Fighting to Preserve Liberty in America
As I check the current price of GM stock this morning, $31 per share, and I contemplate how in the world it is going to reach the $53 per share price Americans need to fully recover their “investment” in the automaker, a recent news story lays it on the line. It’s not going to happen. The Obama administration has announced that it is demanding that auto companies double the mileage that their fleets get, to 56.2 miles per gallon, by 2025.
The Tea Parties sprang to life after seeing cyincal politicians advance their own agenda that most Americans knew wouldn’t work, but damn the people, the politicians plowed ahead. It was about the time of the great stimulus program that we were told (and didn’t believe) the program would cap unemployment at 8% for the mere cost of nearly $1 trillion. If we didn’t act, the politicians somberly pronounced, we would face the dire situation of 9% unmployment.
Republicans have to learn to stop fighting by the Marquis of Queensbury rules, while Democrats, bite, kick, pull hair, scratch and hit below the belt. Yes, Christ told us to turn the other cheek, but he also overturned tables, formed a whip out of cords and drove the money changers from the temple. In other words, sometimes you have the hit the bully hard between the eyes before he learns to stop being a bully.
So if the Republicans regain control of Congress in November, they should open the new Congress in January with detailed hearings on what happened to Fannie Mae and Freddie Mac and don’t pull any punches. By that I mean if they need to put Andrew Cuomo in the witness chair, even if he is the governor of New York, which he probably will be, then they should do so. It’s time to stop playing patty-cake.
For all the hoopla of the Dodd-Frank Act, Fannie Mae and Freddie Mac were left out of the new regulations. Oh, we’ll get to those later. Okay, let’s get to them with the Republicans in charge. Let’s expose how it was our government that got us into the housing mess and let’s do this before the Democrats re-write history and paper over their culpability in the greatest financial crisis since the Great Depression. It’s time to put the big lie to “it’s all Bush’s fault and Republican policies.”
The papering over has already started by none other than Franklin Raines the former head of Fannie Mae who received bonuses of over $90 million while at the helm of Fannie Mae and was also charged with cooking the books that helped him receive those bonuses. He reached a settlement with the SEC and gave back about $1.8 million from the profits in the sale of Fannie Mae stock and gave up $5.3 million in future benefits related to his pension. But he essentially kept the rest, what the Wall Street Journal called a “paltry settlement.”
Mr. Raines claims the demise of Fannie Mae and Freddie Mac, to which taxpayers have already coughed up $145 billion, was due to bad credit decisions made after he left the firm. To put it in his own words:
“The Journal had been warning for years that the on-balance sheet portfolios of Fannie and Freddie would lead to their demise. Mr. Carney suggests that excessive leverage was the culprit. Unfortunately, neither of these were involved. Nope. Just bad credit judgments. Decisions made, by the way, while operating under close regulatory scrutiny.”
According to the Wall Street Journal “What he doesn’t say is that Fan and Fred had a political and legal mandate to support low-income housing.” To meet this mandate which had increasing goals each year, Fannie and Freddie had to cast a wider net to find these borrowers and the wider they cast the net the lower their standards had to be. Thus more creative types of mortgages were created to lower the bar such as, interest only loans. This scheme would continue to work as long as housing prices kept rising but that could not go on forever. When the music stopped a lot of people were left standing without chairs and we all lost. People’s credit ratings were destroyed, mortgage securities were worth far less than face value, people walked away from houses, and taxpayers were forced to pick up another “too big to fail” enterprise. By the way, where in the Constitution does it authorize the federal government to get involved in helping people buy houses?
The secret veil put in place by the main stream media has been lifted. With the Internet and the bloggers and cable television and talk radio, the main stream media can no longer keep information that does not comport with their agenda hidden from the American people. The American people are energized and informed but that may not last long after the election, if we don’t continue to engage them. Uncovering the true “swamp” that is our federal government and draining it should begin by letting the sun shine in. So let’s do away with the good ol’ boy politics of not rocking the boat when you gain control so that they won’t rock the boat when they get it back. If we don’t have a new class of non-incumbents who are willing to go to Washington and clean it up, really clean it up, we need to get rid of them and put new people in their place. If that means replacing Republicans with better Republicans or Democrat incumbents with better Democrats, so be it. We have to end the process of only being able to choose between two pathetic life time politicians who have never lived in the real world.
After receiving one too many e-mails, post cards and other marketing pitches to extoll the virtues of ObamaCare, I felt compelled to send the following letter to Congressman Tim Bishop.
Dear Congressman Bishop,
Judging by the e-mails and mail pieces the marketing program now begins. To tell the 50%-60% of Americans who adamantly opposed ObamaCare, now that it has been signed into law, what good medicine it really is. Before I point out the areas on which we disagree, I would first like to call for a sense of honesty in the debate on healthcare. I applaud you for such honesty where you say on your glossy postcard that it was prepared, published and mailed at taxpayer expense. I challenge you, however, on your opening sentence.
You begin your piece by stating, “On March 21st, we stood up to big insurance companies and passed health care reform.” Really? How is using the full coercive power of the federal government to unconstitutionally force millions of Americans to buy the products of these big insurance companies, whether they want to or not, standing up to them? I’ll bet Wal-Mart wishes you would get tough with them and require all Americans to shop there on Thursdays. Are you next going to get tough with GM and Chrysler by passing legislation forcing us to buy a Malibu or a Ram pickup truck? Of course you will probably smack them around and make them comply with tougher CAFE standards, but hey, that’s what big government is for, no?
I am still waiting to find out how spending $1-$2 trillion dollars results in reducing the deficit by $143 billion in the first decade. This may be presumptuous but I have a suggestion on how to lower the deficit by $1-$2 trillion. Repeal ObamaCare and start over.
Nothing in this legislation actually goes to the root cause of reducing the cost of delivering health care. It’s all giant shell game about hiding whose pocket the money is coming from to really pay for the same old broken system. Here are some of the “benefits” you point out in your mail piece:
- Free Preventive Care Under Medicare – this eliminates co-pays and deductibles under Medicare. This doesn’t reduce what it costs medical professionals to deliver preventive medicine, it just lowers the price to consumers. Economics 101 says when you decreases the price the demand goes up. By eliminating co-pays and deductibles, someone has to make up this modest difference. It is either the medical professional who has to eat the cost, driving up rather than reducing the cost of preventive care, or it will be subsidized by the rest of us through taxes. You are betting that if every senior gets preventive care, more expensive treatments will be avoided later. The real question is: how many seniors are not getting preventive care because they don’t have a $20 co-pay and of that group, how many turn out to have a serious disease that could have been prevented? This is a much smaller group than all seniors. You cannot make seniors go to the doctor for preventive care if they don’t want to, whether it is free or not.
- Free Preventive Care Under New Private Plans– When I had my own small business, I provided our employees with healthcare. I chose a plan that provided free preventive health care. When I left that business and went out on my own, I tried to buy the same plan privately. It had a high deductible, HSA account, and free preventive care. Such plans are available, but not in New York unless you have poverty level income. The marketplace has these plans available. Government regulations prevent me from buying them. Why do we need to spend $1-$2 trillion to give me a plan that the marketplace already provides if government will just get out of the way?
- Ensuring Value for Premium Payments – This is where you require plans to spend a certain percentage of premium dollars on medical services. How does this control costs? If the underlying costs increase 100%, does it make us feel warm inside that the 100% increase in premiums that will follow will go 80% toward medical expenses? It’s still an increase in premiums of 100%.
Let me stop analyzing your mail piece here. Doctors are threatening to leave the medical practice because of this legislation which will lead to rationing. This plan does not address the underlying problem.
There is a simple way to reform health care by controlling the underlying cost of delivering medical care, rather than mandating more and more coverage and expense paid for by someone else. We all pay in the end. Here is a simpler way that does not cost $1-$2 trillion dollars but may take some of that courage you boasted about in your opening sentence.
- Eliminate 3rdparty payer. If you invite me to dinner and you tell me that you’re picking up the tab and I am handed a menu with no prices on it, look out! It’s gonna hurt. Americans are smart consumers. They will spend hours researching a car or flat screen TV before buying, because it’s coming directly out of their pocket. They play a role in how much they pay. That’s how markets work. We do not have a free market in health care. The way to do this is with high deductable insurance plans and Health Savings Accounts (HSA). If you take the lower cost of the premium for the insurance piece and add the amount to fund the HSA, the costs are about the same as the premium alone on a traditional plan. I went from a $10,000 annual premium for a traditional plan to a $5,000 premium cost for a high deductible with a $5,000 contribution to the HSA account. If you want to help people with deal with the high deductable, help them fund the HSA accounts, but keep the buying decision in their hands. Trust me, they will ask questions, they will shop around, because it’s their money and the less they spend, the more they keep. Many HSA accounts have a provision to roll money over into an IRA if the account grows large. This will take guts to implement because the public will have to be educated that they will come out ahead when they have the liberty to make their own choices. You seem tough enough to ignore the will of the people to implement what you feel is good for them, why not implement something that will actually work?
- Implement tort reform. Not an experiment here or there. If you want to show how tough you really are, stand up to the trial lawyers who fill Democratic coffers. Implement the system they have in Britain. No contingency fees and loser pays. Maybe I’ll stop seeing commercials on my TV that promote a new drug, followed by a come on from a law firm to call them if you actually took the drug because, “you may be entitled to compensation.” I have no problem with a person getting compensated when they have been harmed through the fault or negligence of a company. Human life is not perfection. We are all different. Some of us can eat three eggs a day and never have a heart problem, others may look at a pat of butter and feel pains in their chest. Lawyers shouldn’t get rich because humans are not perfect and companies can be bluffed into paying these extortionists rather than defending the case on the merits. Lawyers should get paid for the time they put into a case. OB/GYN doctors are leaving the practice in droves because they cannot afford the malpractice insurance premiums. Doctors are practicing defensive medicine ordering every possible test for fear they will be asked later, if a patient gets worse, why they didn’t order that other test. When you add the cost of malpractice insurance on top of the cost of additional tests and procedures, it doesn’t get cheaper to deliver health care and you are not necessarily delivering better health care. Let the doctors practice medicine, tell the lawyers to stop running a lottery.
- Buy insurance across state lines. As indicated previously, the plan I want to buy is available, but not in New York. The market sees a need for such a product, I want to buy such a product, the government says no. You want me to believe that now if we spend $1-$2 trillion the government will solve my problems. Get the government out of my way, thank you very much.
- Have more tailored insurance policies. Why, as I approach the golden years, do I have to buy a health insurance policy that covers pre-natal care? In vitro fertilization? Sex change operations? When I buy automobile insurance, I have about a dozen choices in every category about the kind of coverage I want. How much deductible? Do I want rental car reimbursement? Roadside assistance? Yet when choosing a health care policy, if I have a choice at all, it is a total package, take it or leave it. Who decides what has to be included? Is it me or the government regulators? If I want to have free preventive care, fine let me choose that and adjust the premium accordingly. If I want to pay the co-pay for free preventive care, give me that choice. If we had more choices, as in a free market, costs will go down. If the government says, everyone must take this, there is no competition and costs climb.
- Control illegal immigration – If emergency room costs are driving up health care costs for all, and illegal immigrants use the emergency room as their primary care provider then it would follow if you controlled illegal immigration you would drive down health care costs. Milton Friedman, the great economist, believed in open borders. However, he also said you can’t have open borders and a welfare state. It doesn’t work.
- We need to have Medicare reform. When Medicare passed the government projected that hospital coverage would grow to $9 billion by the early 1990s. It actually grew to $66 billion a 700% error in their projection. We hear again that we are going to crack down on Medicare and Medicaid fraud and this time we really, really mean it. Estimated at nearly $100 billion per year in waste and fraud, why can’t this be done without spending $1-$2 trillion?
What you and this Congress passed is a disaster. If the projections on this monstrosity “miss” by 700% like they did on Medicare, where do we go for a bail out? Who is going to bankroll that one? Your children? Your grandchildren? The six items I laid out cost next to nothing, why not try them first? You can always go back later and say we need to do more. But with ObamaCare, it could be a runaway train that no one can stop. It is a giant shell game. It doesn’t address the underlying cost of providing medical care, it only hides whose pocket is getting picked to pay the bill.
Sincerely yours,
The marketing juggernaut is just getting warmed up, but instead of standing fascinated while your Congressman plays 3-card Monty, ask him or her the tough questions. Ask them calmly, respectfully, and don’t let them dance. If they dodge your question, ask it again. If they don’t… fire them in November.
If we manage to escape the economic catastrophe that is ObamaCare, we may breathe a little easier, but watch the horizon for a storm is brewing that makes the health care monstrosity look like pin money.
Unions have long been in decline in private industry, but recently for the first time union membership in the public sector surpassed that in the private sector, and it is still growing. We all know the stories about municipal workers working for 20 or 30 years, then retiring at 50% to 90% of their last year’s pay which is often inflated with heavy overtime, and then they go out and get another job where they work until retirement and a cushy life of a public pension, a handsome private 401k, and Social Security.
It used to be that it was a trade off that government workers (teachers, cops, firefighters, sanitation workers, clerical) got great benefits because they were paid poorly when compared to the private sector. However that is no longer the case as reported in USA Today:
USA Today reported that nearly one in five federal government employees now earn over $100,000. The paper also reported the average federal salary rose to $71,260, almost $31,000 more than the comparative average private-sector wage.
If that doesn’t get the hair on the back of your neck to stand up as, after all you are who pays for these salaries and benefits, then perhaps this will from National Review’s March 8, 2010 issue:
The highest-paid municipal employee in Madison, Wis., is bus driver John E. Nelson, whose salary last year totaled more than $159,000. Half a dozen of his fellow drivers also earned in six figures. How is this possible? The Wisconsin State Journal explains:“A high base salary and other benefits for drivers were largely set in the 1970s and 1980s, when the city took over the bus company.” Combine that with generous, federally mandated leave provisions that make for lots of overtime, and it’s not unusual for a bus driver to out-earn the mayor (and with much better job security). In the 1950s, Ralph Kramden of The Honeymooners was paid $62 a week by the skinflints at the Gotham Bus Company; he was constantly hatching schemes to strike it rich so he could quit. Today Kramden’s dreams of avarice would have been a lot simpler: get a government job and join a union. — The Week, “National Review,” March 8 , 2010
$159,000 for driving a bus. Imagine. I wonder what the private bus company was paying their drivers before the city took them over? I am sure, like ObamaCare, the takeover was a cost savings measure. After all, those greedy private companies are out to make a profit.
Who was the most frequent visitor to the White House at the time the White House released its visitor logs? It was Andy Stern, president of the Service Employees International Union (government workers), which should tell you where this is going. Remember, as well, that when the federal government took over GM and Chrysler they gave huge percentages of those companies to the unions. So when it comes time to negotiate the next contracts the union will sit on both sides of the bargaining table, as management and labor. How will that turn out? It will be one of two ways, either the union will have an epiphany and realize that profits are important to staying employed, or the unions will pick the bones of GM and Chrysler clean, driving them out of business and leaving you and me, brother, holding the bag.
The Ticking Pension Bomb
The killer, however, is unfunded pension liabilities. All those pensions that we will be paying for with retirees being retired for longer than they worked in many cases, will be like nothing we have imagined before from a fiscal crisis standpoint. In private industry as businesses learned to appreciate the value of their human assets, they treated them accordingly and the unions withered. However in the public sector we have elected officials writing laws, e.g., Davis Bacon, that heavily favor or require union labor. Unions in turn, pour millions into making sure those same politicians get re-elected. Who is looking out for you and me? As the ultimate employers of government employees, how about a law that union contracts must be ratified by the public at the ballot box? Too cumbersome? Okay, how about a law that government employees cannot receive salaries and benefits that exceed what the average private employee (the public employees’ bosses) receives in that geographical area?
Tea Party Members, are you listening?
It is clear from the present administration that the statists believe that it is their destiny to rule, not govern, over the masses who they believe are their intellectual inferiors. Keep piling it on, but don’t worry we can always tax the rich to pay for it. But as you board that bus in Madison Wisconsin, ask yourself if Mr. Nelson behind the wheel, is the rich guy picking up the tab or is it you? Watch out folks, if we don’t do something soon, the rich won’t be rich enough to pay for it even if we tax them at 100% and there is no law to stop them from taking their wealth and moving somewhere else where taxes are lower. And at this rate there are a lot of places in the world where the taxes are lower.
Stock Market Leads the Way
As I write this the stock market is up nearly 200 points, and it has risen in each of the last three months. Commodity prices are rising based on encouraging manufacturing data from abroad. Personal incomes rose 0.5% in April. Chrysler could exit bankruptcy as soon as Monday. Citigroup and GM are removed from the Dow Jones Industrial Average, replaced by powerhouse Cisco and Travelers. Ford motor’s shares rose 4.9% on news that it plans to expand production in the third quarter to try to gain market share from its rivals, and without government money.
The Stimulus Flop
Less than 10% of the $780 billion stimulus package has been spent. President Obama told us we desperately needed or we may be mired in this recession/depression for years . The free marketers said that this economy is strong enough to recover on its own, which the statists sneered at. Government created this mess by their meddling in the housing market and how they mishandled interest rates and the money supply but we were told that “only government” can get us out of it. More recently President Obama, who has been trying to spend every dime Congress will let him get his hands on has said we are out of money. Here’s a thought: repeal the rest of the stimulus and get out of the way of the strongest economy on earth.
Things to Ponder
If the Obama administration is not careful and doesn’t reverse course before he bankrupts us, we may be faced with accelerating inflation and sky high interest rates. Shall we get nostalgic for the days of Jimmy Carter?
I got the phone call around 7:30AM. It was my wife and her voice was shaking, choking back tears. She said she was in an accident and that the truck was totaled. Totaled? I thought to myself, my God, what kind of accident could have totaled a 2 ½ ton, hulking Ford Excursion SUV? Before I could ask the next question, the one I didn’t want to ask, she said, “The girls and I are alright, just some cuts and bruises.” I was able to start breathing again. She began to apologize for the SUV and I gently cut her off. “I don’t care about the truck, as long as you and the girls are okay.” The girls were my two daughters.
I got the location of the accident, briefly told the lead guy in my shop the situation, light on the details which I didn’t have anyway, and jumped in my truck to find them. As I approached the accident scene, I saw an ambulance, with siren blaring and lights flashing, going the opposite way. I called my wife’s cell phone and when I got her I asked, “Did you just pass me in the ambulance?” She said, “Yes, we’re headed to the hospital to be checked out.” So I made a U-Turn to go meet them in the emergency room.
What had happened was that my wife was crossing an intersection when another car blew through the red light. According to one witness it looked like he was going 60 mph, according to another it looked like he was going 100 mph. They said the nearly 19′ long, 2 ½ ton vehicle with a massive V-10 engine that my wife was driving was lifted up in the air, turned 180 degrees and landed on its side. My wife had to kick out the windshield to crawl out and guide our daughters out behind her to safety. Thankfully it didn’t catch fire.
Why the other driver was driving the way he was we never found out. He was pronounced dead at the scene. He was driving a Kia, a small Korean import, and before impact, I’m sure he was getting great gas mileage. He went from leaving a small carbon footprint to leaving no footprints at all.
My wife was exonerated from any responsibility for the accident. She and my daughters were completely innocent. Had Ford been required only to build highly fuel efficient econoboxes, half my family would have been killed that morning. In fact, the driver who was behind my wife said that if she had not been there, he was sure he would be dead, as it would have been him that was hit by the speeding car in her place.
They are alive because I have the liberty, so far, to buy any vehicle that I choose and can afford. The choices are many and I have made many choices through my life. That is primarily because the government has not yet taken away that liberty and demanded what types of vehicles can be built and by whom.
My first car was a Toyota Celica, which I purchased just after graduating from college. It was well made, well equipped, and although a little expensive at $4,700 brand new, I thought it was worth it. That car served me well for 105,000 miles. When it was time for a replacement I bought a Plymouth Sapporo and I really liked it. Unfortunately, someone liked it as much and it was stolen when it had just 9,000 miles on it. It was a Chrysler Corporation car, but under the hood it was Japanese. Still living in the Bronx, I decided to buy something functional but not too attractive. I remember my friend’s rationale for buying a Subaru while living in the city. None of the parts fit in a gypsy cab. My next vehicle was a Toyota Corolla.
When my wife and I married in 1986 she brought to the marriage her Ford Mustang. My Corolla was starting to get tired and my wife was pregnant, so it was time to get a new vehicle. I bought a Ford Probe, with front wheel drive and turbocharged. It was hard to decide if it was American or Japanese. It was sold by Ford, built in the United States by Mazda which is a Japanese company, but Ford owned 25% of Mazda at the time. It made for interesting conversation, but not worth losing any sleep over.
After our second child, the Probe and the Mustang were getting a little cramped. So we said goodbye to the Mustang and hello to a Volvo 740 Turbo Wagon. This was my wife’s dream car, owing somewhat to her Swedish heritage.
Things were going well for us and it was time to replace the Probe. I leased a BMW M Roadster and had more fun behind the wheel of a car than I can remember before or since. We both thoroughly enjoyed tooling down the road with the top down, turning heads as we went. Life was good.
My wife and I had two more children and as they grew, the jump seat in the back of the Volvo was less than optimal. In the winter the heat never seemed to reach back there and in the summer the kids in the back felt like a couple of tomato plants in a hothouse. So it was time for our next vehicle, which for the first time I bought completely on the Internet. It was a Ford Expedition. I had seating for eight and room for some cargo as well, and heat and air conditioning all the way to the back. The kids could each sit comfortably without bumping into each other and to reach out and smack someone next to them took some effort. That vehicle served us well for a couple of years and then as they grew, our needs grew and when it was time for the next move, we got the Excursion, bigger, they didn’t come.
Meanwhile things became a little more challenging for us. When the BMW’s lease was up, back it went. I took over the Volvo for a while until I started a new construction related business and then I took over my father-in-law’s Chevy pick-up truck which he left for my son when he passed away. After a year when the business got more established I put the Chevy aside for my son and the company bought a Ford F-350 Super Duty, dual wheel pickup truck with a diesel engine, which I still drive.
Then came the accident. As soon as we got the insurance money for our totaled vehicle we immediately went out and bought another Excursion, with safety the foremost reason. Ford wasn’t making them anymore so we bought a used one. I wanted my family protected.
When my son moved out freeing up a seat on the “bus” and my wife started selling real estate and gas prices started to climb, we reevaluated the Excursion. The Volvo was gone, and at twelve mpg and my wife driving a lot more, it didn’t make sense. With five of us at home, at worst we could all fit into the pickup truck with its crew cab. So she bought a Volkswagon EOS. The savings on gas would make up for any differences in payments on it. She now had her own convertible and was very happy.
About six months later, my older daughter got her license and wanted a car. She didn’t have much money for purchasing it or for gas so she needed something economical. Her choice, a Volkswagon Jetta.
What’s the point of this stroll down vehicular memory lane? To demonstrate that with liberty we have a great many choices. We also have different needs at different times in our lives. Through a free market I was able to select from a number of vehicles from different manufacturers, from different countries, to find what fit our needs. Those companies decided what to build to suit the market. The cars that I eventually chose, though not done conscientiously at the time, were from each of those manufacturer’s strengths, not their weaknesses. I did not choose an economical car, when I needed one, from one of the Big Three. We did however, choose some of their sporty models (Mustang, Probe) and their trucks (Excursion, Expedition, F-350, Silverado).
The market should tell them what cars to build and build at a profit. Government should not require them to build six or eight cars that they have to sell at a loss for each vehicle they can sell at a profit, to meet some government mandate such as CAFE standards. As the market causes fuel prices to rise, the market will react with increased demand for more fuel efficient cars. We should be able to choose when that works best for us. If we have a distance to commute, we will more inclined to factor fuel efficiency into the equation. However, if we want to travel in luxury two miles to our favorite restaurant, who cares if the car that gets us there only gets 8 mpg? Many families have more than one car for that very reason. Who is some government bureaucrat to tell us what we can choose among?
This Thanksgiving I can sit down with my family, and be thankful that I had that choice, and I can hug each one of them and pray it stays that way.
It’s hard to read the news about the auto industry and not clench your fists at the outrage. GM and to a lesser extent, Ford and Chrysler, are asking the American taxpayer to bail them out, but what is their position?
This company negotiated an agreement with its union that pays them almost full pay if they are laid off. Let me get this straight. You lay people off, as painful as that may be, to cut costs. GM negotiates an agreement that keeps the costs, but sends the people away. From their perspective, it’s free labor, they pay for it either way so put them to work! But no, I’m sure there are union restrictions about what you can put them to work doing.
In 2000 we saw the Dot.com bubble. What was the fallout? Millions were lost on Wall Street. Companies by the bushel basket went out of business. Thousands were thrown out of work. How much did taxpayers cough up to bail them out? Nothing. The market dealt with it. The strong companies re-grouped, the weak fell by the wayside. John Chambers, CEO of Cisco Systems, changed his own salary to $1 per year until he righted his ship. Today Cisco has $26 billion in the bank and Chambers is still at the helm. Nice work, John. It wasn’t done with arrogance and going hat in hand to Washington looking for a hand out.
In the 1970s and 1980s in the UK, British Leyland, maker of the Triumph, MG, Rover, Jaguar, Austin and five others, was in need of a bailout to keep going. The British government complied eventually pumping in $16.5 billion in taxpayer money to the company. It limped along for another few years and then went out of business. It sold its Jaguar and Land Rover brands to Ford, which then poured $10 billion into Jaguar. It recently sold both brands to Tata of India, getting back about half of what it paid for the brands.
Did the British economy go under? Is the British military without tanks? Let’s not forget that the Jeep was made by American Motors. Where is American Motors today? A company named AM General makes the military Hummer. Guess what the “AM” stands for? GM, Ford and Chrysler combined made about 17 million vehicles in 2007. Does anyone think this demand will vanish if GM, Ford and Chrysler vanish? Of course not. Either GM, Ford, and Chrysler will re-make themselves, new companies will emerge, or U.S. based foreign companies will grow to take up the slack. The jobs will move around. The demand is there, the supply will emerge to satisfy it.
The way out of this mess is to go Chapter 11, reorganize, renegotiate onerous labor contracts, sell off properties no longer needed but tied up in commitments to bonds that were sold to attract a factory, etc. The government should do their part and dump the CAFE standards. Americans will still want high mileage cars and companies will build them. It may not be GM, Ford and Chrysler who build them, but if they trim down, maybe they will. But they do make a profit on their premium models and light trucks. Let them.
But keep your hand out of my wallet.
The conga line for companies with their hands out forms on the left. The next ones bellying up to the slop trough are GM and Chrysler. They need $25 billion to help them through a tough patch or they may go out of business. It is a loan? Is it buying a stake in the company? Is it that thing of which we dare not speak– socialism?
The question is are we, by the continued intervention of the government, managing our way out of a recession and into a full blown depression? For all the warm memories of FDR, the depresion lasted more than twelve years thanks to, “We’re from the government and we’re here to help.” Perhaps it’s time to take our medicine, pull the covers up under our chin, sweat it out, and get back on our feet.
Business, like many things, runs in cycles. There are up cycles and there are down cycles. We can’t eliminate them, they are a necessary part of the process. But just as there is no cure for the common cold, sometimes it is best to let it take its course as soon as possible and be done.
I don’t believe so. It was unfortunately necessary to end the panic. When lenders have no confidence that if they lend they will be paid back, and if they have non-performing assets and they can’t sell them because they don’t know how to price them, the whole system locks up. The system needs a lender of last resort and the only one big enough to step into that role is the government. However, that should be for the least amount of time possible.
The auto industry has had 35 years to figure this out. With the Arab Oil Embargo of 1973, Japanese auto companies made major inroads into the automobile markets. Imagine buying a car that got 20 miles per gallon, rather than 8, was better built, and cost less. Well, that’s what the Japanese companies were offering, but what did Detroit learn? Union contracts too expensive, let’s invest in robots and get rid of the expensive people! GM bought boatloads of robots and later ended up scrapping them. Why? Because the workers weren’t the problem.
Who transformed the Japanese auto industry? An American by the name of W. Edwards Deming. After World War II, Japan’s industry was in shambles. Deming went to help them get their industry back on its feet and taught them about statistics and quality control. They learned their lessons well. They focus on incremental changes every day. If someone sees a problem on the assembly line and takes action to stop the line, he doesn’t get chewed out, he gets applauded.
The Big 3 have had all this time to figure out what they were doing wrong and fix it, but what did they do? During the good times, they just rolled along. If signing a big labor contract kept the peace and kept the factories running, they would buy off the unions. But when the trouble starts, there’s no room to maneuver.
The Japanese saw the need to cut back further on fuel consumption, but they knew there was a limit as far as how much mileage you could squeeze out of a gasoline engine, so they came out with hybrids. Initially they were a novelty, but when gas was headed for $4 per gallon, they we economical. Where was Detroit on this? Lagging behind, of course. Don’t develop a hybrid car until your customers demand it, but by the time they do, they would rather buy the tried and true hybrids being built by Toyota and Honda. Ford promised to produce 250,000 hybrid cars but rescinded that pledge nine months later. Why?
“According to a Ford spokesperson, an internal panel of experts analyzed customer interest in hybrid cars and did not feel that there was enough demand to warrant the expense of building 250,000 hybrids.”
What was the price of a gallon of gas when they made that decision? $2.20, the lowest it had been in ten months. The other half of that article quoted above said, “Toyota remains top hybrid producer.” GM is now placing a very big bet on the Chevy Volt, which will be an electric car scheduled to launch in 2010. Although there is little fanfare, Toyota, Nissan and Mitsubishi are all planning electric cars in the next two years.
So why should the taxpayer be on the hook for the mistakes of the Big 3 auto maker’s management for these past 35 years? Perhaps they should just go into Chapter 11, reorganize and come out as more competitive companies. Why prop them up so that they can stumble along for another 5-10 years until the next downturn and come back to the trough? The stockholders have been electing the boards of directors for these companies for 35 years and buying their stock. The boards have been hiring the management team and providing them with their compensation. The management team has made the product decisions, negotiated the labor agreements, and all the other missteps. Why should American taxpayers have to step up to the plate and bail them out. They got themselves into this mess, let them get themselves out.
But that’s just my opinion.
