No Runny Eggs

Providing the first insight about his views on fiscal responsibility, Barack Obama today told reporters that:

the nation could face “trillion-dollar deficits for years to come.”

How can that be?   I mean, I knew that this year was a complete write off but “for years to come?”

The last budget forecast from the Congressional Budget Office showed that we were going to run about a $455 B deficit for FY ’08.   Of course this was before the CBO understood how quickly revenues were decreasing.   It was also before the CBO, or the rest of us, knew that Hank and company were going to get their hands on $700 B to spend helping their friends.

After taking into account the most recent realities, the CBO will provide new projections with an expectation that it will now be $1T.   The $1T is before any of of the latest, proposed stimulus package but would include at least the initial tranche of Hank’s play money.

OK, so let’s walk this back…

The difference between the new $1T deficit and the old $455 B deficit is $555B.   It’s probably safe to say that the first part of  of Hanks play money, say $350B, is included in the new deficit.   That leaves revenue reductions of about $200B.

If we attempted to “normalize” the new deficit to Barack’s world, we would take the $1T, back out Hank’s “one time” spending spree of $350B and back down the $300B per year of spending in Iraq that we’re doing because we should have all troops back stateside or in the cost free combat zone of Afghanistan, by the end of January.   That would suggest that even if the economy never improved and we just rolled forward, Barack’s normalized annual deficit should be about $350B.   Of course if the economy does come back some we could expect that other $200B and perhaps even some of the original $455B deficit to come back bringing us closer and closer to a balanced budget.

So where’s the other $650B + each year coming from to make the ongoing deficit become $1T?

It’s not taxes.   Remember that Barack kept telling us throughout the campaign that while he was going to be decreasing taxes on the “middle class”, he was going to increase them on the “rich.”   We’re were told that the net result would be that 95% of the people would get a “tax break” but that overall taxes would stay the same.  

I guess that means that if revenue – expenses = deficit and revenue is the same or improving, the only way to increase a deficit is to increase expenses and if the $650B number is accurate, by a dramatic amount as our current federal budget is only about $3.2 T!

But wait, wasn’t Barack the candidate who told us:

Q: This year’s deficit will reach $455 billion. Won’t some programs you are proposing have to be eliminated?

OBAMA: Every dollar I’ve proposed, I’ve proposed an additional cut that it matches. To give an example, we spend $15 billion a year on subsidies to insurance companies. It doesn’t help seniors get better. It’s a giveaway. I want to go through the federal budget line by line, programs that don’t work, we cut. Programs we need, we should make them work better.

I can’t say that I really liked the tax and spend liberals much but at least they understood economics enough to know that you couldn’t borrow yourself to prosperity.   The new Democrats having been educated with the new math, no longer carry any pretense of balancing a budget, they go straight to “Spend!”

It looks like President elect Obama will carry one characteristic from his campaign to his Presidency, promises with expiration dates.

With just a few days left in the year, this is the time when numerous publications put out “Top 10” lists of events and other notoriety from the year that is about to finish.   In this article from the UK Telegraph, Oxford University puts out its top 10  most irritating  phrases for the year.   “At the end of the day,” “24/7” and “it’s not rocket science” are three of their most offensive phrases.

I’m not very good at year end top 10 lists. I find that my memory doesn’t retain enough items to make a successful list. In fact, most times when I see a top 10 list I’ll read it and go “oh yeah, I’d forgotten about those 3 or 4 items.” Yet, I still feel the need to participate in these year end remembrances so I’ve found a way to use my limited memory to best use; I’ll create a list for the year that is coming up.

So, without further ado, my sole entry for most hated phrase of 2009 is:

Shovel Ready

“Shovel Ready” is not a new term, it’s been around for a while.   It has typically been used in property development and meant a piece of real estate that had been through all of the proper approvals, planning  and zoning and was ready to begin construction immediately.   In 2009 “Shovel Ready” will be certainly used to describe a project for which a quick start could be had but it will also be used in other ways.

President elect Obama continues to ponder the mother of all stimulus bills.   He’s asked Governors, Congress persons and others to submit lists of “Shovel Ready” projects that are being held up due to a lack of funding.   The theory is that by having the Federal government spend money on projects it will stimulate employment and get infrastructure built that would otherwise sit on the drawing board.  

Unfortunately, with the only criteria for submission being “shovel ready,” we’re already seeing that “shovel ready” does not equate “needed,” “cost effective,” or “smart.”   According to the Star and Tribune, included in “shovel ready” projects are:

$4.8 million for a polar bear exhibit in Rhode Island and $1.5 million for a water slide in Florida.

And, in the district of King porker himself, Minnesota Democrat Jim Oberstar, chairman of the House Transportation and Infrastructure Committee, we see the requests for the following:

$2 million for a lake-walk extension at Beacon Point and $6 million for snowmaking and maintenance facilities at Spirit Mountain.

Can anyone explain to me how leaving these four projects, and I’m sure many more like them, on the drawing board would hurt our chances of economic recovery?

Each of Oxford list of irritating phrases was originally used   within their true purpose.   However, in time and through over use, the phrases became perverted to mean something other than their original intent.   The same will happen to “Shovel Ready.”   By the end of 2009, “Shovel Ready,” rather than a project that can quickly be initiated, will come to mean anything that couldn’t pass economic muster by well thinking people but got shoved down the public’s throat for the benefit of some minority constituency, anyway.

Come to think of it, “shovel ready” will likely have one other meaning in 2009.   Anytime you hear that something is “shovel ready” you can easily assume that what will be shoveled near term isn’t any dirt, but a lot of manure as the person selling their project tries to get common sense pushed aside and political graft inserted.

In an Oped piece in the Washington Post  yesterday, one of Barack Obama’s economic advisers, Lawrence Summers attempted to lay out the reasons for the next, still growing, stimulus package.   The stimulus package was originally discussed to be in the $600 billion range.   However, as Obama gets closer to his first attempt at sitting in the driver’s seat the numbers have continued to rise.   Lately, the  range  discussed has been as high as  $1 trillion.

Summers takes a typical liberal approach to spending lots of money that has no profit or benefit on the near term horizon; we’re investing in our future:

The Obama plan represents not new public works but, rather, investments that will work for the American public. Investments to build the classrooms, laboratories and libraries our children need to meet 21st-century educational challenges. Investments to help reduce U.S. dependence on foreign oil by spurring renewable energy initiatives (many of which are on hold because of the credit crunch). Investments to put millions of Americans back to work rebuilding our roads, bridges and public transit systems. Investments to modernize our health-care system, which is necessary to improve care in the short term and key to driving down costs across the board.

Funny, I seem to remember a lot of chatter from the portion of the “15th Century, here we come” Left that told us that drilling for oil on our shores wasn’t worth doing because it would take years before we would see the benefit.   Now we have the left telling us that “investments” that will take years to pay off are the right thing to do….anyone else confused?

Along with “investing for the future,” Summers uses the “it’s all about jobs” argument for spending billions of dollars we don’t have:

A key pillar of the Obama plan is job creation. In the face of deteriorating economic forecasts, Obama has revised his goal upward, to 3 million. For one thing, significantly fewer positions would be created in the absence of any recovery plan. Second, more than 80 percent of these 3 million jobs will be in the private sector, including emerging sectors such as environmental technology. This is a bold goal. But economists across the political spectrum recognize that it is far less risky to stand firmly against the forces propelling our economy downward than to be timid in the face of a mounting crisis.

The creation of 3 million jobs is a new target.   Obama’s original plan was a modest 2.5 million but as the economy has continued to soften Obama has stepped up his replacement plan.   The extra jobs is part of the reason why the amount of stimulus has increased.

A commentary by Caroline Baum uses comments by Paul O’Neill to show how inefficient the stimulus will be in terms of creating jobs:

O’Neill did the math so you don’t have to. Each job "will cost $250,000, which doesn’t suggest much labor intensity for the dollars spent," he said. "It makes me wonder if any of the planners or commentators are good at arithmetic."

Well of course they’re not but that’s beside the point.  

The real question in this is whether Obama’sstimulus plan can actually create 3 million jobs?   If he can, how will he and what silver bullet of economic development does he know that mere mortals in economics don’t?   The answer is found hidden, but accessible with a little work, smack in the middle of Summers’ oped:

A key pillar of the Obama plan is job creation. In the face of deteriorating economic forecasts, Obama has revised his goal upward, to 3 million. For one thing, significantly fewer positions would be created in the absence of any recovery plan. Second, more than 80 percent of these 3 million jobs will be in the private sector, including emerging sectors such as environmental technology. This is a bold goal. But economists across the political spectrum recognize that it is far less risky to stand firmly against the forces propelling our economy downward than to be timid in the face of a mounting crisis.   (emphasis mine)

At first blush that statement doesn’t really seem like much; 80% in the private sector sounds good.   However, that leaves 20% in the public/government sector.   Again, doesn’t sound too bad, at first blush.   According to the Bureau of Labor Statistics there are approximately 144 million people employed.   Of that, just under 2 million are employed by the federal government. State and local governments employ another 8 Million for a total government employment of about 10 million.

If 3 million jobs get created and they break down 80% private and 20% public, that would mean that 2.4 million jobs are created for private enterprise and 600,000 are added to the government ranks.   2.4 million jobs on top of the 134 million private sector jobs means that Obama’s plan will increase the private sector by 1.8%.   In contrast, adding 600,000 jobs to the existing 10 million government jobs means that Obama’s plan will grow the government sector by 6%, more than 3X what he plans to do for the private sector.  

Just to keep the “it’s for the children” crowd happy, I’ll do the math assuming that Obama really means the 20% to include education.   There are approximately 8 million public school employees.   Taking those from the private and adding them to the public still leaves the private sector getting less than 60% of the growth that Obama has slated for the public sector.

Lest you think I’m one of those folks that thinks government employees are a complete waste of time, I’m not.   Like cats, there are some useful purposes for them.   Also like cats, good etiquette keeps me from describing on a public forum, what  most of those useful purposes are.

Here’s the point, increasing employment by adding government employees is easy.   How tough is it to hire a bunch of people to do nothing particularly useful beyond increasing the rolls of union paying members?   The trick in this is how is Obama going to pay for those jobs long term?   Adding jobs to government when you are about to inherit an  $11 trillion debt and an annual deficit under the best circumstances that will be $500 billion, is the same as the folks who took out the 110% home equity loans but found that they couldn’t afford the payments when the interest rates went up.

It’s ironic that to justify this massive government spending, Summers is willing to discount and downplay near term benefits claiming that this is being done for our future.   I wish he was just as concerned about the future implications of the debt and bureaucracy that will be created.   Again, like the folks who bet on ever increasing home valuations and income streams, I wonder if we’ll be able to afford the payments?

As the bail out of The Big 3 has been discussed the past few weeks, much has been made about the unsustainable cost structures that they have.   Depending upon the report you see, Detroit’s automakers pay  somewhere around  60% more  per labor hour than their domesticated foreign competitors.   The UAW President, Ron Give-U-the-finger, will quickly contend that Detroit is only paying a dollar or so more than their competitors.   The truth is that both statistics are accurate.   How can that be?

When UAW Ron gives you a labor rate, he wants to talk only about the wages that are actually paid to workers that are assembling cars today.   While that is a labor rate, it’s not the one that is used by accountants in determining costs.   The labor that is 60% higher includes not only the costs of the people on the line today but also includes the costs of providing retirement benefits for folks who worked that line year and year ago.

Mark Steyn provides some information of how challenging the Big 3’s labor issue is in a column from Friday:

General Motors, like the other two geezers of the Old Three, is a vast retirement home with a small money-losing auto subsidiary. The UAW is AARP in an Edsel: It has three times as many retirees and widows as “workers” (I use the term loosely). GM has 96,000 employees but provides health benefits to a million people.

Holy upside down, Batman!   It’s not hard to understand why the Big 3 have profitability issues when they are paying for 10 employees for every 1 they have working!

Now to be fair, GM, Ford and Chrysler each negotiated contracts that provided for this level of benefit.   The UAW retirees are getting no more or less than what was agreed to in those contracts.   My point here is not to argue what should be done about those agreements, just to let you know they are there.

In 1960 there were 5 workers for every individual who was receiving  Social Security.   Today, that ratio is around 3.3 to 1.   Most analysis of the solvency of Social Security suggest that in the future we will see 2 workers supporting 1 retiree.   Anyone noticing a trend?

Many people are upset with the Detroit Big 3.   They are upset about the bail out.   They are upset that the auto makers have had an unsustainable cost structure for years and have either moved slowly or done nothing about it.  

It’s funny how many in Congress and the general public are quick to point to the Big 3 executives and brow beat them for not anticipating their problems and dealing with them.   Yes, many people willing to point the finger at someone else but when it comes to dealing with a similar problem that they control or are impacted by…..say Social Security, they are perfectly willing to turn their head and look the other way.

If you think the bail out of Detroit’s retiree’s is a problem, you ain’t seen nothing yet!

Obama Expands Recovery Plan, Aims for 3 Million Jobs

 As this story lays out, President elect Obama believes that the economic down draft is more serious than he first thought.   As a result, his original goal of creating 2.5 million jobs appears inadequate.   He now wants to target creating 3 million jobs.

Lest you think Obama’s is the “Gang who can’t shoot straight” and will charge in without a plan, put your worries to rest:

Obama representatives met this week with congressional staffers to discuss a plan estimated between $675 billion to $775 billion, the aide said, though earlier this week another aide said Obama may ask Congress to approve as much as $850 billion. Obama hasn’t specified a figure.

Those figures are all before Hank Paulson, or his successor, go to Congress to get the remainder of their $750 billion “mad money” pool.

Further, wanting to appear the adult in this new regime, Barack has told “the kids” not to have any parties with the tuition money:

Obama during the meeting told his advisers that spending proposals can’t include lawmakers’ pet spending projects; that funds should be directed toward already approved projects so jobs can be created quickly; and that government should help facilitate private ventures by removing bureaucratic red tape.   (emphasis mine)

Does anyone really believe that the government can spend $850 billion without funding “pet projects?”   Is anyone so naive to believe that, unless you’re one of those favored vassals like Hank Paulson, Fannie Mae, Freddie Mac or ACORN, for whom accountability is not a prerequisite, that the government could infuse $850 billion into projects with out increasing red tape, let alone, decrease red tape?

In the movie “Mr. Mom,” Jack (Michael Keaton) takes the role of “domestic engineer” after he is laid off and his wife, played by Teri Garr, lands a role as an advertising executive.   Jack’s role as domestic engineer is not his dream role and part of the plot focuses on the challenges he has  reconciling his new responsibilities with his personal definition of masculinity.   At one point in the movie, Garr’s new boss picks her up at the family home.   While waiting for Garr to get ready for a business trip they are taking, her boss makes small talk with Jack.   As the boss is unable to relate to Jack as the domestic engineer, he asks about Jack’s home remodeling project that he has undertaken.   He asks Jack whether he’ll be wiring 220 electrical service with the remodeling.   Not knowing anything about wiring, but wanting to ensure that he portrays that he hasn’t lost an ounce of masculinity, Jack answers “220, 221.   Whatever it takes!”  

When it comes to job creation and printing of inflationary dollars to cause it, Barack Obama is using the same false Machismo that we saw from Jack in “Mr. Mom,”   2.5, 3 million, whatever you need.   $675, $850 billion, $1 trillion, whatever it takes.

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?

Most news agencies are reporting that an agreement has been reached between the Democrat Congressional leaders and the White House, to provide the $15 billion in Federal funding, bail out, bridge loan….pick your favorite euphemism.   The agreement calls for the creation of a Car Czar who will

have powers to shape a restructuring of the companies, withholding further loans if progress toward a turnaround stalled.

While Nancy Pelosi may want to see House Republicans sign on to the bail out just to provide the appearance of her greater bipartisanship, there’s no doubt that the Democrats will pass the bill now that they don’t have to worry about the implications of impending elections.

On the Senate side, the outcome of a vote on the package is far from certain.   There are reports of dissatisfaction within the Senate Republican ranks.   The question will be whether, while they still have 49 seats, the Republicans can hold together 41 votes and keep the bill from a vote.

In just a few weeks Barack Obama will be sworn in as President.   Despite what some are calling “centrist” cabinet selections, there is no doubt that Obama’s views are far to the left of the American public.   Couple him with Nancy Pelosi and her faux bipartisanship in the House and you are 2/3rds of the way to passing nearly any legislation that Obama or Pelosi may dream up.   The only place where Republicans have a chance to influence policy for the next two years will be in the Senate.

In January the Republicans will be pared down to 42 or possibly 41 Senate seats.   Included in that number will be Senators Snowe, Collins, Specter and of course the ever enigmatic McCain.   It has been much debated whether the Republicans will be able to hold together to create any amount of resistance to the Democrat agenda.

61% of Americans are unwilling to provide a bail out for the auto industry. That coupled with Republicans now lip syncing that they want to be the party of smaller government (again), seems like the perfect opportunity, while we still have the 49 vote training wheels on, to see if we can hold the caucus together and flex some minority muscle. If they can, well, maybe there is some hope. If they can’t, buckle up, it’s going to be a long couple of years.

I think you can consider the Senate vote on the auto bill a trial run for what we will see at least until 2010.