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December 5th, 2008, 14:32
We've poked at the issue a few times in other threads, but I thought we could focus a bit. Pro/con?

I feel a little sorry for the CEO's. They've got to kiss up since they're begging, but how annoying must it be to sit there and get lectured on broken models and fiscal stupidity by Congress? Who's the fiscal retard here: $34 billion in the hole or $10 t-t-t-trillion? (And don't start with the Dubya crap—congress controls the budget, not the executive branch)

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December 5th, 2008, 15:53
In fairness to government, they do have a broader range of social responsibilities than private companies.

Although they are still amazingly inept.

Did they come up with any decent turnaround plans then? I thought the idea of only giving them money if they could show a workable strategy to not produce shit cars in a few years time was good.
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December 5th, 2008, 16:39
I watched a bit of the hearing yesterday on C-Span(being retired with time on my hands) and there was an idea put out by the GAO Comptroller recommending setting up a board similar to the one used in the 70's Chrysler bailout that sounded like a good plan—where, unlike the TARP, there would be specific people with real authority charged with enforcing specific goals and reporting to Congress.

AFA the actual concept of bailing them out—I don't know. The way they're holding a gun to everyone's head about this doesn't sit well with me—also, I don't believe all this poverty they're crying about. Sales may be down and the economy may suck, but they've been over-inflating the prices of their products for years and this is the comeuppance, I think. I've been a payroll clerk in an auto dealership, and the business model is pretty corrupt, with the execs getting huge bonuses on every single car sold while the salesmen have no benefits and make a very modest amount on commission. The girls in the office who did the hefty and complicated title work made little more than minimum wage. Meanwhile, the hierarchy of upper management had exceeded the amount where social security and FICA had to be taken out of their checks by April each year, and had bonus checks cut twice a month.

My point with this is that the same greed and irresponsibility that we've all talked about regarding the financial industry is rampant at the Big 3. I don't think it will be good for the country if they totally fail, and I do think a double standard is at work to some extent, plus of course, I feel bad for the people who will lose their jobs but, it just sticks in my craw to see another bunch of wastrels get huge sums of taxpayer dollars to fix their self-inflicted wounds.

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December 5th, 2008, 16:56
The tea leaves are currently pointing to the Big 3 getting their money, but getting saddled with a federal oversight council with pretty good reach. When all is said and done, it's basically bankruptcy administered by Uncle Sam rather than a traditional court. Not sure how well that will work, given the frequent conflicts between fiscal prudence and political expedience, but it does have the advantage (from a social point of view) of not letting them dump the pensions ala United Airlines.

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December 5th, 2008, 17:13
While I expect a Detroit newspaper to have a bit of a bias, there's enough independent research in this article to make it believeable. Looks like there's a fair bit of hype going around.
http://www.freep.com/article/2008120…2050400/?imw=Y

BTW, I wonder if, given the dire financial position of the government, the congressmen grilling the Big 3 CEOs over private jets will be taking a Greyhound home for Christmas break. Gotta love hypocrisy.

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December 5th, 2008, 17:34
Originally Posted by dteowner View Post
We've poked at the issue a few times in other threads, but I thought we could focus a bit. Pro/con?
Con.

I feel a little sorry for the CEO's. They've got to kiss up since they're begging, but how annoying must it be to sit there and get lectured on broken models and fiscal stupidity by Congress? Who's the fiscal retard here: $34 billion in the hole or $10 t-t-t-trillion? (And don't start with the Dubya crap—congress controls the budget, not the executive branch)
And don't you start with the "if something went right, it's because of the Republican administration/Congress (or both, depending on who controls which branch); if something went wrong, it's because of the Democratic administration or Congress (whichever branch they control, or if the Republicans control both, it's because the Democrats used to control one or the other, or are expected to control one or the other some time in the future), and if the Dems control both, it's because they weren't quite capable of undoing all the good the previous Republican administration/Congress did" crap. You'll just slip a disk with all those contortions.

Edit: I suppose the biggest employment decline since 1974 is also Obama's fault, or Pelosi's, or perhaps it's because of something Clinton did and only resurfaced now? Nothing whatsoever to do with the doofus who sat in the White House for the past eight years, I'm sure? Geez.
Last edited by Prime Junta; December 5th, 2008 at 18:03.
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December 5th, 2008, 17:54
The brands and productive capacity of the Big Three is worth a lot of money. If they go bust, there will be buyers for them. Americans will still need cars, and these brands and plants will find new owners. Some of them will be foreigners. Most, I believe, would be Americans.

So, here's my plan for bailing out the American auto industry.

(1) Chapter 11 bankruptcy for the Big Three, with the following addition:
* Government guarantee for continued service and warranties during the transition period to new ownership.
(2) Universal health care and government pensions, along with the overhaul Social Security needs. The Big Three funds would be absorbed into the national funds paying for all this. This would level the playing field for all automakers in the US (and, for that matter, put them on the same playing field with the ones in Canada and the European Union), while protecting the rights of the autoworkers.
(3) Changes in labor law that would either make it easy for the non-Big-Three autoworkers to unionize (and thereby gain the same rights as the ones in the Big Three), or guarantee roughly similar wages and rights for all autoworkers, unionized or not.

So, effectively, the market would sort out which automakers are viable and under which conditions, whereas government would aggregate the bargaining power of labor and level the playing field between them.

This solution has the advantage that it's not something radical, revolutionary, and untried; in fact, it's been working reasonably well in Europe for the past sixty years or more.
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December 5th, 2008, 18:59
Originally Posted by Prime Junta View Post
And don't you start with the "if something went right, it's because of the Republican administration/Congress (or both, depending on who controls which branch); if something went wrong, it's because of the Democratic administration or Congress (whichever branch they control, or if the Republicans control both, it's because the Democrats used to control one or the other, or are expected to control one or the other some time in the future), and if the Dems control both, it's because they weren't quite capable of undoing all the good the previous Republican administration/Congress did" crap. You'll just slip a disk with all those contortions.

Edit: I suppose the biggest employment decline since 1974 is also Obama's fault, or Pelosi's, or perhaps it's because of something Clinton did and only resurfaced now? Nothing whatsoever to do with the doofus who sat in the White House for the past eight years, I'm sure? Geez.
I hate to derail my own thread this early, but I've missed you…

I think I've been fairly consistent with a few stances:
1) The "Slick Willie Golden Years" were the result of Republican-designed budgets and minimal interference from Willie
2) Saint Ron and a Republican-led congress teamed to turn around the nation following the disaster that was Jimmy Carter
3) 9-11 was a hugely significant outside stimulus to the system, making direct comparisons involving Dubya term 1 shaky at best, but….
4) Dubya and a Republican-led congress did a good job getting the nation off the mat following 9-11, but….
5) beyond that Dubya has been horrible, and congress is now run by the lefties

http://uspolitics.about.com/od/usgov…division_2.htm
A clarification- when I say "congress", I should probably say "the senate" since nobody gives two hoots about the House of Representative

Interesting note— a certain guy likes to point to the Clinton years as the greatest era in modern history. I would like to point out that the time frame in question was the first time in forever that both houses of congress, and therefore fiscal policy, were under Republican control. Coincidence? Nah, I don't think so either.

As for our impending deep-ass recession slash depression, I blame all of Washington for being so busy arguing about Iraq (which Dubya clearly bungled) that nobody bothered to keep tabs on the economy. We have a democrat-led congress now and Dubya's leadership is insufficient (how's that for understatement) to counterbalance it.

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December 5th, 2008, 20:12
Originally Posted by dteowner View Post
I think I've been fairly consistent with a few stances:
1) The "Slick Willie Golden Years" were the result of Republican-designed budgets and minimal interference from Willie
About which you're wrong, but unfortunately there's nothing I can fit into even one of my marathon postings here that could convince you of that. But I'll keep referring you to Joe Stiglitz's definitive book on the Clinton economy, "The Roaring Nineties," every time you trot this out.

2) Saint Ron and a Republican-led congress teamed to turn around the nation following the disaster that was Jimmy Carter
I'll give you half-credit on this one: Saint Ron's administration did turn around the nation, but laying the disaster at Carter's door isn't quite fair. The precipitating event was the 1973 Yom Kippur war and the following oil embargo. Neither Nixon nor Ford could fix the economy; Carter failed too.

3) 9-11 was a hugely significant outside stimulus to the system, making direct comparisons involving Dubya term 1 shaky at best, but….
Except that economically, it wasn't more than a minor speed bump. The real raping of the fiscal status of the US was done by a combination of the Bush tax cuts (not Congress tax cuts, mind — *Bush* tax cuts) and the disastrous Iraq adventure.

4) Dubya and a Republican-led congress did a good job getting the nation off the mat following 9-11, but….
Again, I disagree — a painted stick would've been as effective at getting the nation to rally around the flag as "My Pet Goat" Dubya and "Undisclosed Location" Cheney.

5) beyond that Dubya has been horrible, and congress is now run by the lefties
OK, I'll give you this one.

Interesting note— a certain guy likes to point to the Clinton years as the greatest era in modern history.
Who?

I would like to point out that the time frame in question was the first time in forever that both houses of congress, and therefore fiscal policy, were under Republican control. Coincidence? Nah, I don't think so either.
Dte, I'm really surprised you don't understand your own political system better than this. Congress *approves* budgets. It doesn't prepare them. The administration does, following which Congress can either approve them or reject them, or, typically, say that they'll approve it subject to certain conditions. The Clinton administration set out explicitly to eliminate the deficit. They did that by raising taxes. To push through those tax raises, they had to fight Congress tooth and nail. It is totally inaccurate, not to mention unfair, that you credit that accomplishment to Newt Gingrich and the Republicans. Sure, Gingrich's folks opposed some spending programs, but if Clinton hadn't cared about the deficit, they would just not have raised taxes — do you seriously believe that Gingrich would've insisted on them? Get real.

As for our impending deep-ass recession slash depression, I blame all of Washington for being so busy arguing about Iraq (which Dubya clearly bungled) that nobody bothered to keep tabs on the economy. We have a democrat-led congress now and Dubya's leadership is insufficient (how's that for understatement) to counterbalance it.
Now, that is utter hooey. Ever since Reagan, the Republican party's economic policy has consisted of:

(1) Government is always the problem and never the solution,
(2) Deficits don't matter,
(3) What's good for the rich is good for everyone (aka "trickle-down economics"), and
(4) Whatever the question, the answer is "cut taxes." (Especially the "death tax" and the capital gains tax, both of which disproportionately benefit the rich.)

Dubya and the Republicans practiced *exactly* this policy — the current disaster is not due to neglect; it's due to consistent application of this specific economic ideology ever since 1982, with a mild let-up during Bush 1 and a brief interlude of sanity during Clinton.
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December 5th, 2008, 20:14
Yes, Prime J—good to see you back on the Front.
@dte:
Okay, much as I feel the futility of the ongoing donkey-elephant blame game, I can't stand it—(#5)this Democratic, 'lefty'-controlled Congress since 2006 that keeps getting invoked: Stop the madness!!
From wikipedia:
Although the Democrats hold fewer than 50 Senate seats, they have an operational majority because the two independent senators caucus with the Democrats for organizational purposes.
And also, it's about teh filibuster:
In the fall of 2007, the 110th Congress' 1st session broke the record, for filibuster cloture votes, topping 70 as of Nov 15, 2007. It is on track to triple the number of such votes in 2008's 2nd session. [13]
I.E.,The 110th Congress has an ultra-slim Dem majority and depends on the two crazy independents(Sanders the Socialist and Lieberman the McCainiac) for everything they get passed. You absolutely cannot say the Dems have had sole control over this fiasco for the last two years when you have a Republican administration and a filibustering Republican almost-majority in the Senate.

Okay, better now—carry on.

I do somewhat agree with your last point though. I'm more than willing to put the responsibility for ignoring the impending meltdown on the shoulders of both parties.

Where there's smoke, there's mirrors.
Last edited by magerette; December 5th, 2008 at 20:23.
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December 5th, 2008, 20:19
Originally Posted by magerette View Post
Yes, Prime J—good to see you back on the Front.
Only briefly; I'm going through a period of extreme work-related stress and this isn't doing my blood pressure any good.

(Yes, it has to do with the recession — the company's called a hiring freeze while going crazy to fill the order books, which means that we're up to our eyeballs trying to deliver on those contracts, while simultaneously feeling that we might all be doomed by this time next year. Also I have to travel to Russia on business the day before Christmas, and I hate the place this time of year; it's just like Finland only with even more puddles and less central heating.)
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December 5th, 2008, 20:20
The politicians are mostly just using this as an issue to grandstand on and get publicity. The problems that are crushing GM, Ford and Chrysler go far beyond not moving quick enough on alternative fuels, higher MPG, and better styling. GM is STILL the number by one volume automaker in the US despite all of this. We can argue about their incentives and such later, but they are still selling an assload of cars.

I do feel sorry a little (not too much, they all get paid more than enough to take on this mess) for the CEO's, because the things that are crushing them they largely inherited. While it is true that the unions have made large concessions regarding new workers, and that the average hourly wage for new workers is close to what Toyota and Honda have in their plants (which are almost all in non-union states), the wages for existing workers and the expenses related to laid off and retired workers are through the roof. Short of government intervention to all them to get out of these obligations, or significantly reduce them, there is nothing they can do.

One thing that REALLY pisses me off is that GM has committed $4.4B over the next two years to a program that pays UAW workers when they are not working at all! It is absolutely ridiculous. Any bailout by the government MUST wipe out this commitment. That's just one of the many absurdities that has the Big3 over the barrel thanks to decades of bullying by the unions.

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December 5th, 2008, 20:29
blatantninja, I'd like to get your slant on the credit default swaps the automakers are said to be burdened with in their loan programs—at least I think that's what they were talking about yesterday—the GAO guy and some of the senators seemed to be saying that one of the major factors for the crisis was the relationship between lending institutions and the automakers, and that this was a place where so far no concessions, negotiations etc were taking place. Wouldn't this be an even larger factor than the 10% of their budget devoted to payroll and benefits being FUBAR?

Sorry if that's too vague but I'm economically handicapped. If you can explain it in words of one syllable, I'd be grateful.

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December 5th, 2008, 20:34
Originally Posted by Prime Junta View Post
Only briefly; I'm going through a period of extreme work-related stress and this isn't doing my blood pressure any good.

(Yes, it has to do with the recession — the company's called a hiring freeze while going crazy to fill the order books, which means that we're up to our eyeballs trying to deliver on those contracts, while simultaneously feeling that we might all be doomed by this time next year. Also I have to travel to Russia on business the day before Christmas, and I hate the place this time of year; it's just like Finland only with even more puddles and less central heating.)
Don't let our resident Sceptic of the Imperium raise your blood pressure too high—remember that bit of wisdom on teaching pigs to sing. And I have every confidence that you would be the absolute last person a company would dispense with—(though they may work you to death, which sadly has much the same effect.) And if your company should itself stumble, you can always try out your skilz in the world of academe.

Traveling to Russia for Christmas does suck though—no words except those of condolence there.

Where there's smoke, there's mirrors.
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December 5th, 2008, 21:13
Originally Posted by magerette View Post
blatantninja, I'd like to get your slant on the credit default swaps the automakers are said to be burdened with in their loan programs—at least I think that's what they were talking about yesterday—the GAO guy and some of the senators seemed to be saying that one of the major factors for the crisis was the relationship between lending institutions and the automakers, and that this was a place where so far no concessions, negotiations etc were taking place. Wouldn't this be an even larger factor than the 10% of their budget devoted to payroll and benefits being FUBAR?

Sorry if that's too vague but I'm economically handicapped. If you can explain it in words of one syllable, I'd be grateful.
I am not aware of any CDS exposure in the Big3. If there is it's probably minor. There are a TON of CDS out there on them, but that's kind of like someone else having a life insurance policy out on you. It doesn't cost you anything or affect you in anyway (unless they push you in front of a bus), but they get paid if you croak.

The way the credit market is affecting them is two fold:

1) Each of them has an wholly or majority owned finance company (I think GM spun part of GMAC off, but not all, but I don't remember). They generally run all their ultra low interest rate offers through them. That's a losing proposition though obviously if you are lending money at lower rates than market rates. They would make it up though by also running most of the ultra high rate (IE low credit score) loans through there as well. They were often lenders of last resort for car buyers.

Well, these companies don't just have tons of cash they are sitting on to lend out. They're doing the same thing as what goes on in the mortgage industry. They make a loan to the customer, take the loan an package it with a bunch of other loans, then sell it off in the form of an asset backed security (they can all sell the actual loans and just service them as well, but that is less common these days).

Just like the MBS market, the ABS market has dried up. The ABS market isn't quite as bad off. Defaults have risen, but not as much as in MBS, and while MBS are being crushed by depreciating asset values (thus making them under collateralized), the ABS have always had depreciating asset values (all cars depreciate over time), so that risk is built in, and cars aren't really depreciating any faster than they used (In fact, in economic downturns, the used car market often goes up as people look to by used rather than new).

Regardless of that, there are still less people buying ABS securities, which means GMAC and it's brethren have less money to lend.

2) The second area they get slammed is in the one-off financing side. This is when you finance through a third party, generally banks and credit-unions. SometimesWell, lending has decreased significantly in this area as banks are hoarding what little credit they have.

Those two basically have made it much more difficult to get a car loan, especially the teaser rate loans they advertise and the 100% loans, which hurts auto sales since basically no one buys vehicles all cash.

So loan issuers want larger down payments and/or better credit scores, which, combined with people feeling the pinch in their wallet already, means a sharp downturn in auto sales.

Add a sharp downturn in auto sales to the fact that the profit margin on the Big3's main lines is far less than their foreign competitors (partly due to the wage issue I put up before, partly due to having to offer heavy incentives to get people to buy them) means perfect storm for the Big3.

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December 5th, 2008, 21:16
By your logic, PJ, you control your salary when you fill out the "expected salary" box on the application. All the recommendations in the world are great and grand (part of presidential leadership, in this discussion) but control lies solely in the approval process.

@magerette- would you feel better if I call it a plurality? It's still control. Compounding the problem of sheer numbers is the problem of visibility. I challenge you to name 5 republican senators without cheating (I was going to say 3, but you get 2 layups living in the Sooner State). I don't know that I could name 5, and it's my party. I can name 5 lefties without much effort. Big names = media coverage = additional sway.

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December 5th, 2008, 21:26
@bn- Pretty sure it was Ford that spun off the financing division. GMAC was being shopped, but I don't remember anyone stepping up to buy it. Rumor has it that the Big 3 (or at least GM and Chrysler) are looking at ways to restructure their financing divisions so that those divisions can get in on the $700b bank bailout.

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December 5th, 2008, 21:57
Originally Posted by dteowner View Post
@magerette- would you feel better if I call it a plurality? It's still control. Compounding the problem of sheer numbers is the problem of visibility. I challenge you to name 5 republican senators without cheating (I was going to say 3, but you get 2 layups living in the Sooner State). I don't know that I could name 5, and it's my party. I can name 5 lefties without much effort. Big names = media coverage = additional sway.
I have to go cook dinner but I have to at least respond to your name 5 challenge, and I"m not cheating, this is from my political junkie memory:—Okyland first with Istook & Imhofe(I think Istook is still around but if not, it's still a repub—Imhofe is my personal guy; Boren is a Dem but he may be House) Lindsey Graham, Mike McConnell, Boehner(oops—he's House),Larry Craig, Olympia Snow.

I'll grant you the Dems have done more of their own agenda since 06, but I'm not budging on laying the blame for the crisis at their door and letting the Repubs scoot away free.

@bn—thanks for the insight. Very understandable and I may have caught the CDS reference out of context.

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December 5th, 2008, 22:29
Originally Posted by dteowner View Post
By your logic, PJ, you control your salary when you fill out the "expected salary" box on the application. All the recommendations in the world are great and grand (part of presidential leadership, in this discussion) but control lies solely in the approval process.
Except that the employer can always go to another job applicant, but Congress only has one administration to deal with.

Budgets have to get passed, and especially with a divided Washington, that means a lot of arm-twisting and wheeling-dealing in both ways. I know they say in sixth-grade civics that Congress has the power of the purse (I was in the US for that lesson), but there's a lot more to it than that.
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December 5th, 2008, 22:33
I hate to say it, but the government should just allow them to go bankrupt. Investing in them would only be a waste of money.

The car business can be a whole lot of fun, and believe it or not, a lot of folks stay in it only for that reason. I spent over five years working for a car manufacturer (SAAB), and it didn't take long to figure that out. Big budgets, huge events and lavish promotions all add up to one big party fifty-two weeks out of the year.

The US auto business has been kind of a joke since its quality hit bottom, around 1980. Class-action lawsuits and government pressure got its attention so US auto makers did start improving their products, but not by much. Instead, they found other ways to take advantage of their customers. They banked on making what customers wanted instead of what they knew they really needed.

The thing about cars is they're technical. Compare the average car to the Space Shuttle, for instance. And they're important. Making cars isn't like making breakfast — you don't just give the customer whatever he says he wants. Cars are huge investments that customers rely on every day. The US auto industry either didn't understand that or it just didn't care.

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