naked capitalism

doc holiday says:

This struck me as right on target, even if it doesn't seem on-topic for Asia and the financial crap storm that travels from country to country.

Full Metal Coffin
http://theautomaticearth.blogspot.com/

All three CEOs – Rick Wagoner of GM, Alan Mulally of Ford, and Robert Nardelli of Chrysler – exercised their perks Tuesday by flying in corporate jets to DC. Wagoner flew in GM's $36 million luxury aircraft to tell members of Congress that the company is burning through cash, asking for $10-12 billion for GM alone.

"We want to continue the vital role we've played for Americans for the past 100 years, but we can't do it alone," Wagoner told the Senate Banking Committee. While Wagoner testified, his G4 private jet was parked at Dulles airport. It is one of eight luxury jets in the GM fleet that continues to ferry executives around the world despite the company's dire financial straits. "This is a slap in the face of taxpayers," said Tom Schatz, President of Citizens Against Government Waste. "To come to Washington on a corporate jet, and asking for a hand out is outrageous."

Wagoner's private jet trip to Washington cost his ailing company an estimated $20,000 roundtrip. In comparison, seats on Northwest Airlines flight 2364 from Detroit to Washington were going online for $288 coach and $837 first class. After the hearing, Wagoner declined to answer questions about his travel. Ford CEO Mulally's corporate jet is a perk included for both he and his wife as part of his employment contract along with a $28 million salary last year. Mulally actually lives in Seattle, not Detroit. The company jet takes him home and back on weekends.

>> Those nice jets can't escape the velocity of this storm and I think all three car makers are going under, together… but they probably will morph into one socialized/fascist entity and produce cars with plants in Mexico. If so, I'll boycott them like Hershey Chocolate.

eh says:

“…with no region to help each other,” he said.

Once the US and other developed lands go bad the writing is on the wall — there just aren’t enough high-value consumers elsewhere.

eh says:

Considering all the possible/likely aftershocks of a GM bankruptcy, it’s hard to inveigh against cash for GM because Wagoner flies in the corporate jet. And if Congress approved money for the ‘banksters’, then they ought to do the same for GM — at least the GM people produce something. And Wagoner will be gone in any case. Although probably not the jet.

Michael Fiorillo says:

Not to justify private jet travel by anyone, especially by the heads of failing companies that seek taxpayer assistance, but it’s a red herring. The real issue is that this crisis is being used to bury the UAW. Unfortunately, it seems to be a bipartisan effort.

Apparently it’s beyond the pale to offer help to an industry that was merely run by idiots (Detroit), and that still forms the industrial backbone of the country, rather than criminals (Wall St.)

For those folks who speak of the necessity of bringing down the big 3’s labor costs in line with those of Toyota, Honda, etc., how long do you think those companies will maintain their current pay and benefit structures absent the threat, no matter how remote, of the UAW organizing those plants?

The only reason those employees in the right-to-work South, free riders who have benefited from the struggles of auto workers in the past, enjoy the standards they do is because of the union. It’s the invisible hand of labor economics: non-union contruction workers here in NYC only make their $15-20 an hour because the organized trades set the scales higher. Non-union factory scales are indirectly set by the UAW and have been for the past 50 years. Watch what happens in the Southern plants if the UAW is no more.

Think you’re seeing collapsing demand and deflation now? Just watch what happens when the Big 3- apparently doomed to have they’re carcasses picked over by private equity parasites such as Mitt Romney/Bain Capital, et.al – and UAW are destroyed. The next step will be to use the crisis facing localities to break the teacher’s unions, which is already happening in DC.

The UAW among industrial unions, and teacher’s unions among public sector unions, have been the aristocracy – perhaps not the best term – of working people in the US, and their gains have allowed for the creation of the middle class as we know it this country.

What’s going to happen to finance capital when they they no longer have enough hosts and prey to consume?

Richard Kline says:

So Michael Fiorillo, I agree with you completely. One sees the anti-labor knives come out here, even in unlikely places. I find it totally disgusting, actually, but what will wipe the smirks off those faces is organizing. The industry _has_ been run by total idiots: they need to be replaced. The unions need to break with management at the Big Three and ask for national takeover. Asking Congress to hand over more money to idiots only makes the deal that much harder to swing given the ‘crush the gold-plated union masses’ rhetoric we hear plenty of at the moment.

The next several years are going to be much tougher economically than many are still reckoning with. Labor needs to dig in its heals and make an effort, rather than go cap and hand to the handmaidens of the bosses and ask nice. There are going to be many jobs lost, but the present Administration, and more the present and the next Congress, are in principle more amenable to labor _pressure_ than anything we have seen in a generation. So get out there and push, is what I’m sayin’.

DownSouth says:

Michael Fiorillo,

Agree completely.

The first chore is to see the “scientific” theories proffered by the acolytes of the Chicago School and the Austrian School for what they really are: ideology, and ideology in what Robert Heilbroner calls the full “pejorative sense” of the word—“as denoting a set of ideas foisted on the populace by a ruling order in order to manipulate it.”

What these two scientisms offer us is a totally blinkered version of history and of nature–world views completely disconnected from the real world.

These two pseudosciences must be debunked and discredited before any meaningful change can come to America.

Don’t expect them go go away without a fight, though. As Eric Hoffer said: “Absolute faith corrupts as absolutely as absolute power…. A doctrine insulates the devout not only against the realities around them but also against their own selves. The fanatical believer is not conscious of his envy, malice, pettiness and dishonesty. There is a wall of words between his consciousness and his real self…”

Anonymous says:

Why are we talking about the UAW in a story about Asia?

Look at the bright side: even after falling 10% in 3 days, the Hang Seng is still well above the lows reached at the end of October. If you have some cash you won’t need to touch for 20 years, the next year or so is the opportunity of a lifetime.

Warren Buffett ended up making a fortune from the 1973-74 recession. And yet during this time, he badly underperformed relative to the S&P 500 index, even as late as 1975 (S&P 500: +37%, Berkshire Hathaway: -5% in that year).

Anonymous says:

The real issue is that this crisis is being used to bury the UAW.

LOL! GM is bankrupt in all but name. A fed bailout only forestalls bankruptcy for a year or two.

When GM goes bankrupt, and either folds completely or re-orgs, the UAW is toast. That’s why the UAW is begging for the bailout, trying to mantain their vegetative state. It’s the end game of all worker’s guilds throughout human history.

S says:

Citi valuation and velcoity of declines have an errie feel to them. Wow this is a huige deposit bae. FBR saying the banking system needs $1-1.2T in common equity the gov needs to directly inject into the firms ASAP. TAll these estimates are just that.

Then we get Hubbard with yet another editorial in the FT saying we need to cram down rates (Kohn the old fool saying we need to look at other Quant easing techniques) to prop housing prices. I am embrarrased for Columbia University (not that bollinger isn’t bad enough).

We appear to have hit terminal velocity. Scary.

Lune says:

DD-

If you believe in free markets, then what is wrong with the UAW negotiating as hard as it can for the workers it represents? If this was a really bad deal then the management should have fought against it. In capitalism, there is no “fair price”, only what you can convince a buyer to pay.

I won’t argue the economic “fairness” of paying people not to work (although there might actually be such a case: auto workers are highly trained and productive, and if you expect to restart the plant in a few months, it’s probably far cheaper to keep your experienced workers around rather than rehiring new guys). I’m merely arguing that the UAW decided to negotiate for such provisions and got them. What’s wrong with that?

That said, is it really all that uncommon to be paid while not working? Perhaps for a blue collar working stiff, but plenty of lawyers get paid retainers to hang around in case they’re needed, and CEOs are frequently provided with lavish “pensions” essentially paying continued salary and extensive perks such as the use of corporate jets and housing even after they’re retired and ostensibly will no longer provide any sort of service to the company. And how about corporate directors who are paid millions to be flown to a lavish meeting 4 times a year to rubberstamp the CEO’s recommendations?

Regardless, in negotiations between auto companies and the UAW, there is only one government interest at stake: to ensure that both sides of the bargaining table have essentially equal power to advocate for their interests, and that there are no govt based advantages to tilt the scale in one way or another. After that, let the market work. What 2 private parties negotiate among themselves in a free market is not the question. In that sense, after nearly 30 years of union busting and erosion of collective bargaining rights, I highly doubt anyone would claim the govt unfairly favors labor these days.

And if I was Chris Dodd, I would have said “Hey, the union’s job is to look after its workers interests. It’s the management’s job to look after the company’s health. If the management negotiated a poor deal for themselves, tough shit.” (Yes, if I were a standing Senator, I’d say the s-word on national TV

Lune says:

(My apologies to Yves and the other readers for continuing an off-topic conversation, but I hope they don’t mind as long as we keep the argument interesting and don’t devolve to flames and name-calling

doc holiday-
In your post, I get a certain sense of inevitability that despite whatever good might have come from unions, those days are over thanks to circumstances beyond our control and we just need to accept our fate and move on to the big unemployment line in the sky.

Nothing is further from the truth. The fact that the Big Three can move their factories to Mexico or somewhere else and engage in labor/environmental/regulatory arbitrage is not some accident or inevitable force of nature. It was the deliberate goal of the numerous multilateral and bilateral trade agreements negotiated by our government.

After all, one could make the same argument about the knowledge industry: how can microsoft or hollywood expect to protect their copyrights in the face of unregulated DVD factories in China? Better to give up and move on to something else right? Except that’s exactly what we expect and fight damn hard to do. Indeed, we fight for them so hard that in the case of patent-protected medicines, we essentially tell developing countries that they need to accept a certain number of preventable deaths (from people unable to buy patent-infringing local copies of expensive foreign drugs) within their population in exchange for the benefits of lowered trade barriers.

Our current trade system places high priority on the protection of intellectual property and free capital flows while placing no priority on labor standards or environmental protection.

That’s fine: it’s what we as a country have chosen to do. But protecting IP is as difficult and “unnatural” as enforcing labor standards. Yet through hard work and careful negotiation, we’ve been largely successful in maintaining a healthy IP industry in this country. And similarly, if we as a country believe that protecting the bargaining power of labor is a good thing to do, then we can accomplish that as well. If Mexico is willing to enforce drug patents at the risk of their citizens dying, they’ll surely be willing to enforce labor standards at the risk of losing a few jobs. It’s up to us as a country to decide that that’s worth fighting for.

One final point: you mention the Japanese. The poster child of their current success is the Prius, an innovative, fuel efficient car that even today has a waiting list of willing buyers. It was conceived, designed, and produced in Japan. Every single one of them comes from a factory in Japan, a factory that is unionized, pays good wages, ensures job stability, and provides benefits far in excess of what the UAW has been able to negotiate here in the U.S. If the death of the union is a foregone conclusion, as inevitable as the force of gravity, someone needs to tell Asia and Europe, who seem to be able to compete world wide without dismantling the labor protections they’ve deemed important.

Lune says:

DD-

I apologize for the confusion. While I do believe there have been certain companies (namely the airlines) that frequently use bankruptcy primarily as a means to force labor concessions that they can’t get at the bargaining table, I don’t think that’s the primary reason why GM and the others are predicting bankruptcy. The Big Three are going bankrupt because they’re running out of money and can’t survive. You’re right in that regard. But my concern is that the bailout will occur on the backs of labor.

As for your last paragraph, I’d like to make 2 points:

1) I believe that current government policy favors management over labor (especially bankruptcy codes that IMHO make it too easy for companies to break labor contracts and raid pension funds, and trade agreements that allow corporations to use labor arbitrage), so I don’t think there’s a symmetry of power that’s essential for efficient negotiations in a free market.

2) That said, since those rules won’t be changing anytime soon, under the rules we have today, I highly, highly favor GM and the others going bankrupt, even understanding that that will lead to less jobs / poorer-quality jobs. Precisely because I believe in free markets and if GM and UAW couldn’t figure out a way to compete together against other companies, they need to face the consequences. If GM goes into bankruptcy, I’m willing to accept whatever a bankruptcy judge decides to do with the UAW contracts.

But… if the government decides to intervene, then I absolutely expect all of the bailout money to go to the twin goals of protecting jobs and promoting a long-term healthy domestic auto industry. Those are the only two goals that the government should spend taxpayer money on. Whether those jobs and that domestic industry remain under Big Three management or Eur/Japan management shouldn’t be a concern (and indeed I’d favor foreign ownership since the Big Three have proven so incompetent so far). That’s why I proposed using the bailout money to takeover pension plans and then give away the Big Three’s assets for free to whatever company is willing to keep the factories running while maintaining the current contracts.

The free market’s one thing, but if we’re going to spend $25 bil on socialism, let’s at least spend it on socialism for the workers…

doc holiday says:

Lune,

That was an intense reply. I don’t know if I should thank you or curse you.

I think there is a sense of inevitability in this evolution, which is related to the obligation of how far society has to go to subsidize systems and structures that are inefficient? A state of socialized welfare is somewhat counter to capitalist Darwinism, where the market determines success and failure. The car business is over-leveraged and poorly run, but the same can be said for many things relating to our infrastructure. We are at a generational crossroad, where the journey has ended and now we sit here on the road wondering how we got here.

Synthetically propping up whip and buggy industries or tossing some random percentage of GDP at bailing out wagon wheelwrights is a way to save the past and to not embrace the future. Saving Detroit is all about clinging to the past and holding on to the same mistakes and then being caught in a catch-22 loop that will bring us back to where we are, sitting here with deja vu (all over again).

The reality is, business cycles often displace old outdated skills as society moves on with some form of new innovative adaption. It is lamentable that people are often forced into change and to remain in a lifelong mode of being competitive, but there is a sense of inevitability within the motions of progress.

IMHO, the notion of union strength in numbers (solidarity) is totally negated by the reality of global production and the ability of manufacturing plants to be adaptive and highly dynamic and efficient — versus being stagnate or static and existing in only one place, like Detroit. The consolidation of old world industry and the attraction to employment and population is reminiscent of shoe factories in New England and a wide range of textile manufacturing from the days of Oliver Twist — but as you recall, those days are over and there was not an effort by society to save outdated technology.

Thus, government as we know it, will be fascist and obviously back a corporation, because of tax revenues and structure, and that collusive partnership will help create jobs. The current problem in Detroit is not going to be solved by a bailout, because The Big Three have no motivation or incentive to make a better product

Sermon 1.2

Your ball dude, I’m burned out and will find clarity and specifics later…

doc holiday says:

Speaking of buying junk, check this out:

B.C.’s recycling industry hit by global slowdown

http://www.cbc.ca/canada/british-columbia/story/2008/11/19/bc-recycling-industry-slowdown.html

For certain materials, there is no market, so people who are collecting the recyclable materials just can’t sell it to anyone,” Welman told the CBC.

Some goods are fetching only a third of the price they did in September; some recycling companies are laying off workers and others have stopped collecting certain types of plastics altogether.

Welman said the recycling council is holding a special meeting on Thursday with industry members to brainstorm about what to do next.