But it’s ok, because he’s a liberal.

Michael Lind in his recent article argues that the South is rising up again, this time in an economic civil war against the North. My first reaction was to think, “Well, at least he didn’t call us Nazi’s”. That’s progress. But because of the North-South divide of the auto bailout, yeah, the Civil War analogy is the nearest weapon at hand.

It’s hard to know where to begin with this intellectually lazy piece, but let’s start with the “race-to-the-bottom” business. Lind describes Southern strategies for employment as a “race to the bottom” by providing a low tax environment and cheaper labor. Labor was cheap in the South in the early part of the century for a simple reason, they didn’t have any jobs. In the thirties, what Lind and other talking heads would refer to as, “the glory days”, if a Southerner wanted to get a good wage job and didn’t come from the right family or own enough property, there was one good option…move North. That is, until the Tennessee Valley Authority handed out shovels for us to lean on. This is the model to which Lind wants to revert. When he says more money will flow from Blue states to Red States, he means that more government jobs must be created. You know, more road projects and more ditches dug, and more Southerners leaning on shovels.

Toyota is now edging GM in terms of market share. Japanese and German cars are superior to American cars in every division except trucks, and even trucks are close. the Toyota Prius has been around for 11 years and has been running rings around the Little Three with 40% of the hybrid market share. Building Toyotas, Hondas, and BMWs provide good jobs at $50/hr. These well paid blue collar jobs go to American citizens who pay taxes into the the system, but Lind naturally thinks that Southerners daring to get off the government teat while producing superior products that Americans actually want to buy is a race to the bottom.

Foreign car companies have been eroding away at market share for decades. The economic model of the Little Three is a failure, as demonstrated by the fact that they need a bailout despite a half century of a near oligopoly in the largest market in the world. A legacy of hostile relations between management and employees, and a top down, inefficient distribution model, and an incomprehensible groupthink preventing investment in smaller model fuel efficient vehicles are the culprits of the Little three’s downfall, not some Souther Senators. Even supporters of the auto bailout concede that bankruptcy is inevitable, they just feel that the bailout is a good jobs program. I’ve stated my ambivalence to allowing the American auto industry to go bankrupt while shoveling money into institutions like AIG making a profit on the deal, but the near consensus that these companies will come back for more, and soon, and the few concessions were made by the industry leads me to believe that the only way to innovate the American auto industry is to broker a bankruptcy. As with many tough decisions, Bush kicked the can down the road. Thankfully he bailed out a failing industry, for which he will get minimal credit, only after the GOP burned their bridges in the midwest. Politically, this kind of passive leadership is a disaster for the GOP.

There are a lot of other things wrong with this piece, but I’ll add two quick points. A raise in the minimum wage would not directly affect auto workers making well over minimum wage. But it would increase unemployment levels for a decade, similar to the glory days of the 1930s. Also, and this is a caveat that should be added to any article criticizing the flow of tax money from blue states to the South, is that states like Louisiana, Mississippi, and Virginia have a lot of blacks, and blacks use public services to a much larger degree than other groups. What they need in this country is a job, and if that job is at Wal-Mart or at a BMW plant, it is better than a TVA job, because that is the only option. Ford would rather build a plant in Brazil than build in the south, with right-to-work laws in place. Also, if Lind wants stronger unions he should get on board with a majority of Americans and support shipping illegal immigrants back to their home country so negotiations between management and labor won’t be undermined by cheap, quasi-legal labor. Perhaps he can dig up some old Mexican war related analogies.

This came in from the Coach

A Japanese company (Toyota) and an American company (GM)
decided to have a canoe race on the Missouri River. Both teams
practiced long and hard to reach their peak performance before
the race.

On the big day, the Japanese won by an entire mile.

The Americans, very discouraged and depressed, decided to
investigate the reason for the crushing defeat. A management team
made up of senior management was formed to investigate and
recommend appropriate action.

Their conclusion was the Japanese had 8 people rowing and 1 person
steering, while the American team had 8 people steering and 1 person
rowing.

Feeling a deeper study was in order, American management hired a
consulting company and paid them a large amount of money for a
second opinion.

They advised, of course, that too many people were steering the boat,
while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent
another loss to the Japanese, the rowing team’s management structure
was totally reorganized to 4 steering supervisors, 3 area steering superintendents, and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the
1 person rowing the boat greater incentive to work harder. It was called
the ‘Rowing Team Quality First Program,’ with meetings, dinners, and
free pens for the rower. There was discussion of getting new paddles,
canoes, and other equipment, extra vacation days for practices and bonuses.

The next year the Japanese won by TWO miles.

Humiliated, the American management laid off the rower for poor
performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved
was distributed to the Senior Executives as bonuses and the next year’s
racing team was out-sourced to India .

Sadly………….. The End.

Here’s something else to think about:

GM has spent the last thirty years moving
all its factories out of the US , claiming
they can’t make money paying American wages.

TOYOTA has spent the last thirty years building more than a dozen plants inside
the US .

The last quarter’s results?

TOYOTA makes 4 billion in profits while
GM racked up 9 billion in losses.

GM folks are still scratching their heads.

IT’D BE EVEN FUNNIER IF IT WEREN’T TRUE

Now, on principle, I’m against bailing out any industry that isn’t viable in the marketplace.  I agree with Senator Shelby, who debated the auto bailout with Barney Frank recently on Charlie Rose.  He said the US government should not be in charge of picking winners and losers in the marketplace, essentially.  Shelby stood by his principles and voted against the bank bailout as well.  But this weekend (notice it is always the weekend, while the football games are on) the congress made significant “progress” in the passing the auto bailout.  The details of this story are worth parsing.  For background, considering watching the Richard Shelby-Barney Frank debate on Charlie Rose.

This all has horrible roots in the bank bailout.  The banks were given a blank check by Ben Bernanke and Henry Paulsen with the intention that they would keep the credit pump primed.  Well, the banks responded by either sitting on the cash, or worse, doubling down on credit default swaps.  At least, the big banks are not lending to the auto industry.  So, now the car companies come hat in hand for credit from the government.  The congress already issued $25 Billion in loans to the auto industry earlier this autumn to pay for converting cars to hybrids.  Now, Nancy Pelosi and the San Francisco wing of the democratic party was wanting to take money out of the TARP funds to pay for the auto bailout.  Now, the $700 billion of TARP funds is already a done deal, and the $25 billion for the auto companies is a done deal.  Conservatives like me can only whine and complain at this point.  Marginally, it is a small victory that Pelosi had to take money out of the hybrid fund to pay for viability of the industry it is designed for.  I mean, if there is no one building American vehicles, who will Pelosi and Waxman browbeat into making cheap shoddy cars no one wants?  So, the attempt at taking money out of the TARP fund was a noble one, but as you can see the government must never renegue it’s commitment to those most holy financial institutions…it’s easy to see who holds the cards here, and it ain’t Joe the car-manufacturer and last in line is Joe the Taxpayer.

Another wrinkle in the story is that many, many credit default swaps have been bought on GM in the last year.  Someone is standing to make a big profit if GM goes bankrupt.  Consider this blurb:

The rapid increase in the price of GM CDSs this year, coupled with the decrease in notional amount outstanding, implies that sellers of protection have been buying up protection in the over-the-counter market, presumably to set off against their sales of protection. The AIGs and Citigroups of the world are the sellers of protection, and they’re busy sending money to the buyers of protection, both directly through purchases of gambling CDSs and indirectly through posting collateral for their sins. And we all know where that money is coming from: Henry Paulson and Ben Bernanke. If the bailout comes, and the bankruptcy doesn’t, the prices of GM CDSs will fall quickly. The recent purchasers will be hurt, and maybe that will include AIG and Citi.

So, the average Joe might want to ask if this a fight between automakers and taxpayers or a fight between automakers and banks, and then decide who they will support.

Funny how if you bet on failure enough, it becomes a self-fulfilling prophecy. Former bankers in our treasury and in our federal reserve have sold out our financial sovereignty in order to honor their most important commitments, to pay out on credit default swaps. So many rules have been broken in the last few months in order to “save our economy”. What harm would it do to our economy if all of the individuals and institutions that gambled in an attempt to profit on the failure of the American economy, with no stake in our success, were told, “No, you cannot have it”?

Listen to Nassim Taleb, my friends. Cash out your “moderately risky investments” now and buy gold or real estate, or a safe at your house. Too many people at the top, in charge of printing money and setting interest rates, are too cozy with too many people betting on our failure for this economic problem to end soon, or prettily.

A friend told me he met a colleague who insisted he was a libertarian. I bet in 2004 a lot of these guys weren’t saying how libertarian they were…

This was my rant to him on Libertarians and the bailout:

Libertarians are republicans who like to smoke pot.

That’s an old joke.

I voted for McCain and my GOP congressman, but not my Senator, since he voted for the bailout. Soon Kay Bailey Hutchinson, my other senator, will be running for governor. I will be voting against her as well. I hate not being listened to. I wrote and called both senators and my representative against the bailout and received a letter in the mail from my representative. That was pretty cool.

I voted for the libertarians on every other election. Much to my chagrin, most of the democrats won local judge elections as 2-3% voted libertarian in each election. The breakdown was 51-Dem, 49-GOP, 2 Libertarian. That is the way it breaks down when you vote libertarian. My county has had mostly GOP judges forever and that is good b/c they keep the criminals in jail, where they belong.

The sad thing about these elections is that good, smart Senators like John Sununu lost their seat whereas jerks like Ted Stevens win (they are still counting, slowly, the votes in Alaska. The best scenario is he wins and steps down and Sarah Palin nominates a new face).

But this isn’t only a GOP problem. Look at Chicago and New Jersey and see what happens when one party dominates.

The longer this thing goes on the more it becomes apparent the current crisis is due to a lack of transparency and encouraging bubblicious conditions. Sadly, everyone thinks the solution is encouraging more reckless behavior, encouraging yet another bubble, especially now that Obama is taking office. The first thing Obama will do when president is bailout GM, etc., which is corporate welfare at it’s worst, on principle even worse than the current bailout, and not change for the better. We were told that these banks needed 700 billion just to keep afloat and the signal now is that, well, now that we have this money in hand we can use it for helping this industry, which votes democrat (Michigan) and especiallly backed Obama. So I guess we really didn’t need all that money for greasing the wheels at the banks, then, right? Any argument made for the auto industry could apply to Starbucks, or Sun Microsystems, and to some extent American Express. But choosing which industry to save seems rather arbitrary at this point, and is not what gov’t does best. Over 20 American car manufacturers have gone out of business, I don’t see why all of the sudden gov’t has to start bailing them out. If GM can’t make a profit selling 9 million cars a year this is a systemic problem that a few billion free dollars won’t solve. Let them all declare bankruptcy, merge, and renegotiate their terms with the UAW and their creditors. The US auto stocks are now trading at 2$ so I don’t know think most shareholders will just have to eat it at this point. Remember that most execs are compensated mostly with stocks, most of which in their company so their holdings are now zero. So if you let them fail it is much worse on them financially, and much truer to the way a free market operates, than to bail them out and then go through the kangaroo court process of demanding limits on their compensation.