No Runny Eggs

The Whitehouse continues to try and find a way to funnel money to the automakers.   They continue to focus on using Tarp funds, an approach that some claim may be illegal/unconstitutional.   In the meantime, the war of words about whether or not to save Detroit, and why, continues to escalate.

In  the far corner, we have an  Op Ed piece in the Washington Post, Harold Meyerson claims that the UAW is the cornerstone of the liberal movement and middle class America.   For this, he claims, Republicans are out to destroy the group and are willing to sink the country into a depression to sate their political bloodlust:

Over the past several weeks, it has become clear that the Republican right hates the UAW so much that it would prefer to plunge the nation into a depression rather than craft a bridge loan that doesn’t single out the auto industry’s unionized workers for punishment.

In the near corner we have an editorial in the Investor’s Business Daily.   IBD not only refutes Meyerson’s claim that UAW is responsible for the existence of the US middle class, but identifies not only why the UAW’s position is unsustainable but unknowingly, why the Detroit as a whole is unworkable:

History teaches a couple of lessons here. One is that, as the labor movement boasts, wages and benefits did indeed rise in the late 1940s and 1950s, when private-sector unions were at their maximum strength.

No fact makes this point better than the UAW’s own dramatic shrinkage, from 1.5 million members in 1979 to fewer than half a million today. Such is the downside to a strategy of raising wages through collective muscle. When labor gets priced to a point where a machine can do a job more cheaply than a worker, the worker is out of a job.

But another lesson is that American industry had unusual advantages during that time, when Europe and Japan were still rebuilding and offered no serious competition. It was a phase that could not last, and unions could not stem the drain of jobs out of the U.S. manufacturing sector.

Like the star high school quarterback, both the UAW and the Big 3 are unable to look at today’s reality and adjust to it.   Rather, they look to their glory days of old and pull out the home town paper’s articles of their game winning touchdown throws, thrusting it in front of us as evidence that because they were once stars, they can be stars again.   Unfortunately, few high school quarterbacks find that a winning touchdown pass defines their success 20 years after the fact.

Both the UAW and auto executives are to blame for the situation the Big 3 are in.   Neither have been forward looking enough.   The UAW believes that they can hold on to wages and work conditions that worked in times of lower competition and management has failed to adjust the business model to reflect the same reality.

I’ve ranted a fair amount about all the things I don’t like about the auto bailout.   However, I don’t think it’s fair to just be anti everything.   As Conservatives we need to be more about answers not Monday morning quarterbacking.   So here’s my answer to the bailout.

Fronting the Big 3 a bridge loan and “hoping” that things will change is the definition of insanity.   Once money is provided and the government is on the hook there will be all kinds of political reasons to “look the other way” and as a result, end up making the auto industry look like Amtrak and providing unending subsidies.   Rather, the Big 3 need to enter a prepackaged bankruptcy.  

Contrary to some chicken little pundits, bankruptcy will not drive consumers away from the Big 3.   Indeed, where else would someone go to buy a light truck?   By going to bankruptcy, all interested parties get tossed into the same pot i.e. all contracts are null and we renegotiate from the facts of today.   This puts management, bondholders, vendors and the union on the same level field.   I would also be in favor of the government providing debtor in possession guarantees to allow the bankruptcy procedure to transpire.

My solution will cause some to banish me from the Conservative parade as a non purist.   Maybe so.   However, not everything in life is black and white and this is particularily so in politics.   There are times where pragmatism i.e. the Dems are going to put this money in Detroit’s pocket…do you want no say or to try to find the best possibility of success, needs to be taken into account.  

It seems like the bail out is going to continue to roil in Washington politics.   It’s hard to see how it will end.   One thing I’ve become fairly certain of is that regardless of how this moves forward, the winner will be no one.

Those are the words that SEC Chairman, Christopher Cox uses as he describes his agency’s inability  to ferret out the Madoff ponzi scheme despite “credible and specific warnings” going back to 1999.   Cox goes on to say:

"I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them."

Besides ignoring warnings about Modoff’s investment practices, it turns out that Madoff had a family relationship connection to the SEC and  Madoff personally:

sometimes consulted with the SEC on how to regulate markets and sat on a panel of academics, regulators and executives formed in 2000 to give the agency advice on new stock market rules in response to the growth of electronic trading.

 Cox has been a one man clueless show throughout this entire economic meltdown.   Among his more egregious actions, or lack thereof, were not requiring financial statement clarity for many of the “exotic” financial instruments, not removing mark to market requirements and issuing a statement that even further muddled the mark to market requirements.  

Obama has yet to announce his choice for SEC chair although he reportedly has a list down to about four names.   As with any political appointment, there will be some risk of ideology influencing focus and agenda.   However, regardless of who Obama picks, it’s hard to imagine anyone on Obama’s list being as out of touch as Cox has been with his responsibilities.   Cox is the poster child of “deeply troubling!”

According to numerous reports, the lead Republican negotiator for the Senate Bob Corker, believed the Auto bail out bill was “within three words” of getting passed last week.

Three words.   Only three words.   It really doesn’t seem like much.   After all, the parties had already agreed that:

• Management would take a hit – dramatically reduced salaries and bonuses, no golden parachutes, no planes.   plus they would have to answer to an Auto Czar, ensure they meet CAFE standards and dump money into non fossil fuel vehicles
• Bondholders would take a hit – Bondholders had agreed to take $.30 on the dollar to reduce the debt that is held on the automakers
• Equity holders would take a hit – The government would get warrants for 20% of the equity in the participating company’s thus dilluting  equity that is just above penny stock value.
• Even slackers had contributed – the UAW had to agree to do away with payments to workers who were still receiving full compensation for up to four years even after their jobs ended.

The remaining piece was to get the UAW members to make a contribution by agreeing to adjust their compensation.   Larry Kudlow describes Corker’s efforts best:

During the negotiations Corker tried to be as compromising as possible on the tough question of wages, benefits, and overall compensation. He asked the union to be competitive, but he never specified parity or complete equality with the foreign transplants. And Corker provided that the comp-package would be certified next year by the secretary of Labor "” an Obama selection. In addition, the Senate governing the package would be made up of 58 Democrats, rather than today’s 50.

All Corker asked was a 2009 date for union pay restructuring. Sen. Corker never specified his date. He asked the UAW to name its date for a new pay package. But it had to be in 2009. In return, union members would get a lot of stock in this deal "” up to $10.5 billion of new equity as GM’s heavy debt burden would be converted into common shares.

To this request, one that should be a throw away if, as UAW President, Ron Give-u-the-finger claims, the Big 3 are only $.44/hour different than the foreign competitors, the UAW President gave Corker the finger.

Instead, immediately following the vote, Give-u-the-finger started his media campaign of blaming Republicans, and their hatred of unions, as the reason that the bill was tubed.   This weekend, the new meme was carried by many of the MSM.   One of the dysfunctional arguments was made by McClatchy.

The article starts by stating the “Republicans hate unions” meme.   They then toss in a paragraph that was intended to be a throw away:

It also helped that their constituents made clear how much they disliked the idea of another bailout.

They then go on to lay out how the Republicans were skeptical of the $700 billion TARP bill.   They also recognize the Republican platform is for smaller government and less government intervention….Damn, principles!

After puking some more about how Republicans were just out to get unions, another throw away paragraph is inserted:

They also liked how he and his colleagues were following the first rule of politics: Know your constituency.

McClatchy recognizes that a majority of Americans are against any bail out of the Big 3.   They also recognize that constituents, after feeling fooled by the TARP plan, are now angry as more pigs show up at the government trough.   Yet somehow, McClatchy believes that the Republican Senators should have thumbed their noses at the folks who put them in office and vote to slap the taxpayers once again.

While Republican Senators finally stood on some principle in negotiating the bail out, it doesn’t appear that the “Republican” President feels the same compunction.   Rumor has it that President Bush is urging Hank Paulson to use some of his TARP money to “bridge” the auto makers until Obama is in office.  

It’s unclear what the next steps are for the Big 3.   However, I’m sure the Congress has not heard the last from Ron Give-u-the-finger and his cohorts.   In fact, with the “never say no” attitude of Nancy, Harry, Hank and President Bush, it may be appropriate to open each day of Congress with the first 10 seconds of this:

I warned you yesterday that the Auto Industry Financing and Restructuring Act (the auto bail out) had nothing to do with wanting to create a financially viable automotive industry.

In an interview with 60 Minutes to be aired this weekend, Barney Frank provided another unusual moment of candor.   He admits to Lesley Stahl that the bailout is not intended to support the economic viability of the auto companies:

“No. We’re not propping up companies. That’s your mistake,” he tells Stahl, who had asked him about taxpayer money going to prop up companies that had made bad decisions. “We’re propping up individuals. The world doesn’t consist of companies. The world is people. The country is people.”

After Stahl points out that Frank is advocating welfare on a national scale, Frank channels Joe Biden when he told us that we were greedy if we weren’t willing to pay higher taxes:

“Yeah, I’m for welfare. You’re not? Are you for letting people starve?”

Finally, Frank tells Stahl why he doesn’t like the idea of the auto makers going into bankruptcy:

“There’s only one thing you can do in bankruptcy: break your word, break your deals,” says Frank. “It allows you to say to the small businesses who have been catering lunches for you"¦the workers, ‘Sorry, we’re not paying you.'”

The Country just elected a President who, for over a year, campaigned on an unashamed platform of national welfare and socialism.   Barney Frank represents the left who clearly believe that Obama was elected to enact the policies he campaigned on.  

Obama’s election has allowed people like Frank to drop their guards and talk openly about their desire to  trap as much of the country as they can to the mastery of financial enslavement.   Sure, they frame it in phrases like “keeping your word” and “I won’t let people starve.”   However,  if we’ve learned nothing else from over forty years of attempts at social engineering, we’ve surely learned that removing people from the consequences of their actions and  telling  them that their effort and merit should not be the basis of their success, is as sure fire way to ensure that they never become successful.    

I’m still unsure whether  Obama was elected for  the policies  he espoused during his campaign  or whether it was a vote that combined historical implications with anti incumbency fervor and a largely undifferentiated alternative candidate.     If it is the later, the American people will not support the continued “bail out o’rama” and will provide some backbone stabilization for the Republican caucus in the Senate.   If the prior, Frank and his ilk will become more brazen about “to each, according to his need.”   If the prior, the answer to “when will the bail outs end” will become “never” because as Frank has pointed out “We’re propping up individuals” and it’s going to take a long time to prop up over 300 million.

By a vote of 237 to 170, the House of Representatives passed the Auto bail out bill this evening.

The Auto bill is being sold as funding to ensure that Detroit can survivef the recession and restructure their businesses so that they are leaner and better competitors once the restructuring is complete.  

After reading the bill, I’ve come to the conclusion that the bill will not allow for the survival of the Detroit automakers.   Rather, the bill is a disguised suicide pact.

You’ve probably heard about most of the provisions in the bill:   There will be an auto czar who will have significant influence over the indebted auto manufacturers, all private airplanes must go, salaries and bonuses have been capped, the Government will get stock warrants for 20% of the company.   What you may not have heard about is the process that the Auto Czar will use to determine who gets loans and how much they get.

The process of doling out “loans” is two fold.   The three auto makers will go to the Czar for bridge loans.   These loans are intended to keep the manufacturers solvent while they work on their “Restructuring Plan.”   According to the legislation, the Czar must consider the following criteria, in the order presented, when determining who gets how much:

SEC. 9. ALLOCATION.

PRIORITIZING ALLOCATION
The President’s designee shall prioritize allocation of the provision of financial assistance under this Act to any eligible automobile manufacturer, based on

(1) the necessity of the financial assistance for the continued operation of the eligible automobile manufacturer;
(2) the potential impact of the failure of the eligible automobile manufacturer on the United States economy; and
(3) the ability to utilize the financial assistance optimally to satisfy the operational and long-term restructuring requirements of the eligible automobile manufacturer.

That seems reasonable.   If we’re really working to have the companies survive and be able to repay the loans we would want to put their financial viability as a first priority.

After the companies are approved for the bridge loan, they are given until March 31, 2009 to put detail to the plans they presented to Congress and produce a “Restructuring Plan.”   The “Restructuring Plan” is the plan they will execute, and that the Czar will hold them to, until they have paid their loans back to the Government.   Based on this plan, the Czar will make determinations about any additional money that the auto company may receive.

The Auto Czar is supposed to use the same criteria, as noted above, to evaluate the “Restructuring Plan.”   However, the legislation provides for a different priority to consider and weight the three criteria:

(c) ORDER OF PRIORITY; SECTION 7."”For purposes of allocating financial assistance for restructuring pursuant to section 7, the President’s designee shall prioritize the considerations set forth in subsection (a) in the following order: paragraph (3), paragraph (2), and paragraph (1).

Well gee, that’s kind of odd.   Rather than focusing on the financial viability of the company, the long term plan is to be evaluated based upon:

the ability to utilize the financial assistance optimally to satisfy the operational and long-term restructuring requirements of the eligible automobile manufacturer.

What do you suppose that means?

Along with the list of provisions that I gave you early in this post, are a couple of others that you’ve likely heard in passing:   If the automaker does not comply with the federal fuel efficiency standards, they can have their loan called, to commence domestic manufacturing of advanced technology vehicles (read that as non fossil fuel vehicles) and do an analysis of how to take excess manufacturing capacity and use it to make mass transit vehicles.

Once the automakers sign up for this loan the government can change the federal fuel standards to anything they want and force to automakers to make the goal. Once the automakers sign up for this loan they have to make non fossil fuel vehicles. Once the automakers sign up for this loan they will be expected to provide manufacturing for mass transit vehicles. All of this will be required or expected of the automakers with the threat of loan recalls if they balk or miss on any of it. All of this will be required or expected without regard to the market or the financial viability of the requirements.

While it’s not surprising that this legislation included “green” requirements, you may find it surprising that the priority for green was placed above all other considerations, including financial viability. Well, you would have been surprised had this happened a couple of years ago before the nation started its rapid and determined race to nationalization of industries and socialism. Now it seems hard to find any sense of fiscal sanity with in any action coming from inside the Washington beltway.

The Auto Industry Financing and Restructuring Act is not an act to bring the auto industry back to health. Rather, it is an act that will create three industrial zombies. Like Zombies, they will be a shell of the real thing. They will be soul less and act in ways that are inexplicable except to their masters.  Their masters will care nothing for the well being of the zombies and are only interested in them to accomplish the master’s goals.

It’s obvious to see why the automakers want the bailout; they see it as they only way to survive. I wonder if they would make the same choice if they understood that they are about to become the new stars in The Night of the Living Dead?