The Bailout of The UAW by Steve McDonald

The UAW holds the key to the success of the U.S. auto
industry.



The recent Senate hearing with the CEOs of the big
three car manufacturers was better than most sitcoms.
The CEOs were unable to answer questions about how
they plan to pay back the loans, or just avoided the
question, or how long the loans would keep them afloat,
or how they would change their business models to avoid
asking the taxpayers to bail them out again. It went on
and on.



The CEO of GM was asked how long GM had to pay the
employees of a plant that had been closed. His answer,
“I don’t know.” How long do you think you would be
working for him with answers like that? The senator
who asked the question shook his head in disbelief
and muttered, “Unbelievable!”



The whole time the panel questioned the CEOs about how
they were cutting costs, how they plan to make their
operations profitable and how they were reducing their
pension liabilities, the answer was sitting at the end
of the table; the President of the UAW.



Autoworkers of the big three are paid significantly
more money and benefits than employees of Honda and
Toyota in plants in this country. Not in Asia, but
here. Honda and Toyota are profitable, the big three
are back for more free money from you and me.



It is so simple. GM, Ford and Chrysler cannot be
profitable with the labor agreements they have in
place. It is impossible. No one bothered to ask
the UAW president about this. He and his members
are the answer.



The real issue isn’t will we bail them out, of
course we will. A Democratic congress and a Democrat
in the White House will not jeopardize a half a
million blue-collar jobs, not if everyone knows
they are doing it. If they could sneak it through,
maybe, but not if everyone is watching.



The real question is how will congress explain to
the unions, who were a big part of Obama winning
the elections in Michigan, Ohio and Pennsylvania,
that they have to take pay cuts for there to be
any chance their companies and jobs will survive,
even with the bailout.



What we have is a bottomless money pit or guaranteed
failure for GM and Chrysler. Ford still has a chance.



Congress and the President-elect have a huge problem.
Go the bail out route and have to do it again in eight
months if the credit markets don’t loosen up. Or, don’t
bail them out and have a bankruptcy that will shake this
country at its very roots. Or, face the music and force
the UAW to make the needed changes.



The political ramifications are so huge for any of the
options, the most likely scenario is they will blame
Bush and come up with some half-baked solution that
just pushes the problem down the road for someone
else to deal with.



Some would argue that the big three have been
making cars no one wants, and that’s why they’re
in this mess. Partially true, but no matter what
cars they make and sell, they can’t be competitive
if they don’t see some change in their labor and
pension costs.



Even if the big three have an epiphany about the
type of vehicles people want, and are willing to
buy, if they magically shift gears and come out as
the world leader in new alternative technology cars,
put the huge technological advantage this country
enjoys to work to make significant improvements to
cars and then sell it to the rest of the world,
they still won’t be competitive.



What this bailout amounts to is subsidizing the
difference between the cost of the union contracts
the big three have compared to the union contracts
Honda and Toyota have.



The big three and the UAW signed these agreements
in very different times than what we have now.
Globalization, Japanese auto makers in Ohio and
Indiana, a worldwide labor market that is putting
pressure on wages everywhere and products being
manufactured in other parts of the world at a
fraction of our costs.



The issue is quite simple. Adapt or die. We cannot
afford to continue to subsidize 1950s style
management and union thinking. This is a fight
we need to win and it will require sacrifice
from more than just the taxpayers.



Steve



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article, send an e-mail to:
feedback@investorsdailyedge.com.



Market Watch

After the Bailout, The Detroit 3 Still
Have Work To Do

By Christian Hill



Perhaps I am being too optimistic, but I think
the government bailout of the Detroit 3 is a
foregone conclusion. In the interest of the
entire country and the national economy, the
government simply can’t let the automakers fail.
There is no denying the business model is broken,
but hopefully steps will be taken to change that.



So what does the future of the American automobile
industry look like? Will all three survive, or will
GM absorb Chrysler? No one knows for sure. But one
thing is evident: drastic changes must be made.
Continuing as is, and keeping the status quo,
will surely result in each of the automakers
being on the brink again in a few years. And if that
occurs, there is no way the government can save them
again. Chrysler lining up for a handout twice in 30
years is bad, but GM and Ford holding out their hands
twice in a few years is unacceptable (at their current
monthly burn rate, even the bailout money won’t last long).



So what changes can be made, and made quickly to save
the companies? Here are a few that would make
significant impacts.



1. Trim the fat. There is no need for GM to
have eight divisions and 76 different models.
By comparison, Toyota has three divisions and
32 different models.



2. Close plants and eliminate jobs through
consolidation. This would take serious concessions
from the UAW since it violates agreements, but
paying the costs to get it done now will save
the rest of the jobs. After all, if GM goes out
of business, all plants would close and all those
jobs would be gone.



3. Eliminate the job bank. Talks are underway
to get rid of this dinosaur. It basically guarantees
laid off workers full compensation and benefits for
not working.



4. Eliminate dealerships. Again, there are costs
involved with this, but it is necessary. There are
over 15,000 domestic car dealers, outnumbering import
dealers 3 to 1. Some of this may be handled through
attrition this year, but buyouts are needed.



Will this cure what ails the Detroit 3? Not entirely.
There are many other battles to be fought, such as
with the UAW. But to continue to operate as they
are now only guarantees failure again.



There’s no reason that the companies can’t rebound
after the bailout and become leaders once again.
When Chrysler was bailed out by the government in
1979, they made great initial strides. The K car
saved the company, and they also created the
minivan segment.



Innovation brought Chrysler back from the brink, and
the Detroit 3 need to innovate to survive this.
Electric cars or alternative fuel vehicles could lead
them into the future, and establish them as real
players again. GM has their “Flex Fuel” vehicles which
can run on E85 (still a debatable solution), the Volt
is an electric hybrid, and Dodge (Chrysler) has shown
electric vehicle concepts (Dodge EV). More innovation
is needed, but at least they are moving in that
direction. I would hope that with their backs against
the wall, they break archaic processes and really
stretch their creative minds. Bland econo-boxes
just aren’t going to bring buyers back.



I also find it interesting that Chrysler created the
minivan, which saved the company after the bailout.
The minivan morphed into the SUV, which the Detroit
3 relied on so heavily for profits, and has proven
to be what may kill them. So what once saved them
has almost become what kills them.

Ready Yourself for a GM Bankruptcy

by Charles Delvalle



It was pretty amazing.



Last Saturday I wrote about GM. Not only did I write about GM, but I also talked about how I felt they should get government assistance.



I only received one bit of reader feedback – someone debating as to exactly how many jobs would be lost if GM went bankrupt. The reader sent a screenshot of Yahoo finance where it said how many employees GM has. Then he wondered how that number could possibly turn into 2.5 million.



The answer is simple.



That employee count in Yahoo doesn’t include those employed by dealerships, suppliers, ad agencies, and mechanic shops that all rely on GM to a heavy degree. If GM goes broke, the flow of money to these companies stops. And then they layoff their workers. After about a year, we’d lose about 2.5 million workers thanks to a GM bankruptcy.



Here’s what gets me furious about all of this, though. If the government was just going to let GM go bankrupt, why did they save the financials? Wasn’t it to prevent a depression? But if GM goes bankrupt, that’s most likely what we’ll encounter – a depression.



Because if GM goes bankrupt, Chrysler will follow suit and Ford will have a hard time building cars when the entire automotive distribution network in the US nearly bankrupts completely.



Together, the big three are responsible for one out of every 10 jobs. So, if they go bankrupt, we’ll have unemployment of 16 – 17 percent within two years. That’s depression territory.



So I don’t understand why the government wouldn’t act on this immediately.



In Congress, the Republicans are holding up the bill. I knew that would happen, after all most Republicans believe in “free markets”. They feel that GM put themselves in this situation, so they deserve to go down. But didn’t the banks do the same damn thing? In fact, I’d venture to say that what the banks did was even worse. They knowingly sold crap to the American public.



The Democrats, on the other hand, want to pass a bailout bill without putting any significant restrictions on it. This I don’t agree with. If GM is going to get bailout money, they need a new plan moving forward to become and stay profitable.



Most importantly, a GM bankruptcy might be ok if the economy weren’t already circling the toilet. My fear is that if GM goes bankrupt, we’ll have another credit squeeze similar to what happened when Lehman went under. But this time, the Fed doesn’t have much ammunition left to try and make things “less bad”.



If GM goes under, banks may wonder who’s holding automotive assets and refuse to lend to each other in the suspicion that someone’s balance sheet is much smaller than it used to be. This would cause the LIBOR rate to spike higher. I also fear that more money will move into treasuries and out of every other asset. The DOW could hit 6,500 in a GM bankruptcy. And if Ford followed suit, a huge part of American manufacturing would go down the drain.



I say this to warn you that a GM bankruptcy is huge. Job losses would go through the roof and more retailers would go broke. Hell, the state of Michigan may enter default, which would be a huge mess. After all, it’s not like they could merge with the state of Illinois to reduce overhead, like banks are doing.



The times ahead are getting darker and even scarier then we could have imagined.



When will it all end? Nobody knows. But we must stay prepared and try to take advantage of any big opportunities we see.
Charles



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Wall Street Is Licking Its Chops at the Bush Team's Multi-Hundred Billion Dollar Giveaway Plan

Before I lay bare McCain,as in the emperor with no
clothes,having the Bush Administration trot out
Treasury Secretary Henry Paulson (former CEO of Goldman
Sachs who is a primary owner of the Federal Reserve
System as is JPMorganChase)and tell everyone that
unless we give the unscrupulous bankers $700,the
U.S.economy is going to collapse is strangely
similar to what that other Bush flunky did when
he sat at the United Nations and told the world
that unless the U.S. attacked Iraq immediately,
we would all be blown into the Stone Age because
they had weapons of mass destruction.That other
Bush flunky,unless you forget,was no other than
the former trusted General Colin Powell.Now it
seems Henry Paulson has soiled himself in public.

Let William Greider tell the story as only he can:
Wall Street Is Licking Its Chops at the Bush Team's Multi-Hundred Billion Dollar Giveaway Plan


Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: Dump it all on the taxpayers. That is the meaning of the massive bailout Treasury Secretary Henry Paulson has shopped around Congress. It would relieve the major banks and investment firms of their mountainous rotten assets and make the public swallow their losses -- many hundreds of billions, maybe much more. What's not to like if you are a financial titan threatened with extinction?

If Wall Street gets away with this, it will represent an historic swindle of the American public -- all sugar for the villains, lasting pain and damage for the victims. My advice to Washington politicians: Stop, take a deep breath and examine what you are being told to do by so-called "responsible opinion." If this deal succeeds, I predict it will become a transforming event in American politics -- exposing the deep deformities in our democracy and launching a tidal wave of righteous anger and popular rebellion. As I have been saying for several months, this crisis has the potential to bring down one or both political parties, take your choice.

Christopher Whalen of Institutional Risk Analytics, a brave conservative critic, put it plainly: "The joyous reception from Congressional Democrats to Paulson's latest massive bailout proposal smells an awful lot like yet another corporatist lovefest between Washington's one-party government and the Sell Side investment banks."

A kindred critic, Josh Rosner of Graham Fisher in New York, defined the sponsors of this stampede to action: "Let us be clear, it is not citizen groups, private investors, equity investors or institutional investors broadly who are calling for this government purchase fund. It is almost exclusively being lobbied for by precisely those institutions that believed they were 'smarter than the rest of us,' institutions who need to get those assets off their balance sheet at an inflated value lest they be at risk of large losses or worse."

Let me be clear. The scandal is not that government is acting. The scandal is that government is not acting forcefully enough -- using its ultimate emergency powers to take full control of the financial system and impose order on banks, firms and markets. Stop the music, so to speak, instead of allowing individual financiers and traders to take opportunistic moves to save themselves at the expense of the system. The step-by-step rescues that the Federal Reserve and Treasury have executed to date have failed utterly to reverse the flight of investors and banks worldwide from lending or buying in doubtful times. There is no obvious reason to assume this bailout proposal will change their minds, though it will certainly feel good to the financial houses that get to dump their bad paper on the government.

A serious intervention in which Washington takes charge would, first, require a new central authority to supervise the financial institutions and compel them to support the government's actions to stabilize the system. Government can apply killer leverage to the financial players: Accept our objectives and follow our instructions or you are left on your own -- cut off from government lending spigots and ineligible for any direct assistance. If they decline to cooperate, the money guys are stuck with their own mess. If they resist the government's orders to keep lending to the real economy of producers and consumers, banks and brokers will be effectively isolated, therefore doomed.

Only with these conditions, and some others, should the federal government be willing to take ownership -- temporarily -- of the rotten financial assets that are dragging down funds, banks and brokerages. Paulson and the Federal Reserve are trying to replay the bailout approach used in the 1980s for the savings and loan crisis, but this situation is utterly different. The failed S&Ls held real assets -- property, houses, shopping centers -- that could be readily resold by the Resolution Trust Corporation at bargain prices. This crisis involves ethereal financial instruments of unknowable value -- not just the notorious mortgage securities but various derivative contracts and other esoteric deals that may be virtually worthless.

Despite what the pols in Washington think, the RTC bailout was also a Wall Street scandal. Many of the financial firms that had financed the S&L industry's reckless lending got to buy back the same properties for pennies from the RTC -- profiting on the upside, then again on the downside. Guess who picked up the tab? I suspect Wall Street is envisioning a similar bonanza -- the chance to harvest new profit from their own fraud and criminal irresponsibility.

If government acts responsibly, it will impose some other conditions on any broad rescue for the bankers. First, take due bills from any financial firms that get to hand off their spoiled assets, that is, a hard contract that repays government from any future profits once the crisis is over. Second, when the politicians get around to reforming financial regulations and dismantling the gimmicks and "too big to fail" institutions, Wall Street firms must be prohibited from exercising their usual manipulations of the political system. Call off their lobbyists, bar them from the bribery disguised as campaign contributions. Any contact or conversations between the assisted bankers and financial houses with government agencies or elected politicians must be promptly reported to the public, just as regulated industries are required to do when they call on government regulars.

More important, if the taxpayers are compelled to refinance the villains in this drama, then Americans at large are entitled to equivalent treatment in their crisis. That means the suspension of home foreclosures and personal bankruptcies for debt-soaked families during the duration of this crisis. The debtors will not escape injury and loss -- their situation is too dire -- but they deserve equal protection from government, the chance to work out things gradually over some years on reasonable terms.

The government, meanwhile, may have to create another emergency agency, something like the New Deal, that lends directly to the real economy -- businesses, solvent banks, buyers and sellers in consumer markets. We don't know how much damage has been done to economic growth or how long the cold spell will last, but I don't trust the bankers in the meantime to provide investment capital and credit. If necessary, Washington has to fill that role, too.

Finally, the crisis is global, obviously, and requires concerted global action. Robert A. Johnson, a veteran of global finance now working with the Campaign for America's Future, suggests that our global trading partners may recognize the need for self-interested cooperation and can negotiate temporary -- maybe permanent -- reforms to balance the trading system and keep it functioning, while leading nations work to put the global financial system back in business.

The agenda is staggering. The United States is ill equipped to deal with it smartly, not to mention wisely. We have a brain-dead lame duck in the White House. The two presidential candidates are trapped by events, trying to say something relevant without getting blamed for the disaster. The people should make themselves heard in Washington, even if only to share their outrage.

William Greider is the author of, most recently, "The Soul of Capitalism" (Simon & Schuster).

McCain's Lies & the Bailout Failure

McCain was on his campaign plane preparing to leave Ohio when the House vote became final. McCain's chief economic adviser, however, issued a statement that blamed Obama.


"This bill failed because Barack Obama and the Democrats put politics ahead of country," McCain senior policy adviser Doug Holtz-Eakin said.


When he reached Iowa, McCain told reporters: "Now is not the time to fix
the blame, it's time to fix the problem."

This is a Bush-Texas size whopper lie. Let
me explain.When Senator McCain flew to Washington,
D.C. last week when he said he was suspending his
campaign,he arrived at the hearings,said very
little and then sided with his very conservative
Republican colleagues and demanded LESS
REGULATION OF BUSINESS and TAX BREAKS-EXEMPTION
FOR THOSE COMPANIES WHO BOUGHT FAILED or FAILING
BANKS with SUB-PRIME LOANS. He did not object to
the REpublican style COMMUNIST take over of private
enterprise nor did he worry or care about
rewarding unscrupulous or stupid behavior by Wall
Street executives at CITIZEN'S EXPENSE.He sought
to RELIEVE BIG BUSINESS of IT'S FINANCIAL
OBLIGATIONS and REGULATIONS and NEVER ONCE
OBJECTED TO THIS BILL BECAUSE IT IN NO WAY PROTECTED
the INDIVIDUAL TAX-PAYING CITIZEN. This is NOT
PATRIOTISM -this BEING A LAP-DOG SOLDIER FOR RICH
BANKERS,JUST LIKE THE ONES HE ACCEPTED MONEY FROM
in the SAVINGS and LOAN SCANDAL;ie.Charles Keating.
McCain has MORE EXPERIENCE and HAS NOT LEARNED
from any of it. Dogs would remember better
than he because when they are punished they
remember not to make the same mistake. At least,
my dog did. Secondly,the Democrats were not the
ones to blame for this bill not passing;i.e. the
vote was 133 Republicans OPPOSED,65 in FAVOR and
140 Democrats in FAVOR,95 OPPOSED. So how
can McCain blame the Democrats? ONLY BY LYING.

But the Congressmen/women who opposed got it right.
Government should not rescue,coddle and reward BIG,
UNSCRUPULOUS BUSINESS while MAKING CITIZENS PAY for
IDIOCY. The Republicans should look to the Chinese
Communist government as an example: all those people
involved,who made decisions to put melamine in milk
in CHINA WILL BE SEVERELY PUNISHED,NOT RESCUED AND
EXCUSED like this Administration wants us to do.

I want to congratulate Congressmen Tierney,Lynch
and Delahunt in Massachusetts,Congressmen Courtney
in Conecticut,Congressmen Michaud in Maine,Congressmen
Shea-Porter and Hodes in New Hampshire and Congressmen
Welch in Vermont for opposing the bailout as of yesterday.
They had the same courage and foresight as did Senator
Barack Obama when he opposed the War in Iraq.This
administration has cried wolf every time it has either
gotten into trouble or decided it wants to lie to the
American people. When are our Representatives going to
learn this? All their experience,degrees and money
aren't any good if they DO NOT PROTECT and DEFEND the
CONSTITUTION of the UNITED STATES OF AMERICA and the
people who elected them.Obviously,the above named
Congressmen have UPHELD THEIR OATH.

Now let me make some constructive suggestions:

1. REINSTATE the GLASS-STEAGALL ACT in its entirety:
"The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) in the United States and included banking reforms, some of which were designed to control speculation.[citation needed] Some provisions such as Regulation Q, which allowed the Federal Reserve to regulate interest rates in savings accounts, were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm-Leach-Bliley Act, which passed in Congress with 55 Republicans voting for and 44 Democrats voting against the bill in the Senate and by a 343-86 vote in the House of Representatives, before being sent to conference committee; the final bipartisan bill (Senate: 90-8-1, House: 362-57-15) was signed by President Bill Clinton."

2. CREATE a RESOLUTION CREDIT CORP. that is FUNDED
and OWNED by AT LEAST 50% FINANCIAL COMPANIES and 50% U.S.
Government with hundreds of SEC Auditors auditing
continuously with no possibility of leaving government
and working for financial companies until 4 years has
elapsed.

3. AUCTIONING OFF of BANKS with SUB-PRIME MORTGAGE
PROBLEMS to the PRIVATE SECTOR,such as Venture
Capitalist,Private Equity firms,foreign banks in NATO
countries.

4.CREATION of CORPORATE BAILOUT FUND by all
CORPORATIONS with SALES over $100 Million per year
through a 1% of GROSS PROFITS BAILOUT TAX that all
could utilize if a case was made for Uncontrollable
External factors.

5.IMMEDIATE SUSPENSION of NAFTA and WTO RULES
that OVERRIDE the U.S. CONSTITUTION.

6.CREATION of SENATE-CONGRESS OVERSIGHT
COMMITTEE of FEDERAL RESERVE SYSTEM publicly
recognizing it as a private corporation and
publicly disclosing ownership thereof as well
as Annual PUBLIC AUDITS.

In closing let me remind the reader of the Declaration of Independence
and I quote:

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. That to secure these rights, Governments are instituted among Men, deriving their just Powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn, that mankind are more disposed to suffer, while evils are sufferable, than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new guards for their future security — Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. — The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let facts be submitted to a candid world."