Debunking Democratic Scare Tactic

November 19, 2008 13:46 by johnolimbo

http://economix.blogs.nytimes.com/2008/11/17/how-many-jobs-depend-on-the-big-three/

1 in 10 jobs won't evaporate if the "big" 3 go under.


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Call your Reps and tell them don't vote for auto-bailout

November 18, 2008 13:01 by johnolimbo

Why you should oppose an auto-sector bailout.

1)      The big 3 could have been competitive, and should have been competitive but they aren’t.  Other car manufacturers in America are competitive like BMW, Toyota, Honda, etc.  Let’s look at why:

a.       The Big 3 labor costs don't allow them to compete. 

This graph is curtousy of Dr. Mark Perry of Carpe Diem….  Why are the labor costs so high for the big three?   Ladies and gentlemen get to know your UAW – the United of Auto Workers.  They make car prices higher, cause GM to lose profits, and have handcuffed the direction the big 3 needs to take to advance.  The UAW don’t work in the Toyota plants, or the BMW plants, or the Honda or Nissan plants.  Now I have a question for y’all?  Who produces better quality cars with high resale value?  The automakers who deal with the UAW, the union who is supposed to make great cars, or Toyota, Honda… et al?  We all know the answer to that one – and that was just one of the many reasons my wife and I bought and LOVE our Toyota Rav 4.  (First “foreign” car she purchased – Starla is a recovering Chevyholic.)

b.      Business Model of big 3 was terrible.  Let me first say that the union didn’t help.  It wasn’t solely the Big 3’s fault that they couldn’t produce small fuel efficient cars without losing money on each car produced.  Yes that’s right… losing money almost $870.00 per car produced.  The smaller and cheaper the car produced the larger the loss for the auto’s.  The big 3 rely on profits from big gas guzzlers, and big gas guzzling expensive cars, trucks and SUVs.  Only too late did they change their business strategy to shift towards a smaller fleet.  And even then they keep losing market share.  Again – the quality of their competition > their quality.  But most importantly while other auto-makers either went fuel-efficient and bang-for-your-buck i.e. Toyota, and/or specialty high quality luxurious vehicles ala BMW + Mercedes, GM didn’t adapt to the market.  They failed.  They didn’t produce enough small cars fast, they didn’t create cars that would retain their market share… to pardon an analogy but they tried to be a jack of all trades, in a market where individuals demand did not support that strategy.  And btw – they’ve been dying for years.

c.       Their management fought the UAW too little too late and the UAW still pays at least 12,000 workers not to work via job banks.   At 73.29 dollars an hour that is a yearly cost of $1,829,318,400.00 to pay workers not to work.  Yes last year the UAW and the Big 3 talked and the UAW made some significant cuts – but even in 2010 (when the majority of cuts go into play and avg. compensation supposedly goes to 50.50 an hour) they won’t be competitive as they will be at least $3-10 dollars more expensive than non union labor. 

d.      Why reward a mass failure?  They are going to take your money – keep prices high, keep producing cars no one wants… why bail them out?

e.      For those worried about the job losses… here’s the deal – what’s worse… keeping inefficient companies alive whose jobs are either unproductive or inefficient (yep used it twice) and who will need more and more and more and more of our money later because they run a LARGE crappy business that happens to also provide jobs in other sectors dependent on their perpetual failure?  Also – Chapter 11 doesn’t mean they go byebye forever!  They get to restructure their contracts, which means they can get out of bad contracts with labor, parts suppliers etc.  If they don’t come out Chapter 11 (a possibility albeit imo a small one) then the other US auto industries who are foreign owned will increase production and save the former big 3 suppliers.  Job losses will occur, but not be as catastrophic as some shrill econ forecasters have predicted.

f.        A bailout of the Big 3 is a bailout of the UAW and corporate management all of whom have been terrible.  Do they deserve our tax dollars?  Not a chance.

        

 


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Citigroup....

November 15, 2008 08:19 by johnolimbo

http://finance.yahoo.com/news/Citigroup-to-cut-10-percent-rb-13584125.html

Let the contraction continue...


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Categories: General | The Economy
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More evidence that my generation is completely and totally screwed!

November 12, 2008 20:14 by johnolimbo

http://www.forbes.com/home/2008/11/12/paulson-bernanke-fed-biz-wall-cx_lm_1112bailout.html

http://www.cnbc.com/id/27641538

Article 1 says we've committed 5 trillion to the bailout, article 2 says the US might lose its AAA rating on our debt.  Who wants to buy our crappy T-bills anyway?  And furthermore my generation is getting stuck with this tab.  We're going to have to pay this, entitlement programs and rising costs for our children.  Our political parties and government have FAILED us.  And yet they worship Obama who is a pawn of the AARP and the entitlement generations.  McCain wasn't much better... 6.5% budget deficit of GDP per year, what a crock.  I'm so angry right now... so angry.  Wake up young people wake up!  We're in a lot of trouble.


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Step 2 Global Warming

November 11, 2008 17:56 by johnolimbo

Global warming: We need to stop covering our ears and ignoring scientists.  Yes, quite possible we’re in a period of global cooling until 2015 and maybe some indicators (certain satellites) have not supplied evidence for global warming…yet.  However the public not only has accepted global warming but most want the government to do something about it.  Going against academics/science is not going to help us make any inroads with moderates and educated conservatives who would rather vote for pragmatists like Obama than dinosaurs like say 2008 Palin (she still could see the light).  I agree with the Mankiw approach of applying Pigouvian taxes to carbon and other chemical/atomic/molecular offenders.  We can use the income from the global warming tax to apply more individual tax cuts and corporate tax cuts.  You want taxes that provide good incentives such as reduction of pollution, not negative incentives such as on hard work via income tax.  Now I believe an unintended consequence of this act will be an increase in green technology.  This technology might be applied to the rest of the private sector to make us more efficient.  And you never know how technology impacts other sectors – one man’s worthless piece of inventive junk might revolutionize another industry.  We need to educate people on why higher gas prices aren’t such a bad thing.  They pay a higher cost on gas but if we reduce corporate income tax they will receive some of the $3,200 dollars they pay a year in CIT (that they never see).  Idea #4 is going to be educate the public on economics.  Part of this plan involves #4.  Idea #3 is energy policy.  Idea #3 next.


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Explaining CDS

November 7, 2008 11:44 by johnolimbo

From my class notes in Computers 1305... by notes I mean I was talking to my buddy Juan.  Juan is a brilliant republican but didn't quite understand the Credit Default Swap system that imo required the bailout.  I told him our corporate infrastructure was set up like dominoes in a line.  If one fell they very well all could/would fail.  Not necessarily for actual losses either more likely for accounting losses and write downs.  See Businomics for a good understanding of it.  After you read his then you can read mine.  Or you can just read mine and if it doesn't make a whole lot of sense read his and come back.  http://businomics.typepad.com/     http://businomics.typepad.com/businomics_blog/2008/11/credit-default-swaps-what-went-wrong-with-cds.html     http://businomics.typepad.com/businomics_blog/2008/11/credit-default-swaps-a-simple-explanation-of-cds.html 

OK so with the CDS’s… and why I think you needed to bail out money: The reason I said dominoes is this: CDS are third parties… but since almost every major financial and non financial institution engaged in CDS’s then it was a systemic risk.  Basically a CDS was just a bet if someone could pay their debt.  If they are in debt 40-1 because of leverage and investments not working out in the medium run then this gets to be disastrous… for example General Motors AC acted as a third party and got into the CDS market.  Because CDS’s are priced by what the market is trading them for if the market suddenly stops trading them or trades them for a low amount than even though you might not have to pay the other parties debt because your bet failed you STILL have to put up collateral capital (Switch order) to satisfy the lower value (on your books) of the CDS.  Since the CDS’s were systemic and everyone was a third party to everyone if someone fell than two things happen: Third party CDS holders now have to pay the debt of the bankrupt corporation, 2) the CDS values of everyone get lower and in particular the CDS values of the companies who just had to pay the debt of the bankrupt companies.  See how this will be a negative destructive cycle?  Because of consequences 1 and 2 that the market and accounting requires more companies will go bankrupt!  It’s like dominoes.

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