Saving Jobs by Saving General Motors

Saving Jobs by Saving General Motors by Klaus H Hemsath

General Motors is getting close to going bankrupt and to being liquidated. Ineptitude and greed of its management, its board, and its union are finally catching up with the former king of the automotive industry.

In liquidation, foreign companies will buy several of its most modern plants. Any assets will be bought for cents on the dollar. Most of its work force of white and blue collar workers will become unemployed. The ripple effect on suppliers, vendors, and customers will be ruinous. A liquidation will degenerate into a national depression.

Management has tried repeatedly to save this legendary company but did not have the vision, the capabilities, and the financial backup. The GM board has been the major cause for the slow death of this company. In the face of continuing losses, the board insisted on healthy quarterly dividends. Not making enough cash and paying out dividends is stumbling towards the abyss. Any sudden downturn in sales or in margins forces the company into insolvency.

GM's top management and its board made one fatal miscalculation; they gambled that Congress will never let GM go out of business. This gamble was not reckless. After all, US Congress had saved Chrysler a few decades back. When the US financial crisis was threatening world markets with a meltdown, US Congress supported rampant fraud and gambling in the financial industry on a grand style. AIG, one such gambling insurance company, was awarded a huge financial bailout package. The Big Three could continue their businesses for years with a similar gift.

For the last several decades, the automotive industry has been under constant attack by competition, by its investors, and by government. GM management was not capable of fending them off. GM lost a huge portion of its market share, investors looted its cash, and US government told the automotive industry how to design cars.

The ill advised meddling of US Government in matters of fuel efficiency and emissions has cost the automotive industry dearly. Huge amounts of research funds were spent in meeting marginally effective government regulations. US Congress deserves much blame for legislating very wasteful and very expensive solutions for previously unsolved, technical problems.

When Mr. Wagoner and his compatriots came to claim their bailout package, they were admonished by Congress for flying to Washington on corporate jets. For the first time, they may have understood that their future was much more precarious than they expected after watching the generous, incompetent, and ineffective bailout of the financial industry only a few weeks earlier.

After assigning blame, it is time to look at possible solutions. Liquidating General Motors will do huge harm at the most inopportune period in US economic history. It is unacceptable. Providing massive loans to GM is not the right solution, either. Instead, GM needs a complete reorganization, new management, a new board, new products, and a competitive pay and benefit structure for its white and blue collar workers.

Going through a bankruptcy proceeding is one viable approach. Unquestionably, bankruptcy is a tough way to go. GM's image will be blemished severely and future customers may be worried about car warranties and used car values. Future sales will certainly take a hit. Bankruptcy is time consuming and will damage the company and the crippled US economy further.

A better way is an offer by US government to purchase all assets of the company through a newly formed automotive corporation organized and financed by the government. GM stock is cheap. Its stock is worth two billion dollars; buying the company is feasible. The new company can agree to honor ongoing transactions, future product warranties can be issued and honored, pension obligations can be settled permanently, and the public would be assured of future product viability. A fresh, unrestrained startup would be guaranteed.

Additionally, US Congress must consider security and strategic aspects. Nobody else can muster the legislative and financial wherewithal for creating a critically needed, highly competitive, massive, new manufacturing entity. The wide range of existing products and production facilities and huge, sunken, irretrievable investments must be leveraged into creating a rejuvenated company that is lean, mean, and efficient. This company must be managed to rebuild stock value for a future recovery of government funds through sale of government held equity.

Above all, the new GM needs an infusion of capable management, cash, new products, and a board consisting of all new stakeholders in the company. Complete requisite sales, production, financial, and other management systems are in place and can be used for commencing business immediately. The company can become competitive quickly after a thorough cleansing of undeserved preferences, outdated policies, and inefficient practices.

The US cannot afford to lose the millions of manufacturing jobs that will result from a GM shutdown. There is no cheaper way to preserve and create jobs than by reorganizing the old, leaderless GM and hitting the ground running with a newly energized, innovative successor corporation. It would be insane to let a company with product lines like Corvette, Cadillac, and GMC go out of business. The costs and losses of a failure are incomparably larger than the amount of temporary, financial assistance for a reorganized, competitive successor company.

The US can ill afford another financial debacle while we are still watching with consternation and wonderment the mismanagement of the $700 billion congressional bailout attempt.

Saving GM will be good for the US, Ford, and Chrysler!



Dr. Hemsath recently published the book: CLIMATE CHANGE - GOLD RUSH OR DISASTER? For 50 years he has worked as scientist, process engineer, Corporate Vice President of R&D, Company President, CEO, and Inventor. He holds more than 60 US Patents. He is working on a new book: "THE SOLUTION FOR ENDING GLOBAL WARMING AND CLIMATE CHANGE". Go to http://www.thermalexpert.com


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Is Dragon's Den The Answer To Banking Crisis

Is Dragon's Den The Answer To Banking Crisis by Shaun Parker

The banking crisis is occupying the daily news reels as a matter of utmost importance. Those with savings in any bank are becoming increasingly worried about losing it all and those without are also being affected with a lack of confidence in all monetary systems and even manufacturing and job security. Therefore, this global economic crisis is on the minds of most thinking men and women of today. So what help is at hand?

One idea that has been forwarded is a Dragons Den type of solution. It has been suggested that the part-nationalisation scheme that saved Swedish banks from a similar crisis in the early '90's is what is now needed. It would see British banks approaching the treasury and touting for a share of a multi-billion pound hand out to rescue them from sure and certain death.

The idea is to avoid complete nationalisation and still be able to offer taxpayers money to banks in the form of a loan, effectively allowing the taxpayers to take a cut of the banks profits, if there are any and we don't lose that too!

The only certain thing at the moment is that the banks need stabilising and the government are looking at all ways of achieving this, the Dragon's Den idea is just one in a chain of possibilities but not one to be overlooked. Helping banks out one at a time is a system that is running out of steam as one after another crash so an idea with a wider reaching affect is being searched for.

There have been several options in the pipeline to help out the growing banking crisis and overall economic troubles around the world at present, yet just as one is being looked at another problem crops up. It seems unreal to most hardworking people that the government could allow this to happen, that there are not some sort of fail-safe measures in place to protect savers. It seems unreal that we can be so advanced when it comes to technology yet be so backward when it comes to safeguarding our monetary systems.

At the end of the day, much of it comes down to the greed of the people in the hot spots of running these organisations and it understandably infuriates people, especially those who have lost money, to see the fat cat businessmen taking vast pay offs just before and even just after the collapse of the exact same system they are supposed to be looking after.

Banks have also been short-sighted and greedy over time and this has also added to the issues that we see today. Not so long ago, you wouldn't get a single day go by without some sort of advertising offering loans and credit cards from all types of banks desperate to lend money and rake in the profits from interest rates. Recently released prisoners and those out of work were able to take out unaffordable loans and obtain credit cards. Mortgages were offered above and beyond what people could realistically expect to pay back long term.

Yet, this was seen as affluence and people were loving the easy access to all the money. Well, it would new seem this has all backfired and we are all feeling the brunt of it, so who will be held responsible.



Shaun Parker is a leading financial expert with many years of experience in the banking industry. Find out more about Dragon's Den at http://www.applied.uk.com

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On The Bailout Bill To Save The Housing And Financial Markets

On The Bailout Bill To Save The Houisng And Financial Markets by Nick Adama

This past weekend, the philosopher kings from Congress and the Executive branch met in Washington with the high priests of finance from the Treasury Department and Federal Reserve to decide how best to transfer $700 billion from the American people to the financial firms which have spent the past few decades taking advantage of the American people. Despite nine out of ten people being against the bailing out of Wall Street, government bureaucrats met throughout the weekend to assure that a compromise would be reached and passed. The bill that these wise leaders came up with, named the Emergency Economic Stabilization Act of 2008, promises to propagandize voters into believing that legislators did not just capitulate to very nearly every single one of Secretary Paulson and Chairman Benanke's demands.

The propagandizing of the bill has already begun, with the Congressional Budget Office releasing a letter (PDF) outlining the major provisions of the Act. Upon reading the letter, it is striking how many times it is mentioned that the government will be able to recoup its expenditures of taxpayer money on the sale of the "valuable financial assets" it will be purchasing to bail out the banks. After all, how could the government lose money on these assets when the Wall Street firms that hold them now are going out of business by the day because of the perceived (lack of) value of the debt instruments?

Further, it has been widely publicized that Fed chairman Ben Bernanke has recommended the government buy these worthless assets at 100 of their face value and lie to the American people by telling them to expect a profit in the future.

But the CBO even admits that the present value of the assets the government is expected to purchase $700 billion worth of is unclear, let alone a future value at which they may be sold. And with future failures and more foreclosure across the nation, the value of the assets will drop even further. Wall Street is dumping its garbage on the American people and expecting them to pay for it, with the vague hope of an ambiguous profit sometime in the future. But the assets are illiquid because there is no value to them; if they had any worth, buyers would still be available.

The Act will create a Troubled Assets Relief Program (TARP) to cover (pun intended) private banks' losses from consumer credit backed securities. Although the primary assets to be purchased will be commercial and residential mortgage backed securities, the Treasury is authorized to purchase, insure, hold, and sell virtually any kind of financial instrument. "Under the TARP, the Secretary would have the authority... to purchase any financial asset at any price and to sell that asset for any price at any future date." From credit cards to car loans to subprime mortgages, banks can drop off any old defaulted security in exchange for cash from the Treasury department.

Another atrocious aspect of the bill is that this is not a one-time $700 billion appropriation; rather, the banking system will have a $700 billion line of credit directly with the American people. The Treasury can only have $700 billion of assets to hold at one time, but once it begins selling them, it can then purchase more delinquent garbage financial instruments up to the maximum again. As the CBO letter states, "The purchase price of all such assets outstanding at any one time could not exceed $700 billion (though cumulative gross purchases could exceed $700 billion as previously purchased assets are sold)."

Wall Street even benefits from the protections designed to prevent against asset price abuses. Banks that sold securities to the government would also have to provide warrants or senior debt instruments. But a warrant that allows the Treasury to buy company stock at fixed future price from a bankrupt firm is just as worthless as a CDO backed by subprime mortgages.

But the irresponsibility does not stop even there, as Wall Street is expected to insist on higher prices for its junk securities if it also provides warrants or senior debt instruments: "since the warrants or debt instruments would have value, Treasury would generally face higher prices because sellers would seek compensation for both the value of the troubled asset and the value of the warrant or debt instrument." This must be as opposed to the relative deal Treasury would receive if it just bought the worthless assets with no guarantees. Leave it to financial investment firms to require people to pay money for services that the people themselves are providing the firms.

There is also a thinly-veiled attempt by the government to provide a jobs creation program for out of work Wall Street bankers. As the CBO puts it, "the government would have to compensate the private asset managers hired by the Treasury. Those administrative costs are not included in the $700 billion limit on asset purchases." Private asset managers? Well, someone needs to be able to figure out how much to pay for the troubled assets -- why not hire the professionals who used to work at Bear Stearns or Lehman Brothers to consult with the government, right?

But the most important question is what is in the bill for homeowners, who have been hit the hardest by the collapse of the lending industry and the housing market? There is roughly part of one sentence in the letter mentioning homeowners, urging various buzzwords and voluntary participation. "Require the Secretary of the Treasury to take steps to maximize assistance for homeowners, including encouraging servicers of the underlying mortgages to take advantage of the Hope for Homeowners Program." If this could be termed absolutely worthless, it could at least not be expected to hurt foreclosure victims even more; but the Hope for Homeowners Act, like all government programs designed to address the housing crisis, only makes the situation worse.

It is little wonder that the vast, vast majority of people across the country are against this bailout of the wolves of Wall Street. These firms have already received nearly a trillion dollars in bailout money -- giving them trillions more and allowing them to unload toxic debt from their balance sheets is nothing more than the government's complicity in securities fraud. No one should support this bill, least of all congressmen and women who will be required to go back to their constituents and explain to them why Congress stole billions of dollars from the people to bail out the same firms impoverishing the communities which elected them to Congress.



Nick writes articles providing foreclosure advice to homeowners. Visit his site to read more about various solutions to save your home today: http://www.foreclosurefish.com/

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Chicken Little: The Economy is Falling!

Chicken Little: The Economy is Falling! by Robert M. Clinger III

Deteriorating economic conditions have policymakers in Washington, D.C. running around like Chicken Little. As a result of the perceived falling of the sky, these same policymakers are scrambling to come up with a fiscal stimulus plan which, coupled with aggressive monetary policy action by the Fed, is intended to stave off a recession and calm jittery financial markets. Whilst these initiatives are well-intentioned, these efforts are an exercise in futility. There is little, if anything, that can be done to stop the economic downturn that is in progress and that is coming.

There is little doubt the current economic downturn was caused by the deflating of the real estate bubble and the mortgage crisis. This caused the banking system to clam up and become more restrictive in lending. This began a chain reaction which sent a systemic shock throughout the economy, causing a credit crisis last summer that was particularly disruptive to financial institutions whose lending reluctance retarded liquidity and prompted some degree of panic in equity markets and in corporate boardrooms.

The Fed's actions in cutting the federal funds rate fifty basis points along with other policy actions in August was intended to build confidence and liquidity in the banking system and, perhaps, shore up struggling equity markets with a comforting "Bernanke put." Successive cuts along with the seventy-five basis point cut on January 22, 2008 were aimed at shoring up markets amid mounting turmoil and uncertainty over the magnitude and depth of the impact the housing contraction and mortgage crisis would ultimately have on the broader economy. Alas, the Fed's actions cannot possibly solve the banking crisis. This was a situation created by the banks that would only begin to be relieved by massive write-downs and massive capital infusions by foreign investors, namely Asians and Arabs, totaling in excess of $21 billion. To be sure, there is much more bloodletting to come at financial institutions who provided too much credit when interest rates were low with little apparent regard to attending risk of borrowers. The Fed shares a part of the blame for keeping rates much too low for much too long and in the process allowing the real estate bubble to inflate precipitously. The magnitude of this may ultimately be over $100 billion as derivatives are revalued in the process to reflect current fundamentals and counterparty risks are reassessed. And there is more revaluation to come in the real estate markets as prices adjust to reflect true fundamentals. This is all a painful process that cannot be avoided forever.

In addition to monetary policy action, policymakers now want to give taxpayers rebate cheques ranging from $300 to $1600 in hopes that these rebates will prompt consumers to continue spending and, thus, in the process revive the lagging economy. There is a problem with this. The federal government does not have this money to give away right now; we simply can't afford it. This will likely be funded through debt issuance. In all likelihood, either Asian or Arab investors will purchase this debt. Now we are in even more hock to these nations. And assuming consumers spend the money on goods produced in these foreign countries, the investors get their original money back! This hardly makes good sense. In addition, this fiscal stimulus does not address the mortgage crisis or rising consumer debt levels. More attention should be placed on financial responsibility and sound economic and financial decision-making by the government and individuals. To be sure, fiscal stimulus is good—but only at the right time. Throwing money at a problem, hoping it goes away, without addressing the fundamentals of the problem is wasteful and counterproductive.

But this is not to suggest that policymakers remain idle and twiddle their thumbs. To the contrary, action is needed. Now is the time to reassess the challenges facing the U.S. economy. A number of factors have resulted in the economy becoming less competitive. Wages are higher than in low cost countries. Manufacturing has moved overseas for cheaper labour. Government spending has grown dramatically. An entitlement program funding crisis looms. Corporate taxes are among the highest in the world. The tax code is complicated. Rather than the fiscal stimulus proposed, policymakers should consider making President Bush's tax cuts permanent, thereby eliminating a great and looming uncertainty. The limits on tax deferred contributions to retirement or 401k plans should be increased as a means of increasing savings. The corporate tax code should be reformed to make businesses domiciled here more competitive so that U.S. companies don't move offshore to avoid an onerous tax burden. The federal government should reduce spending so that debt levels do not increase significantly only to be further indebted to foreigners. Congress should give the President the line-item veto and restore pay-go rules as much as possible, even though this is difficult in times of war. Policymakers must begin the process of shifting to a consumption tax as opposed to an income tax so that taxation is equitable and so that even illegal aliens here pay their fair share of the burden. The Federal Reserve should increase the reserve requirements so that financial institutions are more judicious when it comes to lending depositors' money. This should help to avert another near financial system collapse which could, the next time, have more significant and more far reaching implications than the current situation.

Undoubtedly, policymakers are doing what they deem best. There is an old saying: The path to Hell is paved with good intentions. The Fed's efforts to cut rates and the policymakers' fiscal stimulus plan are aimed at helping avoid a recession or at least soften the impact. No one likes the thought of a recession, particularly in an election year. Recessions are not a necessarily bad phenomenon. All economies must undergo a cooling period. The longer and higher the rate of expansion, the sharper and deeper the cooling and contraction. These periods of cooling are healthy for an economy. They temper excess and help reign in moral hazards and excessive risk taking associated with speculative activity. They serve as a wake-up call to businesses, investors, and financial market participants.

But rushing to make fiscal and monetary policy decisions may only compound an already fragile situation. Now may be the time to show fiscal and policy restraint, even in the face of massive opposition. Fiscal stimulus and rate cuts won't help. The banks and mortgage market participants have to work this out for themselves. Shoring up their balance sheets with equity injections and write-downs is the only solution. Recent rate cuts or any further cuts may well be mistimed and prompt higher inflation in a period of lower growth. Sometimes it is best to bite the bullet and let matters sort themselves out. Hopefully, policymakers will show better financial decision making skill than thus far. Going too far may open an economic Pandora's box. Once that happens, the sky may really be falling.


Copyright (c) 2008 Robert M. Clinger III



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