Thursday, December 11, 2008

FREE MARKET FREE FALL

Jonathan Weil, Bloomberg - What's remarkable about the 14-page business plan that Chrysler Chief Executive Officer Robert Nardelli delivered to the Senate Banking Committee last week is how little information it contains.

The summary starts out with so much blather about how well managed and innovative Chrysler is, you might wonder why it needs a bailout. Nardelli blamed Chrysler's problems on the "perfect storm" of declining vehicle sales, the financial crisis and the global economic downturn -- as if the company were a finely tuned vessel before the waves unexpectedly kicked up.

He also provided some crystal-ball numbers for how much cash and sales Chrysler would have for the next few years, assuming it gets our money. He wrapped up with the usual doom-and-gloom threats if Congress doesn't buckle -- as much as "3 million in lost jobs" and "$400 billion in lost wages," etcetera.

Not once did Nardelli disclose any of the historical information found on a customary set of financial statements. There was nothing about total assets or liabilities, year-to-date losses or cash flows, let alone pesky details like deferred compensation that might be owed to Chrysler executives.

Nardelli did hand the committee's members a lengthier presentation, which he asked them to keep secret because it is "competitively sensitive and proprietary." If he wants to sink Chrysler's foreign competitors, perhaps he should encourage them to copy his company's plans.

A Chrysler spokeswoman, Shawn Morgan, confirmed that the secret package didn't include the company's financial statements, audited or otherwise. She said the reason Chrysler doesn't divulge such information, or the names of its board members, is "because we're a private company." A spokesman for Cerberus, Peter Duda, gave me a similar answer. When taxpayers rescue an outfit like Citigroup Inc., at least we know whom to blame.

Peter Whoriskey, Washington Post - The congressional panel overseeing the $700 billion economic rescue plan wants to know what banks have done with their allotments, whether the public is getting a fair return on those investments and what the Treasury Department is doing to help American families.

Ten questions, some of them implicitly criticizing the program, form the first report of the Congressional Oversight Panel for Economic Stabilization, which is expected to be released today.

"These are the tough questions that people all over the country are asking," said Elizabeth Warren, chairman of the panel and a law professor at Harvard University. . .

The questions in the report address basic issues, such as what Treasury officials believe is the root cause of the financial crisis, what the Treasury wants to achieve with the program and whether the program is stabilizing markets.

Other questions emphasize the fact that banks have been the major beneficiary of the program, while other groups have been left empty-handed.

For example, the report highlights the fact that while Congress told carmakers they would have to reform before they get federal aid, the Treasury did not require banks to present a viable business plan or to replace "failed" executives in order to receive money.

Likewise, it asks what steps the Treasury has taken to reduce foreclosures, and said the Treasury has an obligation to explain its reluctance to adopt a mortgage relief plan proposed by the Federal Deposit Insurance Corp.

"Why has Treasury not generally required financial institutions to engage in specific mortgage foreclosure mitigation plans as a condition of taxpayer funds?" the panel asked.

Nelson Lichtenstein & Christopher Phelps, CNN
The factory occupation by 200 workers at Republic Windows and Doors in Chicago, Illinois, recalls one of the most storied moments in American history, when thousands of Depression-era workers took over their own workplaces, seeking union recognition and better wages. The pivotal battle began on the morning of December 30, 1936, when shop activists shut down a General Motors factory in Flint, Michigan, to restore the jobs of three of their workmates fired by the company. . .

When GM agreed to recognize the United Automobile Workers, all sorts of workplaces, from dime stores to shoe shops, caught the spirit. Pie bakers, seamen and movie projector operators sat down. Even before Flint, there had been occupation strikes at Hormel in Austin, Minnesota; Goodyear in Akron, Ohio; and Bendix in South Bend, Indiana. As often as not, they won.

There are big differences between those events and the occupation at Republic Windows and Doors. The Chicago workers already have a union. They seek severance pay, not a raise. Theirs is a protest, not a strike. Rather than disrupt production, they refuse to vacate a closed plant. And their numbers are minuscule in comparison to the half-million American workers who sat down in 1936 and 1937.

Some of the underlying issues, however, are the same: preservation of jobs, economic fairness and the meaning of democracy itself. Even if this occupation is quickly settled, it has exposed perfidy and dramatized justice, as did the sit-downs of the 1930s.

Green Party leaders said that the incoming Obama Administration and Congress should take six major steps to reverse the financial meltdown and restore financial security for Americans. The steps include a Green public works program, aid for state and muncipal governments, expansion of mass transit, Single-Payer health care, a peace dividend gained by ending the occupations of Iraq and Afghanistan, and an end to the wasteful war on drugs.

American Monetary Institute - Congressman Dennis Kucinich of Ohio has introduced legislation requiring disclosure of the kind of information that would have made it much harder for the financiers to create the financial crisis in the first place. From the bill:

- The Board of Governors of the Federal Reserve System shall devise, calculate and publish a replacement for the discontinued M3 monetary statistic, in order to provide a transparent estimate of the nation's total money supply.

- The Board of Governors of the Federal Reserve System shall tabulate and publish a statistical description of the current distribution of wealth in the United States by quintile, including a further examination of the uppermost 1% sections by 0.1% each.

- The Board of Governors of the Federal Reserve System shall calculate and report to the Congress the total annual seigniorage interest income received by financial institutions as a result of their being allowed to create money in the form of the credit they extend above their own cash deposits or reserves prior to extending the loans.

- The Board of Governors of the Federal Reserve System shall calculate and publish semi-annually the loss or gain in economic output due to the deviation of the previous year's actual unemployment rate from the 4% level required by the Humphrey Hawkins Full Employment and Balanced Growth Act of 1978 (15 U.S.C. 3101 et seq.), including such loss or gain, in income by quintile.

- The Board of Governors of the Federal Reserve System shall develop a market-based estimate of the value of residential, corporate and publicly owned land and report figures.

- The Board of Governors of the Federal Reserve System shall make projections, in 10 year increments, of the net foreign debt, and estimate and report on the location of Federal reserve notes, by country and type of holder; including an estimate of lost notes.

- The Comptroller General shall conduct a full audit of the Federal reserve system in every year before a Presidential election year.

- The Board of Governors of the Federal Reserve System shall undertake the Survey of Consumer Finances every year.

- The Board of Governors of the Federal Reserve System shall publish a summary of total credit market debt, quarterly and annually.

Moon Over Alabama - Over the last four years, since the buyback boom began, from the fourth quarter of 2004 through the third quarter of 2008, companies in the S.&P. 500 showed:

Reported earnings: $2.42 trillion
Stock buybacks: $1.73 trillion
Dividends: $0.91 trillion
De-capitalization: $0.22 trillion

Over the last four years the S&P 500 companies did not invest one dime of their earnings into additional or new business or increased productivity. Instead they divested and gave $220 billion of their basic equity back to their shareholders.

This was an extremely shortsighted behavior. Sure, these companies used part of their revenue to replace depreciated capital expenditures (machinery and the like). But if anything was spend for additional research or new opportunities at all, it must have been financed by taking on additional debt. This debt will turn out to be poisonous in the downturn. . .

A stock buyback will lead to a rising stock price as it increases demand and lowers supply of that stock. Buybacks were just a simple way for greedy CEOs to increase their personal income at the cost of the long term validity of the business.

International Herald Tribune - Egbert Krumeich, manager of Artemis, the largest brothel in Berlin, said that the recession had helped dent revenue by 20 percent in November, which is usually peak season for the sex trade. Meanwhile, in Reno, Nevada, the multimillion-dollar Mustang Ranch recently laid off 30 percent of its staff, citing a decline in high-spending clients.

Robert Pear, NY Times - As jobless numbers reach levels not seen in 25 years, another crisis is unfolding for millions of people who lost their health insurance along with their jobs, joining the ranks of the uninsured. . . Most people are covered through the workplace, so when they lose their jobs, they lose their health benefits. On average, for each jobless worker who has lost insurance, at least one child or spouse covered under the same policy has also lost protection, public health experts said

Washington Post - Max Rameau delivers his sales pitch like a pro. "All tile floor!" he says during a recent showing. "And the living room, wow! It has great blinds."
But in nearly every other respect, he is unlike any real estate agent you've ever met. He is unshaven, drives a beat-up car and wears grungy cut-off sweat pants. He also breaks into the homes he shows. And his clients don't have a dime for a down payment.


Rameau is an activist who has been executing a bailout plan of his own around Miami's empty streets: He is helping homeless people illegally move into foreclosed homes. "We're matching homeless people with people-less homes," he said with a grin.

Rameau and a group of like-minded advocates formed Take Back the Land, which also helps the new "tenants" with secondhand furniture, cleaning supplies and yard upkeep. So far, he has moved six families into foreclosed homes and has nine on a waiting list. . .

NEW UNEMPLOYMENT CLAIMS HIGHEST SINCE 1982

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