Saturday, November 15, 2008

Bailing Detroit

Of late I've found myself in agreement with conservatives such as David Brooks regarding a bailout for the US auto industry.

Brooks writes:
Not so long ago, corporate giants with names like PanAm, ITT and Montgomery Ward roamed the earth. They faded and were replaced by new companies with names like Microsoft, Southwest Airlines and Target. The U.S. became famous for this pattern of decay and new growth.

Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line. It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. A Detroit bailout would set a precedent for every single politically connected corporation in America. There already is a long line of lobbyists bidding for federal money. If Detroit gets money, then everyone would have a case. After all, are the employees of Circuit City or the newspaper industry inferior to the employees of Chrysler?
As a business person, I believe that companies succeed and fail for a variety of reasons, some due to good or bad management, and some due to factors out of their control. And still there are reasons due to technological progress.  Buggy manufacturers didn't realize they were in the transportation business and lost out to automobile companies a hundred years ago. More recently, traditional map publishers are suffering because they were too late to the electronic mapping transition (internet and GPS). The leading mapping data company, Navteq, was just bought by Nokia for $8 billion, probably 100 times what Rand McNally is worth today. (And Rand McNally now gets much of its data from Navteq.)  When companies fail, employees and vendors are hurt. But eventually new companies grow and create new opportunities. Government should stay out.

I do not agree with Brooks' comparison to other industries however. The main reason being that there are many more players in each. The demise of any one or two companies will not bring an entire industry to its knees and have as wide-ranging an effect on other businesses that serve the failed company or its employees.

I did find this piece a compelling counter-argument to Brooks:
One reason for the casual support for letting GM fail is the assumption that bankruptcy would be no big deal: As USA Today editorialized recently, "Bankruptcy need not mean that the company disappears." But, while it's worked out that way for the airlines, among others, it's unlikely a GM business failure would play out in the same fashion. In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can't build cars without parts, and it can't get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

That's why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation. The company would close its doors, immediately throwing more than 100,000 people out of work. And, according to experts, the damage would spread quickly. Automobile parts suppliers in the United States rely disproportionately on GM's business to stay afloat. If GM shut down, many if not all of the suppliers would soon follow. Without parts, Chrysler, Ford, and eventually foreign-owned factories in the United States would have to cease operations. From Toledo to Tuscaloosa, the nation's?assembly lines could go silent, sending a chill through their local economies as the idled workers stopped spending money.
I do agree it would be tragic for our economy if GM actually closed its doors and this explains why a bankruptcy filing might have that result. Yes, eventually foreign car companies would buy those plants and create new workforces, but it would take years. 

I'm certain that if not sooner than January 20th, the Obama administration and Congress will put together a bailout for GM and if necessary, Ford. I would just hope that stringest measures  would indeed be part of the package, such as:

Government can fire/hire top executives
Government gets stock warrants it can sell when the stock price recovers
(see Chrysler bailout)
Government owns the assets if the company does eventually fail

At the same time, I agree with taking steps to equalize the opportunities for import/export. If our exports are facing tariff or other limitations that we do not impose on imports, or inequalities due to environmental regulations etc., we should take steps to create fairness as well as incentives for more foreign-owned car companies to build plants here.

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Saturday, November 08, 2008

Monday, November 03, 2008

Mmmmm...Norah O'Donnell

I just watched Chris Matthews' Sunday show on NBC and I couldn't keep my eyes off Norah O'Donnell. Do I remember what she said? No. Just the right hint of cleavage and breast form in a red dress, not to mention a nice bit of leg. Well, who can pay attention to Joe Klein with that going on next to him?

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One More Day

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Sunday, November 02, 2008

He's No Goode

When not flitting about the Fifth Dimension, I used to live in Charlottesville, Virginia, a very Democratic college town surrounding by Republican counties. The representative in Congress there is Virgil Goode. His name is pronounced like GOO with a d at the end and his charming old-Virginia accent sometimes sounds a bit more like Forrest Gump. If Charlottesville controlled the vote, he'd have been out a long time ago, being aconservative Dem who switched to the Republican party. But his district goes down to southside Virginia, a Republican stronghold that has been hit hard economically over recent years.

Not focused on such unimportant matters as the economy, Goode has concentrated his efforts on being a true Christian American. Here's an oldie but a Goode-ie:

Congress of the United States
House of Representatives
Washington, DC 20515-4605

Dec. 7, 2006

Mr. John Cruickshank
7— S— Dr.
Earlysville, VA 22936

Dear Mr. Cruickshank:

Thank you for your recent communication. When I raise my hand to take the oath on Swearing In Day, I will have the Bible in my other hand. I do not subscribe to using the Koran in any way. The Muslim Representative from Minnesota was elected by the voters of that district and if American citizens don't wake up and adopt the Virgil Goode position on immigration there will likely be many more Muslims elected to office and demanding the use of the Koran. We need to stop illegal immigration totally and reduce legal immigration and end the diversity visas policy pushed hard by President Clinton and allowing many persons from the Middle East to come to this country. I fear that in the next century we will have many more Muslims in the United States if we do not adopt the strict immigration policies that I believe are necessary to preserve the values and beliefs traditional to the United States of America and to prevent our resources from being swamped.

The Ten Commandments and "In God We Trust" are on the wall in my office. A Muslim student came by the office and asked why I did not have anything on my wall about the Koran. My response was clear, "As long as I have the honor of representing the citizens of the 5th District of Virginia in the United States House of Representatives, The Koran is not going to be on the wall of my office." Thank you again for your email and thoughts.

Sincerely yours,
Virgil H. Goode, Jr.
70 East Court Street
Suite 215
Rocky Mount, Virginia 24151

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Saturday, November 01, 2008