GM Another American Icon to Fall

You are Making it happen, Watching it Happen; or It is Happening to You!

Americans are definitely watching it happen and it is happening to us. GM is the latest headline as it is certain to declare bankruptcy or do a pre packaged out of court deal. Either way if you watch the happenings bond holders and unions are inflexible waiting for a “better deal” and betting on the government bailout. I believe hope is not a strategy.

One after another American icon companies are falling. There will be more. Our consumption economy has stalled and is failing to support businesses across every industry. GM is a high profile case as was Merrill Lynch, AIG, and Lehman Brothers etc.. In this case and as I said Unions are a big part of the problem. Instead of everyone pooling interests and rapidly executing a plan the opposite is happening. The groups with a strangle hold on the business are just dug in and hoping that government will throw money down a black hole so they can continue to reap the rewards of a failed business and industry.

This company and the industry is hamstrung and on a global basis a dinosaur. Even if all works out for GM no one is buying cars so the whole pipeline, from manufacturing down to the auto dealers, is filled to capacity. The government is trying new tricks to incentivize consumers to purchase cars but people don’t have a clue what all that means. People out there only know that they are hoarding money and making do with what they have. How then can GM or Ford survive when the outlook for product sales is so grim?

I have said for a year that debundling the brands that have been acquired over time is necessary. In GM’s case someone is finally listening to reason. Spinning off brands is one of the major keys in saving our industry. Some brands need to be retired. So this is a good sign. Unions are a thing of the past for certain and part of the cancer that is wrought throughout many industries. Can you imagine unions, knowing the industry and companies are in constant states of failure, continue to strike and fight for more and more money when they are the highest paid worker in the world by far. Labor in the industries like auto, airline, transportation etc.. cripple businesses’ ability to compete.

I think everyone understands the impact of our failing auto industry and the government isn’t looking into the future at the Super Bowl. Instead they are just looking for the next touchdown to win a short term game that makes everyone look like winners. This is not a winning strategy at all and without significant and radical overhaul of our economic way of like I assure you our country is in sever trouble not just our companies and industries.

I know I have bad news after bad news but that is the way it is. The sugar coating we get is to boost confidence in our economy that is necessary to make sure buy stuff. Auto or any other industry selling stuff isn’t going to make it in its current form. Toss in the government and our cancerous National Debt too. I am just waking up everyday sick to my stomach that I want to make it happen, but 99%+ of us are resigned to watching it happen and it is most definitely happening to us.

G Force
G 20 Leaders More Conservative than US

G20 leaders were clear that their countries would not spend trillions in their own economies stating clearly it is fiscally irresponsible. Even liberal nations like France oppose huge stimulus packages – who would of thought the US would have a more liberal position than France? The US plans to borrow and mint an unprecedented amount. They hope to spend their way out of the economic disaster but it’s not spending when most of the money is new borrowing and printing new currency is it?

I don’t know what economists and mathematicians are out there these days. $3 trillion to start with is so fiscally irresponsible that the G 20 nations are looking at us in disbelief. And disbelief is what is happening to the US. Rudy Giuliani on Fox News last week made a convincing argument. If we were a company (sound familiar) the US would be a bad investment. Its true! Who is running these numbers?

If private investors dissected our budget, balance sheet, tax revenue and most importantly contingent liabilities (like to e$5 trillion commitment to Freddie and Fannie) they would command junk bond status interest rates on debt and most but the most aggressive would ever take that kind of risk. Add to that a package that wreaks of special interest spending and at the worst time in history focused on programs that have been broken for decades and can’t be fixed by massive government programs like Nation Health Care. This is not the time to be revamping things even though much of this is greatly desired. A simple example is that my child sees all the toys in the store but IF we buy one we get only one. Otherwise he would want us to buy the whole store full.

The Democratic Congress and White House are asking the world, like Hillary Clinton pandering to the Chinese, to buy more of our debt. If your child had gone crazy and had an unlimited spending amount on a credit card and spent more money than you could repay over decades and asked to spend even more than the splurge what would you do? This example is what America has become, a child in a toy store with a credit card from China, Russia and the rest of the world. Our parents are not happy and I am certain will take away our credit card soon. All the toys in the budget – much of which is not to fix the economy as it is touted – is reckless, irresponsible and policy that you would find in the Land of Misfit Toys. It is clear G 20 nations agree.

America's Economic Fall from Garce

The Bigger You are The Harder you Fall

I was watching Fox News last night and was astounded to hear the talking points d’jour as if they came right off the pages I have been writing for a year. Even the Boston Tea Party. I guess it’s a good thing for my perspective to be validated and catching on but a sure signal of bad to worse things coming down the pipe. We always hear that we are turning over this broken economy to our children someday and it is more like BROKE. Even as we attend the G20 it is apparent all signals point to bludgeoning behind the scenes and a world where America has reached the peak and is going down the other side of the hill. And with that we are piling up Trillions of dollars of new debt and minting currency like there is no tomorrow – and frankly there is no tomorrow for us.

Our leaders appear to believe that spending our way out of the crisis is the way we will recover. Actually we are borrowing our way out of the crisis and printing what will be funny money to the world. As I have said and even now the President agrees the world has lost – is losing and will lose faith in our economy and that is certain death for America. America’s economic dominance around the world is over. Barack Obama let this message fly from his lips in London and it is spot on that America will be moving aside in the 21st century and will be one of several economic powers on earth.

The death blow is coming and the day of reckoning around the corner. I will say this clearly again - when the world stops buying our treasuries and dollars and/or sells off some of either not only will inflation sky rocket but our way of life will come under so much pressure we most likely will collapse. Sounds bad but it’s the truth. Just like the banks rolled over debt our government does the same. Borrowing to pay for government and huge spending proposals has put America in so much debt unless massive and radical steps are taken right now our partner nations will see us as a bad investment.

If we were a company and our balance sheet and spending was as it is this business would be bankrupt at best. You or I would be crazy to invest. I am sure if you crunched the numbers you would agree with me. Now given the state of affairs the company decides to borrow even more to spend. I can’t stomach the way our country has been run into the ground – and like most of us we have little hope of changing anything.

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.