Category Archives: Business

That Which Is Not Seen

Jim Manzi points out an excellent example of my piece on how those claiming to want “change” cling so desperately to the status quo, at the expense of the economy and productivity:

The amount that would ultimately be loaned to the Big 3 is unclear, but most observers believe that when all is said and done, it will be much, much more than the $34 billion that the Big 3 have requested. Let’s assume $100 billion. As a pure thought exercise, how many jobs could we create with an extra $100 billion of venture capital? How much more sustainable would these be than jobs in companies that need to come to Washington to beg for capital?

We’re not supposed to ask those questions. These threats of financial armageddon if we don’t bail out the UAW are just scare tactics. It will be very bad in the short run for some locales (including my home town of Flint, and my family there), but the nation would survive, and if we can break out of this “too big to fail” mentality, much the better for it.

I Feel Her Pain

Some thoughts from another Flint native on the plight of GM:

If GM were a horse I would call the vet and have it put out of its misery. I realize how a failed GM will devastate my family as well as this entire country. I get it probably more than most people because I grew up in Flint. But there has to be a better way then giving them our hard earned tax money.

Giving them what they want is only prolonging the inevitable. And, then who is next? Who else wants to go and beg to our government for free money? Steel companies, airlines, states like California? Heck, maybe I should drive to DC in my GM car and get in line?

I wish I had the answers and I realize what a tough job our politicians have on this one. I literally feel torn in half about this. After another blow up on the phone with my mom today I also realize that I can no longer talk to her about it.

I also have family who will be financially devastated by a complete failure of the company (and are already hurting — as she notes, parts of the city of Flint are becoming a post-apocalyptic nightmare). But the current plan is just delaying the inevitable, at taxpayer expense. Their only real hope is a legitimate bankruptcy.

[Update a couple minutes later]

Flint’s (lunatic) mayor to the rescue with a plan:

Williamson is sending City Administrator Darryl Buchanan to Washington D.C. next week to tout his big idea to save the auto industry as part of the Mayors Automotive Coalition lobbying Congress for the Detroit Three’s $34-billion loan.

Williamson said under his idea, each household with a registered voter would receive a $5,000 voucher to purchase a new car. He hasn’t calculated how much the plan would cost taxpayers.

Williamson said the government should use some of the $700 billion previously set aside to bail out the financial industry to fund the vouchers.

“They’re using the money for the wrong things,” Williamson said.

He said he realizes some people may not believe that his ideas would work.

“A lot of people are in shock when I come up with these ideas,” said Williamson, who has previously touted his 2006 “Save All of America” plan aimed at saving General Motors and Delphi Corp. “Many think they’re off the wall, but I’m thinking.”

People in shock when you come up with these ideas? You don’t say…

Will there be a chicken in every pot, too?

[Late afternoon update]

Why the auto bailout sux:

4. Where are provisions for dealing with rewriting the Big Three’s union contracts? Where are provisions for preempting state franchise laws so that dealer contracts can be cancelled or rewritten? The Big Three have to reduce labor costs. They have to shed brands, which means closing some dealers. They have to develop a modern distribution system, which means fundamental changes in their relationship with the dealers.

5. It’s interesting that Ford is asking only for a line of credit rather than cash in hand. I suspect that their reluctance to take the cash now has a lot to do with Dodd’s efforts to force Rick Waggoner out at GM. It’s no secret that the current generation of Fords are modest talents, at best. Yet, so long as the Fords have their super voting rights stock, they will exercise control. One wonders whether Dodd would try to force them to give up their voting control as a condition of taking the cash.

6. If Rick Waggoner has to go, why doesn’t Ron Gettelfinger? The UAW is just as much at fault here as management.

I think we know why. And I’d be a lot more impressed with Chris Dodd’s demand that Wagoner leave if Senator Countrywide would first set an example by resigning from the Senate over his shameful role in the much larger finance disaster.

Inflation Not A Threat

yet. I think that there’s a typo here, though:

Some experts argue that Fed chief Ben Bernanke is simply replacing money annihilated in our economy’s “Great Deleveraging” and that he should print even more. Retired securities lawyer Frederick Feldkamp, a Michigan native, says the Treasury’s nationalization of Fannie Mae and Freddie Mac alone erased $33 billion in bank capital. The Treasury inadvertently wiped out the two mortgage giants’ preferred stock, which hundreds of banks had held as core capital, and which was considered so safe that regulations let the banks leverage that capital by as much as 50 to 1 when making loans. Feldkamp reckons that when banks wrote off the $33 billion in preferred stock, support for about $1.65 billion in debt was erased — a significant credit contraction.

I think that’s supposed to be $1.65 trillion. $1.65 billion is seat-cushion change these days…

Space Solar Power And Launch Costs

There’s a long piece in this week’s Economist on the current prospects for solar power satellites. It’s a pretty good overview, but has a few problems. First of all, it doesn’t mention lasers at all. This is particularly a large oversight when it comes to the discussion of military applications. If space-based power is used for military logistics, it’s unlikely that it will be of the microwave variety — the power density is far too low to be practical for many of the envisioned needs. Lasers are more likely (though they will still not be a cost-effective weapon, despite the paranoia of some who will oppose the concept).

Also, in the discussion on launch costs, they didn’t spend enough time discussing the suborbital route, though they mentioned it. And while there was never much prospect of Gene Myers launching ETs into orbit, the chance that it will happen now is essentially nil, so the discussion of Space Islands is (at best) anachronistic. A description of Bob Bigelow’s activities with his orbital facilities, which weren’t mentioned at all, would have been much more useful and relevant to the reader.

[Update a few minutes later]

There seems to be a push on to get the Obama administration to adopt SBSP as a new energy initiative. Given all the other energy alternatives they want to chase (wind, terrestrial solar, etc.) why not? Even if it doesn’t pan out, it could result in lower launch costs for other things, which (as the report points out) are a prerequisite.

Missing The Real Point

I think that this is a misdiagnosis:

How come nobody connects the following dots:

1. Massive bank problems precipitate a $700 billion federal bailout.
2. Meanwhile, private companies (including automakers) find it difficult to get banks to loan them money.
3. So those private companies go to the feds for bailouts of their own.
4. Nobody says: “The federal government won’t bail out companies that can’t get private loans. That’s why we gave the money to the banks, so the banks could make private loans. Loan money is what banks do. If you need money, go see a banker. We gave them lots of money they can loan out. Maybe they’ll loan some to you.”

Am I missing something?

An excellent point. So I put it to some auto supplier and finance sources, and this is what they say we’re missing: The federal credit bailout ain’t working.

Credit is still frozen. No banks are willing to lend. And the auto companies are still in free fall.

I don’t think that’s the problem at all. I don’t know whether credit is still “frozen” or not (there seem to be a lot of mortgage loans happening), but even if it were melted and boiling, I don’t think you’d find a sane banker who would lend these companies money, even at junk-bond rates, given the nature of their business plans and prospects. That’s why they have to go to Congress…

GM’s “Business Plan”

Manzi is on the job, deconstructing it. Bottom line:

…this is not a real business plan, but simply a political document. It exists to provide political cover to members of Congress. But if that’s the case, it’s an unintentionally beautiful illustration of why industrial policy fails. It’s both economically crucial and very hard to allocate capital well; that’s why people who are good at it make so much money. Businesses struggle to do this well, and they’re really trying. What do you think the odds are that this is a wise use of money, when the people involved are barely pretending to try?

All this is doing is kicking the can down the road, and delaying (and making much worse) the inevitable and painful restructuring that has to take place. And I’m not talking about just GM, or the auto industry.

Nice Little Economy You Have Here

It would be a shame if anything were to happen to it

“We’re on the brink with the U.S. auto manufacturing industry,” Press told The Associated Press in an interview. “If we have a catastrophic failure of one of these car companies, in this tender environment for the economy, it’s a huge blow. It could trigger a depression.”

I’d be inclined to take this more seriously if it weren’t coming from someone asking the taxpayers for a multi-billion-dollar handout.

More Forgotten Men

I hope that the Obama plans to resurrect the New Deal don’t include things like this:

As part of its legislation, the NRA had all kinds of detailed codes for individual industries, describing to the letter how firms must do their business. The Schechters fell under the “Code of Fair Competition for the Live Poultry Industry of the Metropolitan Area in and About the City of New York” (and you thought Atlas Shrugged was fiction….). Among the things the code prohibited was “straight killing” which meant that customers could buy a whole or half coop of chickens, but did not have the right to make any selection of particular birds (such individual selection was “straight killing”).

This last rule was in direct conflict with Kashrut laws, which also served as an informal health code in the Jewish community. As Shlaes points out, the phrase “glatt kosher” referred to the fact that the lungs of the animal were smooth (which is what “glatt” means) and therefore free of tuberculosis. Inspecting the lungs was part of the official process of conferring Kosher status on a butcher shop. Removing unhealthy animals from the stock was one of the core principles of keeping Kosher, and the rabbinical inspectors were fanatic about doing this. But so were customers. As Shlaes points out, individual customers, both retailers and their customers, had the right to refuse individual animals. This minimized the risk of an unhealthy animal getting through when both seller and buyer did such inspections. And it ensured that the kosher laws served as a health code, or perhaps something more like the Underwriters Laboratory or Good Housekeeping seal.

The Schechters, as you may have guessed, were targeted by the NRA enforcement crew. They were inspected repeatedly during the summer of 1934, which forced them to violate their own Kashrut practices, telling customers that they could not reject individual birds as keeping Kosher allowed. Not surprisingly, their deeply religious customer base began to dwindle. The constant inspection turned up a variety of violations, including allegations that they had, in fact, sold sick chickens (not surprising, if true, given that part of their own internal inspection process was negated by the NRA code itself!). They were also accused of “competing too hard” and keeping prices “too low.” Shlaes recounts a couple of hilarious exchanges between the government lawyers and the Schechters where the knowledge of the actor is much greater than the knowledge of the expert.

Eventually, the lower courts found them guilty of 60 different violations and they all served a little bit of jail time. But more important, the Schecters’ lawyer continued to appeal and the case made it all the way to the Supreme Court, where the Roosevelt Administration saw it as the perfect test case of the constitutionality of the NRA, and perhaps the whole New Deal. Coverage of the case, Shlaes shows, was highly tinged with the standard anti-Semitism of the time, especially because the Schechters were right out of Jewish central casting, being immigrants with their Eastern Eurpoean cadences and traditional Jewish dress. It was the Jewish rubes of Brooklyn against the high powered WASP lawyers of the northeast corridor.

Fortunately, they ultimately won, and if was in fact the first hit against the NRA by the SCOTUS (which eventually resulted in Roosevelt’s attempt to pack the court to get it to allow him to rule unopposed). But as the bloggist points out, it’s also a demonstration of the blindness of Jews to their own interests in continuing to support Democrats in general, and Roosevelt in particular. Marxists talk about the false consciousness of the proletariat, but this seems to be a much more clear-cut example.