Wednesday, November 12, 2008
Government Transparency???
While we fret over Socialism under Obama – which I guess means helping citizens rather than Corporations - the Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets they are accepting as collateral. Federal Reserve Chairman Ben Bernanke said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Federal Reserve is lending far more than that in separate rescue programs that don’t require congressional approval, Americans have no idea where their money is going or what securities the banks are pledging in return. We are suckers!
Tuesday, November 11, 2008
Should we bail out the Big 3?
The Big Three US auto makers are trying to make the case that they are victims of the financial crisis, and therefore deserve a piece of the federal handout/ bailout. GM sales dropped 45 percent in October. Ford and GM lost nearly $15 billion in cash between July and September, and GM says it might not have enough cash to operate by early next year.
But the mess these automakers find themselves in has been coming for decades. Once a dominant market force, GM had 50 percent of the U.S. market in the 1960s. It is down to around 20 percent now. U.S. consumers have been saying no to these automakers with their pocket books for a long time. Now, in a true bit of irony, US taxpayers will be asked to put their tax dollars at risk to preserve the very companies from which they no longer wish to buy cars.
The United Auto Workers share much of the blame. The UAW has burdened the Big Three with unsustainable labor costs and obligations to retirees. While the Big Three have attempted to get out from under their grip, Ford still lost $1,467 per vehicle in 2007, while GM lost $729 and Chrysler lost $412. Toyota and others profitably manufacture almost 4 million cars in nonunionized states in the South.
The case for the bailout is that the job losses from a GM failure - 100,000 directly, and hundreds of thousands more in supplier factories - would be too much for the US economy to handle, and the government would have to back GM's pensions. Such rationale effectively defines GM as a job programs and welfare agency. A bailout of the automakers would signal a new era of government protection from corporate failures. What would stop every other troubled business from asking for federal cash?
Perhaps a deal can be worked out where government funds are only committed if the Big Three agree to file for bankruptcy. A bankruptcy court could then reduce the obligations to retirees, reduce dealerships, and cut back on wages and benefits, and replace senior managers who let this happen.
But the mess these automakers find themselves in has been coming for decades. Once a dominant market force, GM had 50 percent of the U.S. market in the 1960s. It is down to around 20 percent now. U.S. consumers have been saying no to these automakers with their pocket books for a long time. Now, in a true bit of irony, US taxpayers will be asked to put their tax dollars at risk to preserve the very companies from which they no longer wish to buy cars.
The United Auto Workers share much of the blame. The UAW has burdened the Big Three with unsustainable labor costs and obligations to retirees. While the Big Three have attempted to get out from under their grip, Ford still lost $1,467 per vehicle in 2007, while GM lost $729 and Chrysler lost $412. Toyota and others profitably manufacture almost 4 million cars in nonunionized states in the South.
The case for the bailout is that the job losses from a GM failure - 100,000 directly, and hundreds of thousands more in supplier factories - would be too much for the US economy to handle, and the government would have to back GM's pensions. Such rationale effectively defines GM as a job programs and welfare agency. A bailout of the automakers would signal a new era of government protection from corporate failures. What would stop every other troubled business from asking for federal cash?
Perhaps a deal can be worked out where government funds are only committed if the Big Three agree to file for bankruptcy. A bankruptcy court could then reduce the obligations to retirees, reduce dealerships, and cut back on wages and benefits, and replace senior managers who let this happen.
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