Wednesday, November 19, 2008

Senate Auto Hearings


I spent the better part of the afternoon watching the Senate hearing with the "Big 3" auto executives... Messrs. Mulally, Nardelli and Wagoner... plus the UAW's Ron Gettelfinger, making their case for money, while Peter Morici, a business professor at the University of Maryland, played devil's advocate for bankruptcy.

I believe it was professor Morici who pointed out that it was basically the American companies [that were hindered by our government's failure to address currency manipulation and treaty violations] versus a combination of foreign countries and their national companies that work as one.
For the most part, the meeting was cordial on the surface. Rick Wagoner seemed a little uncomfortable at times in his role and got a little testy with Sen. Corker from Tennessee. Alan Mulally was a bit reluctant to divulge what he felt was "proprietary" financial information at one point, but was otherwise comfortable and cooperative. Robert Nardelli was properly humble, but very professional.

The senators had their own agendas. Sen. Dodd seemed to be an advocate for the companies although he had his obligatory pronouncements about the "bad old days" of the auto industry fighting Congress. He was not that open to the idea of bankruptcy and even praised the auto industry for paying UAW workers 95% of their normal pay when plants were shut down for extended times... a point that Sen. Corker found objectionable.

Sen. Shelby from Alabama had no problem with the idea of the American companies going bankrupt. Why loan money to those companies when only a few million jobs may be affected? After all, those companies should have known the financial network was going to require saving and should have done something about it. He didn't seem impressed by the massive restructuring and contract renegotiations with the UAW that have occurred over the past five years.
If the federal government had done the same thing over the past five years, we'd all get a huge tax break... but that's another story.
Sen. Tester from Montana brought the good old farmer shtick and wondered why there hadn't been big improvements in the fuel economy of big pickup trucks. Mr. Mulally offered to provide information about the improvements. Sen. Bennett from Utah played the wise old philosopher who talked about how "patient public money" was needed now that impatient private money was in short supply... but wanted assurances that it was going to be used well and repaid.

Sen. Casey from Pennsylvania reminisced about the steel industry demise and how important it was to not let the industrial base get clobbered again... and lose all of the associated jobs. He did like the idea of pushing the green agenda.

The three executives were not very receptive to increasing the CAFE standards that were just agreed to citing the fact that they were already "stretch" objectives and based on some iffy technology implementation.

The upshot was that Sen. Dodd thought that while the money was truly needed, he didn't have much confidence that it would be available until the next session of Congress. Messrs. Nardelli and Wagoner testified that they could well run out of money by the end of the year, while Mr. Mulally said Ford might be able to handle things through 2009 unless the economy worsened significantly.

The executives made their case. The senators listened and made their personal positions known... some in support and some quite skeptical. Let's just say that I would not like to be Mr. Nardelli or Mr. Wagoner right now. Mr. Mulally has a little more flexibility because, under his leadership for just two years, Ford did a whole lot better preparation for the worst... which has arrived.

Sen. Levin from Michigan indicated earlier that the auto executives should be willing to leave the companies in exchange for the aid.
Sen. Levin has conveniently forgotten that when the federal government fails in running within budget and economic constraints... as it does frequently when legislating pet projects... that it simply prints more money... something that automobile executives cannot do. Perhaps all of those government "executives" should be willing to resign.
Let's hope that other senators have more common sense. Alan Mulally at Ford, for one, has turned an impossible situation into a possible one... and that's something I'm certain the honorable senator from Michigan could not have done in his place.
CSPAN had the 4 hours of video on their site and it may still be there.

Struggling Auto Industry


Auto executives from GM, Ford and Chrysler testify on the challenges facing their companies and ways to stabilize & strengthen the industry at a Senate Banking hearing. Chairman ChrisDodd (D-CT) has been a supporter of giving some of the $700 billion Federal Intervention funds to help the automobile industry.


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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

About Me

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)