Friday, November 28, 2008

Jake's Word Re: Saving Big Auto‏

[In response to "The Nationalization Option: Saving the Auto Industry" by Jack Random -- reposted below.]

As always you see clearly what most everyone else, including those in government and big business, either miss or choose to ignore. You recognize as well the variety of options that should be on the table.

It appears Secretary Paulson would prefer to reward bad behavior and hope the "smart guys" would go and sin no more. That might be too optimistic though. What once seemed cynical has all too often proved realistic when considering the machinations of the Bush administration. The bailout may have originally been intended as one more pay out to old colleagues in the corporate world for loaning us a few of their own to run the country. A final flourish of 28 years of supply side economics as they slither from the stage with bags of taxpayer dollars.

Paulson's hand was called when the first installment resulted in the nothing at all except large banks sitting on their largesse. Now, looking increasingly like a man on the verge of a total breakdown he seems willing to compromise, perhaps, and either help homeowners directly or at least encourage the banks to behave like banks again and start moving money. The result appears to be more of the same - another failure of an administration whose legacy will most likely be to serve as an example of everything a President can do wrong.

If we were not but a few weeks from the inauguration of a new administration the automakers would probably be left to crumble or in the name of a compromise with congress be handed the money they request with no conditions at all.

We wish that the ideal world you detail was an option. In a saner, more rational world it might be. However, we must recognize the bias of the society and the governments it empowers.

I have to admit that I was a bit surprised that congress rebuffed the automakers like poor students told to correct their homework and return to be graded a second time. They will no doubt behave like C students and return with a plan that they hope will get them past the gates and into the vault. At that point congress will once again be required to show enough spine to send them away empty handed once more with a stern warning that they will be given one last chance.

Automakers, foreign and domestic obviously know what needs to be done. Your recommendations are precisely those that I hope the President-Elect is receiving. If the transition team actually reads the suggestions posted at they will have those recommendations before them because I posted an almost identical proposal there last week. One hopes that the incoming administration would not have to look so far afield for advice. I am sure they know the options and details much better than I ever could and are weighing them. The questions is - with what measure? How much will political expediency weigh when balanced against rational policy?

Frankly, nothing less than a total reformulation of the auto industry will suffice. The transition phase would necessitate a combination of hybrid and maximum fuel efficiency vehicles (35 mpg/city minimum). The next stage, which must be ready within five years, would be electric and alternative fuel vehicles (ethanol discounted unless it is cellulosic in origin from a variety of sources - the rest of the world cannot afford us burning their food).

Consider that with the inception of WWII the American economy completely retooled in a matter of months and in less than two years became the most efficient and productive in the world, the envy of the world. If some combination of government and business attacked the current financial and energy crises with the same urgency it would produce millions of jobs via new and renewed industry assisted by new research and development.

We have seen the alternative. It means waging war for resources. That is our choice. We can invest in a transformed economy or slide into depression and literally fight our way out.

The failure of three decades of supply side blind faith in markets has forced an opportunity upon us. We can call it a crises and allow greed to continue to capitalize on our fear or we could seize the opportunity and once again make the U.S. economy the envy of the world - and it could be done while decreasing our impact on the environment. All it requires is self-confidence and the determination to accept nothing less than success.

Forgive me for sloganeering, but if that is what it takes to motivate the populace then so be it. We can transform failure into success. We can reinvent the economy and do it quickly. We can demonstrate to the world that we are not imperialists, we are benevolent innovators. It will require unprecedented cooperation among all sectors of society, but we can do it. Yes, we can.

Peace to you my brother,

[Jake Berry (]


Saving the Auto Industry

By Jack Random

With the economy still stuck in a spiral descent legislators who could not find the bearings or strength of character to oppose the trillion dollar bailout of the financial sector are suddenly finding old time religion in opposing a bailout for the auto industry.

Those on the left say: Why save the collapsing remnants of a failed capitalist system?

Those on the right say: Live by the sword, die by the sword. Let the market manifest. It’s how the system is supposed to work.

Both are wrong.

We accepted the financial sector bailout because the alleged “smartest men in the room” told us there was neither time to delay nor options to consider. They had already played out the string and lost. The next roll would push us over the edge. They had so mismanaged our money that there was no more gambling to be done. The book was closed. The marker had to be paid down or the players would be locked out.

We were lucky congress paused just long enough to lay down a few conditions, including one stipulating that some significant portion of the enormous allotment would be applied to lower the rate of home foreclosures. When Secretary of the Treasury Henry Paulson said he was not authorized to attack the problem directly he was lying. Paulson must be shown that he is not the king’s henchman and he has not won the unconditional trust of the people. It is not solely up to him who shall be saved and who shall not.

Sheila Bair, chair of the Federal Deposit Insurance Corporation, got it right: An investment in foreclosure prevention will pay in generous multiples while buying toxic assets is like throwing paper money into a raging inferno. Paying for corporate buyouts and mergers is like contracting our own demolition. It ought to be a crime.

The very last thing we should be doing now is refinancing a consolidation of wealth to create even more corporate dynasties that are “too big to fail.” We already let the “smart” guys – the gurus of the American Enterprise Institute, the Free Market fundamentalists, the Neocons of economic theory – play that hand and they busted like greedy frat boys at a professional’s table. The least they can do now is step aside and let someone else have a seat.

The auto industry is apparently not too big to fail but it is the last stand of American industry. We have sacrificed textiles, plastics, packaging, canning and manufacturing of all kinds. We no longer produce: We transport, promote and sell. We have become the middleman of the world’s economy and in hard times the middleman is the first to go.

In an ideal world, a world in which the accusation of socialism has truly lost its sting, the government would purchase the auto industry at current market value (a bargain at less than nothing) and transform its production facilities into a model of fuel efficiency: Fuel efficient plants producing the world’s most fuel efficient vehicles.

In an ideal world the best minds would devote themselves to developing technologies that would revolutionize technology itself: Not only clean and efficient personal transport vehicles but integrated mass transit, a modern grid for distribution of energy, climate control and industrial power.

Needless to say we do not live in an ideal world. We live in a world that requires compromise. If we cannot nationalize the auto industry then we must stipulate the conditions that will lead to the same end: a viable industry with state of the art fuel-efficient vehicles.

The auto executives appear to have miscalculated. They assumed as I do that the government cannot allow the industry to fold. We can neither sacrifice the jobs nor the industrial base of our stumbling economy. If anything we must reclaim an expanded industry in a new and more advanced form. But that does not mean that we cannot bargain. Our government must be willing to show the nationalization card to compel the industry to negotiate in good faith.

We should put it on the table straight up: Accept reasonable conditions or prepare to be nationalized. Once the industry is re-established as a sustainable and profitable concern we could then resell it to the highest bidder on the open market.

Put it on the table and suddenly all the chips are on the government’s side.

Much has rightly been said about the shortcomings of the auto industry but the government has in fact been a party to many of their critical errors in judgment. The government has subsidized large vehicles, exempting them from even modest fuel efficiency requirements and providing tax incentives to buyers. The government has subsidized oil, enabling the auto industry to believe it could continue to ignore the looming crisis in the cost of gasoline.

Accepting that both sides share in responsibility for an industry that cannot be sustained may enable us to move forward with the hard measures that must be taken.

First, all plants currently operating must remain operational and all current employees retained except for cause.

Second, all plants that have been closed but remain in the possession of the industry will be reopened and retooled for fuel-efficient production of fuel-efficient vehicles.

Third, union representation of industry employees must be protected and strengthened. If the auto unions must yield some portion of their current wages or benefits to bring them into balance with foreign automakers so be it but for every cent sacrificed there must be a proportionate gain in representation on the boards of directors. The industry must be compelled to open its books and involve labor in the decisions that will affect long-term viability.

Fourth, the world’s brightest authorities should be recruited to lead research and development for fuel-efficient technologies. For decades we have been hearing about vehicles that run on water, compressed air and other clean, renewable sources. Remove the mindset of short-term profit and we can be sure that the results will be remarkable. Replace that mindset with one geared to the public good and working in concert with a government committed to freedom from oil and we will likely lead the world in the technologies of the future.

Members of congress were rightly outraged that the leaders of the Big Three showed up without a plan for restructuring and without a vision for the future. We should all be outraged that congress has not come up with its own plan and its own vision.

Like the viability of the airlines industry and indeed the viability of all industry in America, the problems of the auto industry are not new. It is an insult to American democracy that our leaders have not foreseen these failures and drafted plans to address them.

Ultimately, even after the auto industry is saved, the viability of the American economy will depend on revising trade policies so that industry can once again thrive in the nation that pioneered the modern industrial revolution.


[This Chronicle posted on of Canada.]


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