Posts Tagged ‘economy’


Would You Take A Bailout?

June 16, 2009

I know I would not take a bailout. The government likes do do things like cap executive pay, force your top executives out, and even put you into bankruptcy. I am not really seeing an upside to getting emergency money from the government.  I do not think GM or the banks are either, since the banks are in a hurry to pay the TARP money back and GM is going into bankruptcy, the situation it was trying to avoid.  There is a lot smaller moral hazard there than I thought there would be.

The one upside to all of this I see is that creditors are probably going to be more open to negotiating with their debtors.  If the GM and Chrysler creditors had been willing to cut a deal, they would probably be getting a bigger return than they are now.  After all, once the federal government got involved, it is going to protect its interests first.  It is kind of like taking money from a loan shark.  The federal government will make sure it gets paid first.

So, remember all of this before you try to get bailed out by the federal government.  Taking money from them comes with a LOT of strings attached.



November 25, 2008

One group being blamed for the Big Three automakers is unions.  They demand high wages, pensions, great healthcare, and a number of other concessions.  The UAW drives up the cost of producing cars, reducing the margin the US automakers make on every car, raising the price of cars, or both.  Are they worth it?

In general, unions have been a good force in the labor market.  Even though I do not work in a unionized store and have never been a member of a union, I have seen some benefits from them.  My workplace is safer than it might be because of safety laws inspired by unions.  I also probably make more money than I would be if unions had not existed.

However, I feel that some unions have outlived their usefulness.  I think the UAW may very well be one of these unions.  As I stated in the last post, the Big Three pay a lot more per hour to their employees than the Japanese car makers do.  The union is giving the Japanese car makers a competative advantage over their employers.  It is a case of biting the hand tha feeds you.

I think the UAW needs to take a serious look at how it can help Ford, GM and Chrysler reduce their labor costs and still provide suitable pay and benefits.  Everyone is going to have to give something up if they are going to stay in business.


Should We Bailout The Car Companies?

November 17, 2008

So, the US government has already pumped a bunch of capital into national banks.  Now the auto industry is asking for a handout.  Should we give it to them?

I think the government should loan GM (and the others) money, but with one stiupluation: they go into bankruptcy.  This does a number of things:

First, it lets a judge alter GM’s debt and labor contracts.  This would lower GM’s debt payments and labor costs.  GM’s average hourly rate (with fringe benefits) is $71 an hour.  Toyota’s is $47.  I know the labor unions will cry about it, but if GM goes under, the unions are not going to be much help to the tens of thousands of unemployed union memebers, will they?  The unions worked with the airlines that went into bankruptcy, and that allowed the airlines to come back out.  The UAW needs to consider doing the same thing or have it done for them.

Second, going into bankruptcy lets the US government give GM “debtor in possession financing.”  This lets GM keep running, but give the US government dibs on repayment and assets if GM goes belly-up.  This gives the tax-payer the most protection.

GM has been hemorriging money for years, even before the credit crunch.  They need some punishment to go along with any help they get.


I’m Back

June 27, 2008

Okay, I’m going to try to keep this up to date again.  I think I have a lot to post on this one.  🙂

First, Greece was awesome.  I have to go back.  However, I will share with you the travel tips I learned:

1.  Before going to Greece, bone up on your Greek.

2.  Even more importantly before going to Greece, get on a StairMaster.

3.  Don’t fly Air France.  Every flight of theirs we took left late, and they managed to lose one of our bags for a few days.

4.  There is less internet access in Greece than you would expect.

5.  There are more historical sites there than you can see in three weeks.

As for more current news, school starts August 25th.  I’m excited to be going back, because now I get to take all the finance courses I want to take, instead of all the other courses I had to take.  I have a very strong affinity for things I want and a very strong repulsion for things I have to do.

Oh, and the economy still sucks.  Again, Steven Pearlstein has a great column on the economy.  I think it’s funny how I’ve been reading how people don’t understand why consumer confidence is as low as it was in the 70s when the economy is better.  What people aren’t grasping is the difference between the micro and macro view.  In the macro world of economics, the broad measures aren’t as bad.  The GDP is still growing, for instance.  However, in the micro world, people are getting laid off, they aren’t paying their bills, and everything is getting more expensive.  So, we have a disconnect between the two sides of economics.  I have a feeling the micro is going to pull down the macro, though.  If peoples’ personal finances are not doing well on a growing scale, then the economy as a whole is going to have trouble recovering.

So, there you have it, my prediction of doom and gloom.  Things will get better once the economy isn’t so levereged.  When people and companies are borrowing so much money, it’s hard to gauge how something like the Fed increasing interest rates to combat inflation will change things.  Let’s hope for the best.


Gas Tax Holiday?

May 8, 2008

Sounds like a bad idea to me.  I’m not a big fan of pandering, and this really smacks of Clinton and McCain attempting to buy our votes with money the government doesn’t have.

People say they want the government to be run like a business, but since businesses exist soley to make money (except for non-profits, and even then…) I think that is not the goal we want of our government.  A government should be run like a household.  It should make money in order to provide for the needs of those living under its roof.

Where am I going with this?  Well, say you’re the head of a household.  Your financial situation isn’t looking so good, and it looks like your wife and kids may be losing their jobs.  So, what do you do?  Bringing in less money does not sound like a good idea to me.  Convincing your family’s jobs to give them more money sounds like a better idea to me.

To stop the analogy, real wages have not increased in quite awhile, and I think the economy is starting to feel the effects.  People say that raising the minimum wage hurts businesses by forcing them to spend more of their money on their employees.  However, most of the companies that pay minimum wage are companies that people spend a lot of money at:  retail stores, grocery stores, dry cleaners, etc.  So, giving people more money to spend actually will give those companies a boost.

So, again, I think that companies need to bail out the economy, not the government.