50 trillion in August 2008. That’s all publicly traded companies in the world. This is how much money is wrapped up in this market.

I don’t know how much your house is worth, but how about I just keep paying you a thousand bucks at a time and you tell me when we’re square, OK? What? You don’t know how much it’s worth either? You don’t know who has the mortgage? No problem. I want the house or I’ll be homeless. We’ll figure it all out later.

Does anyone care that the guy we just gave this $700 billion to selectively hand out to a few businesses will be out of a job in January? And where do people go when they leave government?

Lobbying.

The mind reels.

Now, I know this is a global market, not just the US and not just AIG. And I know I still don’t completely understand the depths of what happened here. I know lots of people knew about it, and did nothing to regulate it or to keep it from being abused. But I’m starting to get an idea. And I’m starting to feel really really sick.

I’m starting to understand what “too big to fail” means. Until today, I didn’t really understand what that phrase meant. Now I do. At least, from my little spot here in NY and not being an economist, I think I do.

And it’s scaring the shit out of me.

The Fringe Movement of Conservatism

There’s an excellent op-ed piece in today’s Salon.com by Gary Kamiya, about how the McCain campaign is attempting (once again) to use Obama’s “blackness” as a way to scare white voters off the Democratic ticket.

But perhaps even more effectively, Kamiya makes the case that conservatism as an ideology in America has been reduced to a fringe movement — at least for the near future.

From the article:

McCain is playing dirtier than Goldwater did. But the smear game still may not work. And if McCain loses, it will be for the same reasons that Goldwater lost: because conservatism itself — which means the GOP, since it no longer has a moderate branch — has been discredited. The Republican Party under Nixon and Reagan succeeded because it was able to convince enough white Democrats and swing voters that it was the party of the “average American,” oppressed by federal bureaucrats and do-gooder programs like busing and affirmative action. It was able to conceal the fact that it was the party of the rich beneath a populist, race-tinged appeal to white resentment.

But the truth is that America is not a particularly ideological country, and Americans’ allegiance to conservative ideas has always been fairly superficial. Yes, our frontier mythology and tradition of federalism makes us less supportive of the welfare state than European countries — but New Deal-inspired programs like Social Security and Medicare are deeply rooted in our society. A loose, de facto centrism is America’s default position. By embracing cracked ideologies like trickle-down economics, by letting big corporations do whatever they want, and by religiously refusing to raise taxes, the GOP since Reagan has tilted much too far to the right. George W. Bush pushed the party over the cliff, with the final straw being his own unique contribution, a demented and pointless war.