Free Markets, Free People


GM To Be “Chryslered”

I hesitate to call it bankruptcy when it is really a sham of a bankruptcy. In fact, it is the same sham that Chrysler has undergone:

The government previously indicated that it planned to take at least 50 percent of the restructured company, and likely would take the right to name members to its board of directors, as it has at Chrysler, where the government will control four of nine seats.

The United Auto Workers retiree health fund is set to own as much as 39 percent of the restructured GM, in exchange for giving up its claim to at least $10 billion that the company owes it. Yesterday, the union announced that it reached an agreement with GM that will reduce the company’s labor costs.

Still unknown is what part the Canadian government might play in the ongoing GM restructuring.

GM operates several plants north of the border. The Canadians agreed to invest about $3.5 billion in the Chrysler restructuring and control one of the nine board seats.

Sound familiar? So government will now have 5 of 9 board seats, the union has a huge share of the company and bondholders?

The chief obstacle to an out-of-court settlement for GM remains: There has been no agreement between the company and the investors who hold $27 billion worth of GM bonds.

Under orders from the Obama administration, GM has offered to give the bondholders a 10 percent equity stake in the restructured company in exchange for giving up their bonds.

That’s the offer made and, as you might imagine, bondholders are resisting this. That, of course, gives the administration the same excuse it used to take Chrysler to bankruptcy under its apparently newly written rules which gave government the lion’s share of ownership.

As you might imagine, not everyone is happy. And since this “bankruptcy” is now being politically managed, more politicians are getting into the act.

For instance, on the subject of cutting Chrysler dealerships:

There are also challenges outside court. Chrysler has moved to close 789 dealerships on June 9. But Sen. Kay Bailey Hutchison (R-Tex.) has introduced legislation that would withhold federal funding if the automaker does not give dealers an extra 60 days to close down operations and sell remaining inventory. Her amendment has won the backing of a number of other senators.

Should such legislation pass, you can expect something similar with GM.

And some Democrats aren’t particularly happy either:

Judiciary Committee chairman Rep. John Conyers Jr. (D-Mich.) said he hopes to meet with White House officials today to discuss changing Chrysler’s bankruptcy plan and GM’s future. Conyers did not outline what he wanted, but a nine-person panel he assembled for a hearing yesterday offered a hint. Liberal consumer advocate Ralph Nader, a conservative Heritage Foundation analyst and minority auto dealers all criticized the automakers’ restructuring.

Conyers and other committee members attacked the administration for abusing bankruptcy laws, unfairly eliminating dealerships and jeopardizing consumer safety.

Yup, looks like the political bureaucracy is kicking into high-gear and you can just imagine how well this is going to work out, can’t you? That and the fact that contracts will never be viewed in the same light again have to make you fear for our economic future.

How To Kill An Economic Recovery

Hugo Chávez is in the news again, appropriating and nationalizing more of the oil industry in his country.

That sort of move by him has become so routine that it almost isn’t news anymore. But this particular sentence caught my eye and reminded me of what we’ve seen here as well:

This move forms part of a broader assault against the private sector, which Mr Chávez has increasingly blamed as Venezuela slides into recession.

Vilification is a political tactic in use by a certain type of politician, and anyone paying attention to what has been going on in this country has seen it deployed in earnest against the wealthy and certain industry sectors in the US in the last few months. The health care industry is next. And, as in Venezuela, the government is being offered as the best alternative. Yet watching Venezuela, most understand the ramifications of moves such as Chavez is making on the long-term viability of Venezuela’s economy:

But analysts say that by shifting its problems onto its suppliers, PDVSA is storing up even bigger problems for the future. Not only does it lack the ability to operate as efficiently as the service providers, but it sends a grim signal to companies considering investing in Venezuela. Consequently, future oil production is under threat.

While the moves taking place here aren’t as drastic as those in Venezuela, they’re just as problematic. Government appointed board members on auto company boards and government calling the shots in the financial sector aren’t direct takeovers, but they portend a level of government meddling unseen here before. And health care and energy are next.

The key word in the quoted paragraph above is “investing”. Investors are very wary about both the auto and financial industries at this point. They’re wary of the auto industry because government is essentially throwing the bankruptcy procedures out of the window and those investors which should be guaranteed the first seat at the table for the recovery of their investment are now being vilified as “greedy” and pushed to the side. Any reason they or any other investor should take a monetary stake in either of the government controlled auto companies again? And given the experience with autos, don’t you suppose investors in the financial sector are having second thoughts?

Investment is the road to recovery in recessionary times. The moves Hugo Chávez is making in Venezuela are exactly the wrong moves in terms of economic recovery (not to mention being a complete violation of property rights). While not as drastic as Chávez, the moves the Obama administration have made are sending a similar signal to investors.  And that doesn’t bode well for a swift economic recovery.

Health care and energy are next.


This Is “Rich”

I‘m still amazed that many people who put their support behind Obama in the presidential election, are suddenly discovering things about him they don’t like.

Really? Now they discover Obama is a class warrior? It comes as no surprise for those of us who took the time to assess where he came from and what (little) he’d done.

Suddenly, the rich are concerned that the guy they backed may not be what they hoped he was (notice that’s the correct context in which “hope” should be used when “hope and change” is spoken):

Some of Barack Obama’s richest supporters fear they have elected a “class warrior” to the White House, who will turn America’s freewheeling capitalism into a more regulated European system

Ya think? What was your first clue – his remarks about “spreading the wealth” to Joe the Plumber or the thousands of other things he said which might imply such a tendency?

And as an aside, America’s capitalism is about as “freewheeling” as a modern waterslide is “death defying”.

Chris Edwards of the Cato Institute, a free enterprise think tank, said Democrats in Congress were unnerved by the president’s latest plan to raise $210 billion over 10 years from multinational corporations.

The money is needed to pay for a national debt that will double over the next five years; and triple over the next 10 years to $17.3 trillion. But the crackdown already faces fierce Democratic resistance.

“These big companies are based in New York Boston, Seattle and Silicon Valley, where Democrats dominate,” Mr Edwards said. “Obama’s tax plan is already cleaving him from his big corporate supporters,” he said.

The good news in this, of course, is that Congress has to pass the legislation that enables this, and per Edwards, they’re getting cold feet. The reason is also obvious – any “cleaving” of Obama from “big corporate sponsors” also means the rest of the Democrats suffer the same fate.

The level of taxation necessary to pay for the profligate spending now taking place will have to be massive as anyone with a 5th grade education understands. But the Dems also understand that any taxation that takes place must be other than income taxes because it is important to maintain the mirage that “95% of all Americans” are getting tax cuts. That leaves “the rich”, corporations and smoke and mirrors.

The rich have been identified ($250k or more), corporations are on the block with much higher taxation in the offing. So the investor class and the engine of the economy are under assault. The smoke and mirrors show? Wait until health care and cap and tax trade hit. 100% of Americans will be paying large sums for both.

But back to the point – the deeper we get into the Obama administration, the more we come to understand how gullible a good portion of the American public appears to be. There is a certain level of satisfaction with the buyer’s remorse being seen among many of his supporters as they see what their vote has actually bought. I sure hope they don’t shop for other important items as badly as they apparently shop for presidents.


Car Czar Thuggery (Updated)


Steven Rattner, the Obama administration’s “Car Czar,” was recently accused of acting, well, rather czar-ishly by White & Case attorney Tom Lauria. Those accusations were later corroborated by others privy to the meetings. Now comes a rather disturbing (and presently unsubstantiated) account of exactly what was said1:

Confronting the head of a non-TARP fund holding Chrysler debt and unwilling to release it for any sum less than that to which it was legally entitled without compelling cause, this country’s “Car Czar” berated the manager of said fund with an outburst of prose substantially resembling this:

Who the f*** do you think you’re dealing with? We’ll have the IRS audit your fund. Every one of your employees. Your investors. Then we will have the Securities and Exchange Commission rip through your books looking for anything and everything and nothing we find to destroy you with.

Faced with these sorts of threats, in this environment, with valued employees in the crosshairs and AIG a fresh, open wound upon the market, the fund folded.

Keep in mind that the non-TARP creditors in the bankruptcy have been forced to lump their fates in with the TARP recipients (emphasis added):

As of last night’s deadline, we were part of a group of approximately 20 relatively small organizations; we represent many of the country’s teachers unions, major pension and retirement plans and school endowments who have invested through us in senior secured loans to Chrysler. Combined, these loans total about $1 billion. None of us have taken a dime in TARP money.

As much as anyone, we want to see Chrysler emerge from its current situation as a viable American company, and we are committed to doing what we can to help. Indeed, we have made significant concessions toward this end — although we have been systematically precluded from engaging in direct discussions or negotiations with the government; instead, we have been forced to communicate through an obviously conflicted intermediary: a group of banks that have received billions of TARP funds.

Rattner’s alleged threats should give everyone some pause. Is it really the case that private companies will be forced to do the President’s bidding or face the full brunt of the state’s police power? Because that’s exactly what’s being alleged. I share the concern of the reporter of Rattner’s comments in that I certainly hope the accusations are inaccurate/misstated/outrageously untrue.

It is my deepest wish at this point that there is nothing about this latest bit of Car Czar thuggery even remotely based in fact- as this would mean that this country has truly and unarguably descended into fascism.

I use this term, “fascism,” quite deliberately. I also use it well aware that many will consider it needlessly inflammatory. Be this as it may, I submit there is simply no other term that properly describes the style and tenor of government emerging both in public and behind once closed doors.

The corporatist model — i.e. where unelected government officials and industry “leaders” fashion economic policy for the benefit of the state as whole, and in complete disregard of, and often quite hostile to, individual liberty — has never died, and is used more often than you might think (e.g. in the creation of energy policy, environmental policy, financial market rules, etc.), albeit in less radical form. That does not mean that Jews or any other disfavored groups will be marched off to concentration camps (opponents of gay marriage not named “Barack” can be forgiven for thinking otherwise). But it does mean that the preconditions necessary to ease the way for totalitarian control are already present. If enough people buy the “myth” presented by those in charge, then more and more power will eventually be ceded to a central authority, who will then have the ability to steamroll any opponents to the collective will. The accusations presented above suggest that Rattner (and one has to presume Pres. Obama), believes that enough Americans have bought the myth as to allow for such bullying. If so, that is a truly disturbing thought to contemplate.

UPDATE: In an article at the WSJ essentially chiding the MSM for failing to dig into this story, Tom Blumer notes the following (my emphasis):

The New York Times, in a report by Michael J. de la Merced and Jonathan D. Glater, does note the threats and Gonzales’s ruling, and has the following at its second-last paragraph.

When the debtholders, calling themselves the Committee of Non-TARP Lenders, made their first public statement last Thursday, they said their group consisted of about 20 investment firms holding about $1 billion. According to their motion to file under seal, the group now claims about $300 million in holdings.

de la Merced and Glater were apparently not curious about the possible reasons why the amount involved, and presumably the number of holders, is significantly lower than it was just a few days ago.

Maybe it’s because the threats are real, guys.


1 Edited to make SFW.

TARP as Shakespearean Tragedy

Does it strike anyone else as funny that TARP is a poor anagram for “trap”? If Shakespeare had written this play the name would have been much more clever, of course, but I think he would delight in the barely concealed irony of the federal government drawing banks into its lair with the pretense of saving their hides, only to use the money intended to do so as the means of yoking the industry. I’ll bet the banks who took TARP funds don’t find it so humorous.

Since last October when Hank Paulsen forced nine of the largest banks to take an initial injection of $125 billion in TARP funds (among other bullying), the federal government has committed about $12.2 trillion dollars to bailouts and spent about $2.5 trillion on such efforts (er, among other, other bullying). Aside from an increasing assertion of control over the financial and automotive sectors of our economy (among other, other, other bullying), there is very little to show for all this money. Which leaves the rather stark impression that government control was the goal all along — i.e. the method within the madness.

I must be naive. I really thought the administration would welcome the return of bank bailout money. Some $340 million in TARP cash flowed back this week from four small banks in Louisiana, New York, Indiana and California. This isn’t much when we routinely talk in trillions, but clearly that money has not been wasted or otherwise sunk down Wall Street’s black hole. So why no cheering as the cash comes back?

My answer: The government wants to control the banks, just as it now controls GM and Chrysler, and will surely control the health industry in the not-too-distant future. Keeping them TARP-stuffed is the key to control. And for this intensely political president, mere influence is not enough. The White House wants to tell ’em what to do. Control. Direct. Command.


Here’s a true story first reported by my Fox News colleague Andrew Napolitano (with the names and some details obscured to prevent retaliation). Under the Bush team a prominent and profitable bank, under threat of a damaging public audit, was forced to accept less than $1 billion of TARP money. The government insisted on buying a new class of preferred stock which gave it a tiny, minority position. The money flowed to the bank. Arguably, back then, the Bush administration was acting for purely economic reasons [ed.: That’s a highly charitable argument]. It wanted to recapitalize the banks to halt a financial panic.

Fast forward to today, and that same bank is begging to give the money back. The chairman offers to write a check, now, with interest. He’s been sitting on the cash for months and has felt the dead hand of government threatening to run his business and dictate pay scales. He sees the writing on the wall and he wants out. But the Obama team says no, since unlike the smaller banks that gave their TARP money back, this bank is far more prominent. The bank has also been threatened with “adverse” consequences if its chairman persists. That’s politics talking, not economics.

Think about it: If Rick Wagoner can be fired and compact cars can be mandated, why can’t a bank with a vault full of TARP money be told where to lend? And since politics drives this administration, why can’t special loans and terms be offered to favored constituents, favored industries, or even favored regions? Our prosperity has never been based on the political allocation of credit — until now.

Despite the government’s bullying, it is difficult to feel much pity for the institutions who accepted TARP funds. Surely they must have at least suspected an iron hand inside that velvet glove attempting to feed them. However, if they truly don’t need the money, and have the means to pay it back, then onerous seems too slight a word to express how gripping the government’s control has become:

Financial firms eager to return infusions from the $700 billion Troubled Asset Relief Program will have to demonstrate that they can operate without debt guarantees provided by the Federal Deposit Insurance Corp., a senior government official said Tuesday. The FDIC program allows financial institutions to borrow money at lower costs.

The new requirement will make it harder for some institutions to get out from under government rules attached to the bailouts, another shift in a changing landscape for banks. It also illustrates the government’s desire not to have banks abandon the bailout program if they are not financially prepared to do so.

The government’s desire? I don’t recall exactly where that is accounted for in the Constitution. Is it buried somewhere in the penumbras and emanations of the commerce clause? Clearly the “government’s desire” must have some force of law that it can unilaterally decide to allow banks to sink or swim on their own. Otherwise, such desire is wholly irrelevant.

Nonetheless, banks did take the money, and so the government gets to call the tune. Institutions who would have collapsed absent the bailout have little to grouse about in such circumstances. But other firms, who didn’t need the money in the first place, rightfully bristled at the demands being placed upon them and the opprobrium casually tossed their way by the government.

Kim Price’s Gastonia bank accepted $20 million from the Troubled Asset Relief Program to help keep credit flowing as the economy faltered.

Now the Citizens South Banking Corp. chief executive and other community bankers feel that Congress is treating them like villains.

Proposed new TARP rules that could limit bankers’ pay have upset many bank executives here. And the congressional effort has prompted some banks in other states to give the money back.

Paying back the government (although coming at a pretty price) not only seems like a right the banks should have, it just makes good business sense for the healthy ones:

TCF Financial Corp, a Minnesota lender, said it repaid a $361.2 million capital infusion that it took from the U.S. government’s bank bailout program, becoming the largest recipient to repay its funds.


Regulators, banks and investors once viewed participation in the program as a positive, figuring that it would help healthy banks lend more and perhaps buy struggling rivals.

But participation is now often viewed as an albatross, subjecting recipients to restrictions on such things as executive pay and dividends.

Investors now consider some banks that hold onto their aid as being too weak to return it. Large banks such as Goldman Sachs Group Inc ( GS – news – people ) and JPMorgan Chase ( JPM – news – people ) & Co have said they want to repay their aid soon.

TCF Chief Executive William Cooper this week said holding TARP money put the bank at a “competitive disadvantage.”

He said repaying the aid and eliminating the associated dividend payments will boost earnings by more than 14 cents per share annually.

By inducing banks to take TARP money, whether through tactics or intimidation, the government has neatly cornered the capital flow of the country. Much like Hamlet surreptitiously forced his uncle to publicly face scorn for his act of regicide (by having performed the “Murder of Gonzago,” aka the “Mouse-Trap”), the government has successfully lured failing banks into the public square for ridicule. Whereas Hamlet sought to elicit a sign of guilt in order to justify his vengeance, however, the government seems intent on effusing guilt throughout the banking industry so as to justify its controlling moves. By tainting the public view of the financial sector, the government seeks to undermine public confidence and build a chorus calling for its heavy-handed involvement. As mentioned above, protestations by the beggars for such action protest too much, methinks, but those who truly have no need of the interference have much cause to cry foul.

Hamlet ends with nearly every character dead, and the country being turned over to its greatest enemy. Unfortunately, the financial sector seems destined for a similar result as the government has made clear it will not allow certain institutions to fail, and is callously indifferent to fate of the unchosen. No matter how well those banks who managed to avoid TARP altogether do, the government is now the major mover in game, and the only one with the power to force its will on all the other players. It can, and will, pass laws that favor the winners its chosen, thus leaving the non-assisted banks out in the cold. In the end, firms who conform to market forces (i.e. respond to the desires of its customers), will be supplanted by those which conform to will of the government’s agenda. The trap was set, the mice did enter, and thus their fates were sealed.

Reinventing The Flat Tire – Chrysler Set To Try A Variation Of The British Leyland Model

There’s some interesting stuff out there to read about the Chrysler bankruptcy, like people asking “why wasn’t this done in the beginning”?

Simple answer – in the beginning there was no way to secure the UAW a majority stake in the company. Now, as Felix Salmon points out, that’s been accomplished:

The broad outlines of a deal are already clear: Fiat will take a 35% stake in the company and manage it; the UAW will have a 55% stake; and all the government’s TARP funds will be converted into a 10% stake. Present-day creditors do not get equity but rather get cash; the sticking point is exactly how much cash they will get. And of course present-day shareholders — Cerberus and Daimler — are wiped out, and top management will be replaced.

Of course the reason Chrysler is headed into bankruptcy is because all of its bondholders weren’t satisfied with the deal offered through taxpayers money. As you might imagine, Think Progress has the “progressive” spin on the situation:

As Bloomberg reported, “Obama’s team had first offered secured lenders $2 billion for their $6.9 billion in loans, and then raised the offer to $2.25 billion. In a game of chicken, the holdouts asked for $2.5 billion, and Obama’s patience ran out.” Steven Pearlstein put these numbers into perspective:

What you need to know about these vultures is that their idea of fairness is throwing 100,000 people out of work and denying retirees their pensions and their health benefits just so they can liquidate the company and maybe squeeze an extra 15 cents on the dollar from their Chrysler debt. Of course, to get that extra 15 cents, the hedge funds would probably have to fork over a penny or two to pay the army of $700-an-hour lawyers needed to spend two years working it through the bankruptcy process.

The greed factor here is really appalling, but bad intentions can sometimes produce a good result.

The greed factor here certainly is appalling, but not on the part of the group Think Progress would like us to believe is the problem. I mean, how dare secured lenders ask for more money than a paltry 30% of what they lent Chrysler? In the new world of what’s fair, apparently asking for 30% is unfair and greedy. And frankly with an administration which has tossed trillions around like they were beads at Mardi Gras, it seems that somehow $250 million more was just a “bridge too far” when it came to keeping the deal together.

More importantly, what in the hell is the President of the United States doing involved in this sort of process to begin with? Oh, wait, the UAW gets 55% ownership?


Salmon again:

All of this is necessary but not sufficient for Chrysler to have any hope of a long-term future. One of the more interesting things going forward will be how Chrysler manages to turn itself into a smaller, nimbler, change-oriented company while being majority owned by the UAW — which is nobody’s idea of a change agent. In general, if you need a dose of creative destruction, big unions are not the place to look.

You think? Another wonderful deal put together by the folks who want to run your health care. And yes, I know this isn’t perfectly analogous to the British Leyland situation, but it certainly has some striking similarities. A labor union will most likely have to decide between it’s previous decades of focus and producing cars that people want and can afford. And government involved in the deal up to its armpits.  In case you missed it, the government will appoint four of the nine member board and the Canadian government will appoint one.  Fiat is essentially a management entity with only 3 on the board and a 35% stake.  And while the UAW will only have one seat, it will be a seat representing 55% ownership.

Yeah, nothing can go wrong with that.


They’ll Be Workin’ On The Railroad

Well here we go – the government apparently plans on getting further into a business in which it has no track record of success. Yes friends, if “Amtrak” doesn’t remind you of why this isn’t a good idea, how about doubling down on it?

You remember Amtrak:

In FY 2007, Amtrak earned approximately $2.15 billion in total revenue and incurred about $3.18 billion in expenses. Amtrak relies on an annual federal appropriation, which in FY 2007 totaled $1.294 billion, including $521 million in operating funds, $495 million in capital and $277 million for debt service. While Amtrak relies on federal appropriations to support its operating and capital needs, the federal government’s investment in Amtrak was less than 2 percent of the entire federal transportation budget for FY 2007.

Only 2%? Well, we’ll take care of that:

The president’s plan identifies 10 potential high-speed intercity corridors for federal funding, including California, the Pacific Northwest, the Midwest, the Southeast, the Gulf Coast, Pennsylvania, Florida, New York and New England.

It also highlights potential improvements in the heavily traveled Northeast Corridor running from Washington to Boston, Massachusetts.

Of course Amtrak runs service in all of those places.

The president cited the success of high-speed rail in European countries such as France and Spain as a positive example for the United States.

And, of course, Spain and France are physically so much like the US it is frighting:

US –  9,161,923 sq km

Spain – 499,542 sq km

France – 545,630 sq km

For comparison:

Texas – 691,030 sq km

Travel by train has been a part of the culture of both France and Spain for literally centuries. Not so in the US. This is not an “if you build it they will come” moment.

“My high-speed rail proposal will lead to innovations that change the way we travel in America. We must start developing clean, energy-efficient transportation that will define our regions for centuries to come,” Obama said at an event near the White House.

You can read the plan here. It can pretty much can be summed up by Obama’s statement. Not a single bit of analysis about whether there is a demand, whether or not it will be profitable, and, frankly whether it’s economically viable at all.  It’s all about social concerns, not how much it costs.

This is government betting your money that it can change your habits. It isn’t a business plan that’s been produced, it’s a social engineering plan.

Is this the role you’ve imagined for government? As most who understand economics would tell you, if there is a market and it is a profitable market, some entrepreneur or entrepreneurs will enter that market. But you can be assured that won’t enter a market unless there is a profit to be made – which should tell you all you need to know about this boondoggle.

And whether or not you ever board a single one of these trains in your lifetime, you will pay for it.


By A Small Majority, Americans Think Capitalism Is Better Than Socialism

This should disturb a good number of you – it certainly did me. It shows you how effective the indoctrination of our youth has been. Don’t forget the radical students of 1969 are the tenured professors of ’09.  It also demonstrates something else just as disturbing that I’ll get too at the end of the post:

Only 53% of American adults believe capitalism is better than socialism.

The latest Rasmussen Reports national telephone survey found that 20% disagree and say socialism is better. Twenty-seven percent (27%) are not sure which is better.

Adults under 30 are essentially evenly divided: 37% prefer capitalism, 33% socialism, and 30% are undecided. Thirty-somethings are a bit more supportive of the free-enterprise approach with 49% for capitalism and 26% for socialism. Adults over 40 strongly favor capitalism, and just 13% of those older Americans believe socialism is better.

Investors by a 5-to-1 margin choose capitalism. As for those who do not invest, 40% say capitalism is better while 25% prefer socialism.

As you’ll note, the older someone is, the more likely they are to understand what socialism is and how it is inferior to captialism. The under 30 crowd, with no wisdom and little practical experience outside of academia – not to mention having not yet completly traded their utopian fantasies for the best practical system which has been shown to work – have a large group who either believe socialism is better or just aren’t with it enough to have an opinion.

Once past 30, and having put a few years under their belt in the real world, suddenly the utopian scales begin to fall from their eyes and they have a bit of an epiphany. As for those over 40 being so strongly for capitalism, most of them remember the old USSR and how well socialism worked there.

As you might imagine, there’s an ideological divide as well:

There is a partisan gap as well. Republicans – by an 11-to-1 margin – favor capitalism. Democrats are much more closely divided: Just 39% say capitalism is better while 30% prefer socialism. As for those not affiliated with either major political party, 48% say capitalism is best, and 21% opt for socialism.

Compare the results above to a poll taken in December of 2008:

As the incoming Obama administration and the Democratic congressional leadership scramble for ways to right the U.S. economy, 70% of U.S. voters say a free market is better than one managed by the government.

Just 15% say a government-managed economy is best, according to a new Rasmussen Reports national telephone survey. Fifteen percent (15%) are undecided.

Question: In the intervening months, what system and what players has the Obama administration demonized?

Answer: Capitalism and capitalists.

Gee, I wonder why?


GM – It’s Beginning To Look A Lot Like …

Bankruptcy.  Something many of us advised before the government threw 20+ billion of our dollars down the proverbial rat hole:

A week into his new job as chief executive of General Motors, Fritz Henderson said on Sunday he was confident in the future of the company but a structured bankruptcy remains a possibility.

Mr. Henderson has just 55 days remaining to meet President Obama’s timetable to come up with a new plan to save the struggling car giant. Speaking on NBC’s “Meet the Press,” he said that the company was working to avoid bankruptcy, but that if it failed to meet its goals for cutting costs and shrinking the company, it “may very well be the best alternative.”

“If it can’t be done outside of a bankruptcy process, it will be done within it,” he said.

Ah, how nice. And what, we had to fire the CEO, put a new board together and essenitally give control to the government to come to this conclusion?

Even Timothy Geithner, the tax-cheat of a Treasury Secretary, is now saying the “B” word is a possibility:

Treasury Secretary Timothy F. Geithner stressed Sunday that G.M. “is going to be a part of this country’s future,” but said that a managed bankruptcy was among the options for the company.

“These guys have made some progress in putting together a restructuring plan, but they’re not there yet,” Mr. Geithner said on CBS’s “Face the Nation.” “We wanted to give them the time to try to get it right. But, again, our objective is to allow — is to help these companies emerge stronger in the future so they can survive without government assistance.”

Of course had they left this all alone, we’d be 20 billion to the plus side and they’d already be in the middle of the bankruptcy process and well on their way to emerging as a stronger auto company.

Irony of ironies, I just picked up my new company car – a Chevy Malibu. It is a very nice car and has a lot of standard bells and whistles that I wouldn’t expect for a car of its price range. Frankly it’s not the engineering or the quality, as I see it – its legacy costs. And bankruptcy is the only way those are going to be actually approached and dealt with properly.

And you can’t lay this all off on the Obama admistration either – the Bush bunch was the first to throw money at the problem. However you can blame the Obama administration for continuing to do the same thing.

Time to back off, let the legal process that has worked for literally thousands of companies do its thing and see what comes out the other end. My guess is a stronger and more competitive GM.


Hacking Away At The Last Pillar

The siege against capitalism continues unabated. Yesterday, leaders of the 20 largest national economies reached a consensus that they needed to reel in unfettered free markets, which they all agreed was the cause of the world’s economic crisis. The medicine consists of further funding of the IMF (to the tune of an addition $1 Trillion) and an increased regulatory state.

Setting aside differences in philosophy and national character, at least for now, the leaders agreed to make available more than $1 trillion in new lending to spur international growth. While leaving it to individual nations to enact, they promised tough new regulations aimed at banks and other financial institutions whose freewheeling activities sparked the crisis. And they vowed renewed support for trade and more help for the globe’s poorest countries.

“The world’s leaders have responded today with an unprecedented set of comprehensive and coordinated actions,” Obama said, in the spotlight on his first overseas trip as president. “Faced with similar global economic challenges in the past, the world was slow to act, and people paid an enormous price. . . . Today, we have learned the lessons of history.”

For some reason, the bulk of the reporting on the G-20 conference outcome is limited to describing how wonderful everyone feels about the loose agreements, and how industrious they all were to come to terms with one another. Very little press has been devoted to the actual agreements. The media seem to be under the collective impression that the most important aspect of these meetings is the conduct of the diplomacy. They could not be more wrong:

FINANCIAL market “cowboys” who wreaked havoc on the world economy will be brought undone by the G20 agreement, Prime Minister Kevin Rudd says.

Mr Rudd says the $US1 trillion ($A1.4 trillion) deal agreed on at the G20 summit in London, will benefit “tradies”, young people and small business with real commitments against real timelines.

“Today’s agreement begins to crack down on the sort of cowboys in global financial markets that have brought global markets undone with real impacts for jobs everywhere,” Mr Rudd told reporters at the conclusion of the summit overnight.

The summit has agreed to a restructure of the financial regulatory system, reform of and a trebling of funding for the International Monetary Fund (IMF) to $US750 billion ($A1.08 trillion), an extension until the end of next year of a ban on nations introducing trade protection measures, a curb of excessive executive payouts and agreement to co-ordinate further economic stimulus.

Make no mistake. What the G-20 leaders (as stated by PM Rudd above) are saying to world is that none of this would have happened if they had been in charge. “Financial market cowboys” (meaning US and UK bankers), the faces of capitalism, are entirely to blame for the woes of the world. If only there had been more government involvement, according to this theory, then the financial crisis would have been averted or severely curtailed. Accordingly, the G-20 have decided that the way to fix this mass is to assert greater control over the world economy. The immediate targets of this new world order? Tax havens of course:

Switzerland, Singapore, the Cayman Islands, Monaco, Luxembourg and Hong Kong are among 45 territories blacklisted on Thursday by the Organisation for Economic Co-operation and Development and now threatened with punitive financial retaliation for their banking secrecy.

Among the sanctions being considered by the G20 are the scrapping of tax treaty arrangements, imposing additional taxes on companies that operate in non-compliant countries, and tougher disclosure requirements for individuals and businesses that use shelters.


Illegal tax evasion through offshore shelters has been a long-standing irritation for Gordon Brown, President Barack Obama and French President Nicolas Sarkozy. An estimated $7 trillion of assets are held offshore and, according to pressure group Tax Justice Network, developed countries lose $180bn a year in evaded taxes.

Under the OECD definition, countries will be considered non-compliant if they have less than 12 bi-lateral agreements to exchange tax information with foreign governments on request. “Authorities should have access to the information to effectively crack down on tax evasion,” Andrew Watt, director at law firm Alvarez & Marsal Taxand, said.

Jeffrey Owens, director of the OECD’s centre for tax policy said: “This is the major breakthrough we have been trying to get for 13 years. If you intend to evade tax through offshore bases, you will think hard about it now you know tax authorities can trace you.”


Mr Sarkozy added: “Sixty percent of hedge funds are registered in tax havens. Putting hedge funds under supervision isn’t going to generate jobs in the textile industry. But we have to put behind us the madness of this time of total deregulation.”

The reactions of Owens and Sarkozy are like being annoyingly puzzled at why the whipping boy continues to move, seeking to avoid the lash.

Clearly the aim here is not at fixing anything other than the ability of wealthy nations to collect taxes. Small countries typically designated as “tax havens” tend to have one thing in common: they have no other means of competing in the world market place other than in the area of business taxation. If the economies of these countries were all dependent upon growing and selling corn, then the G-20 actions would be met with a much different response. Instead, companies that wish to minimize their tax burden, so that they may instead fund R&D, expand (create jobs), or re-invest, are treated as outlaws, unworthy of little more than scorn. And the small countries that have been willing to host these companies as a means of boosting their own economies, are labeled pariahs to be sanctioned by the wealthiest nations in the world. The message: “Don’t muscle in on our territory. That’s our tax money and we’re here to collect.”

In addition to punishing tax havens, the G-20 decided that the favorite whipping boys of statists needed to be better restrained so as to prevent their squirming:

Leaders agreed to craft tighter controls over hedge funds and establish more rigorous regulations to prevent the buildup of toxic assets that poisoned the U.S. financial system in and spread overseas.


The leaders agreed to set benchmarks for executive pay and make accounting standards more uniform across borders. Most would be drafted by a new Financial Stability Board, where central bankers, regulators and finance ministers from the more than 20 nations represented at the summit will eventually hash out the details.

Credit agencies — whose top-notch ratings of instruments linked to bad U.S. subprime mortgages gave false indications of their relatively safety — would be subjected to new oversight and regulations. But there was no call for a global regulator that could overrule decisions made by individual countries.

While I’m glad to see the ratings agencies (whom have inexplicably been absent from public criticism and ire) taking their turn at the post, everyone should be dismayed at what these sorts of agreements portend. The collective effort to rein in “cowboy capitalism” is little more than a barely disguised effort to place the European bit in the mouth of American (and, to a lesser extent, British) mouth. Business decisions are no longer to be made in the interests of the shareholders, but in favor of “public good.” What constitutes the “public good” will be determined by the special interests who exact the most influence upon, and best line the pockets of, the political forces in charge. In short, consumers no longer rule the market place; bureaucrats do.

Fallen pillar

Fallen pillar

As with all movements based on collective will, such as that which the G-20 has furthered, an unfettered free market is featured as the main culprit. America is widely considered to be an economic jungle where the capitalist beast roams freely, devouring the innocent and maiming cautious outsiders. Ironically, Leviathan himself has identified capitalism as an unrestrained beast in need of controlling. Yet, we have nothing like an uncontrolled free market here. It only appears that way because the remainder of the world has cloaked their industries in thick blankets of protectionism and shackled their businesses with an alarming array of bureaucratic chains. Comparatively, America does look like a free market jungle.

But therein lies the problem. As the Washington Post stated it:

Along with declarations of optimism came the recognition of at least a temporary shift in attitude away from two decades of intense reliance on free trade, deregulation and market-knows-best policies that fueled stunning growth across the planet.

Brown — the leader of a country closely associated with that philosophy — declared “the Washington Consensus” over, using a term that recognizes the American roots of an economic system seen by many in the world as unfair and unhealthy.

As far from a pure free market as we are, it is our relative distance from the nanny-statism of Europe and beyond that props up the economies of the world. That stunning growth was made possible precisely because of what the rest of the world refers to as “cowboy capitalism” and they were all happy to join in the ride. But now that woe times betide us, thanks primarily to government meddling (e.g. CRA, Fannie Mae, Freddie Mac, Fed policy, etc.), the world is ready to chop down the last pillar of capitalism, and assert government control over everything. With that final support gone, the capitalist beast will be brought to heel, confined to the zoo where it will live its remaining days as little more than a novelty. Unfortunately, it will take its wealth producing powers with it.