Americanly Yours

Today was an interesting day for automaker news.

First, President Obama took an unprecedented step of basically firing a private sector CEO, by requesting that GM CEO Rick Wagoner step down:  “On Friday I was in Washington for a meeting with administration officials.  In the course of that meeting, they requested that I ‘step aside’ as CEO of GM, and so I have.”

GM’s shareholders should have probably fired Wagoner at least 5 years ago.  They didnt.  Who ran the company should have been of no importance to the government.  However, rather than allow GM to go bankrupt, the US government (in its infinite wisdom) gave GM and Chrysler $17,400,000,000 [$17.4 billion] in loans and took an ownership stake in the two companies, effectively nationalizing 2 of the 3 American automakers.

My “favorite” part of this was that the government gave GM their $13,400,000,000 [$13.4 billion] knowing that GM planned on cutting 47,000 American jobs.  That means that we paid GM $285,000 for each job that they cut.  Just wonderful.

But, back to the issue at hand.  My opinion is that President Obama took a dangerous and shameful step by demanding the resignation of a private sector CEO.  One of my main problems with the bailouts besides the economic aspect is that they are impossible to handle objectively.  For example, Bank of America has received $45,000,000,000 [$45 billion] from the government–over 3 times the amount received by GM, yet Bank of America’s CEO Ken Lewis has kept his job.  The same is true at Citigroup and many other government owned banks including JPMorgan Chase and Wells Fargo.

And of course there is Chrysler.  Chrysler was bailed out the same day as GM, and yet their CEO, Bob Nardelli has retained his job and has not been “asked to resign” by President Obama.

The law and our government needs to be objective and treat everyone the same way.  If the government feels that it is necessary to bailout and take over the operations of private companies, then it needs to treat all companies which receive government aid in the same manner.  It is the only fair way.

But the news doesnt end there.  President Obama also made some interesting statements today.  While he did grant Chrysler an additional month’s worth of aid and gave GM an additional two months worth of aid (by the way another example of the government active subjectively, rather than objectively), he signaled that the two companies might be forced to file for bankruptcy.  A government review board went over the restructuring plans submitted by the two companies and decided that they were not viable plans, thus allowing President Obama to take a much needed hard line on the companies.

I tenatively applaud this step.  We just have to see how this works out.

I hope that President Obama is serious when he says that GM and Chrysler will be allowed to fail if they do not take the necessary steps.  Those steps include negotiating further concessions from the labor unions and bondholders.  My guess is that the companies will be able to gain the necessary concessions and then will receive more aid from the government, allowing President Obama to gain credit for taking the hardline approach, but clearing the way for the government to send more taxpayer [or freshly printed] money to these companies.

Americanly Yours,

Phred Barnet

Please help me promote my site:

Share on Facebook

Become a fan on Facebook

President Obama and Treasury Secretary Tim Geithner have asked Congress to grant the Treasury Secretary the power to “unwind” financial companies that pose systematic risks to our economy.

But, the government already has the power to unwind large insolvent companies which pose systematic risks to our economy.  Large financial–or any other type of companies–can be unwound through bankruptcy proceedings.  Bankruptcy courts can order the liquidation of a company and the sale of its assets.  There is no need to grant this power to the Treasury Secretary, or President Obama, or any one man.

Rather than bailing out companies, and then bailing out our bailouts like we have done with AIG and are about to do with GM and Chrysler, we should send these failed companies to bankruptcy courts and sell of their assets.  Rather than pumping TRILLIONS of dollars into failed enterprises, we should have quickly auctioned off these companies, their properties and assets, and anything else related to them.  Yes, these companies and their assets and receivables may have only sold for pennies on the dollar, but it would have been done without taxpayer money and would have allowed for the quick return to profits (as the purchasing price would have been low enough so that the purchaser could anticipate earning a profit).

You may be saying to yourself that I have said this on previous posts countless times.  You are right.  But, our government is not learning from these recent mistakes.  Instead of learning, we are repeating them over and over again, making things worse and worse and then blaming capitalism for the failures of the government.  For a man who repeatedly criticized President Bush for “staying the course,” Mr. Obama has sure picked a terrible course to stay.  So, for as long as Congress and President Obama continue to repeat their mistakes over and over again, I will continue to repeat myself over and over again, hoping that somehow my words reach their eyes and spark a change of direction.

But, back to the new proposal.  Look at it like this:  the government now controls most of the banking system.  Imagine that it creates new “recommended” lending standards to support an administration program–expansion of loans to increase home ownership for example.   If a company that is not owned by the government were to decide that these new government “recommendations” are too risky and are not a good investment and decided not to participate, the government could effectively force the company to comply by threatening to “wind it down.”

This is a dangerous, undemocratic, and authoritarian proposal which gives the Federal Government way too much control over the financial industry.

Americanly Yours,

Phred Barnet

Please help me promote my site:

Share on Facebook

Become a fan on Facebook

The Dow Jones Industrial Average has climbed by over 1,000 points in the past two weeks.  Durable goods orders are up.  Housing starts as well as houses sold are up.

Typically, when the market hits a bottom and then starts to rebound, the recession will end in six months.  Of course, this is not a “typical” recession and past historical trends are never a guarantee of future results.

Yet, combine the recent rise in the stock market with the other factors that I mentioned above, and I think we have good reason to be optimistic that recovery is now under way.

This doesnt mean that we are out of the woods yet, or that things are going to magically get better over night.  In fact, the economy will probably shed another 1-2 million jobs or more before it begins adding them.  Still, the economy is fixing itself.

This is what recessions and recoveries have looked like since World War II (notice how our current one is not nearly happening as quickly, no as bad as most other recessions):

This is occurring despite government intervention, not because of it.  Markets are very powerful and they will always find a way to bounce back.

The massive “stimulus” bill passed by Congress last month was $787,000,000,000 [$787 billion] in size.  Very little of this money has been spent so far, and in fact the vast majority of this money is to be spent in 2010 and beyond (23% of the money will be spent in 2009 and 51% in 2010).  This bill is very costly and is being financed completely with debt that Americans will have to pay back in the future–with interest.

Members of Congress had only 10 hours to read the final bill before they were required to vote on the bill which was over 1,000 pages in length.This bill was passed by Congress urgently under the assumption that it was necessary that the bill be passed quickly.  I still dont understand why such urgency was required for a spending bill that wasnt going to spend most of its money for until the following year.

Well, now the economy is beginning to recover–before the “stimulus” has been spent.  As I have written several times before, both the CBO and the Federal Reserve are now saying that the recession will be over in late 2009 or early 2010 at the latest.  Even if their “latest” estimate is correct, the recession will have ended before the vast majority of the “stimulus” money is spent.  Because this bill is so costly, and because there is no need for an economic stimulus in a growing economy (which the experts say we will have by this time next year), I urge Congress to repeal the “stimulus” bill.

If the bill is not repealed, then Congress is in effect forcing the American people to borrow money to buy something costly that we dont need.  The economy will recover with or without the “stimulus” bill.  The difference is that if we allow it to recover without the costly bill, our future will not be [as] burdened by debt.

Americanly Yours,

Phred Barnet

Please help me promote my site:

Share on Facebook

Become a fan on Facebook

The nonpartisan CBO made a disturbing announcement in regards to our future budget deficits yesterday.

“President Barack Obama’s budget would produce $9.3 trillion in deficits over the next decade, more than four times the deficits of Republican George W. Bush’s presidency.” Remember that Mr. Obama criticized President Bush for sharply increasing the deficit which Mr. Obama inherited.  Well, Mr. Obama’s ambitious plans will leave his successor with a much much larger debt to inherit.

President Obama inherited a deficit of about $1,000,000,000,000 [$1 trillion] from President Bush’s administration–and the Democratic Congress.  He then added another $800,000,000,000 [$800 billion] to the budget by passing his gargantuan “stimulus” plan.

Mr. Obama did inherit a large annual deficit from the Bush administration, however, trillion dollar deficits were by no means emblematic of the Bush administration’s record.  President Bush’s deficits peaked at $412,700,000,000 [$417 billion] in 2004, but dropped down to $162,000,000,000 [$162 billion] by 2007– a drop of over 60% from its peak.  In 2008, the deficit did soar to record heights, however this was mainly due to the massive stimulus bill that sent every working American a check and was championed by President Bush and the Democratic Congress.  However 2008’s record deficit is still 1/4 of the size of this year’s deficit and less than half of the projected average annual deficit for the next decade!

And, the $9,300,000,000,000 [$9.3 trillion] in deficits projected by the CBO is $2,300,000,000,000 [$2.3 trillion] higher than the total deficits projected by President Obama back in February.  As you may recall, I previously wrote about Mr. Obama’s plans to “cut the deficit in half” by 2013 and criticized that statement as a distortion of the facts.  However, the CBO is now projecting that Mr. Obama’s deficit for that year will be $139,000,000,000 [$139 billion] higher than the numbers that he announced in February!  “Obama’s budget promises to cut the deficit to $533 billion in five years. The CBO says the red ink for that year will total $672 billion.” And, following that year, the deficits will begin to climb again, ageraging just under $1,000,000,000,000 [$1 trillion] each year for the next ten years!!!

The avergae deficit for the next ten years will be as large or larger than the one that President Obama criticized President Bush for leaving behind.

The large increases in spending in 2008 and 2009 have been justified by Presidents Bush and Obama and Congress as temporary measures that are “necessary to end the recession and stabilize the economy.”  But economists, the Foderal Reserve, and the CBO are all saying that the recession will end in late 2009 or early 2010.  Why then is the President proposing budgets that continue to promote reckless deficit spending after the crisis has ended?

Americanly Yours,

Phred Barnet

Please help me promote my site:

Share on Facebook

Become a fan on Facebook

Yesterday, Wal-Mart announced a massive $2 billion employee bonus plan which “include[s] $933.6 million in bonuses that the retailer is handing out Thursday.  There is another $788.8 million in profit sharing and 401(k) contributions, and hundreds of millions of dollars in merchandise discounts and contributions to the employees’ stock purchase plan.”

This is quite an amazing plan, especially for a retailer that is derided by critics for under compensating its employees.  Despite the recession, this bonus is over 10% higher than last year’s employee bonus.

This is not an executive bonus plan; these bonuses will benefit Wal-Mart’s (literally) blue collar employees–the cashiers, customer service representatives, and stockers.  Wal-Mart’s generous bonus will hand these employees an average of $933.60 per person, with over half of that paid out to employees yesterday!

Now, lets contrast this bonus with Mr. Obama’s “stimulus” plan:

Mr. Obama’s “stimulus” plan pays each worker $400 through a “tax cut.”

Wal-Mart is paying each worker an average of $933.60.

—-

Mr. Obama’s tax cut comes in the form of a payroll tax deduction, averaging $13 per week for the rest of the year.

Wal-Mart’s bonus includes more money per worker up front than the total paid out by Mr. Obama’s plan.  It also includes various other benefits to be paid out in the future, including discounts, contributions to retirement funds, and increased ownership for workers in the company.

—-

Mr. Obama’s “tax cut”/”stimulus” is being financed with debt, and workers will have to pay back their “tax cuts” in the future.

Wal-Mart’s bonuses are being paid for with cash, coming from the company’s profits.  The workers get to keep their bonuses, and will not have to pay back the money in the future.

———

Which do you think is more generous benefit?  Mr. Obama’s “tax cut” that will have to be paid back in the future, or Wal-Mart’s cash payment and investment in their workers future livelihoods.  I know which I would prefer.

Americanly Yours,

Phred Barnet

Please help me promote my site:

Share on Facebook

Become a fan on Facebook