. . . because much of the content relates both to Washington, D.C., and "outside the beltway" -- the heartland, specifically Iowa -- and because after going from Iowa to Washington via Texas and California I subsequently returned, From DC 2 Iowa.
Showing posts with label automobile industry. Show all posts
Showing posts with label automobile industry. Show all posts
"You're the reason I'm ridin' 'round on recapped tires" (brought to you by FromDC2Iowa.blogspot.com*)
You're the reason I'm ridin' 'round on recapped tires An' you're the reason I'm hangin' our clothes outside on wires . . . Ah, but money ain't everything I love you just the same
More recently, he had this to say about the "cash for clunkers" program:
"If we give away free money, people will buy cars," said DeMint. "But what about appliances, and heat pumps, and TVs? The problem here is instead of across-the-board . . . effect on our whole economy, the federal government is trying to run a particular business by targeting just the auto industry . . ..
"It just doesn't make any sense to keep . . . borrowing money from our children, and then saying, 'Shazam, we've sold some cars!'"
In politics you never want to permanently alienate anybody. Today's most forceful (and effective) opponent may become tomorrow's ally. I'm not "in politics" in that sense, and DeMint is neither my enemy nor my friend. But the juxtaposition of his two quotes does illustrate the proposition.
My position for the past year of our economic downturn has included:
- If you're "too big to fail" you're too big, and ought to be broken up
- I can handle either marketplace capitalism or socialism; what I object to is the privatization of profits on the way up and the socialization of losses passed on to the taxpayer on the way down
- Bankruptcy (followed by reorganization) is preferable to bailouts; assets may be "toxic" but they're still worth something in a free marketplace, and their low value is the consequence of management error that ought to fall on executives and investors; whatever's left can continue to be operated by somebody
- If you do want to involve taxpayers' money in recovery efforts, in an economy that is driven 60-70% by consumer spending the money needs to go to consumers, not corporate CEOs and bankers: federal jobs programs (e.g., WPA, CCC), increased and extended food stamps and unemployment compensation, universal single-payer health care for all (at least until the economy is back on track), job training programs, and prevention of mortgage foreclosures
- Even if you do want to contribute taxpayers' money to the bottom line of for profit corporations (and their executives' bonus payments), at a time when the entire economy is taking a hit it's hard to justify singling out any one favored sector (e.g., automobile industry) for special taxpayer largess.
It's against those principles that I evaluate the "cash for clunkers" program.
The up side: It is putting money in the hands of individuals, not banks and large corporations -- automobile dealers and their customers. There is some marginal environmental benefit to substituting a higher gas mileage car for a lower gas mileage car.
The down side:
- Senator DeMint and I agree that it's a little difficult to either rationalize or justify the limitation of the program to automobiles, rather than including, as he says, "appliances, and heat pumps, and TVs." The industries manufacturing those items, and the dealers selling them, are as hard hit as auto dealers. And replacing that equipment with the newer, power-saver models would also have a favorable environmental impact. As explained above, I wouldn't give taxpayers' money to any industrial sector; but if we're going to do it anyway I think it should be more equitably distributed and include, for example, the millions employed in retail establishments.
- My sense (without the data) is that if a part of the purpose of this program was to encourage automobile manufacturing I'm not sure it was well focused; my sense is that dealers are primarily simply reducing the inventory that was sitting on their lots unsold.
- To the extent a part of the purpose was to improve the average mpg of America's autos I'm not sure how impressive it's been; according to the Times the average mpg of those sold under this program have been "cars . . . 28.3 miles per gallon, for S.U.V.’s, 21.9 miles per gallon, and for trucks, 16.3 miles per gallon." Matthew L. Wald and Nick Bunkley, "Spurring Sales, Car Rebate Plan Is Left Up in Air,"New York Times, August 4, 2009, p. A1. (a) I didn't realize that trucks and SUVs were included at all, and (b) I can't remember how long ago it would have been that a car we had would have done no better than 28 mpg. If we're really trying to improve cars' gas mileage with a multi-billion-dollar program, shouldn't we at least insist on the mileage equivalent of the used cars' mileage 10 and 15 years ago?
- To the extent the purpose was to help Americans suffering from the economic downturn it also failed. The people who most need help are the unemployed who need a car to look for work and can't even afford to take on the monthly payments for a five-year-old used car. If you can't pay your mortgage and credit card debt why would you ever consider buying a new car -- with or without this rebate -- and adding even more debt to your debt-burdened finances? My guess is that most of the customers taking advantage of this program are those who are doing well enough that they can afford to either pay cash, or easily take on the additional monthly payments, and are accustomed to buying new, rather than used, cars. (I don't think I've ever purchased a new car. I mostly walk and bike, and put no more than about 400 miles maximum on my vehicle, a 1978 VW van.)
- Even for those wealthy enough to buy new cars, the economic benefit of receiving cash for their "clunker" is not $3500 to $4500; it is the difference between the trade-in value the dealer would have authorized even without the program, and what was provided by the taxpayers to the dealer. (That is, if the trade-in value of the old car would have been $2500 anyway, the incremental benefit to the buyer is $1000 to $2000, not $3500 to $4500. Moreover, those wealthy enough to be buying new vehicles would probably be driving older vehicles worth at least $2500.)
- Those who can't even afford to buy the old clunkers are notoriously miserly when it comes to campaign contributions for senators and members of congress. Auto dealers are much more generous. Much as I'd like to think of "cash for clunkers" as a genuine effort to help those in need it has a slight sniff -- not a stench -- of political business as usual: pay to play.
When the Senate gets back to health care Senator DeMint and I will be back on our more comfortable opposite sides from each other. But, for today, we're in basic agreement on this one. ____________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson
Who is back? The auto companies -- GM and Chrysler.
G.M., the nation’s largest automaker, . . . is assuming it will be able to pull off a remarkable turnaround if gets the additional loans.
In its restructuring plan filed Tuesday [Feb. 17] with the Treasury Department, G.M. projects it will end 2009 with a $14 billion cash shortfall, but then improve to a $6.6 billion surplus by 2012.
That would be a swing of more than $20 billion, and whether G.M., which last earned a profit in 2004, can realistically achieve it is among the biggest questions for the Obama administration as it reviews the company’s latest loan request.
G.M. has received $13.4 billion in loans since late December . . .. Most of the new loan money that G.M. requested would be used to cover its continuing losses. The company has been losing roughly $2 billion a month since last fall.
Frankly, I see nothing that has happened during the last three months, or that GM is now proposing, that leaves GM's request for more funds as anything other than even less compelling than it was last November and December.
I don't see the business plan that explains how $30 billion more from taxpayers -- essentially $300 from every family in America -- is going to recreate the profitable and vibrant GM of old.
And I sure don't see how a proposal that includes laying off 47,000 workers and closing 14 plants can be characterized as either "a jobs program" or a part of a stimulus to our economy. ("G.M. contends that . . . losses will shrink . . . because of savings from cutting 47,000 jobs worldwide and shutting 14 plants in North America." Ibid.)
After all, GM's problem is not that there aren't enough GM cars in dealers' showrooms -- or that there could not quickly be. The problem is that those vehicles are not selling -- and that there is nothing in its proposal designed to increase sales. ("United States vehicle sales this year are at their lowest point in more than 25 years, and many industry analysts do not share G.M.’s optimism for a recovery by 2012." Id.)
Nor is this just my opinion: "in a scathing review of the restructuring plans submitted by G.M. and Chrysler, Moody’s said there was a '70 percent' probability that one or both of the companies [i.e., Chrysler as well as GM] would have to file for bankruptcy protection." Id.
Giving more taxpayer money to "the automobile industry" -- meaning GM -- primarily benefits its shareholders and handsomely paid top executives. It doesn't put money in the pockets of potential car buyers. And it essentially turns its back on the UAW members who, as a potential part of the consumer spending that is 70% of our GDP, could actually do something to boost the economy.
Insofar as those auto industry suppliers and their workers are concerned, their welfare turns on vehicle manufacture and sales -- which the GM bailout does nothing to improve. There is still an automobile market in the U.S. -- albeit substantially less (10 million vs. 13 million cars a year) than it used to be. The cars that will continue to be manufactured to satisfy that market, whether Fords or Toyotas, will continue to need parts -- all the parts for which the U.S. auto industry has a need (with or without GM). Will those suppliers take a hit? Absolutely. But it shouldn't be much greater without a GM than with it.
Here are links to eight of the blog entries from last November and December that explore some of these issues in greater depth. Almost all of them seem equally applicable today, if not more so.
__________
Nicholas Johnson, "Why America Needs a Jobs Program: Because When Your Auitomobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," in "Jobs, Not Unemployment, Key to Recovery," November 8, 2008
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself. -- Nicholas Johnson
$14 Billion Bridge Loan to Nowhere Collapses Why? Now What? And Today's Quick Fix for . . . The Economy Brought to you by FromDC2Iowa.blogspot.com
Why did the $14 billion loan to Chrysler and GM fail to pass?
Because rational analysis prevailed over political expediency.
Great.
What's next?
Now let's apply the same kind of tough love to a review of the financial industry's bailout -- a proposal that the House and Senate readily accepted with little or no insistence on onerous conditions, business plans or detailed proof of probable success. It was after all, as you'll recall, a proposal to drop 50 times as much taxpayer money ($700 billion vs. $14 billion) on Wall Street as on Detroit.
Who by name bears greatest responsibility for bringing on the current financial disaster? Who should go to prison for what they did?
There are various figures -- from $700 billion to $7.7 trillion -- regarding how much we're talking about from the Treasury and Fed for corporate welfare. Where is the detailed accounting and oversight? Precisely how much of the bailout went to whom, for what, with what effect? How much was spent for purposes other than what was intended? How much was "loans" and how much was cash? What is the likelihood of those loans being repaid? How much equity do taxpayers now have in the enriched institutions? To what extent have taxpayers simply been duped into paying for worthless, toxic trash? Which companies/CEOs that received taxpayer money have increased executives' pay (by whatever means), continued to travel in corporate jets, or spent some of it on luxury resorts?
Will the Republican (and Democratic Party) members of the House and Senate bring as much enthusiasm and commitment to these questions -- with at least 50 times the impact on the taxpayers -- as they brought to their efforts to kill off yet one more union?
What was wrong with the auto proposal?
The proposed auto industry loan involved "a proposal that was simply unacceptable to the vast majority of our side because we thought it frankly wouldn’t work,” according to Senator Mitch McConnell, R-Ky., Minority Leader. David M. Herszenhorn, "Senate Abandons Automaker Bailout Bid,"New York Times, December 12, 2008.
Are there a lot of businesses and jobs dependent on the auto industry? Absolutely. As Smothers Brothers head writer and musician ("Classical Gas") Mason Williams once observed, "Los Angeles is a city built by Detroit." That is to say, when GM bought up LA's light rail, destroyed it, and substituted auto dealerships and freeways, it was but one example of the reality that "America is a country built by Detroit."
It involves automobile and parts manufacturers, steel and glass manufacturers, dealerships, gasoline refineries, pipelines, filing stations, cement companies and highway contractors, earth moving equipment manufacturers, parking lots and garages, and an army of mechanics from "shade-tree" to the highly trained and uniformed in spotless facilities. It's stunt drivers in Hollywood and NASCAR drivers and their fans everywhere. It's every teenagers' dream of a driver's license and that first car. (Mason Williams also wrote an Autobiography that was the story of the automobiles in his life.)
(In case you were wondering why we don't enjoy the cost, environment and energy-saving benefits of the kinds of passenger and freight rail networks of other industrialized nations try adding up the collective political power reflected in the prior paragraph.)
Automobile sales are down approximately 40%. Does that have an impact on our economy in general and the auto-dependent portions itemized above? Absolutely.
But to argue that an additional 3 million will be thrown out of work if GM is forced to operate while in Chapter 11, rather than continue as it is, with $60 billion in debt, for another two or three months with $14 billion of taxpayer money is a wild and irresponsible stretch.
Americans are only going to buy so many new cars in 2009. They will buy them from dealers who will get them from automobile manufacturers where they will be made by UAW members and non-union workers, using parts from suppliers (here and abroad). The number of new car sales -- and thus the impact of the auto-related industries on America's economic decline -- is the metric by which to measure the severity and significance of the auto industries' retrenchment, not whether more of those cars now come from a well-managed Ford than a diminished GM. If there's a demand for new cars they will be manufactured; if there's not, they won't. And that's what will determine the welfare of those "3 million workers," not the future of GM.
And those sales figures, as I have argued here all along, will be a function of the money in potential customers' pockets, not the pay of auto company CEOs.
Today's "quick fix" for . . . the economy: "It's the consumers, stupid!"
You want a quick fix for the auto industry -- and the rest of the economy?
o See to it that every able-bodied American is either (a) employed, and paid, doing the highest skilled task of which they are capable (i.e., recognize the economic burden (for the employee) and loss (for the economy) of "under-employment" and "part-time employment" as well as "unemployment"), or (b) provided some proportion of an equivalent amount of support until they are put in such a job.
o Institute universal, single-payer health care as rapidly as possible. It is an economic as well as moral tragedy that we are one of the few industrialized nations that does not provide this fundamental care to all of its citizens. The high costs (and for many unavailability) of health care and insurance are contributing to mortgage foreclosures and bankruptcies, an unhealthy population and workforce, and a diminished ability of American manufacturers to compete on the world market with companies that do not need to embed workers' health care costs into the prices of their products.
o Do whatever is necessary to keep home owners in their homes rather than assuming that money for investment and commercial banks, new home buyers, developers and home builders will somehow "trickle down" for all. There are many potential ways of doing this that I won't describe in detail (e.g., permit the equivalent of the Chapter 11 solutions offered to businesses; lengthen the mortgage terms, reduce the interest rates, adjust the home value to current market levels, and so forth).
Only when we put more money in the hands of consumers (or permit them to keep more of what they have) will there be any true rescue of the auto -- or any other American -- industry. This is one of those times when even if your only goal is to further enrich the wealthy, the only way to do it is to let the money trickle up, not down.
Once again it turns out that doing the right thing, the moral thing, the humane thing for all of our fellow Americans is also the most efficient and effective way of slowing, and then reversing, the downward economic spiral brought on by selfishness, stupidity, greed and corruption.
And here's an intriguing suggestion from Michigan's Michael Moore:
"You could buy ALL the common shares of stock in General Motors for less than $3 billion. Why should we give GM $18 billion or $25 billion or anything? Take the money and buy the company! (You're going to demand collateral anyway if you give them the 'loan,' and because we know they will default on that loan, you're going to own the company in the end as it is. So why wait? Just buy them out now.)" Michael Moore, "Saving the Big 3 for You and Me," December 3, 2008.
Advocates for an auto industry bailout have been asking all who question the wisdom of such a move, "How can you turn your back on the Big Three? Don't you realize how important they are to the American economy? Think of the lost jobs. Why aren't you willing to save this industry?"
Answers: I don't. I do. I have. I am.
What I don't think makes sense is a "bridge-loan to nowhere." I don't think it will save the industry, provide employment, put cars back on dealers' lots, or generate orders for suppliers.
The Big Three have already laid off 166,000 workers during the past five years. GM is proposing to lay off an additional 30,000 employees. The UAW is willing to abandon the program that supports those already laid off, and the company's contributions to funding health benefits for retirees. [Source: Bill Vlasic and Nick Bunkley, "U.A.W. Makes Concessions in Bid to Help Automakers,"New York Times, December 3, 2008; and note, with regard to the widely repeated assertion in the media that GM's market disadvantage is that it must pay workers $74 an hour compared with Toyota's $45 an hour: "Base wages between the Big Three and the foreign companies are roughly comparable, . . . $28 an hour at the Big Three compared to about $25 an hour at Toyota’s plant in Georgetown, Ky."); Steven Mufson, "As Hearings Resume, UAW Offers Concessions; Urging an Auto Bailout, Union Retreats on Terms Of Health Care, Jobs Bank,"Washington Post, December 4, 2008.]
These layoffs haven't, and won't, put GM in the black, but it will minimally cut some costs. ("[UAW President Ron] Gettelfinger asserted that labor made up only 10 percent of the cost of a car. 'To be honest with you right now, if a UAW membership went into these facilities and worked for nothing, according to our research department, it would not help the companies that much,' he said." From Mufson story, linked immediately above.)
Not only will layoffs not help, they will only make the industry's problems worse. Auto sales are down about 40%! ("Vehicle sales [for November] in the United States sank . . . General Motors, down 41.3 percent, Ford Motor, down 30.5 percent, and Chrysler, down 47.1 percent . . .." Nick Bunkley, "Another Month of Miserable Auto Sales,"New York Times, December 2, 2008.)
That's the problem. And why is that? It's at least related to the fact that 1.2 million Americans have lost their jobs this year, with another 250,000 (or more) this past month. Half of the Big Three's workforce live in Michigan, where unemployment is at 9.3% and 20% of the entire population is now dependent on food stamps and other social programs for survival.
Tell me, how is adding to the number of unemployed going to increase auto sales?
And without increasing auto sales how are these "bridge loans to nowhere" going to "save the auto industry" -- including GM's 6000-plus auto dealers, and the network of suppliers throughout the country?
If the proposed bailout would double sales, result in the rehiring of all laid off auto, dealer and supplier workers, and enable the three companies to pay back the loans in six months, that would be one thing. But it won't. GM is headed for bankruptcy; it claims to need $4 billion sometime in the next two weeks to stay in business -- and another $4 billion next month. Prospects for an immediate economic turnaround are non-existent. Even the companies aren't talking about paying back the "loans" until 2012 -- and those projections are just pulled out of their tailpipes.
There's an inherent inconsistency in the bailout advocates' argument, one of those "you can't have it both ways" problems. On the one hand they say, "Our problem is not our fault, or at least not entirely our fault, because it's been brought on by the current recession and resulting loss of sales." The conflict is that if the problem is not of their making the solution can't be either.
If they had a backlog of orders for a new model, high gas mileage car that their dealers were demanding, but that they couldn't begin building without a genuine "bridge-loan" they would be able to pay back in February, that would be one thing. A loan would solve their problem, enable the factories to start turning out cars, keep the dealers in business, the UAW workers employed, and return the corporations to profitability. But to the extent the problem lies in the downward spiraling economy and lack of consumer demand, it is a problem beyond their ability to control, and one no amount of loans will solve.
Think about it. If the economic history and prospects for a hemorrhaging business in your hometown were, while involving proportionally smaller losses, otherwise comparable to those of GM is there any local banker who would loan that business massive amounts of money one month before it was going into bankruptcy? I doubt it. So why should the taxpayers?
(Later this day [December 4] Senator Shelby made a similar observation: "The senior Republican on the panel, Senator Richard Shelby of Alabama, said the automakers’ plans aren’t 'serious' and have 'few concrete details.' 'If you made this presentation to get a bank loan I suspect that any sensible banker would summarily reject your request,' Shelby said." John Hughes, "U.S. Auto Chiefs Appeal to Congress for Emergency Aid (Update5)," Bloomberg, December 4, 2008, 13:43.)
What's Wrong With This Picture?
Of course, from my perspective, focusing on corporations rather than consumers is walking into our economic recovery efforts backwards, a "trickle-down" rather than a "trickle-up" strategy that hasn't worked so far and isn't likely to in the future.
Roughly 70% of our economy is the result of consumer expenditures. The best way to revive any given industry, including autos -- or even the entire economy -- is to get more money into the hands of people who buy stuff rather than the CEOs of corporations that are, unsuccessfully, trying to sell stuff.
There are lots of possibilities including, but not limited to, the following:
(1) increase the number of persons covered, the length of the coverage, and the amount received for unemployment compensation, food stamps, and comparable social programs;
(2) fund workers to rebuild our nation's infrastructure, such as roads, bridges, schools and parks, preferably with government-run WPA type projects, or if not that then by funding comparable states' projects;
(3) what better time to bring ourselves up to a world-class standard of health care with a universal, single payer system, the savings for consumers and corporations from which would be available for consumers to spend on other things, and for businesses to invest (and to better compete globally with companies in other countries that do have public health care programs);
(4) provide lower interest rates, different (lengthier) mortgage terms, and reassessment of the value of homes to reduce the number of foreclosures and those who were formerly homeowners becoming homeless -- Washington's latest idea is often misrepresented as providing this kind of relief when in fact, "cheap mortgages would be available only for people buying houses, not the roughly 50 million families that already have mortgages and would want to refinance at a lower rate. As a result, the plan offers no direct relief to the millions of people who face foreclosure . . .." Edmund L. Andrews, "Washington's New Tack: Helping Homeowners,"New York Times, December 4, 2008; Renae Merle, "Mortgage Distress Reaches Record Highs; Delinquencies, Foreclosures Rise Steadily,"Washington Post, December 5, 2008, 12:47 p.m. ("one in 10 home mortgages is now in some form of distress");
(5) increase the nation's reserve of brain power and global competitiveness by providing additional financial support for those (of all ages) capable of benefiting from a college education or job retraining program who are currently unable to find work and for whom the next two or three years could best be spent in a classroom enhancing their, and our nation's, skills.
Now here are some additional recent stories documenting these assertions of mine:
"On the same day that the industry reported its worst sales month in 26 years, the three Detroit automakers delivered new business plans to lawmakers in the hope of winning support for $34 billion in federal loans . . . substantially higher than the $25 billion that the three companies had initially hoped to get from Congress two weeks ago. . . .
But G.M. . . . said Tuesday [December 2] that it was in such dire straits that it would deeply cut jobs . . . as part of its plea to get $12 billion in federal loans and an additional $6 billion line of credit. . . .
G.M.’s president, Frederick A. Henderson, said the company would be insolvent if it did not receive federal assistance, including an infusion of $4 billion in cash before the end of the year. . . .
Still, the company said it would have been able to survive on its own if not for the continued deterioration of the United States vehicle market, because of the weakening economy and tight credit, which has made it difficult for consumers who do wander into dealerships to get loans.
“The company would not require government assistance were it not for the drastic collapse of the U.S. economy which has devastated the company’s current revenues and liquidity,” G.M. said. . . .
G.M. also said it planned to reduce the number of salaried and hourly workers in the United States workers from 96,000 currently, to 65,000 to 75,000 by 2012. It will also reduce its North American factories from 47 to 36, and its dealers from 6,450 and 4,700.
"The [Michigan] unemployment rate is 9.3 percent . . .. The total of Michigan residents who receive some form of public assistance, like food stamps or home heating credits, is now 1.82 million, or close to 20 percent of the population, a record for the state." Monica Davey and Susan Saulny, "Even in Michigan, Not Everyone Wants a Lifeline,"New York Times, December 2, 2008.
The Fed's "beige book," a compilation of anecdotal reports from businesses across the nation published roughly every six weeks, found that "overall economic activity weakened across all Federal Reserve districts since the last report."
Consumer spending weakened almost across all sectors of the economy, especially for vehicles. . . . Services business "generally contracted in most districts."
Part of the problem was that lenders have continued to restrict credit. "Credit standards rose across the nation," the beige book said, "with several districts noting increases in loan delinquencies and defaults, especially in the real estate sector." . . .
[P]rivate businesses shed 250,000 jobs in November on a seasonally adjusted basis. It was the biggest drop in seven years and "offers evidence that the labor market continues to weaken," ADP Employer Services said in its monthly payroll survey [Automatic Data Processing, "National Employment Report"].
Based on data from nearly 400,000 companies, the report showed employment declines across the board as large, medium-size and small companies shed jobs, and employment contracted in all sectors of the economy. . . .
The numbers from the ADP report are "terrible," wrote Ian Shepherdson, chief U.S. economist with the High Frequency Economics consulting firm, in an analysis of the employment numbers.
With payrolls deteriorating in both the manufacturing and service sectors, "there is nowhere to hide," he said.
A separate study by the Institute for Supply Management showed that economic activity in the service sector fell to the lowest level since its index for the sector was first reported more than a decade ago. . . .
The economic decline took a turn for the worse after the market shocks of October. In November, the problems only deepened.
Cash-poor Americans, fearful for their jobs and victims of a steep decline in stock prices, pulled back on spending. Businesses laid off workers, cut wages and reduced hours. Real estate developers and owners suffered.
That bleak portrait — effectively a confirmation of the conventional wisdom of the last few weeks — was released on Wednesday afternoon [December 3] by the Federal Reserve in the latest edition of its beige book . . ..
At the root of the problems is a significant slowdown in spending, as Americans retreat from large-scale purchases and try to save money amid the worst downturn in a generation. Retail sales fell in most major cities, according to the beige book, while sales of automobiles “deteriorated,” particularly sales of more expensive cars like sport utility vehicles. . . .
Manufacturing activity slowed last month in all 12 districts included in the beige book. Both residential and commercial real estate companies reported problems. Vacancy rates were higher . . ..
And here is this morning's [December 4] Bloomberg story about a possible prepak bankruptcy:
General Motors Corp. and Chrysler LLC executives are considering accepting a pre-arranged bankruptcy as the last-resort price of getting a multibillion-dollar government bailout, said a person familiar with their internal discussions. . . .
Staff for three members of Congress have asked restructuring experts if a pre-arranged bankruptcy -- negotiated with workers, creditors and lenders -- could be used to reorganize the industry without liquidation, a person familiar with that matter said. . . .
General Motors shares traded in Germany fell 1.4 percent to the equivalent of $4.83 as of 11:03 a.m. The stock has plunged 80 percent this year in New York Stock Exchange composite trading. . . .
GM and Chrysler told Congress Dec. 2 that they need $11 billion in government loans just to survive the year as the auto industry slump deepens. To get the money, the companies agreed to slash payrolls, shed brands and shrink dealerships. Bankruptcy was not part of their plans.
GM, Chrysler and Ford Motor Co. asked for a $34 billion bailout package, about a third larger than the $25 billion . . ..
The Democrats’ goal of preserving a U.S. auto industry is not doable without a bankruptcy, said Lynn LoPucki, who teaches bankruptcy law at Harvard University and the University of California at Los Angeles.
Workout Requirement
“A workout requires everybody’s agreement,” he said. “. . . Bankruptcy is the only thing that can work because GM and the government need the ability to force people to go along with the plan. Paying everyone in full is prohibitively expensive.”
About 77 percent of billion-dollar companies survive bankruptcy, according to LoPucki’s database, while the others sell their business. . . .
The government could guarantee the warranties given to consumers on cars bought from a bankrupt automaker, said Mark Bane, a bankruptcy lawyer with Ropes & Gray in New York. Government money could also “ensure that parts suppliers will be paid,” he said.
Less Money
Less government money would be needed in a prepackaged bankruptcy, which might last only two months, compared with two years or more for a regular bankruptcy, according to Bane. In a prepack restructuring, an automaker would go into court after reaching agreement with lenders, workers and suppliers on what each would give up and on the business plan to be followed.
Government aid might be needed only for the period when the company was gaining consent from its constituencies -- which might take as long as six to 12 months, Bane said. . . .
Any assistance must be “based on realistic assessments of what the auto market is going to be and a realistic plan for how we’re going to make these companies viable over the long term,” [President-elect] Obama said yesterday [December 3]. . . .
The High Price of Peremptory Firing: Jones sues for $2.25 million
Phillip Jones, 68, was dismissed as vice president for student services Sept. 23 by UI president Sally Mason. In his [$2.25 million wrongful termination] claim to the Iowa Board of Appeals, Jones claims the firing was inappropriate and that it caused emotional distress and damaged his personal and professional integrity. . . .
"The wrongful termination of Dr. Phillip E. Jones has caused him irreparable harm," his claim states. "He was placed in a false light in the professional community by the allegations adopted from the Stolar report and redistributed by the (Iowa state) Board of Regents and (UI) President (Sally) Mason." . . .
The claim . . . identifies more than $680,000 in professional losses. It states that from Sept. 24 to June 30, 2009, Jones would lose more than $180,000 in earnings, UI contributions, health insurance, flexible spending account, accumulation of vacation payout and other incidentals.
The claim also identifies $500,000 in potential earnings losses, saying Jones planned to retire from UI and work as a higher education consultant.
The Answer to Global Economic Collapse Looking for the answer to the global economic depression toward which we seem to be headed with ever-greater acceleration?
"Look North, young man, look north."
["'Go west, young man' [was] a favorite saying of the nineteenth-century journalist Horace Greeley, referring to opportunities on the frontier. Another writer, John Soule, apparently originated it." The New Dictionary of Cultural Literacy, 3rd ed., 2002.]
It turns out that delivery of basic health care to an entire nation's population at reasonable cost is not the only thing Canada has to teach us.
Let's hope our new Secretary of the Treasury designate,Timothy F. Geithner, currently president of the Federal Reserve Bank of New York [Jackie Calmes, "For Treasury, Geithner Said to Be Choice," New York Times, November 21, 2008] -- the mere rumor and announcement of whom boosted stock market measures by 5 to 6 percent -- who has plenty of credentials of his own, is willing to listen to one of the youngest financial regulators of the G-7 and G-20, Mark Carney, Governor of the Bank of Canada.
If he wants to literally listen, I'd recommend Carney's participation in the BBC's current "The Interview" program -- being Internet-broadcast as I write this (I listened to it being broadcast live earlier), but soon to be available for streaming or download. If Geithner wants to read what he's written, I'd recommend Carney's recent talk in London to the Canada-United Kingdom Chamber of Commerce, Mark Carney, "Building Continuous Markets," November 19, 2008.
Carney avoids sounding either critical of his peers, or unduly self-promotional. But facts are facts, and he doesn't hide them. Here is an excerpted paragraph describing Canada's current position:
Canada's experience is instructive. While Canada's financial system has been affected by the crisis in global financial markets, the impact has been significantly less than in many other major economies, not least because Canada is further along than others in implementing the G-7 Action Plan. Canada starts with financial institutions that are healthier than their international peers. Not merely have losses on structured products of Canadian banks been modest, but more importantly, their absolute leverage is markedly lower. As a simple illustration, major Canadian banks have an average asset-to-capital multiple of 18 on a consolidated basis, which is slightly below the regulatory maximum of 20. The comparable figure for U.S. investment banks is over 25. For . . . some major global banks, it is over 40. While foreign banks are in the process of moving towards Canadian levels, our banks obviously face no such pressures. In addition, the quality of Tier 1 capital of Canadian banks is among the strongest in the world.
There is no "executive summary" or "take-away" from his remarks that encapsulates all of his observations and suggestions. You need to read it all. But as we all spiral down during the next two to five years I suspect he will continue to be someone whose words are very much worth your time.
Auto Bailout: "Show Me the . . . Plan"
On November 19 I offered an "open letter" to my Senators and Congressional representative. I identified five categories of questions for which I requested their response. Not incidentally, that blog entry has now been sent to the three of them (as recommended by a reader who included that suggestion in a comment); if and when I get responses I'll include them in that blog entry.
The last of the questions was: "Where on the Internet can I find the business plan that you are presumably relying upon that documents, precisely, how this $25 billion is to be used, and how, why and when it will solve these three companies' problems, revive the industry, and why it will eliminate any need for them to regularly return to you for more taxpayer money?" Nicholas Johnson, "Auto Bailout: An Open Letter to Congress," November 19, 2008.
Two days later the New York Times reports that apparently the same question has now occurred to Congress -- days after they signed on the line their support for the $25 billion bailout, plan or no plan. Speaker Nancy Pelosi is now quoted as saying, "Until we can see a plan where the auto industry is held accountable and a plan for viability on how they go into the future — until we see the plan, until they show us the plan, we cannot show them the money.” Majority Leader Harry Reid adds, "The executives of the auto companies have not been able to convince Congress or the American people that this government bailout will be its last.” David M. Herszenhorn, "Detroit’s Bid for Aid Fails — For Now,"New York Times, November 21, 2008.
That being the case, there are serious potential conflict of interest issues surrounding her husband's activities.
The Obama transition team is focused on the wide array of Mr. Clinton’s postpresidential activities, some details of which have not been made public. This list includes the identity of most of the donors to his foundation, the source of some of his speaking fees — he has earned as much as $425,000 for a one-hour speech — and his work for the billionaire investor Ronald W. Burkle.
The vetting of Mr. Clinton’s myriad philanthropic and business dealings is “complicated, and it may be the complications that are causing hesitation on both sides,” said Abner J. Mikva, one of Mr. Obama’s closest supporters and a White House counsel during the Clinton administration. “There would have to be full disclosure as to who all were contributors to his library and foundation. I think they’d have to be made public.” . . .
“It’s not just what he does or says — it’s the fact that the foundation is involved with foreign countries, some of which might well be in conflict with U.S. policy,” Mr. Mikva said. “It’s more than a legal problem — there are ethical problems and appearance problems.”
Nor is that the only potential cabinet appointment raising such issues.
President-elect Barack Obama’s selection of former Senator Tom Daschle for secretary of health and human services posed new questions on Wednesday about how broadly the new administration would apply Mr. Obama’s campaign promises to limit potential conflicts of interest among his appointees. . . .
Former Senator and Majority Leader Tom Daschle's "firm represents dozens of [health care] concerns including pharmaceutical companies, health care providers, and trade groups for nurses and nursing homes" and notes that it "has the significant advantage of including two former U.S. Senate majority leaders — Senators Bob Dole and Tom Daschle." Daschle also serves on the board of the Mayo Clinic, which "is itself a major health care provider, research institution, and recipient of grants from the National Institutes of Health." Moreover, Daschle's "wife, Linda Daschle, is a prominent lobbyist for aerospace and military concerns."
Et tu, NPR?Gardiner Harris, "Radio Host Has Drug Company Ties,"New York Times, November 21, 2008: "An influential psychiatrist [Dr. Frederick K. Goodwin, a former director of the National Institute of Mental Health] who served as the host of public radio’s popular 'The Infinite Mind' program earned at least $1.3 million between 2000 and 2007 giving marketing lectures for drug makers, income not mentioned on the program. . . . In October, [Senator] Grassley revealed that Dr. Charles B. Nemeroff of Emory University, one of the nation’s most influential psychiatric researchers, earned more than $2.8 million in consulting arrangements with drug makers from 2000 to 2007, failed to report at least $1.2 million of that income to his university and violated federal research rules.
How to Manipulate Media
And while we're on the subject of the media, for a very inside and insightful explanation of how celebrities control what we think of them, and how and why the media goes along, take a look at Brooks Barnes, "Angelina Jolie's Carefully Orchestrated Image," <i>New York Times, November 20, 2008.
Somehow, while we were focusing on the $25 billion bailout request from the private-jet-flying Big Three Auto CEOs, roughly 100 times that amount disappeared from this building (the Federal Reserve), notwithstanding the security guard pictured here near the entrance.
That's right. While we were assuming that the debt Secretary Paulson and our frightened elected representatives were handing off to our great grandchildren was limited to Paulson's $700 billion gift to his friends, it turns out that the Fed's Bernanke had friends of his own to whom he was providing another Two trillion dollars!
Now Bernanke is refusing to reveal who his newly-wealthy friends are or what kind of collateral he was willing to accept for these "loans."
It's all reminiscent of another song Pete Seeger made famous that will soon be coming round again, "Banks of Marble":
I've traveled 'round this country from shore to shining shore It really made me wonder the things I heard and saw
I saw the weary farmer plowing sod and loam l heard the auction hammer just a-knocking down his home
[chorus] But the banks are made of marble with a guard at every door and the vaults are stuffed with silver that the farmer sweated for
And so on through "the weary miner, scrubbing coal dust from his back."
It is our money. We have worked for it. We paid it in taxes to support social and other legitimate programs of our federal government. And now it is being given away by the trillions, by two individuals to friends of theirs, friends who bear much to most of the responsibility for the greed that has created our current economic collapse.
In case you missed the details, read on:
The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.
Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return. . . .
Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.
The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.
``It's your money; it's not the Fed's money,'' said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. ``Of course there should be transparency.''
Federal Reserve spokeswoman Michelle Smith declined to comment on the loans or the Bloomberg lawsuit. Treasury spokeswoman Michele Davis didn't respond to a phone call and an e-mail seeking comment. . . .
The Fed's lending is significant because the central bank has stepped into a rescue role that was also the purpose of the $700 billion Troubled Asset Relief Program, or TARP, bailout plan -- without safeguards put into the TARP legislation by Congress.
Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. . . .
Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities . . ..
Banks oppose any release of information because it might signal weakness and spur short-selling or a run by depositors, said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group. . . .
The nation's biggest banks, Citigroup, Bank of America Corp., JPMorgan Chase, Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley, declined to comment on whether they have borrowed money from the Fed. They received $120 billion in capital from the TARP, which was signed into law Oct. 3.
In an interview Nov. 6, House Financial Services Committee Chairman Barney Frank said the Fed's disclosure is sufficient and that the risk the central bank is taking on is appropriate in the current economic climate. Frank said he has discussed the program with Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York and a possible candidate to succeed Paulson as Treasury secretary.
``I talk to Geithner and he was pretty sure that they're OK,'' said Frank, a Massachusetts Democrat. . . .
The Bloomberg lawsuit argues that the collateral lists ``are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression.'' . . .
``As a taxpayer, it is absolutely important that we know how they're lending money and who they're lending it to,'' said Lucy Dalglish, executive director of the Arlington, Virginia- based Reporters Committee for Freedom of the Press.
Ultimately, the Fed will have to remove some securities held as collateral from some programs because the central bank's rules call for instruments rated below investment grade to be taken back by the borrower and marked down in value. Losses on those assets could then be written off, partly through the capital recently injected into those banks by the Treasury.
Moody's Investors Service alone has cut its ratings on 926 mortgage-backed securities worth $42 billion to junk from investment grade since Sept. 14, making them ineligible for collateral on some Fed loans.
The Fed's collateral ``absolutely should be made public,'' said Mark Cuban, an activist investor, the owner of the Dallas Mavericks professional basketball team and the creator of the Web site BailoutSleuth.com, which focuses on the secrecy shrouding the Fed's moves.
The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).
An Onion That Will Make You Laugh as Well as Cry Followed by an Open Letter To My Senators and Congressman Brought to You by http://FromDC2Iowa.blogspot.com
Open Letter to My Senators and Congressman Regarding the Big Three Auto Bailout
[Note: This letter has been sent by mail as well as published here. Such responses as I may receive from these three officials -- or the fact that I get no response from one or more -- will be reported here.]
Dear Senators Grassley, Harkin and Congressman Loebsack:
Thank you for your willingness to address one of the toughest sets of economic challenges any Congress has ever confronted, and to search for governmental responses that will produce more good than harm.
I do not believe the proposed auto bailout is such a response.
So I have some questions for you that I hope you will be good enough to answer -- as well as providing me with sources on the Internet where I can find the reports and data you have relied on in coming to your position.
1. Overview. All data I know of suggests that major indicators -- manufacturing output, consumer confidence and purchasing, unemployment, mortgage foreclosures -- are all going to continue to get worse, and probably at an accelerating rate, for the foreseeable future. Indeed, I know of no scenarios indicating how, when or why things will turn around.
Questions: Under these circumstances, don't you think it would make more sense for Congress in general, and you in particular, to be examining, and proposing solutions for, the entire economy rather than the industry-by-industry approach currently in vogue? If you, or others, have in fact already done this please refer me to sources on the Internet I could also examine.
2. Costs.Keynesian economics, and many of today's economists, urge the benefits of government spending in times of economic recession. But benefits are usually accompanied with costs, which is why we have benefit-cost analysis. It's one thing to ramp up government spending when national debt is low and budgets are nearly in balance. But we currently have $55 trillion in unfunded future obligations, a $12 trillion debt, and an annual budget deficit currently adding $1 trillion a year (or more) to that national debt.
Questions: Accepting that there may be benefits from government bailouts, what are the short and long term costs -- perhaps in runaway inflation, deflation, third-world-style national bankruptcy, or other comparable economic calamities, and where on the Internet might I find the independent reports and analyses that you and others have access to regarding these risks? My three great grandchildren -- whom you and I are asking to pay the debts we've run up -- have asked me to find out from you.
3. Consumers. We currently have 10 million unemployed -- with monthly increases, and even increases in the rate of increase. Two-thirds of our economy is driven by consumer spending. I have written of my problems with the $700 billion bailout you supported (problems which even Secretary Paulson now acknowledges) as well as the auto industry bailout (and the $25 billion you earlier provided the Big Three). We have yet to see any economic turnaround from those unprecedented massive expenditures.
Questions: Why do you believe that "trickle down" -- giving money to corporate CEOs, with or without conditions, to operate their companies -- is more effective than "trickle up" -- a jobs program and prevention of mortgage foreclosures, putting money in the hands of consumers?
4. Infrastructure. The New York Times reports that the Chinese "government said [its $586 billion] stimulus would cover . . . low-income housing, electricity, water, rural infrastructure . . . environmental protection and technological innovation — [to] incite consumer spending and bolster the economy." David Barboza, “China Unveils Sweeping Plan for Economy,”New York Times, November 9, 2008. Including roads, bridges, schools, hospitals, flood prevention, disaster recovery -- our own list of priority public projects is seemingly endless.
Questions: Why, to the limited extent that you and your fellow members of Congress have concerned yourselves with the needs of individual American people (as distinguished from our corporations), have you focused on unemployment insurance and food stamps rather than a massive jobs program that would not only put money into the hands of the only people who can improve the economy, but would buy us a rebuilt America as well?
5. Problem. The multi-million-dollar-a-year auto executives who profess to be concerned about the "three million unemployed" if you don't bail them out are very wide of the mark. In an economic depression with no end in sight, 10 million unemployed with more every passing day, automobile sales are down and will undoubtedly decline further. And many to most of such automobiles as will be sold will not be sold by the Big Three anyway.
This depression has produced pain for those who work in automobile manufacturing, dealerships and suppliers -- already 500,000 lost jobs in Michigan alone -- as well as in every other major sector of our economy, including retail. It is going to produce more pain in the months and years to come. Whether you provide the $25 billion bailout, or not; or the companies go through Chapter 11, or not, consumers are not going to buy more cars and layoffs will continue.
As we've recently seen with CitiBank, you gave them $25 billion and what did they do -- they laid off nearly 100,000 workers. Whatever else you may call it, clearly your approach to the auto industry is highly unlikely to end up being a jobs program.
GM has gone through $185 billion in cash over the last few years; its stock has declined 90%. A full year ago it reported losing $39 billion in one quarter ("the second largest quarterly loss in U.S. history. . . . GM is hemorrhaging money . . . and the outlook for 2008 and beyond is bleak." Associated Press, "GM posts huge $39 billion net loss," MSNBC, November 7, 2007.) Its problem is not a temporary "cash flow" problem that will be resolved by next January or February; and it cannot be solved with a temporary loan that will be repaid by January or February.
Although even Secretary Paulson now agrees that you were wrong to vote for the plan he put before you, I am giving you the benefit of the doubt: I assume you are applying the wisdom of "fool me once, shame on you; fool me twice, shame on me," and that you have had access to, studied, and been persuaded by a detailed business plan for the auto industry bailout you apparently support.
Questions: Where on the Internet can I find the business plan that you are presumably relying upon that documents, precisely, how this $25 billion is to be used, and how, why and when it will solve these three companies' problems, revive the industry, and why it will eliminate any need for them to regularly return to you for more taxpayer money?
Thank you for your assistance and for working on our behalf.
November 14, 2008, 10:45 a.m., 3:20 p.m.; November 15, 2008, 10:20 a.m. (video of Peter Schiff's prescient predictions during last couple of years); November 16, 2008, 11:00 a.m. (Sunday Register's consistent editorial; bottom of blog entry)
"Workers of the World Unite You Have Nothing You Need Use But Your Brains"
Forgive the distant play on "workers of the world unite, you have nothing to lose but your chains;" the point is that the observations of workers and all the rest of us are worth something when evaluating the judgments of the "experts."
On balance, I'm a proponent of a meritocracy, expertise, graduate and post-graduate education, and looking to scientists and experts rather than ideologues for solutions to public policy challenges.
But it's also reassuring when ordinary folks like myself, relying on instincts, intuition and such limited information and understanding as we possess, can come to the same conclusions ultimately adopted by the experts.
(And I won't even note the instances when the "experts" prove to be not all that expert -- except to provide you the following video look-back on how Fox's "experts" trashed the prescient predictions of Peter Schiff.)
That amateur's instincts can often prove right is fortunate for a blogger like myself, since I enjoy expressing opinions on dozens of public policy topics for which I have neither formal educational training nor the expertise of "experience."
But there may be a lesson here for the experts as well. In a variation on "when the people will lead their leaders will follow," when the public says "the emperor has no clothes" it might well behoove the experts to at least take a second look at their naked proposals.
So it is with the coming global economic collapse.
Please note that my point is precisely the opposite of "we're smarter than the experts." My point is that even though many of us are not smarter than the experts, even though we don't have the educational credentials or experience that they do, doesn't mean that we aren't capable -- drawing on what we do have -- of coming up with positions and understandings that ultimately prove to be correct.
When I wrote the op ed column, "Ten Questions for Bush Before War" in February of 2003 (along with many similar analyses at that time), I wasn't the only "non-expert" who was able to predict, pretty much step-by-step, the disasters for America that would result from our invasion and occupation of Iraq.
When Secretary Paulson announced his three-page $700 billion bank bailout plan many noted that if we were going to go down that road we should at least give the taxpayers some equity in return for being bilked, rather than just buy up the banks' securitized worthless mortgages. I was among them: Nicholas Johnson, "Better Alternatives to Congress' Bailout Plan; Senate Bill: Wrong Plan, Favoring Wrong People, at the Wrong Time," October 2, 2008. Now even Paulson has reversed course and acknowledged we were right.
Today's issue involves the automobile industry bailout being pushed by the Democratic Party leadership -- President-elect Obama, Speaker Pelosi, and Senate Majority Leader Reid. Indeed, apparently Obama made this among his top priorities during the limited time he had with President Bush (who has opposed the idea) during their visit. Declan McCullagh, "Big Three Bailout? Not So Fast," CBSNews.com, November 12, 2008 ("The labor movement spent, according to Financial Week, a whopping $385 million to elect Obama and other Democrats last week. Nobody writes such large checks without expecting something: now it's payback time.").
GM's problems are fundamental and have been for decades.
Management has been unimaginative, resistant to change, and bureaucratized beyond belief. It has opposed progress of all kinds: seat belts, air bags, and bumpers that might withstand a crash at more than two miles per hour; small cars when customers wanted them and foreign car manufacturers were gaining an increasing share of our domestic market by providing them; efforts to reduce greenhouse gases and climate change; their lobbying for tariff protections rather than confronting competition in an open marketplace; dragging their feet on hybrids and alternative fuel vehicles or even improving the gas mileage of conventional vehicles; continuing to manufacture trucks and SUVs in the face of rising gas prices. See, Declan McCullagh, "Big Three Bailout? Not So Fast," CBSNews.com, November 12, 2008 ("Detroit's problems aren't caused by a one-time slump. They can't be fixed by another infusion of cash. One cause is that union labor and legacy costs are too high and make the so-called Big Three companies uncompetitive. Another is that their profitability is tied to large, heavy trucks and SUVs that Americans no longer want to buy, at least in such large numbers. That's just common sense.").
The company has permitted itself to assume liabilities (for employees' health care and pension plans among other things) far beyond its ability to pay. And now it's burning through cash at a rate that will bring it to bankruptcy by early next year. Sales of internal combustion vehicles are down dramatically around the world -- but far more so for GM than for those made at American plants by American workers by Toyota, Honda, BMW, and Kia. "Sales of cars and auto parts plunged 23.4 percent from last year, . . . and 31.9 percent in October . . . the lowest recorded in 25 years and analysts predict the market will remain weak into 2009." Jack Healy, "A Record Decline in October’s Retail Sales,"New York Times, November 14, 2008; Declan McCullagh, "Big Three Bailout? Not So Fast," CBSNews.com, November 12, 2008 ("Honda kept its focus on smaller cars such as the Civic and Accord, and saw its sales continue to increase this summer while GM, Ford, and Chrysler have slid.").
And today we learn European insurers are now refusing to provide insurance to suppliers of the Big Three.
There would seem to be little justification for a bailout -- nor does there seem to be a realistic business plan in place regarding what the money will be used for, what it will accomplish (especially in this economy), where it will get us and when and why.
To the extent the earlier, special $25 billion taxpayer gift is to be used for re-tooling and design of new, more "green" vehicles, (a) is that a business the taxpayers really want to get in? (b) isn't the market (e.g., Toyota) responding to that desire? (c) if not, is there a point to doing it if customers won't buy the cars (e.g., how many Volts will sell at $40,000 a copy?) (d) if we want any private institution to undertake such research, why on earth would we pick GM -- whose executives have had decades to provide this response and have fought doing so? (e) even if some GM employees had the ability to pull this off, what is the likelihood the company will be able to do in the next few months what it has been unwilling to do for years? and (f) if it takes three years to bring a car from design to showroom, how is that going to save a company that is less than six months from bankruptcy?
So what, exactly, is going to be done with the near-$100 billion the Democrats want to give the (formerly) "Big Three" besides continuing excessive executive compensation and payments to shareholders? Workers are going to continue to be laid off -- which won't make it any easier for them to buy cars (a principle that Henry Ford understood in setting his workers' wages in the early 20th Century). There's little point in the few who will be retained making cars for dealers who are closing their showrooms and don't want the inventory, or potential customers who have lost their jobs and can't pay their mortgages.
And this morning one of my favorite conservatives (because he's smart, rational, and rarely ideological or mean spirited), David Brooks, sums up the situation as well as anyone. David Brooks, "Bailout to Nowhere,"New York Times, November 14, 2008. Here are some excerpts:
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. Over time, American government built a bigger safety net so workers could survive the vicissitudes of this creative destruction — with unemployment insurance and soon, one hopes, health care security. But the government has generally not interfered in the dynamic process itself, which is the source of the country’s prosperity.
But this, apparently, is about to change. Democrats from Barack Obama to Nancy Pelosi want to grant immortality to General Motors, Chrysler and Ford. . . .
It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. . . .
It is all a reminder that the biggest threat to a healthy economy is not the socialists of campaign lore. It’s C.E.O.’s. It’s politically powerful crony capitalists who use their influence to create a stagnant corporate welfare state. . . .
G.M. and Chrysler . . . are not innocent victims of this crisis. To read the expert literature on these companies is to read a long litany of miscalculation. . . .
There seems to be no one who believes the companies are viable without radical change. A federal cash infusion will not infuse wisdom into management. It will not reduce labor costs. It will not attract talented new employees. . . .
In short, a bailout will . . . just postpone things. . . .
[T]he most persuasive experts argue that bankruptcy is the least horrible option. Airline, steel and retail companies have gone through bankruptcy proceedings and adjusted. It would be a less politically tainted process. Government could use that $50 billion — and more — to help the workers who are going to be displaced no matter what. . . .
Is this country going to slide into progressive corporatism, a merger of corporate and federal power that will inevitably stifle competition, empower corporate and federal bureaucrats and protect entrenched interests? Or is the U.S. going to stick with its historic model: Helping workers weather the storms of a dynamic economy, but preserving the dynamism that is the core of the country’s success.
There you have it.
We have a mechanism in place to deal with the auto industry's problem: Chapter 11 bankruptcy reorganization. It's clearly a preferable "least-worst solution" to bailouts. Some corporate executives will be out of work, but they deserve to be -- indeed must be if the companies' prospects are to improve. Shareholders will suffer a loss -- but their stock has already declined some 90% in value, so it's not like Chapter 11 is their biggest problem. "Shares in American automakers, the Ford Motor Company and General Motors, have fallen to multi-decade lows as the companies reported billions in losses." Jack Healy, "A Record Decline in October’s Retail Sales,"New York Times, November 14, 2008.
Economic support should go to workers, not named, pre-existing corporations. (That means jobs programs, unemployment compensation, food stamps, healthcare and retraining programs.) The corporations' physical assets aren't going anywhere. As Brooks points out, they can (and will) continue to be operated either in Chapter 11, or by whatever other companies may acquire them at market value. (As a sidenote, our largest local mall, Coral Ridge, will probably be in Chapter 11 by early 2009; the theater, big box stores, restaurants and skating rink will continue to operate -- or, if not, they will be reacting to their own economic conditions, not those of the mall owner.)
See, Amitai Etzioni, "Bail Out the Workers, Not the Plants," The Huffington Post, November 11, 2008; Declan McCullagh, "Big Three Bailout? Not So Fast," CBSNews.com, November 12, 2008 ("The better solution is a simple one: Allow automakers to declare bankruptcy. Contrary to popular belief, that will not mean the end of a company such as GM, which has indicated it may run out of cash by the end of this year. Under Chapter 11, a bankruptcy judge will weigh the different interests of GM's creditors, labor unions, shareholders, and so on, and the resulting company will emerge leaner and stronger. Many current customers of United Airlines, Texaco, Global Crossing, and Pacific Gas and Electric probably don't even know that those companies once filed for Chapter 11."). Micheline Maynard, "G.M.’s Troubles Stir Question of Bankruptcy vs. a Bailout,"New York Times, November 12, 2008 ("But not everyone agrees that a Chapter 11 filing by G.M. would be the disaster that many fear. Some experts note that while bankruptcy would be painful, it may be preferable to a government bailout that may only delay, at considerable cost, the wrenching but necessary steps G.M. needs to take to become a stronger, leaner company.").
"Under it [Chapter 11], creditors took some losses, shareholders even bigger ones, some managers' heads rolled. Companies cleaned up their books and got a fresh start. And taxpayers didn't pay a penny.
So why, exactly, is the Treasury substituting government bailouts for chapter 11? . . . Wall Street's major banks and insurance giant AIG . . . [don't] have to be bailed out. They could be reorganized under bankruptcy protection. . . .
And what a tragedy it would be if the government spends so much on these bailouts there isn't enough money left for the next administration to help average people get affordable health insurance, send their kids to good schools, and find good jobs -- including jobs rebuilding the nation's crumbling infrastructure and finding alternative sources of energy.
It's not the big guys who need rescuing. It's the small. Right now, the government has its priorities upside down.
As a final, not insignificant comment note that this ill-considered, seeming capitulation to the auto industry and UAW is not an example of "reaching across the aisle" to serve the interests of Obama's oft-heralded "United States of America" (as distinguished from our "Red States" and "Blue States"). Whatever the red state Republicans' motives may be, they are opposed to this idea. (Not incidentally, they give many of the same reasons for their opposition as the rest of us.) Coupled with Obama's earlier support for the original $700 billion bailout, and his prior vote supporting immunity for the telephone companies that spied on us in violation of law, it does not bode well for the new Administration's ability to offer "change" (beyond freeing up stem cell research) to a "broken" Washington, subservient to corporate power.
The U.S. unemployment rate hit a 14-year high of 6.5 percent last week. The fear of losing a job is compounded by the difficulty in finding another if you're laid off. . . .
Iowa State University economist and professor emeritus [Neil Harl] said it's not out of the realm of possibility that the United States could see unemployment rates [of] some 25 percent . . . and "there's nothing to indicate [employment rates] are going to improve." . . .
What has been tried so far hasn't worked so well.
Tax cuts pushed by the Bush administration didn't trickle down to create sustained job growth. Rebate checks didn't sufficiently stimulate the economy. Recent investment-bank bailouts haven't done enough to boost lending.
It's time for a better, bolder strategy. President-elect Barack Obama should make job creation his No. 1 priority. . . . Spending dollars to create jobs benefits workers directly and boosts the overall economy. . . .
The federal government could quickly infuse money into states to fund projects that are already planned -- including roads, bridges, sewers, parks and trails. That would create jobs for unemployed Americans, [send] money rippling through the economy [and] this country would get more of its infrastructure updated [strengthening] the economy against global competition for years to come. . . .
In the summer of 1932, Franklin D. Roosevelt . . . began putting the country to work through the Works Progress Administration.
Within a few years, millions of Americans were working to build infrastructure -- improvements that are still around today. . . .
Create jobs. Boost consumer confidence. Put the country on track for a brighter economic future.
It makes more sense than pouring more billions into bailouts.
Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out
Executive Summary: This morning's (and probably this weekend's) blog entry is stimulated by President-Elect Obama's comments yesterday (November 7) regarding the need for taxpayers to transfer billions of dollars of their own money to the automobile industry.
My own view -- buttressed by the New York Times' reports yesterday and today, below, regarding (1) the automobile industry (especially General Motors), (2) retail sales, and (3) unemployment -- is that the best interests of the business community, as well as the American people, will be served by providing public jobs programs, and economic support to the unemployed, rather than continuing to pour billions of dollars into failed and failing businesses.
Discussion.
The Automobile Industry.
Yesterday Obama said, "I have made it a high priority for my transition team to work on . . . policy options to help the auto industry."
If you haven't yet learned the vocabulary, "policy options" is Obama-speak for transfers of, ballpark, $50-100 billion of additional taxpayers money to GM and Ford.
It seems to me when the ship is going down the better part of wisdom is to put the passengers on the lifeboats rather than continue bailing.
GM went through nearly $7 billion in cash in the course of losing over $4 billion during the last three months! Pouring more billions of taxpayers' money into this bottomless pit can do little more than postpone the agony for three or four more months.
GM's problem is that customers don't want to buy its cars. In part that's because for decades GM has been making cars customers didn't want to buy -- while Toyota, manufacturing cars in the U.S., providing jobs for American workers, has been capturing ever-larger shares of the market. Indeed, if the taxpayers are going to be forced into the automobile business wouldn't they get more bang for their billions of bucks by giving them to Toyota, a company that makes cars they do want to buy? Wouldn't that provide more jobs, and get more dollars flowing through the economy? As long as we're going socialist, doesn't it make more sense to reward business success than failure?
But another major part of GM's problem is that laid-off GM workers, and the 10 million other unemployed Americans, don't have the money to buy anybody's cars right now (or see higher priorities for the limited funds they do have).
I'm fully aware of the jobs involved in GM's dealerships and suppliers. But there's little likelihood much of the billions given to GM (whether "loans" unlikely to be repaid, "bailouts," or money said to be for "re-tooling" or research on more energy efficient vehicles) is going to find its way to UAW workers, suppliers and dealers -- unless GM would be stupid enough to increase its production, and inventories, of cars that neither its dealers nor its customers can afford. (And UAW members pension funds are guaranteed by the taxpayers anyway.)
If the automobile industry is the lynch pin to economic recovery the new president thinks it is, the solution is to get more money into the hands of consumers -- especially the unemployed (and soon to be unemployed). Enabling auto executives to have tens of billions of additional dollars to spend at their discretion in postponing bankruptcy doesn't strike me as a solution to anything except perhaps helping to hold Michigan's electoral votes for the Democrats in 2012.
Other industry sectors -- especially retail.
Another problem with Washington's willy-nilly giveaways, aside from the fact that they are unfair, don't work and will ultimately bankrupt our nation, is that they are irrational.
As the New York Times reports, below, "Consumer spending represents two-thirds of the nation’s economic activity, and analysts said the striking sales declines at retailers almost certainly portended an extended, severe recession. . . . Sales at the nation’s largest retailers fell off a cliff in October, casting fresh doubt on the survival of some chains . . .." ("Neiman Marcus . . . dropped nearly 28 percent in October . . ..")
Now I have no more enthusiasm for bailing out, or subsidizing, the retail sector than I have for the automobile sector. If Target's sales are down (as they are), I'm not confident that giving its executives billions of dollars will increase its "discretionary spending" sales to customers who barely have money for food.
But if Obama is looking for economic sectors to which to transfer taxpayers' money, wouldn't the one that represents "two-thirds of the nation's economic activity" make more sense in a recession/depression than bailing out the one that makes $30,000 new vehicles?
And surely there are other sectors of the economy that would like to nominate themselves.
Why We Need a Jobs Program
Look at the numbers. There are now over 10 million unemployed. Unemployment stands at 6.5 percent, and is projected to go to 8 percent next year -- 22 percent of whom have been out of work for more than six months, something we haven't seen for a quarter-century. The rates are increasing. Of the 1.2 million jobs lost this year 284,000 were in September and 240,000 in October.
In the 1950s over 50 percent of the unemployed received benefits; today, because of various restrictions, only 32 percent qualify -- more unemployment, more holes in the safety net.
The Times reports, "'The economy is slipping deeper into a recessionary sinkhole that is getting broader,' said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh."
Put it all together and the answers seem, to me, rather obvious.
You can't improve business (profits, returns to shareholders, executive compensation) without improving retail sales; you can't improve retail sales without putting money in the hands, and confidence in the heads, of potential consumers; and unemployed consumers don't have money unless they are provided either unemployment compensation or wages from a public sector job (in an economy with a shrinking private sector).
Given our rotting, unattended, infrastructure (roads, bridges, pipelines, schools) resulting from the last 30 years of "tax cuts" it seems to me, given the same amount of money, that using it to create "jobs" makes more sense than providing it for "unemployment compensation."
But either makes more sense than trying to turn an economy around with "trickle down" -- whether tax cuts for the rich, or bailouts for the rich.
Referenced Times articles below:
President-Elect Obama's News Conference
Here is an excerpt from a transcript of President-Elect Obama's news conference of November 7, 2008, regarding automobile industry bailouts:
The news coming out of the auto industry this week reminds us of the hardship it faces, hardship that goes far beyond individual auto companies to the countless suppliers, small businesses and communities throughout our nation who depend on a vibrant American auto industry.
The auto industry is the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil.
I would like to see the administration do everything it can to accelerate the retooling assistance that Congress has already enacted. In addition, I have made it a high priority for my transition team to work on additional policy options to help the auto industry adjust, weather the financial crisis, and succeed in producing fuel-efficient cars here in the United States of America.
And I was glad to be joined today by Governor Jennifer Granholm, who obviously has great knowledge and great interest on this issue.
I've asked my team to explore what we can do under current law and whether additional legislation will be needed for this purpose.
General Motors is edging closer to running out of money, as slumping sales and deteriorating economic conditions drove the automaker to a larger-than-expected loss of $4.2 billion in the third quarter . . ..
The carmaker’s results came on the heels of similar dismal quarterly earnings from the Ford Motor Company . . ..
G.M. said its revenue in the third quarter declined 13 percent . . . on weak demand in its core North American and European markets. . . .
The company also reported that it burned through $6.9 billion in cash during the quarter, and it ended the period with just $16.2 billion. The rapid depletion of its cash puts G.M. perilously close to dropping below the level needed to finance its operations. . . .
G.M. said that it “will fall significantly short” of the cash needed to run its business in the first half of 2009 unless economic conditions improve and the company gets access to financial aid from the federal government. . . .
The rating agency Standard & Poor’s cut G.M.’s debt by one grade to CCC+ on Friday, citing concerns about its cash supply. . . .
Earlier, the Ford Motor Company said that it burned through $7.7 billion in cash in the third quarter . . ..
Ford’s automotive business lost $2.9 billion in the quarter, and the company announced more cuts to conserve cash . . ..
Over all, Ford said . . . Excluding . . . one-time items, the company lost $2.7 billion. . . .
The company will eliminate as many as 2,200 salaried jobs by January . . ..
Underscoring the dire circumstances, the chief executives of G.M., Ford and Chrysler met with Nancy Pelosi, the House speaker, and Harry Reid, the Senate majority leader, on Thursday about an emergency loan package. The meeting focused on a request by automakers for up to $25 billion in loans to help the companies get through the worst vehicle market in 15 years and avoid bankruptcy protection. . . .
The loan request is in addition to $25 billion in low-interest loans administered by the Energy Department to assist automakers in developing more fuel-efficient vehicles.
In his news conference Friday afternoon in Chicago, President-elect Barack Obama urged the current administration to do everything possible to accelerate disbursement of $25 billion for the vehicles. . . .
Ford is also using up cash at a surprising rate — $7.7 billion in the third quarter. . . .
The automaker is moving to increase its cash by as much as $17 billion by cutting more jobs . . ..
Sales at the nation’s largest retailers fell off a cliff in October, casting fresh doubt on the survival of some chains and signaling that this will probably be the weakest Christmas shopping season in decades.
The remarkable slowdown hit luxury chains that sell $5,000 designer dresses as badly as stores that offer $18 packs of underwear, suggesting that consumers at all income levels are snapping their wallets shut.
Sales at Neiman Marcus, the luxury department store, dropped nearly 28 percent in October compared with the same month last year. . . .
Of the more than two dozen major retailers that reported on Thursday, most had sales declines at stores open at least a year, the majority of the decreases in double digits. . . .
Consumer spending represents two-thirds of the nation’s economic activity, and analysts said the striking sales declines at retailers almost certainly portended an extended, severe recession. The reports highlighted once again the depth of the economic problems confronting President-elect Barack Obama.
Consumers are cutting their spending for many reasons, but high on the list is the weakening employment picture. . . .
“October was every bit as bad we feared,” said John D. Morris, a retailing analyst with Wachovia. “Maybe worse. October’s numbers were so disappointing, particularly in the final week, which had to leave retailers in a state of high anxiety going into the holiday season.” . . .
A few retailers have strong balance sheets, but many do not, and with credit hard to find they can ill afford a disastrous Christmas season. Analysts said they expected a new wave of bankruptcies after the first of the year.
The American economy lost another 240,000 jobs in October, the government reported Friday, as cash-strapped consumers pulled back and businesses hunkered down, intensifying the distress gripping much of the country.
The unemployment rate spiked to 6.5 percent from 6.1 percent, the highest level since 1994. Many analysts now expect unemployment will reach 8 percent by the middle of next year.
Coupled with revisions to September’s data — which now show a loss of 284,000 jobs . . . — the economy has shed 1.2 million jobs since the beginning of the year. . . .
“The economy is slipping deeper into a recessionary sinkhole that is getting broader,” said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. “The layoffs are getting larger, and coming faster. We’re likely to see at least another six months of more jobs reports like this.” . . .
Democratic leaders in the House said this week that they would seek swift passage of $60 billion to $100 billion worth of measures that would extend unemployment benefits and food stamps, while aiding states whose tax revenues have plummeted. They would then pursue a broader package of measures that could reach $200 billion after Mr. Obama takes office in January.
The Bush administration has criticized Democratic proposals for immediate aid, raising the specter of a veto. . . .
The number of unemployed Americans increased by 603,000 in October to 10.1 million — the largest number since 1983. More than 22 percent of all unemployed people have been out of work for six months or longer — another level not reached in a quarter-century.
Only 32 percent of all unemployed people were drawing state benefit checks in October because of restrictions on eligibility for part-time workers and those who were not in their jobs long enough to qualify. More than half of all unemployed people drew benefits in the 1950s, and about 45 percent received state checks during the last recession in 2001.
“It’s a national shame, the state of our safety net,” said Andrew Stettner, deputy director of the National Employment Law Project in New York. “We need to be helping these families avert financial disaster, and help make up for the loss of consumer demand, and the best way we can do that is to get people unemployment checks.” . . .
The latest monthly snapshot of the jobs market reinforced how the economy remains gripped by a potent combination of troubles — plunging housing prices, tight credit and shrinking paychecks — with all three in a downward spiral.
Companies have been hiring tepidly and laying off workers throughout the year, as business has slowed, while cutting working hours for those on the payroll. That trend continued in October: The so-called underemployment rate — which includes people working part-time for lack of full-time positions and those who have given up looking for work — rose to 11.8 percent, up from 8.4 percent a year earlier.
“What you see now is this cascading of unemployment moving from hours cut to hiring freezes to layoffs,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “At this point, we have a very toxic combination of all of the above. There’s almost no economic activity out there that’s going to generate jobs right now. This is the front edge of the deeper trough of the recession. It’s going to get worse before it gets better.”
Wages have effectively shrunk for most workers, as rising costs for food and fuel have more than absorbed meager increases in pay. . . .
All of this came on the heels of the revised September data showing that 284,000 jobs were lost that month — the worst toll since November 2001, in the aftermath of the terrorist attacks in New York and Washington.
Fewer people working translates into less spending power: Consumer spending dropped between July and September — the first quarterly decline in 17 years — further eroding the motivation for businesses to hire.
Recent days have offered fresh indications of trouble. On Thursday, major retailers reported a sharp pullback in sales in October, presaging what is likely to be the weakest holiday spending in many years.
The annual pace of auto sales fell off in October, down 15 percent compared to September, according to analysis from Goldman Sachs.
The widely watched Institute for Supply Management survey fell in October to depths last seen 26 years ago, reflecting shrinking industrial activity and suggesting weakening demand for goods as the economy slows. . . .
Many economists expect this picture to worsen. Though a $700 billion taxpayer-financed bailout has staved off fears of an imminent collapse and restored some order to the financial system, it has not persuaded banks to lend freely. Credit remains tight for businesses and homeowners. . . .
Meanwhile, here's the list of persons on President-Elect Obama's economics team. By going to the New York Times site for this list, linked below, you can find out more about each one from links provided by the Times. Their bios are not my focus this morning, so I haven't done that -- with the result that what I'm about to say may be off the mark.
But it looks to me that, in terms of "economic expertise," nine of the 17 are primarily business persons (which is not to say they don't have some very practical understanding of "economics;" Buffett, Campos, Daley, Donaldson, Ferguson, Mulcahy, Parsons, Pritzker, Schmidt), three are primarily politicians (Bonior, Grandholm, Villaraigosa), and five combine an academic background and experience focusing on national economic policy (Reich, Rubin, Summers, Tyson, Volker).
Bringing these folks together for part of a day, and having them on display at the President-Elect's first news conference, primarily serves a public relations show and political purpose: it reassures the business community that it needn't panic from its fear there really will be "change," that Obama is getting his advice from folks who are familiar and "solid," no radical economic innovators there. There's a substantive benefit from such a calming move as well, when at least some of what's going on in an economic meltdown is mental.
There's also a substantive benefit from including business representatives, goodness knows.
And of course I have no reason to believe there is anyone in the group who is not selfless, intelligent, knowledgeable, ethical, and offering what he or she truly believes is in the nation's best interest when offering advice to the President-Elect.
But I would feel a little more confident of the group's advice if it included a little heavier weighting from those of the nation's academic and other economists with expertise in public finance -- along with at least one or two of those with less conventional thinking.
Here's the list:
DAVID E. BONIOR Academic; former Democratic Congressman from Michigan; John Edwards’s campaign manager.
WARREN E. BUFFETT Billionaire investor and chairman of Berkshire Hathaway; expected to take part by telephone.
ROEL C. CAMPOS Washington lawyer; former member of the Securities and Exchange Commission; former broadcasting executive.
WILLIAM M. DALEY Senior executive at JP Morgan Chase; former Commerce Secretary; chairman of Al Gore’s presidential campaign.
WILLIAM H. DONALDSON Former chairman of the S.E.C.; long career in investment banking, higher education and government.
ROGER W. FERGUSON Jr. Chief executive of TIAA-CREF, the private financial services company; former vice chairman of the Federal Reserve.
JENNIFER M. GRANHOLM Governor of Michigan.
ANNE M. MULCAHY Chairwoman and chief executive of Xerox.
RICHARD D. PARSONS Chairman of Time Warner; former banker.
PENNY S. PRITZKER Senior executive, Hyatt; national finance chairwoman for the Obama campaign.
ROBERT B. REICH Author, academic, former Labor Secretary.
ROBERT E. RUBIN Chairman of Citigroup; former Treasury Secretary.
ERIC E. SCHMIDT Chairman and chief executive, Google.
LAWRENCE H. SUMMERS Economist, academic; former Treasury Secretary.
LAURA D’ANDREA TYSON Academic; former chairwoman of the President’s Council of Economic Advisors and the National Economic Council.
ANTONIO R. VILLARAIGOSA Mayor of Los Angeles.
PAUL A. VOLCKER Former chairman of the Federal Reserve.
