The Automaker's Carcass

Hanging from a Union Tree

Bail them out? Who is going to buy cars! And while they go bankrupt union workers get paid way over market value. Sorry to say Unions are a thing of the past and will force other industries down the toilet like airlines as well. It’s a form of cancer that can be cured but has to be ripped out of the body. The problem to be fixed isn’t one company at a time – it is systemic and the entire industry needs to be revamped.

The bailout buzz around the big automakers especially GM is finally coming to a head. Even if the companies are bailed out the results will be the same. Dying on a vine or in this case already a carcass hanging from one and Unions are a big part of the lynching.

If the companies were bailed out I will bet my life that people won’t buy enough cars to keep them afloat anyway. Yes the industry touches 1 in 5 jobs in America but it’s a dinosaur industry compared to the rest of the world. Strapped with Unions and debt and the fact that they have so many cars in the system right now that aren’t selling their dealers can’t absorb more and stay in business as well. This means that automakers even if they stay in business can’t push cars into a consumption economy that can’t or won’t buy them. So they keep making more cars and staying afloat but in the end the body can’t be resuscitated while workers keep getting paid and the cars don’t sell – even to the dealerships.

Here’s a solution that has merit I believe. If you want to save the industry put an investment pool together and force the merger of the automakers. Take all brands that aren’t selling that have been rolled up over the past few decades and chop them up and sell them off. Immediately seek buyers of the businesses before they go out of business anyway. You want to save jobs then Unions have to dismantled – it is an outdated way to force big companies like airlines too to pay huge sums of guaranteed money to its workers. This is insane given that those wages are helping force the businesses into bankruptcy and possible collapse.

By consolidating, chopping up divisions, co-oping manufacturing capacity and selling brands the automakers may one day still be around to live another day. Do this not and they will go bankrupt (again) and followed quickly by the airlines and other Union strapped companies. We want to save employment figures and promote political wins but this is business and the business world would not care about brownie points. If we use the fund described above and bring in superior management and turnaround specialists for the entire industry not just a company at a time then I bet you will see this industry whipped into shape and fast.

ECONOMIC CATASTROPHE: LOST FAITH IN THE US DOLLAR AND SOON TREASURIES

ECONOMIC CATASTROPHE: LOST FAITH IN THE US DOLLAR AND SOON TREASURIES

China Explores “New” Currency Options to Replace Dollar

Today China expressed its concerns and ideas for replacing the dollar as the underpinnings of world trade. This overture is not only a shot a cross our ship but could spell the beginning of the end. This is exactly what I have been saying and fear the most. This will not happen in the near term but represents the first public sign that America is losing or has lost the world’s trust. This issue is the most important and potentially devastating in our history as a nation and the 300+ year capitalist experiment Yes I am a nay sayer and gloom and doom these days but I speak to the real issues facing the nation – MINTING MONEY and BORROWING MONEY. It is coming home to roost!

So what if China and the rest of the world seek a neutral currency to isolate any systematic risk like with the US market. What if China and the world lose FAITH in the American Economy and our Nation’s ability to support our debt and currency. The world’s faith in our system in necessary for our economy and much of our nation to simply survive. Once this faith is lost or one nation sells off Treasuries or currency there will be a worldwide rush to get out of America’s financial products. I need say no more!

When this happens – and I am telling you it will – America will sink far below a Depression… Our nation will be institutionalized for its recklessness. This is the knockout blow for all of US.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,”
said Qu Hongbin, chief China economist for HSBC.

HOW GREED DEFINES AMERICA

AIG is just one example

“Greed is all right, by the way I think greed is healthy. You can be greedy and still feel good about yourself.”
Ivan Boesky

It is greed that makes people want to do things, since they will be rewarded for their efforts. America is built on this principal that creates enormous wealth, opportunity and innovation but is also one of the primary causes of the denigration of our economy and society. The lust for power and wealth are two of the primary motivators in our society. Theft, fraud, abuse of power, reckless behavior, risk taking on and on even pride, power and politics are driven by greed. Advancement in our society, not just the financial sector, is driven by personal desires to obtain a higher social status and the acquisition of wealth, power and property. This beast is within us all and very few tame it. And the genie has gotten out of the bottle.

In the case of AIG and other large financial institutions that have failed, are failing or have caused catastrophic economic conditions the GREED is excessive and appalling at best. Yes there are contractual obligations but there are moral obligations too. The fact is there is little correlation between morality and greed.

Sure in good times derivatives traders, investment bankers and heads of corporations made off with billions in bonuses. Yes it is BILLIONs not just hundreds of millions when you add it all up. Executives and employees that reap enormous rewards for running their businesses and our money right into the ground are the very ones profiting – certainly not us! This is the way the financial industry and business world at large works. People get paid but do not give back when their actions cause havoc and massive economic loss. This is never more true than in the case of the derivatives group at AIG. The contractual obligations of the business are obvious and the government is caught in a mess of good money after bad. So how do we navigate this issue that has Americans screaming across the country.

Some executives forfeiting their bonuses is a start. You would think that everyone involved would forgo being paid on actions that are the underpinnings of why insurers that guaranteed the mortgage derivatives would be paid back are collapsing. AIG is the just the highest profile one. Why can’t we use the Securities and Exchange Commission to change laws against this ridiculous behavior like they did by implementing Sarbanes Oxley laws also known as the Public Company Accounting Reform and Investor Protection Act of 2002. This legislation came as a response to a number of major corporate and accounting scandals including those affecting Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom. Well the economic meltdown is hugely more damning than even those illegal scams. But we just sit back and allow it happen.

Outrage just isn’t enough. I believe bonuses will be paid across the board even for the most grossly negligent and inferior executives in the world. The first thing shareholders and the government should do is to stop signing any contracts within public companies that have golden parachutes, guaranteed bonuses and contract buyout clauses. If you blow it as an exec and get the boot lets say why the heck should shareholders pay you in the first place. This would halt much of this excess.

I also believe that if a company is taking any federal money than all bonuses should be withheld and if anyone wants their money than sue for it and face the government as the primary defendant. This will bring the full weight of legal system to bear on the companies, the individuals and related parties. I think this will then create sweeping changes in public company pay structures which I believe should be strictly performance based but contractually obligated to owe money back in subsequent years if things go bad. Seems pretty logical to me – you make me money – great you are rewarded. You lose money beyond a threshold then that money should be “clawed back”. That would use greed in a positive way as people would pull the reigns in and certainly try not to lose it all.

Marxism vs. Capitalism - Redistribution of Wealth

The Communist Manifesto – The Capitalist Manifesto – Socialism

Let’s Educate Americans!

How about this! Turn to chapter 2 of the Communist Manifesto written in 1848 by Karl Marx and Friedrich Engels. The first three principles described are:

Take control of and redistribute assets
A heavy progressive or graduated Income Tax
Abolition of all rights of inheritance

They presented 10 measure that have influenced the tax systems around the world. Their goal of economic justice is wide ranging but an underpinning of their philosophy is that the masses will be reliant for their subsistence on wealth redistributed by the State. Sound familiar? Although I don’t think our leaders are communists by any stretch our system of taxation certainly approaches this philosophy doesn’t it? With tax changes being contemplated is this On the Money?

Did I hear Nancy Pelosi and President Obama correctly? Redistribution of wealth was their exact words right?

The Capitalist Manifesto written by Kelso and Adler.

The underpinning of this philosophy is concentration of capital while it may undermine a free and Democratic order a higher order of economic justice is that everyone has a human right and an equal opportunity to become an owner of capital. Isn’t this supposed to be the American Dream! Philosophers dating back to Aristotle contest that property is essential to preserving a free society. So you want to seize my capital property and give it away to others by means of unfair and discriminatory taxes biased toward one “class” of citizen over another “class”?

Now turn to Socialism.

Socialism at its core is an economic system governed by a political elite with a more concentrated ownership and wielding more economic power than a capitalist system where capital is concentrated in the hands of the few. Big Government…Out of Control Spending and Borrowing to do so…Complete Discretion with no oversight and forget about the people because our voices just don’t matter.

FINANCIAL DISCRIMINATION

Should the Government be Sued

If you make over 250k a year you will be the victim of discrimination under laws being contemplated in Washington. Taxing me differently than others in our society, treating me and others as a “Different Class of Citizen”, touting “Class Warfare” is not only unfair I believe it is either Unconstitutional, Discriminatory, Illegal or all the above. This argument has legal standing if we just follow the laws already enacted by the very Lawmakers that now want to single out a class of citizen and redistribute wealth disproportionately. This is as fundamental an argument as the ERA, Civil Rights, discrimination laws and others at the state and federal level. Treating citizens differently, applying the law upon them differently and profiling them not based on race but financial status is an obvious violation of our rights.

Am I going to sue the government? Yes! Isn’t it my duty as a citizen to point out discrimination and fight discriminatory laws and practices. Why shouldn’t the Supreme Court here this argument? I expect as this subject begins to stand out that a herd of lawyers will want to support me in the effort.

Developed countries, not just the US, mandate that people must be dealt with on an equal basis regardless of sex, race, ethnicity, nationality, sexuality and sometimes religion and political views. This applies to employment, in consumer transactions and in political participation as well. The horrifying thing is that in a capitalist nation we are going to discriminate against our successful citizens - that 5% being proclaimed as the affluent most of whom employ much of the other 95%. Taking mortgage interest deductions away from only the $250k and above earners and raising various taxes on capital gains, small business income and so on is the very foundation of laws that have been passed focused on not letting this unfairness happen. This isn’t just wrong there is an extensive legal, moral and civil history based directly on discrimination of one class of citizen over another.

In short Anti-discrimination law refers to the law on people's right to be treated equally.

DEMOCRATIC FINANCIAL DISCRIMINATION

Financial Profiling & Discrimination if You Make over $250k a Year

I make more than $250k a year. I am a 40 years old and married. I am the target of discriminatory laws being contemplated to raise taxes, eliminate mortgage interest deductions and a laundry list of other items directed at the demographic I occupy. Any law designed to target or benefit specific races, classes or individuals is discriminatory. Financial discrimination in a Capitalist Society is about as vile and backwards as I can imagine. I believe I am the first to bring light to this issue in America as a legal and constitutional violation. My Civil Rights are being violated.

Discrimination Definition: Treatment or consideration based on class or category rather than individual merit; partiality or prejudice

As a Noun: Unfair treatment of a person, racial group, or minority

Discrimination of any sort under any condition in America is illegal when it comes to race but not when it comes to income – laws need to be amended for sure. Discriminating against a bracket of individuals and families based on income has not been brought before our judicial system. Where is the ACLU now? Also, if racial profiling was found to be illegal by the Supreme Court wouldn’t financial profiling be a case worthy of a serious hearing and debate. I think so and I for one will take the cause head on.

If taxes are being raised then taxes need to be raised on everyone equally. Singling out one demographic or another and passing laws that clearly target that demographic while the same laws advantage another demographic is UNCONSTITUTIONAL. Racial Profiling and Discrimination have been issues that ripped through America, the media and the courts. I think financial profiling and discrimination is equally horrifying and deserves this country’s utmost attention.

If I am a black man driving down the road or a Muslim the likelihood that I am going to be pulled over is greater than if I were say a Caucasian. This is true and will be true despite profiling laws although they do limit the instances. As an American tax payer I am 100% likely to be pulled over and shaken down by Uncle Sam for my money. This isn’t just redistribution of wealth or Robin Hood this is a constitutional, legal and ethical argument. Hey we have an Equal Rights Amendment don’t we? What about Equal Rights for the Americans that have been lucky enough to earn more than $250k a year!

This is a clear black and white issue. No one based on any characteristics, ethnicity, sex, financial or otherwise should be singled out and treated differently than others in this country. But under the proposed laws coming out of the White House that is exactly what is happening. This is such an obvious Civil Rights Issue I can’t imagine that Republicans, The Media, Watch Dog Groups, Lobbyist and the general population hasn’t marched on Washington yet.

AIG WHAT PEOPLE DON'T KNOW

AIG is getting more loans and lines of credit from the government. You really want to know why?

AIG is one of the world’s largest insurance companies. AIG like many insurance companies was very involved in the mortgage meltdown but not in a capacity that many actually understand. This really has nothing to do with insurance as you and I know it to be. This is largely about RE Insurance.

I mentioned this would be a catastrophe as big or bigger than the banking bailout and it will turn out to be and is certainly the fact just with AIG. I will paint a simple picture.

Preamble

You and I get mortgages at $100 each with a 10% interest rate. The bank lends us $100 each. The bank has depleted its coffers by $200. The bank then lends several thousand others the same amount, more or less, at say 10% interest as well. The bank then takes all those loans and bundles them into a Collateralized Mortgage Obligation and sells this instrument into what was a massive bond market to get their money back. In other words if the bank put out $1 billion in loans it sells a $1 billion CMO so it can borrow its money back from the bond market.

Now here it is. The bank should sell this bundle of mortgages with an interest rate for investors at least 10%. The problem is the banks can’t borrow the money back to lend again at that rate because they can’t borrow and lend and make money if the interest rate is the same or higher on the bonds. So here comes the insurance industry.

BELOW IS THE REASON WHY!

Companies like AIG RE Insure or “credit enhance” the CMO. What is a 10% bundle of loans becomes insured and the underlying assets, the loans, are guaranteed by insurance and RE insurance companies assuring the loan portfolio will at least repay the $1 billion at a minimum. The CMO is now principal protected so investors or those buying the bonds are holding an instrument that was very safe. Why not right its insured? Now the bank can sell its bundle of 10% loans to the bond market at an interest rate of let’s say 3 or 4 percent because of the safety of this investments and the RE insurance companies get a fee and a taste of the deal.

Now the bank can recoup its money at a low interest rate and turn around and lend it at a higher interest rate and therefore make money on the difference. In this case 7% on the loans. This is how the mortgage industry worked for years.

Well then it is obvious what is happening. The insurance companies are all on the hook with guarantees for all these toxic products. When the confidence in the CMO eroded essentially because of the US housing market and its decline everyone stopped buying CMOs. Well everyone had them in their portfolio, pensions, unions, endowments, the banks and yes the insurance companies bought them too. It was like buying Treasuries. Well when those CMOs go bad and they have been devastated the insurance companies have to come up with the money to pay back investors.

It is very complicated because the insurance companies all work together, no one single insurance company takes on the whole risk of any individual bond, and back each other up as well as spread the risk of insurance among themselves. This is called retrocessioning. Where insurance companies insure other insurance companies and participate together in insuring the risk of the CMOs.

It’s like Alice in Wonderland and the Rabbit Hole for most people to even think about. But the bottom line is the RE Insurance lines of business inside large insurance companies have infected the main lines of insurance by being on the hook. Worse as this all happening the rating agencies are down grading the investment worthiness of these institutions further halting their ability to borrow huge sums of money at decent interest rates to cover their losses.

A vicious cycle I described in July 08 that is and will be as big as the banking meltdown just that its now showing its ugly head.