Chris Dodd

The Morality Malaise

by Bill O'Connell on August 13, 2010

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Steven Slater tells off a plane load of Jet Blue customers, grabs a couple of beers, pulls the emergency chute and dramatically exits the plane, his job, and his career. He is soon hailed across the Internet as a hero. People walk away from home equity loans saying, “I’m not going to be a slave to the bank.” Challenge after challenge to any reference to God in the public square as part of an effort to drive faith underground. Our is government telling us that the only way we can survive is by a government handout. We cannot make it on our own. If you wonder why we are heading in the wrong direction as to 70% of your fellow Americans believe, perhaps we should give morality a closer look.

The story on Mr. Slater is unclear. He says one thing, witnesses say another. It will eventually get sorted out, but let’s assume for a moment that Mr. Slater is correct in that a passenger’s behavior set him off. In a more moral society, Mr. Slater could have done one of two things. One, he could have taken a deep breath, held his tongue and just written it off to that passenger having a bad day. He would have won the admiration of those who watched him behave with self-control and dignity. Or, two, he could have asked the pilot to inform the authorities to meet the plane on the ground because an unruly passenger defied the instructions of the flight crew. That passenger would have been arrested on the ground and would be facing federal charges. But instead Mr. Slater took the route of immediate gratification. He got on the intercom and told off the whole plane, grabbed a couple of beers from the beverage cart, triggered the emergency escape chute and then like a giddy child went down the slide and ran home. A moment’s thrill of control followed a world of grief. Was his moral compass broken or pointing in the wrong direction?

Shawn Schlegalis a real estate agent in Arizona. Since moving there in 2005 he bought several houses with each one financing the next. He is currently in default for $94,873 and is basically saying tough luck, I’m not paying. The lender got a court order garnishing his salary, but that was eighteen months ago and he hasn’t heard anything since. “The case is sitting stagnant,” he said. “Maybe it will just go away.” While I don’t have a great deal of sympathy for any bank that would approve this chain of financing, I don’t know if the lender was aware of what the home equity loan was for, but it is Mr. Schlegal’s attitude that disturbs me. He made the decision to do this and he feels it is not his fault. True he will be impacted if he tries to borrow again in the near future, but he doesn’t seem to care. This is reinforced by the commercials flooding the airwaves advising consumers how they can walk away from their credit card debt. How about selling the flat screen TVs and sports cars you purchased on the plastic, and pay it back? Meanwhile our government continues to use your taxes to help people who are over their head pay their mortgages. Why do you have to pay your mortgage and theirs? You were responsible, they were not. The very concept of such a program would have been baffling to the Founding Fathers.

Our current government reinforces the idea of Americans as imbeciles. The mortgage companies took advantage of you, they were predatory lenders, while it was government programs that told the predators to get busy. We have to have more home ownership, we have to help people achieve the American Dream, so Andrew Cuomo at HUD, Barney Frank, Chris Dodd and the good folks at Fannie Mae and Freddie Mac who made millions on pushing these products, all pushed these government programs on more people, encouraging them to buy houses they couldn’t afford and when the bubble burst they pointed the finger at everyone but themselves. They believe the American people are helpless idiots who cannot fend for themselves and if by some accident someone does succeed, it is the government’s responsibility to take as much of what they earned by the sweat of their brow and give it to the simpletons they claim to be responsible for. That is a racist, sexist, class warfare point of view that unless our Ivy League educated elites give us our daily instruction, we will shrivel up and die. It is anything but the American Dream.

We see efforts to ban the Pledge of Allegiance because it contains the phrase “under God”; to ban the display of the Ten Commandments in court houses; the ban of religious displays on publicly owned land; and to ban prayer in any form at school graduations, football games or other gatherings. While atheists, a small percentage of the population, do not believe in God, why is another person who believes in God so offensive to them that they can’t bear hearing it? But as faith is driven further and further from the public square, boorish behavior becomes more and more acceptable. There is something to be said about eternal damnation curbing one’s baser appetites than responding to the statement, “You want me to stop it? Make me.” There is something to be said for fulfilling one’s obligations because it is the right thing to do, but the right thing to do does not come from living in the here and now. That is self-gratification. Doing the right thing comes from a set of morals that say, “Character is what we do when no one is watching.” Those who believe in a God believe someone is always watching. Perhaps John Adams said it best:

“We have no government armed with power capable of contending with human passions unbridled by morality and religion. Avarice, ambition, revenge, or gallantry, would break the strongest cords of our Constitution as a whale goes through a net. Our Constitution was made for a moral and religious people. It is wholly inadequate to the government of any other.”

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Never Mind Fannie and Freddie, Let’s Nail Betsy

by Bill O'Connell on August 11, 2010

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The Dodd-Frank Act that in a mere 2,000 pages sought to put the control back in financial regulation skipped right over Fannie Mae and Freddie Mac the Government Sponsored Enterprises that were at the heart of the fiscal crisis and are bleeding red ink. Focusing instead on those evil bankers on Wall Street the Dodd-Frank Act really put those guys in a box, until Goldman Sachs slipped its fetters faster than Houdini. So who’s buried under the pile of rubble that is the latest masterpiece of our massive government, Betsy Jensen. Who is Betsy Jensen?

Betsy Jensen is a farmer in southwest Minnesota. She and her family grow wheat and soy beans. She doesn’t have a mortgage, so she didn’t cause the housing bubble. But she does use derivatives to control the risk in farm prices which can be rather volatile. For example, a bushel of wheat went for $18.69 in February of 2008 whereas it was selling for $3.49 in July of 2010. A farmer has to buy their seed and fertilizer at the beginning of the growing season and they don’t sell their product until the harvest. If prices fluctuate wildly during that interval, it isn’t hard to imagine what that can do to your business, let alone your sleep patterns.

So where do derivatives come in? Farmers like Betsy can negotiate a guaranteed price for their grain with their customers. Betsy risks missing out on some profits if the prices go up as they have recently (45%) due to fires in the wheat producing region of Russia, but she also is protected against a price drop, for similar reasons beyond her control. She recently negotiated a price of $7.15 per bushel and with that knowledge, she can manage her farm business and sleep a little more peacefully. For her purchases she can also use derivatives to buy fuel and fertilizer, where the latter has seen price fluctuations of $435 to $685 per ton. Then along come Barney Frank and Chris Dodd, a couple of career politicians who never worked in the private sector.

The Dodd-Frank Act says it is unlawful to enter into swaps (derivatives) “in excess of such amount as shall be fixed from time to time” by the Commodities Futures Trading Corporation (CFTC). That doesn’t sound like a free market to me. What if, in Betsy’s example, the CFTC didn’t get around to raising the amount on wheat above $5 per bushel? Betsy couldn’t arrange to sell it for $7.15. What if the grain elevator couldn’t turn around and sell Betsy’s wheat for the 45% increase in price due to the Russian fires? Do you think with a cap on the upside they might not be willing to pay as much for Betsy’s wheat?

From Dodd-Frank to Bill O’Reilly we hear about the evils of speculators. O’Reilly used to rail against the speculators when gas prices were rising toward $5 per gallon. The evil, greedy speculators were driving up the price of gas! But little mention was made of speculators when the price of gasoline fell back down? Did the speculators retire? Go on vacation? The reality is that speculators don’t care if the price goes up or down, they only care it moves in the same direction on which they are betting. They can drive the price down just as fast as they can drive it up. But they are useful, not evil.

Speculators bring liquidity, that is, money to the market. Betsy Jensen estimates that about one-third of the purchasers of wheat contracts are traders who never take physical control of the product. But by adding their view and their money to the market they keep prices from fluctuating wildly. If these traders are banned then, as she put it, one-third of her customers would disappear. With one-third fewer customers the price swings will increase rather than decrease. Remember, a trader who does not take delivery of the wheat can make money on small swings in the price and is likely to get in or get out on smaller moves and thus change the market price accordingly. If only those who take physical possession of the product are in the market, then other factors such as transport, storage, spoilage, must be factored into each transaction and the price swings will be wider and wilder.

But Betsy said it best, “I may not be able to manage Mother Nature, but I can manage my risk with derivatives.” If only our government would get out of her way and let her do so.

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When Does It Become Obama’s Economy?

by Bill O'Connell on July 30, 2010

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The talking points have been established that it was eight years, eight, of failed Bush and/or Republican policies that got us into this mess and President Obama and the Democrats are working hard to get us out of it. Let’s take a closer look.

What blew up in 2008? It was the housing market. The underlying cause of the problem has Democrat/liberal/progressive fingerprints all over it going back to Franklin Roosevelt who created Fannie Mae. Add into that mix Lyndon Johnson privatizing Fannie Mae to hide it from the budget and creating HUD; Jimmy Carter creating the Community Reinvestment Act; Bill Clinton pushing for more home ownership among those who could least afford it, Andrew Cuomo as HUD Secretary pushing Fannie and Freddie to take on riskier mortgages; Barney Frank and Chris Dodd fighting against regulation before they were fighting for it (and where have we heard that formulation before?); and when housing prices run out of gas and the house of cards that the Democrats built collapses, it’s all Bush’s fault.

Let’s look at the timeline. When he took office, President Bush was handed a recession from Bill Clinton resulting from the dot.com bubble. In less than a year we had 9/11. In spite of that, Bush pushed through tax cuts and got the economy to grow through most of his presidency. The Democrats took control of Congress in January 2007 and in December 2007 the economy went into recession. One year later Barack Obama is elected President of the United States. Now, more than a year and a half after Obama is in office the economy looks like it is slipping into a double dip recession, and this is the Republican’s fault? Who has been spending like a drunken sailor? Who wasted almost $1 trillion on a stimulus plan that was so ineffective the Obama administration had to invent a new statistic, “jobs saved”, to hide its dismal performance. They add on ObamaCare, which no one in Congress read before voting on it and no one knows what is in it and so no small business is going to hire anyone until they know what it costs. How is that the Republican’s fault or Bush’s?

We are just a few months away from the tax cuts put in place by President Bush expiring. President Obama wants them to expire. This will place an additional massive burden on small businesses and just about everyone else and he wonders why aren’t companies hiring? The man came into office with no executive experience and the year and a half he has been in office he hasn’t seemed to pick up any. Could it be because he is surrounded by advisors who have little to no executive experience themselves?

To my fellow Americans I say, hang in there it is less than 100 days to vote the bums out. Perhaps not all of them, but at least we can bring in some adult supervision. It’s time to stop steamrolling the American people with the socialist programs and to let “We the People” take back our government.

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Here Come the Dodd-Frank Unintended Consequences

by Bill O'Connell on July 23, 2010

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The rush to push through the Dodd-Frank Act, unread by those who voted for it, is working to bring the greatest economy on earth to a grinding halt. Here is exhibit A.

The Wall Street Journal reported that The Ford Motor Company wanted to issue bonds that were backed by packages of auto loans, but had to pull the issue because of the new Dodd-Frank Act. Dodd-Frank requires that issuers include credit ratings in its offering documents, that is, it has to disclose what credit rating agencies such as Moodys, Standard and Poors, and Fitch say about the quality of the bonds. Those rating agencies, however, have refused to allow companies like Ford to use their ratings in their offering statements because the Dodd-Frank Act now holds them legally liable for the quality of their ratings. In other words, if those credit rating agencies say the bonds are high quality, and it later turns out they don’t live up to that rating, the rating agencies could be sued for damages. This has brought the $1.4 trillion asset-backed securities market to a standstill.

Ratings companies argued that the new law effectively would render them “experts,” which brings with it potential new liability akin to those held by auditors and lawyers.

“The inclusion in the offering documents are an unacceptable risk,” Dan Curry, president of DBRS Inc., a bond rater, said. He said the expert liability is “really the standard for an auditor” and shouldn’t be used for rating agencies, since their opinions are “an attempt to predict future outcomes.” – WSJ, July 21, 2010

Gee, how long did that take to gum up the economic works? Less than twenty-four hours. This legislation was rushed through without waiting for the report from the Financial Crisis Inquiry Commission to tell Congress what the root causes were so, perhaps like grown-ups, they could actually craft legislation that would address the root causes rather than hamstring the economy.

The Securities and Exchange Commission just issued a six month waiver to the requirement that credit ratings must be included in bond offerings. That should give us enough time to send all these overpaid progressive chowderheads packing and reclaim our country.

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Fire, Ready, Aim

by Bill O'Connell on July 22, 2010

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The Sherrod incident is the latest in a long line of shoot from the lip misfires from the Obama administration, from the president on down. Here is a review of some of the more egregious of them:

President Obama, without waiting for the facts says the Cambridge, Massachusetts police department “acted stupidly,” in an incident involving African American professor Henry Louis Gates. A picture from the “beer summit” shows the president confidently striding toward the cameras while in the background Sergeant Crowley takes Professor Gates arm to help him negotiate the stairs, as Professor Gates walks with a cane. Racist?
With 13 dead Americans at the hands of terrorist Nidal Hasan, Janet Napolitano comes out and claims, “The system has worked really very, very smoothly over the course of the past several days.” A few days later she would eat those ridiculous words.
Not to be outdone by herself, after another terrorist attempt on our soil in Times Square, Secretary Napolitano quickly came out to label the attempt a “one-off” and the suspect a lone wolf. As the investigation picked up steam there were all sorts links to terror groups in the Middle East.
When the president of Honduras tried to override term limits and become the next Hugo Chavez, the Honduran government enforced its laws against the changes that its president was trying to illegally implement. The Obama administration immediately labeled the legitimate actions of the democratically elected Honduran government a coup. Hillary Clinton’s State department cancelled the visas of all members of the Honduran Supreme Court. Not to be intimidated by Chavez, Castro, or Obama, Honduras stood its ground. The Congressional Research Service looked at the Honduran Constitution and the actions of its government and found that the government acted properly and within the law.
When Arizona reached the end of its rope and could not get the Obama administration to enforce the law on the border, they passed a law to give their police greater flexibility to determine the legal status of people stopped for another police matter. The Obama administration immediately called the law unconstitutional. When asked if they read the massive 10 page law, that’s right 10 pages, both Attorney General Eric Holder and Secretary Janet Napolitano (yes, her again) both said they hadn’t read it before declaring it unconstitutional. This administration pushes through legislation running thousands of pages each and they can’t find time to read a ten page law before condemning it.
Department of Agriculture employee Shirley Sherrod gave a speech to the NAACP where she spoke about her transformation from having a racial bias in a decision she made 24 years ago, to today where she tries to treat all individuals regardless of race. Only the first part of the story was headed toward the airwaves, the part about her past discrimination, and before the news hit the air she was fired by the Obama administration. Had they watched the whole tape before acting, they wouldn’t be swimming in apologies right now.

Is this just the lack of experience or does the Obama administration need adult supervision? They jump to these wild conclusions and then end up backtracking days later. After eighteen months in office you would think they would have learned by now how to govern.

Another case without as quick a trigger is the passage of the Dodd-Frank financial reform bill. After taking office President Obama appointed a commission, the Financial Crisis Inquiry Commission to investigate the root causes of the crisis. A prudent person might say, let’s hear what the commission finds out and then write legislation to address those root causes. With months more to go before that commission’s work will be done, we have another 2,000+ page bill coming out of Congress and signed by the president to put new regulations in place on the financial services industry. Why the rush? Wouldn’t it be better to fix the real problems rather than what Chris Dodd and Barney Frank think are the problems and let them paper over their own culpability in the creating the crisis? Why were Fannie Mae and Freddie Mac excluded? In one of the hearings before the commission an argument was made that AIG did not have to be bailed out, that there were measures in place to ride out the crisis and that in the long run their policies would be fine. Whether that is true or not, will have to wait for the final report, but the “just don’t stand there, do something,” mentality is disconcerting. I certainly hope we are never faced with another Cuban Missile Crisis with this team in place.

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The Regulators are Dead, Long Live the Regulators

by Bill O'Connell on June 28, 2010

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As written about extensively here, government regulators have failed us in so many ways that to continue the practice of putting more control in the hands of government is lunacy. To wit:

The financial crisis, although typically blamed on Wall Street greed, was due in large part to government agencies and programs (Fannie Mae, Freddie Mac, HUD, Community Reinvestment Act, National Homeownership Strategy) that opened the door through which Wall Street followed.
The oil spill in the Gulf happened after regulators either signed off on waiver applications from BP or just didn’t enforce the regulations on the books
Anywhere from $60 billion to $100 billion is stolen from Medicare/Medicaid every year and our government can’t seem to stop it
First time homebuyer tax credit was claimed, to the tune of $9 million, by incarcerated felons.

But the current administration insists that government must get bigger to tackle our nation’s problems and must tax us more to do so.

Senator Chris Dodd and Representative Barney Frank were at the heart of the financial debacle, claiming that Fannie Mae and Freddie Mac were in sound financial shape. Meanwhile Senator Dodd was getting a sweetheart mortgage from Countrywide as a “Friend of Angelo” Mozillo, the CEO of Countrywide. Now we are to believe that Senator Dodd and Representative Frank have ridden to the rescue and have crafted the solution we have all been waiting for, just don’t ask about Fannie and Freddie, they aren’t included in this master work.

The Federal Reserve will now have more power to regulate banks, after failing to monitor what was going on at Citibank and having the government step in because they were “too big to fail.” The Treasury stepped into to bail out some banks and let other financial firms like Lehman Brothers to go under, will now have more power to determine which financial institutions are sound and which ones are not and step in to take control without allowing the bankruptcy courts to get involved. The SEC which was asleep at the switch, or too busy watching porn on taxpayer purchased computers, when the Bernie Madoff scam was delivered to them wrapped in a bow, will now have more power to decide how easy it will be to allow union pension funds to place their candidates on boards of directors.

The new legislation, which does nothing really new, runs to 2,000 pages (did you expect something less?) and leaves much of the details to the regulatory agencies themselves to fill in the blanks. And never to miss an opportunity to slip a new tax into the mix there are $19 billion in new taxes to pay for this new regulatory oversight.

So when regulators fail, the government’s response is not to look at government’s role in creating the original problem, but to blame any private interests and add more regulations that will increase the scope and power of the government, take away your liberties, and do nothing to fix the original problem. When the next crash comes, and it will, these same folks will say, “oh, dear, how did this happen?” They will blame any private interests that are anywhere near the problem, absolve government agencies of all blame, and layer on more regulations.

The only way to fix this problem is to make sure these same folks are not around in the future and to cut the government down to size.

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Putting the Champion of the Little Guys Myth to Rest

by Bill O'Connell on April 20, 2010

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The Democrats are currently trying to roll out that old war horse, “class warfare” in a desperate attempt to arrest their freefall in the polls. The myth is that they are for the little guy when they are the party of big government. Businesses, once they get big, are hardly fans of the free market as they would much prefer to settle into a profitable market niche and not have to keep battling against upstarts.

Show Me the Money

An organization known as OpenSecrets.org, has a website that has information on contributions to the 2008 presidential campaign. The list of top contributors is not a list of contributions by corporations but by contributions from those company’s Political Action Committees, its individual members or employees or owners, and those individuals’ immediate families, but it does give you a sense of where the people who make up these companies see their bread buttered.

If you look at the top 20 donors to Obama compared to the top 20 donors to McCain, the 20th donor on Obama’s list gave 32% more to Obama than the top donor to McCain. As with any large organization there will be individuals who support Republicans and individuals who support Democrats, as well as their PACs wanting hedge bets by giving to both. But the amounts are telling.

What is particularly illuminating is with regard to Wall Street and the Banks. The Democrats are latching onto the sound bite that they want more regulation to protect the little guy, while the Republicans want less regulation so that Wall Street and the banks can get rich at the expense of the little guy.

Who’s Dumber Wall Street or the Democrats?

Does anyone believe that the leaders of Wall Street would give money to a candidate or party without expecting their point of view to be heard? Does anyone believe that the Democrats would take contributions and then turn around and burn those who contributed so generously, particularly before a very tough election? Okay, now that we have that settled let’s look at the numbers.

The top Wall Street and Bank Contributors to Obama’s election were as follows:

Goldman Sachs — $994,795
Citigroup — $701,290
JP Morgan Chase — $695,132
UBS AG — $543,219
Morgan Stanley — $514,881

The top Wall Street and Bank Contributors to McCain’s election were as follows:

Merrill Lynch — $373, 595 (subsequently sold to Bank of America)
Citigroup — $322,051
Morgan Stanley — $273,452
Goldman Sachs — $230,095
JP Morgan Chase — $228,107
Wachovia — $195,063 (acquired by Wells Fargo)
UBS AG — $192,493
Credit Suisse — $183,353
Bank of America — $166,026
Bear Stearns — $117,498 (subsequently sold to JP Morgan Chase in a fire sale)
Lehman Brothers — $114,357 (Bankrupt)

It looks like four of the companies with people who gave to McCain didn’t survive the meltdown and either disappeared or were swallowed up by the winners. If you look as people from companies that gave to both candidates, the amounts are significantly different:

Goldman Sachs associates gave $764,700 more to Obama than McCain
Citigroup associates gave $379,239 more to Obama than McCain
JP Morgan associates gave $467,025 more to Obama than McCain
UBS associates gave $350,726 more to Obama than McCain
Morgan Stanley gave $241,429 more to Obama than McCain

I am not suggesting any quid pro quo for the contributions, but people do things for a reason. Who do you think will be more sensitive to the needs of Wall Street, Obama or the Republicans?

So look for a Financial Reform package that is a lot of smoke and mirrors that actually does nothing constructive. Republicans will oppose it, and Democrats will try to flog them as being for Wall Street and the Banks and against the little guy, but facts are facts. Remember, after passing ObamaCare Democrats tried to paint the picture that they stood up to the insurance companies, when they passed a law that will compel millions of Americans to become customers of those same insurance companies. Do you think that is why the opposition from the insurance companies was muted?

It’s time to drive home the point that this Administration is allied with Wall Street, GE, health insurance companies against us. It should not be hard to do. People are listening closely like never before.

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You Go First

by Bill O'Connell on May 13, 2009

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Dangerous Clowns

“The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.” — WSJ May 13, 2009

I’ve got a great idea! Let’s have the President of the United States, who has absolutely no experience in running a business, set the compensation policy of all companies who take bailout money, federal funding of any kind, government contracts, or who are subject to federal regulation of any kind.

But President Obama is not without some experience in setting salaries. In Congress, the members vote on their own compensation. Isn’t that how it is where you work? Let’s see. The employees, Congress, tell their bosses, us, how much of a raise they are going to give themselves and there is nothing we can do about it without firing the employees, Congress. In every company where I have worked or have run, the management determines the level of compensation. The employee has the veto power of turning it down and taking their talent elsewhere, but the employee doesn’t say, “I’m giving myself and all my co-workers a 10% raise. If you don’t like it go find new employees.”

Who Got Us Into This Mess?

Before touching a dime of compensation of any private company, start looking at all the people in government who contributed to this mess: Barney Frank, Chris Dodd, Harry Reid, Nancy Pelosi and yes, Senator Barack Obama. They all need a haircut, no, a buzz cut.

Once Congress puts on hair shirts, and a little self flagellation for good measure, and apologizes to the American people for what they did to us, then we can take them seriously about fixing the problems elsewhere. But for now, they should clean up their own house.

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Obama’s Straw Men

by Bill O'Connell on May 13, 2009

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As Barack Obama famously said to Harry Reid, “I have a gift, Harry.” Yes he does. Barack Obama is quite a talented speaker. One of his many talents is his use of props. Huh? One such prop is a rhetorical device that I will call the “Straw Man.”

The Straw Man

Obama uses the straw man to create a fictitious opponent. This opponent is obviously a bad guy. He’s insensitive, greedy, self serving, and even racist where he needs to be. The problem is that he doesn’t exist. But once created, Obama deftly maneuvers the straw man into whatever camp his opponents occupy and by doing so, vilify his real opponents by polluting them with the presence of the evil straw man. Here’s an example.

When Obama was pushing for his stimulus package he said something like this, “I don’t agree with those who say we should do nothing,” and “I don’t agree with those who say only tax cuts will fix the economy,” and “Eight years of tax cuts and deregulation got us into this mess.” Like unmasking a magician, let me share the trick, so you can see it next time. Obama never says who the straw really is, because he doesn’t exist. Who said we should do nothing with regard to the economy? The Republicans who opposed him definitely had different views on what should be done, but I don’t know of anyone who said we should do nothing. So Obama creates this fictitious straw man and you can almost hear the American people booing the straw man as he says it. Okay, let’s check off the people don’t like the straw man. By pointing out his opposition to the straw man and then by pointing out the Republicans are opposed to Obama’s plan, Obama hints that the straw man is really in the Republican camp. Cue the crowd to start booing the Republicans. Pretty neat, eh? He can’t make a frontal attack on the Republicans because he will have to fight them on the battlefield of ideas. He creates an unpopular position that no one has and hangs it on his opponents.

Which regulation was lifted that resulted in the economic problems that we currently have? Which tax cut resulted in the collapse in the housing market? President Obama won’t name them because they don’t exist. Were there government programs that caused this problem? Sure, and I can name them. Fannie Mae, Freddie Mac, Community Reinvestment Act, HUD, etc. Were there people who fought against more regulation? Yes, and they have names. Barney Frank, Chris Dodd, Senator Barack Obama. But these operators and programs are all part of the government and if there is one thing we have learned about President Obama it is that government is not big enough and Americans still have too much liberty left in their own hands. His master plan is to reverse both of these.

Get the Torches Out

So now that you know what to look for, when you see President Obama float another straw man, put the torches to it. If we had a responsible press, they would ask him to reveal who, specifically, he is talking about when he creates these straw men. If he doesn’t have an answer queued up on the Teleprompter, it could be fun to watch.

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The Auto Bailout Clings to Life

by Bill O'Connell on November 20, 2008

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It’s not over yet folks, although your voice is being heard. The big sticking point seems to be whether the bailout money should be taken out of our left pocket ($700 billion TARP bailout package) or our right pocket ($25 billion fund to provide re-tooling for green production). The only people talking about going Chapter 11 are people on the right such as Mitt Romney, who actually knows something about it having watched his father, George Romney, try to save American Motors, as CEO.

Politics Trumps Problem Solving

Barney Frank has weighed in to make sure the class warfare card is played. He compared the bailout of AIG with the bailout of the auto companies as White Collar (AIG) vs. Blue Collar (GM). A blog by dbeale points this out very well. This begs the question: where does it all end? Where do you draw the line? If you bail out AIG, you have to bail out GM because they have blue collar workers. If you bail out GM you have to bail out (fill in the company name) because they have (fill in special interest group).

But if you read the post carefully you can see the true political objectives of the Democrats and their supporters:

Give the auto companies a bailout
Fire most of senior management for mismanagement
Threaten bankruptcy but don’t do it
If the auto companies don’t reinvent themselves (which they can’t do without bankruptcy), nationalize them. Don’t call it nationalization, call it a “quasi government takeover”
Make sure the focus is on building high mileage cars, and whatever else the green program demands. Anyone who gets in the way of that goal should be fired. To quote dbeale, “every one involved in undermining gas efficiency standards must go.”
Appoint a automobile czar (don’t call it nationalization) to oversee the companies to make sure that the management isn’t paid too much, that union contracts are reinforced, the “right” kind of cars are built.
Bailout with more government money every 3 years, because the root cause the problem is never addressed.

A Workable Solution

The root of the problem is that the auto companies as they are today, are not competitive. Here is my proposal

Eliminate the CAFE standards. The CAFE standards were introduced 1975 in response to the energy crisis. At least that was the stated objective. The real objective was to curtail the importation of foreign cars, particularly Japanese cars, which could already meet the standards. If you wanted to buy a car that got good gas mileage, you could. This was a attempt by government to force U.S. car companies to make cars of similar economy. However, their cost structure would not allow them to compete with the imports at the low end of the market. G.M., Ford, and Chrysler don’t seem to have a problem making a profit on the luxury end of the market, on SUVs, and light trucks. But if, for example the standard is 27 MPG, and your Cadillac only got 20 MPG. You would have to sell eight compact cars that get 28 MPG for each Cadillac to comply with the standard. However, it is estimated that GM is at a cost disadvantage of $2000 per vehicle. At the luxury end there is enough margin to cover that. At the low end there isn’t. So, GM as a direct result of government policy has to sell eight cars at a loss to allow them to sell one car at a profit. Why not let them sell as many cars at a profit as they can, sell no cars at a loss and let the market decide? If need a high mileage car to save on gas for your long commute, buy a foreign car.
File bankruptcy. Reorganize and get rid of those things that are killing you. That’s what the bankruptcy laws are for. Yes, shareholders may get wiped out, union contracts will have to be renegotiated, commitments to continue paying revenue bonds for plants that are no longer needed can be renegotiated or voided, pension commitments revisited, etc.
Slim down, come out of bankruptcy, and get competitive again. The Big three made about 17 million vehicles in 2007. Does any rational person believe that if the Big Three go into bankruptcy that the people and companies that bought that many vehicles will no longer need cars? If they still need cars, someone has to build them. That can either be the foreign makes, the slimmed down Lean Three, or new companies that are formed to take advantage of this huge demand for 17 million vehicles that no one, or not enough are stepping up to the plate to meet it. People will be re-hired, sub-contractors will have new subcontracts, and the auto industry can actually thrive and not just limp along from bailout to bailout.

The key to this working is to get government out of the mix. We are facing a plethora of problems and most of them can be traced to government intervention in the market place. The financial crisis is a direct result of government programs such as Fannie Mae, Freddie Mac, the Community Reinvestment Act, the strong arm tactics of the Clinton Justice Department and HUD to demand more sub-prime lending, and the resistance of Barney Frank and Chris Dodd for more oversight.

The tragedy is that we have problems created by the government and we think that more government is going to fix them. Keep up the fight. Let your representatives and senators know, NO BAILOUT

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