>Heller Votes Against Vehicle Voucher Program

>There is no scientific basis for claiming that global warming is a hoax, the incredible statements of Oklahoma’s Senators notwithstanding, and there is no logic to the opposition to H.R. 2751, the Consumer Assistance to Recycle and Save Act. So, why might Congressman Dean Heller (R-NV2) have voted against it? The measure passed the House on June 9th, 298-119 (two voting present, 15 not voting) [roll call 314] Representatives Berkley (D-NV1) and Titus (D-NV3) voted in favor of the bill. More commonly known as the “Cash for Clunkers” bill, the legislation is a winning proposition for automobile manufacturers, consumers, and our environment. What’s not to love?

The bill creates a one year program during which the National Highway Safety Administration in conjunction with the Treasury Department will issue electronic vouchers for either $3,500 if the new vehicle gets 4 miles per gallon more than Old Unreliable in the Driveway, or $4,500 if the new vehicle gets 10 miles per gallon more than Guzzling Gertie. The automakers get increased sales, the dealers get more units off their lots, and consumers get an economic benefit toward the purchase of their new (more fuel efficient) rides

Nevada could see some benefits as well. The state collects registration fees on a new vehicle and there are sales taxes to be gathered. Any new revenue would be welcome in this cash strapped state. These taxes and fees may also be partially offset for the buyers by the ARRA provisions allowing an income tax deduction for the tax on the vehicle up to $49,500 for the purchase of an eligible motor vehicle by an individual earning less than $125,000 adjusted gross income per year, or a couple earning less than $250,000 annual AGI. When considering why Congressman Heller might have opposed a bill to give his constituents a break on their motor vehicle purchase in the coming year, it should be noted that Rep. Heller also voted against the measure (H.R.1) that included the tax deduction mentioned above. [roll call 46]

It is one thing to make grandiloquent generalizations about “burdening our grandchildren,” or “small government,” and pass these off as rationales for voting against the interests of the constituency; it is indeed another to vote in diametric opposition to the interests of the Congressional District’s automobile dealerships (and the people who work there), local and state governments, and all the consumers in the District who could catch a break on their next vehicle purchases.

Constituents are not statistics, they are not generalized units in some esoteric economic ideology; they are real people who make real purchases with their own real money. The next time Representative Heller pontificates about how “government should leave more money in the hands of the people who earn it,” someone should remind him that he had two opportunities during the 111th Congress to do just that — and he voted “NO” both times.
desertbeacon.blogspot.com

>Nevada Vetopalooza and Legislative Session Continues

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Members of the Nevada Legislature’s leadership are vowing, once more, that they will wrap up and go Sine Die on time. [RGJ] The legislature is limited to 120 days, and this is the 120th. As much fun as it might be to spend the day listening in on the Senate and Assembly floor sessions, there are some pressing matters on the Home Front that preclude live-blogging until later this evening. A reminder: The legislature has its own little “C-SPAN” like webcasts the links to which are located here. Note, please, that to view these you need Windows Media Player, and a minimum 56K connection. Recommended commentary: “Gov. Overridden: Are you that surprised?” [Various Things and Stuff] Updates from Anjeanette Damon’s “Inside Nevada Politics” are always accurate and informative.

Poor, dear, Iowa – more than 2 years before the next gathering of Iowa Caucuses the Republican would-be candidates are traversing the state, “old war horses trampling its fields,” along with some new ones: Gov. Bobby “No Volcano Monitors” Jindal, Gov. Mike “Pelosi Doggerel” Huckabee, Senator John “Hairdo McWedgeshot” Ensign, and Gov. Haley “Bush Man” Barbour, Gov. Sarah “Turkey Shot” Palin, former House Speaker Newt “The Mouth that Roared” Gingrich, and former Gov. Mitt “Bain Capital Management” Romney. [NYT]

USA Today lists “Seven Reasons GM is headed to bankruptcy,” number three on the list is the killing of the EV1 program. For a trip down Memory Lane: “Who killed the Electric Car?” GM will dissolve 2,100 dealerships. [Detroit Free Press] “After many stumbles, fall of an American giant” [NYT] “Pontiac, Orion among 14 GM targets” [Detroit Free Press] “GM files for bankruptcy” [Bloomberg] “GM to shut 12 more factories to speed bankruptcy exit” [Bloomberg] “Bankrupt GM says it owes $172 billion” [NYT]

The Market Meltdown: “In Cox Years at the SEC, Policies undercut action: Red tape halted cases, drove down penalties.” [WaPo] “SEC penalties fell 84% in three years” [Boston Globe] “Even in crisis, Banks dig in for fight against rules” [NYT]

The Minnesota Mess: “Law Professor – If high court rejects Coleman argument, Senate should seat Franken” [MinnIndy] “Point of Law: Coleman-Franken U.S. Senate election goes before Minnesota Supreme Court today” [PP/MNIndy] “Race now in the hands of the state Supreme Court” [MST] “Seat Al Franken” [Editorial LAT]

Under the radar, but worth a highlight: “Tom Tancredo and the ‘N’ Word” [WashIndy] “Pat Buchanan’s protege to be sentenced July 8th” [DKos] “Buchanan’s violent support base” [One peoples Project]

What’s on the Congressional schedule? Lots of Suspension Bills. Votes begin tomorrow. The Weekly Leader Fans of women’s basketball will appreciate H.Res. 196 congratulating the University of Tennessee women’s basketball team and head coach Pat Summitt on her 1000th victory. The only coaches approaching her record are from Indiana and Texas Tech coach Bobby Knight (902) and retired University of Texas women’s coach Jody Conradt (900). [Rivals]

>Coffee and the Papers: The Hedge Fund Wizards Break Their Wands?

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** Much as one would like to keep wearing a favorite pair of shoes, or some especially comfortable garment, there does come a time when the items wear out beyond redemption. Senator John Ensign’s (R-NV) adherence to the right wing conservatism of another era may be a case in point. More at Las Vegas Sun.

** If members of Congress are wondering why their ratings from the public never seem to climb very far, perhaps here’s why: “More than 38,000 Nevada homes could have been saved from foreclosure with legislation defeated last week in Congress — done in by the one-two punch of a financial services industry that continues to have enormous sway and lawmakers unwilling to sharply alter housing policy, even in a crisis. Lenders refused to support legislation to allow bankruptcy court judges to modify the terms of residential mortgages, a power they hold over mortgages on vacation homes — even yachts. But primary residences have been off limits.” Full article at Las Vegas Sun. Senator Harry Reid (D-NV) voted in favor of the Durbin Amendment, Senator John Ensign voted no.

** Another sector with which the public seems to be increasingly annoyed are the hedge funds. It isn’t like they’ve not made every effort to implement the Greed Is Good maxim. What could go wrong when small groups of very wealthy investors use extremely aggressive investment strategies mutual funds aren’t allowed to pursue, and engage in short selling, leverage, program trading, those now infamous ‘swaps,’ arbitrage, and derivatives – and, all without any regulation? Well, maybe the negotiations to save Chrysler from bankruptcy, when a small group of hedge funds refused $2.25 billion in exchange for forgiving their first lien debt. [Reuters] Some well known names in the investment industry are among the 100 “secured lenders,” 20 of which decided not to approve the deal. [LAT]

The “non-TARP” lenders (translation = we don’t have to cooperate because we didn’t take any TARP funds, so you don’t have the hammer on us) haven’t helped their image by insisting on secrecy. When a federal judge ordered the group to identify its membership, its attorney made a non-specific claim that members had received death threats. (Evidently someone knows who they are.) The lawyer then stated that more of the lenders would be “revealed promptly.” [Blmbrg] The hedge fund group is also objecting to the request for Chapter 11, debtor in possession, bankruptcy for Chrysler. The alternative to Chapter 11 is liquidation.

** Prediction: The Hedge Fund and other Wall Street Wizards are going to be screaming bloody murder after the Obama Administration rolls out its plan to outlaw three offshore tax avoidance strategies very popular with multi-national corporations. Alas, there may be “less economic exchange,” “targeting what really has been a growth area for the U.S. economy,” and “severe pain.” [Blmbrg] [NYT] [WaPo] The “growth area” argument is tantamount to suggesting that because fund managers and corporation finance officers were able to “earn” fees or increase revenue by showing multi-nationals how to avoid paying taxes, those ‘earnings’ added to the ‘economy’ of this country. Or, to summarize this another way, in the immortal words of Leona Helmsley: “We don’t pay taxes. Only the little people pay taxes.”

** There appears to be more optimism that Congress will put the skids to some of the more egregious practices of the credit card industry. [WashInd]

desertbeacon.blogspot.com

>U.A.W. concessions: It’s About Time Auto Management Conceded Their Failure?

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In 1979 when Chrysler was trending perilously close to bankruptcy the United Auto Workers agreed to $259 million in ‘give backs’ or concessions in wage and benefit cuts, in addition to $203 million in concessions given during their contract negotiations. During contract negotiations in 2007 the UAW agreed to more concessions, including a two-tiered wage system which gives newly hired employees far lower wages that previously hired workers. [NYT]

General Motors and Ford who had negotiated UAW ‘give backs’ in 2005, sought more concessions during talks in 2007. The 2005 concessions included diversion of wages to finance retiree health care obligations, and retirees were required to pay as much as $752 per year for family medical coverage. [IHT]

And then the Big Three went to Washington in 2009 to ask for bailout funds, and the UAW was faced with another round of demands for concessions. “Talk of more givebacks by our union ignores the cuts we made just one year ago, when our union agreed to a 50 percent wage cut, down from $28 an hour to $14 an hour, and no pensions for new hires,” said Hammer. “Reducing our quality of life would have a ripple effect on our entire economy, and would just make things worse. The reality is that our labor constitutes just 8 percent of the price of a new car. We could work for free, and it wouldn’t solve the crisis.” [Wind]

So, when the executives of the major American automakers sat before Congressional committees begging for U.S. Workers to backstop their financial well being, they were castigated for flying private jets, but not for remaining silent as Republican pundits spread the canard that union workers were making $70 per hour. Members of Congress, elected to represent people (as opposed to corporations) sat nearly silently as the argument was made yet again that the unions should give yet more concessions to preserve the companies. Given this mentality it should have come as no surprise that the plans presented by GM and Chrysler lacked any original components.

What did they propose? Lay off more workers, make more cuts in pay and benefits, and reduce the number of models. “GM even had the chutzpah to cut its projected fuel economy by 10% from what it promised in the survival plan it submitted to Congress in December.” [LAT] Ford Motor Company plans to lay off an additional 1,200 employees as of February 16^th, [DetN] and GM will be laying off 10,000 salaried workers and 37,000 hourly workers. [WILX] Therefore, we can assume that the Detroit 3 Automakers want at least $21.6 billion in loans, and proposals that could run as high as $130 billion total, for the purpose of laying off more workers, cutting back more health and retirement benefits, and making fewer products. [CNN]

Better still, the funds to backstop the accounts of Ford, Chrysler, and General Motors are to be administered by the same CEOs and the same compliant Boards of Directors whose decisions created their problems in the first place.

Money these titans of industry spent lobbying against clean air standards, could have been put into research and development to create the cars and trucks Americans want to buy. Money these mis-administrators spent launching new vehicles might have been reduced a tad in order to maintain quality and engineering standards on subsequent models. The effort these champions of the shareholders put into increasing the stock prices might well have been better spent making sure that the companies were manufacturing products people wanted to purchase. While Honda and Toyota surged ahead in producing fuel efficient hybrids, and Acura took the lead in voice recognition technologies, Detroit was playing catch up. [CNBC]

Worse still, the Japanese manufacturers, in business in the United States for a far shorter time than their domestic counterparts, have not built up the number of retirees who are now seeking from their union benefits formerly provided by the corporations for whom the worked, and therefore are in relatively better shape than their domestic competitors. About $1,600 of the cost of an American car is composed of health care costs. However, when during the health care reform debates during the Clinton Administration did we hear the Automakers mounting a lobbying effort to effect a change in the way we deal with health care insurance in this country?

Were it not for the fact that about 1 of every 10 jobs in this country is related directly or tangentially to the auto industry it would be easy to tell the management of the Detroit 3, “You drove your rig into the ditch, you pull it out yourself.” What we don’t have to do is to hand the keys back to the irresponsible drivers who ditched their vehicles, and fill up their tanks so they can continue to drive themselves into oblivion.

desertbeacon.blogspot.com

>If it’s the Season of Giving, Why aren’t the CEO’s being generous with anyone but themselves?

>A holiday season suggestion for Senator John Ensign (R-NV) and the other members of the “Bankruptcy is Good Club:” If the United Autoworkers are going to have to renegotiate contracts not due for reconsideration until 2011, then let us have the CEO’s of the American automobile manufacturing companies renegotiate their contracts with their boards of directors? If we’d really like to be competitive with European and Japanese counterparts then this ought to take into consideration that by 2007 the average pay for a CEO in Europe was 22 times that of their average employees, in Japan a CEO earned 17 times that of their average employee, but in the U.S. the average S&P 500 CEO was earning 350 times that of the average worker. [DKos]

At General Motors, Mr. G. Richard Wagoner, Jr. pay is a tidy $3.36 million. The COO is paid $2.31 million, and the VP of Global Product Development receives $2.31 million. The Executive VP for Global Powertrain and Global Quality is compensated to the tune of $1.29 million. The Group VP of Global Manufacturing receives $1.41 million. [YahFin]

Ford pays Mr. Alan G. Mulally, its CEO, $9 million, the Executive VP is inked in for $2.86 million, and the CFO gets $3.12 million. [YahFin] About the time the executive pay packages for Ford’s top management were revealed, and while the company was losing money, Ford announced bonus to rank and file employees to prevent “ill will.” [WSJ]

As a privately held company, Chrysler doesn’t publish executive compensation figures. Its CEO has said he would be willing to accept a $1.00 annual salary in order to have his company qualify for federally guaranteed loans, however this should be contrasted with the $30 million Chrysler is paying out in “retention bonuses” to keep its top executives. [USAT]

Interesting, isn’t it, Chrysler wasn’t willing to replicate its concern for retaining top employees at the Kenosha, WI plant it will be closing on December 23? [NYT] Nor did Chrysler feel the need to offer “retention bonuses” to the workers at the Newark, NJ plant which will be shut down a year ahead of schedule, in addition to the 136 workers at the Lear Plant which manufactures seats for the Dodge Durango. [ABCPhila]

Prior to a recent policy change, Ford was equally willing to incentivize executive retention by offering future stock options and stock awards based on performance goals. In 2006 the company paid out “retention settlement” money to its Executive VP and its current and former chief financial officers. [DFP]

Precious little wonder that Congressional legislation for the Big Three bailout capped executive salaries at $250,000. The actions taken by President Bush to have the federal government subsidize loans to the Big Three requires limitations on executive compensation and the sale of corporate jets. [SPI] So, what are the limits supposed to be on executive compensation?

According to the term sheet released for General Motors, “The relevant companies shall be subject to the executive compensation and corporate governance requirements of Section 111(b) of the EESA, and the UST’s guidelines that carry out the provisions of such subsection for systemically significant failing institutions as set forth in Notice 2008-PSSFI. [...] The relevant companies shall comply in all respects with the limits on annual executive compensation deductibles imposed by Section 162(m)(5) of the 1986 Internal Revenue Code. The Notice reduces the $1 million deductibility limit to $500,000.

All discussions of executive compensation for the automakers should also incorporate some consideration of how those TARP funds have been utilized in the financial sector, and this headline ought to give some of the Republican caucus some concern, “AP Study Finds $1.6 billion went to bailed out bank execs: on verge of failure, bank executives collected financial bonanzas” [TPM] The benefits included cash, stock options, company jets, chauffers, home security, country club memberships, and professional money management. “The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.” One positive impact of the dressing down the Detroit executives received from the Congress may be the increasing number of corporate jets for sale. TPM provides a list of the banking institutions and their past records with flying very friendly skies.

If the UAW is being asked to accept stock in lieu of cash for the employees health and retirement systems, then it might behoove the Congress to require that all corporations receiving TARP funding and loan guarantees be required to bid farewell to the over-priced era of the Golden CEO, and drop such perks as private flights, country club dues, home security systems, chauffeured vehicles, and similar benefits; at least until someone can explain why workers on the factory floor who actually MAKE the products aren’t worthy of personal security and a day at the golf course — or even their jobs.
desertbeacon.blogspot.com

>Ensign’s Senate Floor Speech: How to talk about automobile manufacturing without ever using the word "Worker"

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“Senator John Ensign today called on the White House to take the option of using the Troubled Asset Relief Program (TARP) funds for the auto industry off the table. Ensign led efforts in the Senate this week to stop the White House-Democrat auto bailout legislation because it took experts out of the process, injected politics and failed to require the necessary changes to make the Big 3 auto companies competitive over the long term.” [Ensign PR, December 12, 2008] So much for Senator Ensign’s clout with the White House. The Detroit 3 will be backstopped at least until March 31, when the President will be back in Texas – having ditched the “prop-ranch” in Crawford for his luxurious digs in Dallas.

Not that Senator Ensign didn’t give it the old college try on the Senate floor on December 11^th. [Senate Journal] The following are the full remarks which contain the semi-notorious reference to bailing out the casino industry. However, the full text deserves consideration. The Senator’s comments are in italics.

Mr. President, I rise today to speak about the possible bailout of the Big 3 automobile manufacturers. General Motors, Chrysler, and Ford have come before this Congress asking for tens of billions of dollars from the taxpayers. This bailout, however, raises a number of questions that concern me greatly. The economy of the United States is rooted in free-market principles. These principles, coupled with our Nation’s entrepreneurial spirit, helped America become the richest and most innovative country in the world. Even though our economy is struggling right now, we cannot abandon those principles.

This would, of course, be nothing like the hundreds of billions the Bush Administration has ineptly pitched at the financial and banking institutions, and perhaps even less like the $10-$12 billion per month sinking into the sands of Iraq? Interesting isn’t it – every time the GOP wants to pile cash on a defense contractor or manufacturer there’s no problem, but speak of manufacturing domestic products and we MUST revert to “free-marketeering?”

American automobile company executives have made many poor decisions over the past few decades. Those decisions combined with a poor economy, have put them in a desperate situation, particularly General Motors. It seems to me that this is exactly why we have Chapter 11 bankruptcy. Now, when I say bankruptcy, I am not talking about liquidation. That is Chapter 7 bankruptcy. Chapter 11 bankruptcy provides struggling companies with the opportunity to restructure responsibly so that they can transform into efficient and profitable firms. Chapter 11 exists to protect both the employees and the company itself by giving them a chance to get things right. The Big 3 should not view Chapter 11 as some sort of death sentence. Instead, they should see it as the best opportunity to put themselves on the same competitive footing with companies such as Toyota and BMW. Venerable companies in America such as Macy’s and Continental Airlines have filed for Chapter 11 and have emerged as stronger, more viable companies. So why should the Big 3 be treated any differently?

Of course Senator Ensign wouldn’t be thinking of Chapter 7 because that might entail having some of our technology transferred to foreign companies, and the utter collapse of one of our largest manufacturing segments during a Republican Administration. The whopper difference between Macy’s and Continental and the automakers is that it has never occurred to me, or anyone I’ve ever met, that I would need to purchase parts for the 737 in which I’m sitting, or need a 10 year warranty on a sweater from Macy’s.

I know these companies would say they are somehow unique and that bankruptcy simply will not work for them. I am not so sure about that. The Big 3 worry that today’s financial environment would prevent them from securing debtor-in-possession financing from the private sector. They would need such funding to keep operating through a bankruptcy proceeding. This is where the government can step in. This would ensure that automakers have the funds to complete the Chapter 11 process.

Whoa Nellie! This really doesn’t work both ways. Somehow, according to Ensign logic, it’s perfectly all right for the federal government to backstop more expensive Chapter 11 DIP funding than it is for the federal treasury to backstop less expensive operational bridge loans? What about those “free market principles” in the first paragraph?

The Big 3 also worry that few consumers would buy a car from a company that might not be around in a few years to stand by the car’s warranty. Again, the government could step in and guarantee the warranties. After all, what is a better backup of a warranty than the full faith and credit of the U.S. Government? And if the government took these steps, wouldn’t that give the Big 3 a good chance to successfully reorganize through Chapter 11 bankruptcy? Speaking of spending taxpayer money – the Federal government is going to guarantee 10 year warranties? Excuse me, but harkening back to the testimony given at the Congressional hearings, [MrkWtch] it was clear that the auto industry expected about 11 million new vehicle sales in 2008. Add this figure to the 17 million vehicles sold in 2007 and the taxpayers could be footing the bill for a substantial number of warranties.

The Big 3 have testified before Congress that they would require about $34 billion to avoid liquidation. They would need this help over the next year or two. Many independent analysts, however, believe that number may triple that. Frankly, I am more inclined to believe the independent estimates are closer to reality. After all, the Big 3 have time and again proven unable to adequately plan for the future. Why should we believe their projections now? With the deficit reaching $1 trillion or more next year, why aren’t we having a debate over the true cost of such a bailout? We should be worried about the U.S. taxpayer. First, does it occur to Senator Ensign at any point that automobile workers are taxpayers? Secondly, does it occur to the Senator that people who work for parts suppliers, and who work for after-sale peripheral companies are also taxpayers?

In this legislation, there has been talk about creating a “car czar” to oversee any restructuring that would accompany a bailout. This czar, however, would not have nearly the same sort of powers a bankruptcy court judge would have under Chapter 11. Injecting a government bureaucrat into the process is not a serious solution. If you have been around Washington long enough, you know it is more like a serious problem. Wouldn’t it be better to have an expert such as a bankruptcy court judge oversee the process? Not only would a bankruptcy judge have more tools than a car czar, but the judge would not be influenced by the political process. A bailout would invite all sorts of meddling from lawmakers to have the companies carry out their own pet policies. We should not be using this bailout as a vehicle to implement domestic social policy.

This section is about the only part Senator Ensign gets correctly – the car czar notion was silly – almost as silly as the Commission to Study Whatever’s the Matter with Cars idea. Senator Ensign rambles on, spending the bulk of his floor time inveighing against the Car Czar notion – as if it had a snowball’s chance south of the mythological Cerberus to be enacted.

Not to mention that creditors or stakeholders will just lobby Congress to make the sort of concessions that would be required of them under the bankruptcy. We see this sort of lobbying right now with the TARP program. Everyone is trying to tweak the program to benefit their own narrow self-interest. Why would we expect the auto unions or suppliers or dealers to behave any differently? I worry that politicizing the restructuring of the Big 3 would jeopardize any chances of success they may have. Or, why wouldn’t we believe that contracts with dealers, parts suppliers, and workers might be valid and should be honored? One of our time honored precepts in our economic system is that contracts are enforceable. Only ideology would dictate that some contracts are more enforceable than others.

All this talk of government-directed restructuring also raises bigger picture questions. Why does Congress think we can succeed where so many businessmen have already failed? What sort of experience in the car-making business does this Congress have? Last I checked, none of my colleagues have a background in running a car company. And this car czar seems doomed to failure too. One government bureaucrat to oversee the reorganization of three massive companies? What track record can we point to that makes us think this will work? Senator Ensign now shifts to some rather revealing commentary:

This strikes me as a questionable intervention by the government into the private sector. We have the government thinking it can run these businesses better than they can. Heck, we cannot even run the government. We also have the government choosing which individual companies deserve help and which do not. This is not what the Government should be doing. Government should not be picking winners or losers in the private sector. For the long-term health of the country’s entrepreneurial-based economy, this could be a dangerous precedent. This is, indeed, a pertinent admission – “…we cannot even run the government – and the Republicans had the last eight years to prove it. It’s nice to see a member of the Republican leadership get around to admitting this.

One of the companies asking for a bailout is Chrysler, which is owned by an investment fund known as Cerberus. Some reports indicate Cerberus may have significant asset holdings, into the billions of dollars. But it appears Cerberus has done nothing to infuse any emergency cash into Chrysler to save it. Why should the government bail out Chrysler, when its own parent company seems unwilling to offer any help? This is actually a good question, perhaps one of Cerberus’s owners, former Bush Administration Treasury Secretary John Snow, would care to offer a reply.

Here comes the part wherein Ensign suggests that the resort-casinos of Las Vegas are comparable to the automobile industry: If we bail out the car companies, what does that mean for other struggling industries? The automakers are not the only ones suffering today in this bad economy. Would we have to bail out every large company in every major industry? Tourism is one of America’s biggest industries and has a high employment multiplier, much like the auto industry. Hotel rooms are going empty as consumers cut back on travel. Many state economies, such as in my own State of Nevada, are hurting because of the downturn in consumer travel. Should the hotels receive a bailout? How about the newspaper industry? We know their businesses are hurting too. The Tribune Company filed for Chapter 11. Should we be bailing them out as well? Where do we draw the line? Can we even draw a line once we have given the Big 3 a bailout? We can presume Senator Ensign intends that the answers to his rhetorical questions is “No.” Unfortunately, the domino theory of down hill disintegration kicks in and unless the Treasury Department starts to demand that the banks receiving TARP funds start moving some money out the door there may well be a falling domino effect. This isn’t so much an argument that Detroit is unworthy for assistance as it is an admission that the Bush Administration’s botched handling of TARP funding is miserably obvious.

Here he goes again – the answer to all ills economic is – Another Tax Cut! The proposed automaker bailout is indicative of a big-government approach to dealing with our economy. We are in the midst of a recession, yet we have come back for a late session of Congress to talk about saving just three companies. Why aren’t we considering pro-growth policies to help the larger economy? We should be considering long-term, pro-growth tax cuts rather than searching for ways to spend more of the taxpayers’ money. For instance, lowering the corporate tax rate would put more money back into the hands of companies all across America. This would help companies stay afloat and to avoid cutting jobs during these difficult times. Instead, the Democrats are looking to spend money on bloated, uncompetitive automakers.

If there were ever a Neo-Hooverite statement of principles this would be it. And, there are those pesky taxpayers again, with automobile related employees neatly segregated from all other “taxpayers.”

When all else fails take a very long view. As we debate whether to loan billions of dollars to the automakers, I urge my colleagues to consider all the important questions I have raised today. This issue is not as simple as answering “how many jobs might be lost?” or “how much it will cost the government?” We must also consider questions such as “what is the Government’s proper role during this economic downturn?” “What could be the unintended consequences of our actions?” “Are we setting a dangerous precedent for needless political intervention?” “How might this affect our ballooning deficit?” “Are we taking the best course of action for the long-term health of the U.S. Government?” Judging from the previous remarks, the role of government according to Senator Ensign is to continue to cut taxes, reduce services, and thereby decrease the capacity of government to – govern.

We would do America a disservice by approving any bailout package for the Big 3 before finding at least some consensus on these questions. Furthermore, I believe we must look more closely at Chapter 11 as a viable option for the automakers. Chapter 11 reorganization for any of the Big 3 is far from ideal, but we do not live in an ideal world nor during ideal times. We should not dismiss one of the most powerful tools available to us so readily. I hope my colleagues will think long and hard about the issues I have raised today before making any decisions about the possible bailout. If this bailout package that is before us today fails, we can rewrite the bill and do it in a way that is better for the U.S. auto manufacturing industry. American taxpayers deserve nothing less.

Now that we’ve seen all of Senator Ensign’s remarks, it might be well to do some review: How many times did the Senator use the word “jobs?” (The answer is 1) How many times did Senator Ensign mention “workers?” (The answer is 0)

desertbeacon.blogspot.com

>Four reasons a UAW buyout might not be a good idea

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Commenter ‘Texex” asked a question about the prior post that deserves a more critical look than merely a glib riposte: What if the UAW were to supply the bridge loans necessary from its health and pension funds? There are several reasons the United Autoworkers would look askance at this prospect.

1. The pension fund could certainly buy GM plenty of time, but one of the prime reasons that the American automakers have higher legacy costs is NOT that the benefits are higher, but because they have been in business longer and have far more retirees. In 2007 the UAW established the Voluntary Employee Beneficiary Association that will take over the companies obligations for providing retiree health care benefits. The VEBA is funded by employer and employee contributions, including wage deferrals and modified benefits. [UAW] Using pension/health funds to provide the bridge loans sought by the automakers would require that the company and employee contributions be security for the repayment of the loans. If the company defaulted, the retiree health benefits would be impacted – not a happy prospect given the increase in health care costs recently.

2. The automakers don’t have a sterling reputation when it comes to the use of pension funds. The Delphi Debacle comes to mind. In February 2008 the United Autoworkers objected strenuously to a plan to salvage Delphi Corporation using pension funds from General Motors. [Reuters] Delphi Corporation, for its part, wasn’t all that worried about its retirees, but rather more about getting out of its bankruptcy problems in August 2008, when the Pension Benefit Guaranty Corporation was pressuring the company to transfer $1.5 billion of unfunded pension obligations to General Motors by September 30^th. Delphi allowed the IRS pension waivers to expire in the Spring of 2008, oil prices jumped, sales dropped off, and the Delphi reorganization plan collapsed in a heap. Meanwhile, Delphi’s creditors displayed precious little interest in keeping the Delphi pension plan viable, focusing their attention on how Delphi’s resources would be divided among the various creditors. [NYT] On October 3, 2008 Delphi filed modifications to its confirmed reorganization plan with the bankruptcy court, with a hearing scheduled for March 24, 2009. [Delphi]

3. The ESOP, or employee ownership of United Airlines, is one of the few examples of a hybrid management plan which illuminates the pitfalls of the process. While portfolio pundits were ascribing United’s problems in 2000 as a function of too much union control, the union actually had only 3 seats on a 12 position board of directors. Neither the employees nor the management was ever fully committed to the plan which had a 5 year sunset provision; new employees would not be owners, and existing owners would get no more stock. Flight attendants weren’t included in the ESOP; they didn’t want to make further concessions and the company along with other unions were not willing to include them unless they did. Concessions and give-backs continued to be a source of bad feelings. Southwest Airlines, by contrast, is 10% owned by its employee benefit plans with a vision of “employees first, customers second, and shareholders third.” [NCEO] Getting a workable pension plan/management arrangement for General Motors would require a major, if not tectonic, shift in GM’s corporate culture.

4. There are some serious issues with GM’s management that could preclude UAW consideration of placing its pension plan (especially defined benefits programs) at risk. Pension plans assume the funds are invested profitably to secure future obligations. Placing the funds into the hands of ownership that has a poor track record of risk management could easily be a recipe for disaster.

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>Senator Ensign, the DIP

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Will someone pul-eeze explain Chapter 11 bankruptcy provisions to Senator John Ensign (R-NV)? Nevada’s junior Senator once again graced the broadcast realms this weekend with his theory that the American automobile manufacturers could restructure their debts and obligations in Chapter 11. Theoretically, this might be possible – practicality (evidently not a strong suit among Neo-Hooverites) dictates this bird won’t fly.

If Senator Ensign’s not educated himself on the subject, one could suggest a quick trip to the good-old Wiki which explains Chapter 11: “In Chapter 11, the debtor retains ownership and control of its assets and is re-termed a debtor in possession (“DIP”). The debtor in possession runs the day to day operations of the business while creditors and the debtor work with the Bankruptcy Court in order to negotiate and complete a plan. Upon meeting certain requirements (e.g. fairness among creditors, priority of certain creditors) creditors are permitted to vote on the proposed plan. If a plan is confirmed the debtor will continue to operate and pay its debts under the terms of the confirmed plan. If a specified majority of creditors do not vote to confirm a plan, additional requirements may be imposed by the court in order to confirm the plan.” (emphasis added) Apparently, this is as far as Senator Ensign got in his research. The manufacturers would be running their businesses as “Debtors in Possession” while the deals are worked out. All would be well and good in Ensign-Land except for one little pesky detail: DIP financing.

Senator Ensign doesn’t seem to have been watching CNN last month when the DIP problem was explained. Members of the Neo-Hooverite Contingent give every appearance of believing that the financing of a Chapter 11 style solution to Detroit’s problems would be done as happened with Delta, Northwest, and United Airlines. Probably not. Why? There are two logical prospects and neither is very positive. First, given its current fiscal situation GM may not be able to find DIP financing. Secondly, even if it could find financing in this market (in which financial institutions are trying to de-leverage their way out of all the asset based securities they piled up) the prospective lenders could charge exorbitant interest for the DIP financing.

Why might Gm have trouble qualifying for DIP financing, or have to pay extraordinarily high rates to get it? Because in order to qualify for Debtor in Possession loans (usually attractive because the lenders have first dibs on the income) a company has to have a secure revenue base. Here’s where that survey of car buyers comes into play.

Two years ago there were murmurings of GM’s consideration of bankruptcy which were tempered by a Directions Research survey finding that only 26% of their respondents were willing to buy or lease a vehicle manufactured by a company in bankruptcy. [Caff] And, if the survey wasn’t sufficient evidence that the “revenue base” would collapse during bankruptcy, there’s always the Daewoo Example. The last major auto manufacturer to declare bankruptcy, Korean based Daewoo, was unable to find DIP financing and collapsed into liquidation. Dealer networks collapsed, warranties weren’t honored, and customers were stuck with ‘orphan cars’ for which parts were no longer available. Who bought the Daewoo plants? GM.

The problem can be boiled down to: If there is no secure revenue stream there will be no DIP financing. If there is no DIP financing there will be no reorganization. If there is no reorganization there must be a Chapter 7 liquidation. Who would know this better than General Motors, which bought up the remnants of the last big automobile manufacturer who tried the Chapter 11 route?

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>Nevada Junior Senator Continues Union Bashing Circuit and Other News

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Senator John Ensign (R-NV) is busy granting interviews to publicize his latest union-bashing message. The Las Vegas Sun headlines “Ensign to Bush: Show some courage,” KXNT added Ensign’s message to the air waves with the junior Senator charging that the UAW walked away from the talks because the While House would “come to the rescue anyway.” Or, could have the UAW been unimpressed with the prospect of continuing talks because Senator Ensign had made it obvious by 9:12 a.m. Wednesday morning that any negotiation with his Neo-Hooverite wing of the GOP would be fruitless? This might, indeed, be the case since Ensign’s roadblock/filibuster threat had already been published by the Reno Gazette Journal on December 10^th. Steve Sebelius summarizes Ensign’s hypocritical position on bailouts in general and the chronology of the junior Senator’s most recent round of union bashing in particular.

While the chatterati and pundit class focuses on the Blagojevich matter, there’s another Wall Street scandal breaking with some serious ramifications at least 3 ½ times larger than the proposed automobile makers’ bridge loan. Wall Street trader Bernard Madoff stands accused of masterminding a $50 billion Ponzi Scheme that may have put Spain at risk in the 3 billion euros range. [Forbes] The Spanish, of course, weren’t the only ones taken in by Madoff’s operation, New York Mets owner Fred Wilpon, and former Philadelphia Eagles owner J. Ezra Merkin got suckered too. [The Street] Ex-NASDAQ chairman Madoff was arrested December 11^th after the SEC filed a complaint with the Federal District Court, Southern District of New York. [MrktWtch] As of January 2008 Madoff’s company reported $17 billion in assets from 23 management clients – when the charges were filed all the assets were missing.

Are we safer yet? The GAO has released “Homeland Security: U.S. Visitor and Immigrant Status Indicator Technology Program Planning and Execution Improvements Needed.” [pdf report] When an audit opens with this sort of introduction it’s reasonably obvious the answer is “nupe:”

“The fiscal year 2008 US-VISIT expenditure plan does not fully satisfy any of the eleven conditions required of DHS by the Consolidated Appropriations Act, 2008, either because the plan does not address key aspects of the condition or because what it does address is not adequately supported or is otherwise not reflective of know program weaknesses. More specifically, of the eleven conditions, the plan partially satisfies eight.” Medicare Part D didn’t fare much better in “Opportunities exist for improving information sent to enrollees and scheduling the annual election period.” [pdf report]

Unpalatable baker’s dozen? The GAO also highlights “13 Urgent Issues” for the consideration of the Obama transition team on its Transition Web Page. The list includes: caring for service members, defense readiness, defense spending, food safety, Afghanistan-Iraq-Pakistan, oversight of financial markets and institutions, preparing for large scale health emergencies, protecting homeland, public diplomacy and international broadcasting, retirement of the space shuttle, surface transportation, the 2010 census, and the transition to digital television. The GAO has also thoughtfully given the new Administration and 110^th Congress a heads up concerning reports to be issued in the coming months. These reports include topics such as comprehensive energy policy, addressing climate change, domestic infrastructure needs, the federal land management framework, assuring retirement income security, controlling Medicare costs and ensuring reliable data, managing the TARP program, ensuring environmental protection, ensuring safe banking, FAA financing and reauthorization, the financial condition of the Postal Service, food issues from table to farm, the impact of coastal development, improving educational achievement, reforming the U.S. financial regulatory system, restoring confidence in financial markets, restoring the functioning of mortgage markets, revenue from oil and gas leasing, status of digital television, surface transportation, Telecomm Reform and FCC management, and disability policies. This list ought to provide Blog Fodder for months on end – and here we might have been thinking that the Obama Administration could be boring after the Catachesis-Creator-in-Chief departed on January 20^th.

Not so much cooperation is coming from the Bush Administration’s Department of Justice, which is disputing access to NSA and CIA opinions on the rationale for the NSA warrantless wiretapping spy program and the CIA’s detention and interrogation policies. [Legal Times] See also: Think Progress and Daily Kos. NASA chief Michael Griffin has been less than cooperative with Obama transition team agency reviewer Lori Garver, calling her “unqualified” to judge his programs. This would be the self-same Michael Griffin who altered the NASA mission statement to remove references to global warming and its implications. [Think Progress]

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>Ensign and the Neo-Hooverites: Bad Faith Bargaining and Flag Pins in the Auto Debate

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Senator John Ensign (R-NV) along with fellow Neo-Hooverites Shelby (R-AL), Coburn (R-OK), and DeMint (R-SC) had already shaped their “strategy” against the automobile manufacturers bridge loan legislation well before the termination of “negotiations” which the UAW now stands accused of defeating. [NYT] How fortunate we are to have the Republican Action Alert Memo dated with a distribution time published. Here’s the memo:

“It says — and this was Wednesday, December the 10th, 2008, at 9:12 a.m. — “Today at noon Senators Ensign, Shelby, Colburn and DeMint will hold a press conference in the Senate Radio/TV Gallery. They would appreciate our support through messaging and attending the press conference, if possible. “The message they want us to deliver is, one, this is the Democrats’ first opportunity to pay off organized labor after the election. This is a precursor to card check and other items. Republicans should stand firm and take their first shot against organized labor, instead of taking their first blow from it. “Number two, this rush to judgment is the same thing that happened with the TARP. Members do not have an opportunity to read or digest the legislation, and therefore could not understand the consequences of it. We should not rush to pass this because Detroit says the sky is falling. “The sooner you can have press releases and documents like this in the hands of members in the press, the better. Please contact me if you need additional information. Again, the hardest thing for the Democrats to do is get 60 votes. If we can hold the Republicans, we can beat this.” [Swamp] (emphasis added)

Timing is Everything: On December 5, 2008 the Houston Chronicle was reporting that congressional Democrats were nearing agreement with the Bush Administration on the components of the automakers’ bridge loan legislation. By December 10, 2008 the White House announced its agreement to the terms of the restructuring plans. [ChiTrib] During an 11:01 a.m. (EST) Press Briefing in the Briefing Room, Press Secretary Dana Perino called on White House staffer Joel Kaplan to outline the White House position. [WHPR] Putting the time line together we can quite clearly see that at least two hours before the White House made its statement about the bridge loan program, Senator Ensign’s Neo-Hooverites were already signaling that they intended to block the legislation to “take their first shot at organized labor.”

December 11^th: “In a statement Thursday night, the union said it was “prepared to agree that any restructuring plan should ensure that the wages and benefits of workers at the domestic automakers should be competitive with those paid by the foreign transplants. But we also recognized that this would take time to work out and implement” using programs like buyouts and early retirement offers to bring in new workers at lower rates.” [NYT] It doesn’t take any great insight to determine that the “blame the union” press commentary was already well in the works while the so-called negotiations were taking place Thursday on Capitol Hill. In short, the “negotiations” were little more than pure theater on the part of the Senate Republican leadership. Senator Bob Corker’s (R-TN) performance seems to have been exceedingly devious.

Senator Corker was at pains to tell the Chattanooga Times Free Press on Friday, December 12, that the “union wage issue sank the auto plan.” For all intents and purposes he could have given this interview any time after 9:12 a.m. Wednesday, December 10^th. The trumped up “wage issue” was going to “sink” the talks before that ship ever left the dock. Coupling the “Action Alert” distributed by his party’s leadership with the timing of his interview with the Chattanooga newspaper indicates that his services as an ‘honest broker’ in political negotiations were highly suspect from the onset.

Worse still, the “Wage Issue” is, itself more theatrical than factual. The Detroit Free Press reported in 2007 that the UAW plants were losing their pay edge as foreign automakers added bonuses in their U.S. plants. Toyota gave workers at their Georgetown, KY plant plant bonuses of from $6,000 to $8,000 boosting the average wage paid to about $30 per hour. In 2007 the average wage for a UAW worker was $27.00. [AMN] To press the real issues more precisely, “Hourly wages for United Auto Workers laborers at General Motors Corp. factories actually are almost equal to those paid by Toyota Motor Corp. at its older U.S. factories, according to the companies. GM says the average UAW laborer makes $29.78 per hour, while Toyota says it pays about $30 per hour. The difference is in benefits, with the unionized factories having far higher costs.GM says its total hourly labor costs are now $69 including wages, pensions and health care for active workers, plus the pension and health care costs of more than 432,000 retirees and spouses. Toyota says its total costs are around $48. The Japanese automaker has far fewer retirees and its pension and health care benefits are not as rich as those paid to UAW workers.” [ManufNet] (emphasis added) Remember, that $69/hr figure is misleading. If we were to add up all the employee and benefit costs of Wile E. Coyote’s Acme Explosives plant for every employee who ever worked there and then divide by the number who are actually working there now – the result would be highly inflated and as misleading as the Roadrunner’s tunnel painting on the canyon wall.

However, it wouldn’t do the Republicans any good to assert that pension and health care benefits, not wages, are the two components of the personnel expenses for American companies that actually make our manufacturing efforts less competitive – because then the GOP leadership would have to address pension and health care issues frontally, rather than hiding behind the wage claims. The Neo-Hooverites certainly seem less than excited about taking on health care insurance problems other than to tout Health Savings Accounts for the young and healthy, and “the free market” for those who are not. Republicans who recognize the health care costs as part of the problem might be forced to assert something other than Cold War era rhetoric about “socialized medicine” that swamped President Harry Truman’s attempt to rationalize the American health care delivery system. [Slate] Further hurting their ideological position, Americans could become satisfied with a more national and rational health care insurance system, as they have become content with Social Security, and then however could conservatives argue for more free market solutions?

Nor have Ensign and the Neo-Hooverites deemed it necessary to review the status of the pension funds and programs associated with U.S. manufacturing. Relatively little has been heard from them except for periodic bleating about the perils of Social Security and how nice it would be to privatize it. As noted in an earlier post, Republicans have been singularly disinterested in the condition of the Pension Benefit Guaranty Corporation. Its always easier to misdirect the public from the real issues toward specious distractions by focusing on a narrow and simplified bogey-straw-man argument – which is precisely what the Neo-Hooverites appear to be doing at the moment.

In short, the timing of the various Republican announcements indicate that they were never seriously looking for a solution to the problems of American automakers in the first place, and that they certainly weren’t sincerely conducting good faith negotiations; nor were they the least interested in addressing the real issues intrinsic to manufacturing competitiveness. That scenario leads to the inevitable conclusions that the GOP performance was little more than the same old gridlock-roadblock politics that got them a bad name during the 109^th Congress, and made passing anything important out of the 110^th Senate all but impossible. One last observation might be offered to Senator Ensign and his fellow Neo-Hooverites: Be careful what you wish for.

By tying themselves to their phony “Wage Issue,” the Senate Republicans have announced to all the world that they are perfectly willing to allow the wage levels of U.S. citizens to be determined by foreign corporations, something quite often associated with the wage policies in 3^rd world countries. Unless, or until, these members of the Senate are willing to support American negotiated wage levels in American manufacturing plants, they should really take those flag pins out of their lapels.

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