Americanly Yours

Here is an excerpt from a piece I wrote back on September 26th, before Congress passed the $700 billion TARP program.  A lot of things have changed since then, but I still think this is a good and relevant piece.  I did not change this from the way that I wrote it back in September, except to correct a spelling mistake in the last paragraph.

We should, however, worry about our economy now.  The national debt is rapidly marching towards ten trillion dollars ($10,000,000,000,000).  Our unfunded liabilities in Social Security and Medicare now total an additional sixty-seven trillion dollars ($67,000,000,000,000).  By 2012 the Medicare fund will be going into a deficit and we will be forced to spend tax dollars to keep up with Medicare payments.  By 2017, the same thing happens with Social Security.  American families now owe over $15 trillion in household debt.  We have nothing left.  We are witnessing the slow, painful fall of the American Empire.  It hurts me to watch because I love this Nation so much.

For years we threw money at problems without ever trying to really solve them (poverty, drugs, education, health care).  Now we have no money and things are getting worse in all of these areas.

Iconic American companies are being swallowed up by foreign firms at an unprecedented rate.  Budweiser is being bought out by a Dutch firm, Miller is now owned by South Africans, and Coors is owned by Canadians.  Ford, Chrysler, and General Motors are now on the brink of extinction and are closing down American plants to move to other nations.

Sovereign wealth funds (companies owned by foreign governments) have been buying up large stakes in American companies—these sovereign wealth funds now own about 10% of Citigroup, 20% of the NASDAQ stock exchange, 9% of UBS, 10% of Morgan Stanley.  They own 7.5% of the Carlyle Group (which owns major defense contractors, telecommunications and technology companies, CSX railroads’’ domestic container lines, and consumer companies like Baskin-Robbins and Dunkin’ Donuts).  China owns 10% of the Blackstone Group (which owns Hilton Hotels, American textbook publisher Houghton-Mifflin, Universal Studios Parks, and is in the process of purchasing a large stake in The Weather Channel).  These wealth funds also own well over 10% of Merril Lynch (RIP), 2% of Barclays (which controls large portions of the stock of many large companies—go here and put in any symbol and you will see that Barclay’s owns a large stake), 7.5% in Diamler, AG, and several hundred million dollars worth of Visa.

The German government owns 35.5% of DHL, 20.3% of Volkswagen, and 32% of T-Mobile.  Through its stake in Renault, the French government owns 6.9% of Nissan.  Any time that you buy a product or a service from one of those companies, you are essentially paying a tax to a foreign government.  For example, if you stay at a Hilton hotel, 10% of the profit made from your visit goes to the Chinese government.  If you buy a new Mercedes, 7.5% of the profits made subsidize the Dubai government.  Do you think that American text books will continue to criticize the policies of Mao, now that China owns 10% of the company that makes our history books?

This is socialism, but at least in traditional socialism, Americans would see some benefit from their dollars going to state-owned enterprises.  In this case however, American dollars are going directly into the hands of foreign governments.  Would foreign nations tolerate the American government coming in and buying up stakes in their countries?  think not.

Do you remember mercantilism from history class?  That is what is happening in this country.  We export food, chemicals, plastic, cigarettes, cotton, and many other raw materials, only to import these goods back into the country later as finished goods: the cotton comes back as clothing, the plastic comes back in the form of goods made in China, and so on.   We produce nothing here.   We consume foreign goods like the world is ending tomorrow.  We now have the import/export profile of a 3rd world nation.

Rome is burning while Congress is playing the fiddle.  Be scared.  You should be.  Your children will know a different America.

Americanly Yours,

Phred Barnet

The American people and Congress may have rejected a bailout for the automakers, but in his infinite wisdom (and apparently infinite power, as I was unaware that a President could circumvent our Constitution and our laws to enact legislation without the consent of Congress), our President has thrown Chrysler and GM a lifeline by giving them $17.4 billion.   Remember, Chrysler is the same company whose owners would not contribute their own billions to save, so clearly this is another smart investment from the Federal Government.  Luckily, Ford has announced that it doesn’t need the money and will not be requesting any.  With this new bailout, the government now has the right to purchase stock in the two companies and place them under governmental supervision.

President Bush, thanks for Socialism!

The government that is supposed to represent you has taken your money through taxes on your hard work and is using this money–without your permission or even your approval–to purchase stock in two failing auto companies.

Do you still think Robin Hood was a great man?

This act completely violates the basic core principles of both Democracy and Capitalism.  The principles of Democracy are violated because the government is acting without the consent of the people, and is in fact acting opposite of the desires of the people.  The principles of Capitalism are violated because the government is taking ownership in two more American companies, placing factors of production directly under its control.

Does anyone really think that $17.4 billion can save the automakers?  This money is just an excuse for the government to put more money into the companies in the future to protect their initial investment.  In poker, you are called “pot committed” when you have a large enough amount of money in the pot to justify calling a bet that you know you will lose.  In the investing world, this is called throwing good money after bad money.  I thik the investors have it right this time.

Americanly Yours,

Phred Barnet

When I was young, I read the children’s book If You Give A Mouse A Cookie. You can find the book here, but the book starts off like this: “If you give a mouse a cookie, He’s going to ask for a glass of milk. When you give him the milk, he’ll probably ask you for a straw…” The mouse keeps on asking for more and more, using each previous request as the basis for why he should get another favor.

With people saying things like “Well, we bailed out AIG, it isn’t fair for us to not bail out GM,” I have been thinking about this book a lot lately. People have been using flawed logic by saying that because we bailed out one failing company, we ought to bail out the next failing company. It was wrong for us to bailout Bear Stearns, AIG, Citigroup, or any of the hundreds of other businesses that the government has bailed out and taken an ownership stake in. Just because we have committed several wrongs doesn’t mean that we need to abandon what is right and continue doing wrong. Think about someone who is on a diet, but splurges once and eats a piece of cake in a moment of weakness. Should that person then eat a cookie, a cheeseburger, and a plate of delicious Chicken Wings because they have already fallen off the wagon, or should they admit they made a mistake and return to their diet?

Our government made a huge mistake in bailing out Bear Stearns. This led to the government being asked to bail out more and more companies. Using the flawed logic that I described above, the government bailed out more and more companies, not wanting to be “unfair” to any company or industry. In doing so, our President and Congress were unfair to the American people who are to be saddled with the large debts created by the costs of the bailouts which we do not support.

It might not be as good of a children’s book as If You Give A Mouse A Cookie, but here is an excerpt from my new book entitled If You Give Bear Stearns A Bailout:

If you bailout Bear Stearns, they will ask you to bailout AIG. If you bailout AIG, they are going to ask you to bailout the rest of the financial industry. If you bailout the financial industry, they are going to ask you to bailout the auto industry. If you bailout the auto industry, they will ask you to bailout the airlines…

We should have told that “mouse” no.

Americanly Yours,

Phred Barnet

The American People do not want the auto industry to be bailed out. According to a poll conducted by CNN, 61% of Americans surveyed are absolutely against any federal bailout of the American auto industry. Additionally, the majority of voters in every single region of the country are opposed to these bailouts, including 53% of people in the Midwest (these are the people most likely to be affected by any auto industry bankruptcies). 70 percent of Democrats, 62 percent of Independents, and 55 percent of Democrats are opposed to these bailouts. Simply put, this is an issue on which there is an overwhelming amount of agreement. The American people do not want to see their money wasted on bailing out failing automakers.

Chrysler is a privately owned company which is 80% owned by Cerberus Capital Management and 20% owned by Diamler AG. Both of these companies have billions of dollars in cash on hand, yet the parent companies of Chrysler have refused to inject more of their own money into their failing subsidiary. If, as the automakers are claiming that they only need money to temporarily get them through an organization process, why wont the owners of these companies temporarily inject the money into the companies? Probably because they know that it is a bad investment and that they are not likely to receive their money back. If the owners of Chrysler are unwilling to put their own money into Chrysler, why should the American people be FORCED AGAINST OUR WILL into spending OUR money on a bailout? Additionally, the Ford family has billions of dollars in personal assets. If they want to save their company, maybe they should use their money.

Speaking of Ford, of the Big 3 Automakers, Ford is the only one not in horrible shape. Since taking over two years ago, CEO Alan Mulally has begun to implement a vast turn around plan called “The Way Forward.” This plan has been relatively successful, and has already resulted in billions of dollars in cost savings, and will continue to help the company. As a result, Ford is the only American automaker not in immediate risk of collapsing. According to company reports, Ford expects to turn a profit in 2011, while GM and Chrysler haven’t bothered to give the American public any timetable for when they will be able to return to profitability. Both GM and Chrysler are said to be within weeks of collapse, and GM has already hired a team of bankruptcy lawyers. By bailing out GM and Chrysler, the government could be hurting Ford’s prospects of recovery.

Congress, President Bush, and President-Elect Obama should respect the wishes of the American People and allow these automakers to fail—or succeed on their own.

Americanly yours,

Phred Barnet

In the election that just ended, Barack Obama was called a socialist by his opponents.  To anyone who understands the true definition of socialism, Obama could not be considered a socialist (maybe a collectivist, but definitely not a socialist).  Socialism by definition is a system in which the government owns and controls the factors of production in the name of the common good.

Well, in the past 24 hours, Obama has announced his plan to help the Big 3 American automakers. His plan includes a $50 billion loan to the automakers. But, the plan doesn’t end there. In a similar manner to the bank bailout plan recently passed against the wishes of the American people, this plan also requires the federal government to take ownership stakes in Ford, Chrysler, and General Motors. Additionally, Obama wants to appoint an “Oversight Czar” to “oversee the companies” thereby giving the federal government both ownership and control of three massive American corporations. Of course all of this is being done in the name of the “common good.”

The $50 billion price tag is most likely a large underestimate of the amount of money it will take to save these automakers. The government doesn’t exactly have the best history of predicting the total costs necessary in an intervention. Some recent examples: the $152 billion stimulus package passed earlier this year which was supposed to save us from a recession, the $250 billion bailout plan which quickly ballooned into a $700 billion bailout package, and of course the $85 bailout for AIG in September which has already cost $143.7 and could cost much more. When $50 billion turns out not be enough for the automakers, the government will surely throw more money at the problem to “protect” its investment as it did with AIG. And, the automakers will need more money too. In 2010, several state-owned Chinese car companies intend to start marketing very inexpensive Chinese cars in America.

This will not stop with the automakers either. If there is one industry in this country worse off than the automakers, it is the airline industry. The airlines have been hemorrhaging money for years and now that the economy is bad, companies are laying off workers and cutting corporate travel, while regular Americans are also cutting back on flying. The airline industry will be the next to go and its lobbyists will swarm on Congress and demand the same favors that were given to the financial industry and the automakers. Then, the government will also own our airlines in addition to our banks and our automakers.

To me, that is a definite. The only maybe is how far this will go. When no new airplanes are being built due to the collapse of the airline industry, what will become of Boeing? Their bottom line will be hurt, and considering that they are a major defense contractor, would the government deem them to be too important to fail? If the automakers and airlines are suffering then of course the steel industry suffers. Will the government then take control of our steel giants like US Steel and Nucor in order to “protect” them from domestic problems and foreign competition?

Now, I am not opposed to helping the automakers. If a loan is absolutely needed, and if the government believes that there is a reasonable chance that it can get its money back, then the government definitely should help the automakers, but under no circumstances should it buy the automakers and take control of them.

This isn’t all about business either. The Democratic Congress is considering passing laws to reinstate the “Fairness Doctrine” to the radio. The Fairness Rule was established in the late 1940’s to guarantee that time would be given to both sides of an issue on the radio. The courts gradually struck down more and more of this doctrine until 1986 when it was completely abolished. Democrats, lead by New Mexico Senator Jeff Bingaman want to reinstate the rule which would effectively force conservative radio stations to place just as many hours of liberal talk radio on their stations as conservative talk radio (to me this is like requiring Christian radio stations to broadcast Jewish or Muslim programming). Of course, there are no Democratic Senators currently pushing legislation that would require CNN, MSNBC, NBC, and CBS time to conservatives or to require FOX News to give time to liberals.

We as a People voted for change last week. Change can be good, yet this is not the change that we need. We must not abandon the free market and free thinking ideals which brought us from a small, weak country of 13 states into a great Nation. If we are to continue to be a great Nation and a leader among other nations, we must not walk down this road.

Americanly Yours,

Phred Barnet