Just when I thought it was safe…

For a while it looked like I might be able to climb down from my high horse on matters related to federal bailouts of the automobile and financial services industries.  But no.  I’m back in that saddle.

On April 22, The Washington Post reported:  “Top recipients of federal bailout money spent more than $10 million on political lobbying in the first three months of this year.”

Lobbying?  LOBBYING?

“…aggressive efforts aimed at blocking executive pay limits and tougher financial regulations, according to newly filed disclosure records.”

If you or I give money to an organization that’s even minimally involved in lobbying, can we deduct it as a contribution on our tax returns?  No sir.  But these guys can take stacks of the money you and I have paid in taxes, for which they pleaded and begged and sobbed and whined because they were on the verge of bankruptcy or collapse, and they can use it to try and influence (read “block”) legislation they don’t like.  More specifically, they are lobbying to limit Congress’ ability to correct the abusive practices that pushed these businesses right up to – and maybe over – the brink of ruin.  “Major bailout recipients have spent more than $22 million on lobbying in the six months since the government began doling out rescue funds, Senate disclosure records show.” That includes General Motors (spending $1 million a month) and Citigroup and JP Morgan Chase (proud new owner of WaMu) leading the pack among financial institutions.

Be still, my heart.  Come down, my blood pressure.

Sure, $22 million is a pittance to our friends in Congress and in corporate boardrooms.  But for the overwhelming majority of us on Planet Earth, it is a lot of money.

What else do we need to do to convince our elected officials to cut off the flow of any additional taxpayer money to prop up these monumental monuments to avarice, arrogance, corruption, and incompetence?

Redefining “clueless”

The Big Three – Alan Mulally (Ford), Robert Nardelli (Chrysler) and Richard Wagoner (GM) – all came to Washington, DC on Wednesday to demand that Congress give them a $25 billion “bridge loan” to keep their companies from going bankrupt.  Congress sent them packing, and recommended that they try some different tactics at their next appearance:

1. Know exactly how much they need and how they propose to spend it;
2. Assure Congress and taxpayers that they won’t be begging for another bailout any time soon;
3. Demonstrate an understanding of why Americans prefer ‘imports’ over their products;
4. Leave the corporate jets at home.

The Big Three make it sound like their problems started with the recent financial meltdown.  Please.  Some of us have been paying attention for the last twenty years, even if they haven’t.

Perhaps private financing would be better:  It’s been suggested that Big Oil should bail out the American auto industry.  Those folks are  flush with cash from record profits, and it seems like they would have an interest in keeping the auto industry alive…

Meanwhile, here’s something genuinely refreshing and different:  Elson Floyd just requested a $100,000 cut – about 15% – in his annual salary as president of Washington State University.  There’s someone who understands the symbolic power of his office and the value of leading by example.  Detroit, are you getting this?

Auto industry bailout? I think not.

More executives of multi-billion dollar enterprises coming to Congress for ‘emergency’ loans to help stave off bankruptcy?  Again?  Don’t let the door hit you on your way out.

I have friends who worked for Alan Mulally (President and CEO of Ford Motor Company) during his years with Boeing, and they spoke highly of his accessibility and integrity.  Ford was lucky to get a man with Mulally’s skill and experience to try and salvage what’s left of the automotive giant.  Come to think of it, Ford’s luck was probably helped by a $50 million annual compensation package and use of the corporate jet to fly back and forth to the old hometown of Seattle.  Heck, I’d consider moving to Dearborn, MI for that.

It’s time to get out your handkerchiefs, my friends.  Ford somehow managed to lose more than $8.5 billion in the first half of 2008.  In October the stock price closed at a 52-week low of $1.80 a share, down from its all-time high of nearly $64 a share in 2000; it dropped more than 75% in the last year alone.  Now Ford and GM and Chrysler want a $25 billion loan from Congress to help them through a tough spot.  How did Detroit get to this point?

I remember the oil embargo in the 1970s, and how many of us took to walking and bikes and buses.  We thought twice before driving somewhere because gas was harder to get.  And we saw that in addition to shelling out money for fuel, maintenance, and insurance, we were also adding to pollution and congestion. Millions of us read the handwriting on the wall and modified our behavior.  Detroit, on the other hand, chose to ignore predictions and warnings about foreign oil, fuel efficiency, environmental concerns, and the growing interest in imported cars.  They insisted on cranking out big tanks and thumbed their noses at fuel economy.  In the early 1990s Detroit’s pigheadedness kicked into high gear with the introduction of  gas-guzzling SUVs and trucks.  Between 1990 and 2000, advertising for SUVs increased from $172.5 million to $1.5 billion to convince millions of us that Detroit was giving us the cars we wanted and needed.  Consumers lined up at car dealerships to do as they were t(s)old.

Meanwhile, imports were no longer the cheap and tinny contraptions that had first arrived on American shores.  They offered comfort, economy, and dependability.  Legions of us gladly traded in our 8-cylinder Fords and Dodges and Chevys for 4-banger Datsuns and Mazdas and Toyotas.  Detroit was getting its butt kicked by the imports, but the SUVs and giant trucks kept rolling off the production lines.  David Halbersham’s book The Reckoning compares the development of the American and Japanese auto industries.  It describes Detroit’s astonishing arrogance in repeatedly choosing bigger and more profitable (in the short term) over smaller and more economical.  All the while, Japanese imports gave eager customers what we wanted and took away market share from the big boys.  And they did it all in plain sight.

Detroit’s ’strategies’ finally caught up with them:  the American auto manufacturers drove their own industry into the ground.  And now they want John & Joan Taxpayer to bail them out?

These guys loved the free-market system as long as it was good to them.  They fought safety standards, fuel efficiency requirements and pollution controls, and poured cash into lobbying and acquisitions.  Not a whole lot went into retooling, and God only knows what alternative technologies were purchased and shelved.  But changing global markets, environmental concerns, volatile oil prices, and the recent financial collapse now reveal Detroit’s shortsightedness.  The Honda Insight was first introduced in the US in 1999; the Chevy Volt isn’t scheduled to begin production until the third quarter of 2010.

Hello??  GM, what have you been doing for the last ten years?  Oh, that’s right – you’ve been busy making Suburbans, Tahoes, Trailblazers, Yukons, Avalanches, Sierras, and the like.  And you think the public should help you stay in business?  Reward you for stifling innovation?  Support your waste of precious resources at the expense of the environment?

I don’t think so.

Looks to me like a lot of the air has escaped from that ‘big is better’ balloon.  We have been very, very, very badly served by corporations that grow “too big to fail.”  The only winners in that scenario are the few at the top with golden parachutes; they’ve ensured their own soft and comfortable landing while they let the rest of the plane – and everyone else in it – go down in flames.

We like to talk a lot about the virtues of small businesses, and how essential they are to the health of our economy.  Yeah?  Then why are we pumping gigantic amounts of money into gigantic businesses?  It’s time to breathe more life – and not just hot air – into small and nimble ventures, and let big and bloated businesses die – or at least go bankrupt.  There’s a lot more to say on that topic…

So I find myself disagreeing with President-elect Obama, who wants to rescue the auto industry.  I could go along with a bailout, but only if it met certain conditions.

* * * * * * * * * *

Hey listen, Mr Mulally, I’ve got another call…

Yeah, hello.  John Taxpayer here.  How can I help you?
Oh…  Hold on for a moment.

Mr Mulally?  The answer is NO.  I gotta go.  AIG’s on the other line – they want another $40 billion…

Bankers: it’s your turn to pay

Here’s the opening paragraph of a story on the front page of today’s Seattle Post-Intelligencer:

While Wall Street financiers stoked today’s financial meltdown with explosive investing in high-risk mortgage loans, politicians, federal officials and lobbyists shielded them from lawsuits that would have protected borrowers and tempered the frenzy.

Banks and financial institutions have demonstrated that they are unwilling and perhaps incapable of regulating themselves.  For years these guys were exceedingly eager to lend large amounts of money at exorbitant rates to people who shouldn’t have qualified for loans:

• Like those low teaser rates?  Don’t worry about upward adjustments – you can always refinance.
• Can’t verify employment, or income, or assets?  Don’t worry – we don’t need to know.
• Interested in an interest-only loan almost sure to get you financially upside-down?  We’ll set you up.
• Willing to assume that the value of your home goes up every year?  We are too!

In the midst of mounting piles of financial wreckage for which they are largely responsible, banks are now refusing to loan money to each other, bringing global credit markets to a standstill.  They didn’t mind raking in fortunes for themselves by providing millions of people with risky loans that jeopardized our entire financial system.  But now they won’t trust others of their own ilk enough to lend them money.  And Wall Street panics.  As a result, trillions of dollars – how much is that, anyway? – of wealth have evaporated.  That represents jobs, home ownership, retirement plans, and college educations that have simply disappeared.

Meanwhile, as the financial crisis deepens and spreads around the globe, the US Treasury is considering acquiring at least partial ownership of banks.  And this from the Bush administration – who knew?  Many regard nationalizing such institutions as socialism.  But would they prefer more of the same practices that led to the current mess?  Call me a radical, but this additional step of government intervention actually sounds like a good one.  Bankers don’t like the idea of government ownership or interference in their institutions… So what?  I couldn’t care less what bankers like or don’t like.  They’ve had their say and their way, and they screwed us.

For those of us who are not bank executives, gross negligence like theirs would land us in the unemployment line for sure, and probably in jail.  A few things pop into my mind:

1. Crank up investigations of bankers and Wall Street financiers, politicians, federal officials, and lobbyists, and bring appropriate action against them.
2. Put the houses, cars, bank accounts, investments, insurance policies, jewelry – everything owned by highly-paid executives of failed firms – into escrow accounts.  For those who are found not guilty, items could be reclaimed if and when measures to restore value and stability are successful; otherwise they belong to the US Treasury.
3. Use a chunk of the bailout money to build prisons for (1) above who are found guilty.

So much for this tirade.  I hope that American consumers are seriously rethinking personal patterns of borrowing and spending, and considering how we have helped to create the current economic climate.  As for me and my household, we’ll continue to drive our 1990 and 1991 Toyotas (as little as possible).  Projects around the house are on hold.  More people we know are losing their jobs.  Like so many others, we’re looking at other ways to simplify and stretch the resources we have, but that’ll be the subject of another post…