Dec 2008
What to Do About the Automakers
Dec 12, 2008 23:03 Filed in: Economics
I just posted an article by Robert Weissman on the Jackson Progressive, The Nasty Class and Anti-Union Bias of Auto Bailout Opposition, or the Wall Street-Detroit Double Standard.
Joseph Stieglitz has a contrary view in FT.com.
Stieglitz raises two very important issues:
1. Is it wise to keep the big three afloat so they can keep doing the things that got them into this impasse? Clearly, the upper management of these corporations has given idiots a bad name. Whenever there was a decision to be made about the direction they were going, they invariably made the worst possible choice. With this kind of management, a bridge loan would be more like a bridge to nowhere.
2. Do we want to save the companies and restore them to profitability, or do we want do merely bail out the stockholders and creditors? Normally, when a company fails, the stockholders lose their investment and the creditors receive a pro-rated share of a company’s assets. In a Chapter 11 bankruptcy, the stockholders also lose everything, but the company remains in business and the creditors are forced to take a loss on their debt for the sake of being repaid the rest of it.
Stieglitz believes that a carefully-structured Chapter 11 bankruptcy is the only way to revive the auto industry because it is the only way that the structural defects can be eliminated:
Joseph Stieglitz has a contrary view in FT.com.
Stieglitz raises two very important issues:
1. Is it wise to keep the big three afloat so they can keep doing the things that got them into this impasse? Clearly, the upper management of these corporations has given idiots a bad name. Whenever there was a decision to be made about the direction they were going, they invariably made the worst possible choice. With this kind of management, a bridge loan would be more like a bridge to nowhere.
2. Do we want to save the companies and restore them to profitability, or do we want do merely bail out the stockholders and creditors? Normally, when a company fails, the stockholders lose their investment and the creditors receive a pro-rated share of a company’s assets. In a Chapter 11 bankruptcy, the stockholders also lose everything, but the company remains in business and the creditors are forced to take a loss on their debt for the sake of being repaid the rest of it.
Stieglitz believes that a carefully-structured Chapter 11 bankruptcy is the only way to revive the auto industry because it is the only way that the structural defects can be eliminated:
One thing is certain: nothing will improve until top management is replaced. Any plan that leaves them in control is doomed to failure.The US car industry will not be shut down, but it does need to be restructured. That is what Chapter 11 of America’s bankruptcy code is supposed to do. A variant of pre-packaged bankruptcy – where all the terms are set before going before the bankruptcy court – can allow them to produce better and more environmentally sound cars. It can also address legacy retiree obligations. The companies may need additional finance. Given the state of financial markets, the US government may have to provide that at terms that give the taxpayers a full return to compensate them for the risk. Government guarantees can provide assurances, as they did two decades ago when Chrysler faced its crisis.
With financial restructuring, the real assets do not disappear. Equity investors (who failed to fulfil their responsibility of oversight) lose everything; bondholders get converted into equity owners and may lose substantial amounts. Freed of the obligation to pay interest, the carmakers will be in a better position. Taxpayer dollars will go far further. Moral hazard – the undermining of incentives – will be averted: a strong message will be sent.
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Rewiring the President-Elect's Brain
The New York Times reported Wednesday that our president-elect is now talking about withdrawing combat troops for Iraq within 16 months, “... with the understanding that it might be necessary—likely to be necessary—to maintain a residual force to provide potential training, logistical support, to protect our civilians in Iraq.” (I haven’t the slightest idea what “potential training,” means within the context—or in any context—and would appreciate some enlightenment if a reader would like to comment. I suspect it didn’t mean anything, but served as a placeholder until his mind could catch up.)
We are now seeing in the result of an intense and concerted effort by the established agencies of the federal government, particularly the Pentagon, to infuse into the head of the incoming president and his closest advisors the worldview held by the permanent government. It is an indoctrination difficult to resist, in no small part because much of it is classified, which limits the ability of the president to tap sources of information outside the security establishment. George Bush, whose lack of curiosity has been commented on for many years, apparently saw little reason to question the official worldview of the neocons, even when it became obvious that much of their worldview was pure fantasy.
But for a president to properly do his job, he must be able to develop his own sources of information outside of the almost hermetic cocoon that is designed to envelop and protect him, not only from physical harm, but from whatever might interfere with the official streams of intelligence that are intended to reach the president thoroughly vetted. We know from bitter experience, however, that a president who relies exclusively on official intelligence places himself at the mercy of those who supply the intelligence, and that intelligence can far too often be filtered in such a way that his decisions are flawed, or even disastrous. A president must have independent sources of intelligence.
A president requires independent intelligence for two reasons: first, it gives him an accurate idea of how well his advisors and the agencies charged with gathering and vetting intelligence are performing. Barring an intelligence disaster, the only way to test one’s intelligence sources is with other sources of intelligence. Roosevelt often surprised his closest advisors with information of which they had just come to inform him. His friends around the nation and the world privately fed him news on a daily basis.
Second, government intelligence agencies are not infallible; they have institutional blind spots, sometimes for political reasons (Douglas Feith is a classic example), and sometimes for structural reasons, such as when management simply doesn’t believe a matter is important when it is actually critical. And then there is the unavoidable human tendency to tell the ruler what the speaker thinks the ruler wants to hear. An informal intelligence network can quietly inform the emperor about his new clothes when he might otherwise find out too late.
Owing to the ability of the National Security Agency, the CIA, and the FBI to monitor communications worldwide, it has become considerably more difficult for any president to maintain unofficial communication with his own informal intelligence sources, but somehow the president must find a way. His advisors will be hesitant to shade the truth when they know he has ways of checking what they tell him, and thus his decisions are more likely to be based on reality.
We are now seeing in the result of an intense and concerted effort by the established agencies of the federal government, particularly the Pentagon, to infuse into the head of the incoming president and his closest advisors the worldview held by the permanent government. It is an indoctrination difficult to resist, in no small part because much of it is classified, which limits the ability of the president to tap sources of information outside the security establishment. George Bush, whose lack of curiosity has been commented on for many years, apparently saw little reason to question the official worldview of the neocons, even when it became obvious that much of their worldview was pure fantasy.
But for a president to properly do his job, he must be able to develop his own sources of information outside of the almost hermetic cocoon that is designed to envelop and protect him, not only from physical harm, but from whatever might interfere with the official streams of intelligence that are intended to reach the president thoroughly vetted. We know from bitter experience, however, that a president who relies exclusively on official intelligence places himself at the mercy of those who supply the intelligence, and that intelligence can far too often be filtered in such a way that his decisions are flawed, or even disastrous. A president must have independent sources of intelligence.
A president requires independent intelligence for two reasons: first, it gives him an accurate idea of how well his advisors and the agencies charged with gathering and vetting intelligence are performing. Barring an intelligence disaster, the only way to test one’s intelligence sources is with other sources of intelligence. Roosevelt often surprised his closest advisors with information of which they had just come to inform him. His friends around the nation and the world privately fed him news on a daily basis.
Second, government intelligence agencies are not infallible; they have institutional blind spots, sometimes for political reasons (Douglas Feith is a classic example), and sometimes for structural reasons, such as when management simply doesn’t believe a matter is important when it is actually critical. And then there is the unavoidable human tendency to tell the ruler what the speaker thinks the ruler wants to hear. An informal intelligence network can quietly inform the emperor about his new clothes when he might otherwise find out too late.
Owing to the ability of the National Security Agency, the CIA, and the FBI to monitor communications worldwide, it has become considerably more difficult for any president to maintain unofficial communication with his own informal intelligence sources, but somehow the president must find a way. His advisors will be hesitant to shade the truth when they know he has ways of checking what they tell him, and thus his decisions are more likely to be based on reality.
Biolab Going to Kansas
The Clarion-Ledger reported today that the new Biolab, currently located on Plum Island, NY, will be built in Manhattan, Kansas, not Flora, Mississippi.
We have been spared a very, very risky project. The politicians and economic development people, as well as the local press, have been strong supporters of the project. The JP has opposed it from the moment that Flora looked like a candidate. I’ve never seen such a blackout on unfavorable comment about the project in the press. The possibility of so much money seemed to blind everyone to the dangers of keeping potentially lethal organisms and toxins near our homes.
The lab belongs on a remote deserted island, not on the U. S. mainland.
We have been spared a very, very risky project. The politicians and economic development people, as well as the local press, have been strong supporters of the project. The JP has opposed it from the moment that Flora looked like a candidate. I’ve never seen such a blackout on unfavorable comment about the project in the press. The possibility of so much money seemed to blind everyone to the dangers of keeping potentially lethal organisms and toxins near our homes.
The lab belongs on a remote deserted island, not on the U. S. mainland.