Archive for May 2009

The GM Comic/Tragedy

May 30, 2009

The spiral of General Motors into Chapter 11 has been amazing to watch. When GM first announced last fall that it would seek Government assistance to tide it over until car sales picked up again, GM’s attitude was that their cash shortage was no big thing, it just needed a few billions and life could go on. When asked whether it had considered Chapter 11, Rick Wagoner, then GM’s CEO, emphatically said no, and added that Chapter 11 would terribly damage GM’s reputation and severely hurt future car sales. If there was any better snap shot of what type of corporate leadership had gotten GM into the hole it was in, Wagoner’s statements topped them all.

GM has combined arrogance and an unhealthy cozy relationship with Banks and the UAW.  This combination has prevented GM from seriously considering what a structured Chapter 11 might look like. It is not that there was insufficient evidence of what needed to be changed or what appropriate work rules and union contracts might look like. It was not unknown that retiree pensions and benefits were far more generous than those of retirees from like industries. And with respect to debt GM had incurred, quite willingly, it was well know what the quarterly dividend and periodic maturity demands were and how much cash they would require. Why didn’t GM go directly to Chapter 11?

Instead GM has allowed its name and situation to be dragged through the mud for 8 months or so, and by the absence of any plan showed the world that its control of its future shown clearly to be in the hands of others.

Now, ugly as it has been, all the GM stakeholders appear to be in position to take a significant haircut, either under the threat of Chapter 11 or if necessary, Chapter 11 itself.   And GM is set to become a smaller company. The big question is whether GM will be a smarter company, not in terms of designing and manufacturing automobiles, but in making sound business decisions.


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What’s Good for General Motors is Good for the Country…

May 29, 2009

Former GM Chairman Charlie Wilson is given attribution for the phrase “What’s good for General Motors is good for the Country” and whether that is exactly what he meant or not, it certainly stands for the way most General Motors top executives have been thinking for the past 50 years. The pending Chapter 11 bankruptcy of General Motors may be an omen of more events than one might think.

For the past 50 years the world’s greatest automobile company has frittered away its market share and reputation with an unending string of strategically flawed management decisions and an arrogance towards customers and the Government that would be hard to make up. To compound the problem, General Motors invested too often foolishly (Hughes Aircraft, Direct-TV, Saturn, Suzuki) as well as agreed to outrageous labor agreements and compensation packages for top executives. Steadily over the years their product superiority disappeared and shortly thereafter their market share began its decline and that continues still today. How is it possible that such an Industrial giant could not find a competent management team in 50 years and turn things around?

So the question might legitimately be raised that if bankruptcy is the medicine for GM, would bankruptcy also be in order for the US? Over the past 50 years, under leadership of both Parties, America’s share of manufacturing capacity (and market share of products produced by this capacity) has steadily dropped. You might be quick to point out that life has been quite good these past 50 years, so what is the problem? I would counter that life was pretty good for GM’s employees and stock holders during most of that 50 years too.

GM lost its way by not remembering why the corporation existed (to make vehicles people wanted to buy). GM compounded its problem by choosing to serve primarily the money masters and specifically the ones who wanted to see stock appreciation. The US lost its way sometime around the early 1950’s and instead of developing and emphasizing diplomacy, it chose espionage and when that faltered, military force. Bay of Pigs, Vietnam, the Gulf War, and the invasion and occupation of Iraq were all expensive and unnecessary ventures (like buying Hummer or Saab) where the lost opportunity cost was tremendous. The US has a national mind set that we can borrow forever to meet our life style. This has been drummed into us by the example our national Government has set. Borrowing to invest may make sense, borrowing to consume is the fast tract to bankruptcy.  Underlying these unbalanced budgets (that funded wars and the good life), was a political system too susceptible to money interests.

President Obama has set forth a set of goals that are game changers to the American Way we have come to know over the past 50 years. Obama wants to change healthcare, stimulate education, and narrow the widening gap between the rich and the poor. While I support these initiatives they too will fail if President Obama does not convince Americans that these changes must be paid for. If he takes the political expedient route and borrows the money, he will be hastening the day of reckoning and national bankruptcy.

Recovery or A Dead Cat Bounce?

May 28, 2009

President Obama said yesterday that there were definite signs that the economy was showing signs of recovery. This is great news if it is true. It could also be analogous to a cat dropped from a 50 story building. You may think the cat has nine lives when after it hits the ground you immediately see it bounce up again, but in reality the cat is dead.

The answer to this question, of course, lies in the weeks and months ahead. Everyday a little more pent up demand is accumulating and in time consumers are going to return to retail and big box stores in droves. There is another important factor necessary for the return of consumer spending. That is confidence in the President.

Confidence is not simply liking President Obama, but rather it is the feeling that President Obama (and his Administration) will act in a way that is predictable (and not a surprise) and is generally going in the right direction. Most Americans (moderates and progressives) are becoming more convinced President Obama is getting it right on many different topics many more times than not.

For example, President Obama’s pick for the Supreme Court, Sonia Sotomayor, strikes most people as a sound decision. Most again being those who call themselves moderate or progressive. For the conservative faction this nomination will be a test as to what kind of opposition campaign they will mount. The early tactic has been “she is a racist” but that is unlikely to get much traction. Sooner or later the conservatives will open the cage door and let their pro-life dogs out. This tactic too will fall on deaf ears.  Instead the argument of looking at judicial candidates on the totality of their work is making more sense to more people.

It is my sense that the economic collapse has bottomed out and will be visibly recovering towards the end of 2009. The big questions for the Obama Administration are what policies will sustain the recovery and fuel new growth. At the end of the day, it is jobs, jobs, jobs. Science, engineering, and math can continuously drive productivity and innovation, and as a consequence, help make a large fraction of those jobs, high paying good jobs again.

Speak Softly

May 27, 2009

North Korea is either the victim of very more translations of the leaders’ speeches or they are plain dysfunctional. North Korea is a dirt poor country surrounding by relatively rich, and comparatively open societies (China, South Korea, and Japan). What is it about life in general that they do not get?

So this weekend, North Korea chose to detonate another nuclear device only weeks following their test launch of an ICBM. Their citizens starve while their Government squanders millions on “defensive” weapons with no practical purpose. Some experts say that North Korea’s behavior represents the effects of internal political struggles where the successor of Kim Jong Il is being debated. While that may be true, North Korea has in the past been implicated in the export of nuclear technology and materials. For North Korea, the detonation and missile launch are effective advertising and sale of this know-how represents a source of hard currency. Business is business.

Former UN Ambassador John Bolton lives for situations such as this. A bad acting North Korea allows Bolton to mount his high horse and deliver great speeches that threaten North Korea with practically annihilation. Bolton the patriot, Bolton the chicken hawk, ready to send other people’s children to war, always ready and waiting for North Korea.

Fortunately this time around there is a new Administration that does not follow the whistle of the neoconservatives. President Obama may not be fully ready for this flare up but he has his pieces almost in position. South Korea has now signed the International Agreement that provides for boarding vessels in International waters that are suspected of carrying nuclear contraband. China is not at all pleased with North Korea’s behavior and Japan is quite worried that the crazies in North Korea may think it is “pay back time” for Japan.  International cooperation seems possible, so what should President Obama do?

In my opinion, President Obama should do nothing publicly. He should instruct his Secretary of State to plan (behind the public spotlight) with China steps to cut off land supply of materials useful for weapons production and limit food and humanitarian land imports to cash payments. All ships leaving North Korea should be followed and if nuclear contraband is suspect, they should be boarded. The US should give China absolute assurance that it will neither interfere with North Korea’s internal politics nor will it support unilateral military force against North Korea. The US need not waste its time with direct talks with North Korea but rather deal with its behavior through the good offices of North Korea’s neighbors. North Korea is a threat to its neighbors far more than the US.  Taking the US sail out of North Korea’s wind is the right move at this time.

Senator Bluster or Senator Snarl?

May 26, 2009

President Obama is set to announce this week (probably today) his nominee for the Supreme Court to replace retiring Justice David Souter. Regardless of his choice, you can go to the bank that his selection will not resemble Justices Alito or Roberts except as intelligent and accomplished jurists. Most probably Obama’s selection will tilt as far to the left as Roberts and Alito do to the right. What else would you expect.

A fully expected side show should provide entertainment for political junkies in the weeks ahead. With tempers growing shorter as the summer recess approaches, it will be interesting and possibly instructive to see what the nature of Republican opposition will be. Will Senator Bluster pontificate about activist judges while expressing admiration for the candidate’s accomplishments or heritage? Or, will Senator Snarl, representing the far more conservative wing of the Party, speak in apocalyptic terms and attribute nothing but the destruction of America as we know it to Obama’s nominee? And potentially more dangerous, Senator Snarl could lead his side to try a filibuster and cause the Democratic majority to use its majority (still less than 60 votes) to break the deadlock. In such a show down, all the Senator Blusters could join the dysfunctional Senator Snarls and really show the American public how not to run the Congress.

There is nothing wrong, and probably something good about a Supreme Court with a few Justices like Alito, Roberts, Scalia, and Thomas. The problem is that these Justices represent already too many and an extremely narrow (but strong) view of the Constitution, and as such do not represent the mainstream interests of Americans. Keeping the Court balanced and non-sectarian in their opinions is vitally important to all Americans.  Let the games begin.


What’s Wrong With The Republican Party?

May 25, 2009

Tom Ridge and Colin Powell think the Republican Party is too “shrill” and far too much to the right (where ever that is), and as a result has become a regional and not a national Party. Powell and Ridge, both known as moderates, believe the Republican Party needs to reach out and become more inclusive. That is a tall order and I wonder whether it alone is enough?

Beginning with the election of Bill Clinton, there have simply been more Democratic voters than Republican due largely to urban demographics and in part to an out of date Republican Agenda (with the end of the cold war, why do we need a strong defense, for example). In 2000, however, the GOP, chose to make a deal with the devil. They pandered to, and made promises to, the evangelicals and fundamentalists in exchange for their votes. The GOP consciously chose to mix church and state in direct conflict with the Constitution they so publicly cling to. The GOP rode the hubris of the extremely narrow 2000 victory as if it had been a national mandate for hate, division, and favoritism. In 2004, Republicans again won the White House by doing more of the same. The $ 64,000 question is, could John McCain have won in 2008 had George W Bush not be such a complete cock up as President? Could a sound and productive Republican Administration for 8 years have resulted in Americans voting them another 4?

So, now the Republicans are out. They are seen widely as a Party that can not run the rail road. For many people (maybe even most), there is a bad taste in their mouths over the fruits of the Bush Administration such as the invasion and occupation of Iraq, Abu Ghraib, waterboarding, Guantanamo, Katrina, Terri Shiavo, Roberts and Alito, and the enormous self inflicted melt down of the economy.

For starters, it will not help the GOP to continue to pander to the likes of religious leaders or anti gay or Mexican worker spokespeople. It will also help to stop listening to Rush Limbaugh and Karl Rove. And best of all, it will help to seek candidates who can lead in an inclusive way and who champion the raising of all boats. Like it or not, the Country needs a huge dose of moderation and pragmatism. We are living in a globalized world and we either must learn to do this well (without military force) or the world will pass us by.

We need a healthy and productive second national party. A good spirited GOP will bring out the best from the Democrats and all Americans will benefit. If for no other reason than our Country’s path the past 8 years, we need a fresh new GOP and a fresh new approach to governance.  I wonder whether they are speaking so shrill that they can not “see” the opportunity.

Irish Eyes Are…

May 24, 2009

Irish eyes are not smiling right now. They are a bit hazed over with disbelief, shock, and sadness that a “few bad apples” was in fact a lie. The Irish are sobering up to an Irish Government report that chronicles the enormous size and scope of child abuse gratuitously doled out by the Roman Catholic good fathers, brothers, and sisters to the Irish youth, most of whom were already society’s victims and who were residents in Government orphanages and schools.

Ireland has suffered as much as any country during the current global financial melt down. So, imagine how the good citizens feel knowing that their Government has paid out almost $ 2 billion to the victims of the abuse. While the emotional scars can not be erased with money, it never the less is due the victims in order to recognize their assaults and the lack of responsible oversight.

Irish eyes, however, need to open wider, and really search to understand the scope of this tragedy. Over and above the disrespect for those less able to take care of themselves by those who profess to be there to shepherd the flock, there is the matter of dollars and cents (or euros to be more precise). The $ 2 billion is being paid by the Irish Government mostly and the total is far greater than $ 200 million paid for by the church. Why you might ask? The answer is called a plea bargain. The Catholic Church entered an agreement when the first cases came to light a decade ago and capped their liability at what they claimed was more than enough since these cases were isolated and the result of a few bad apples. Time has shown quite the opposite. The Catholic Church paid its $ 200 million by paying roughly half in cash and the remain half in church property.

Now think about this in terms of what happens to other organizations that owe more than they can pay. Like GM, these organizations must meet with their stakeholders and negotiate a route to reorganization. I would think that the Irish could be miles ahead by insisting on married priests as well as full fledged woman priests as a starter. I would follow up with a new civilian board of directors with an independent chief financial officer who has no ministry responsibilities. Donations would be restricted to use in Ireland unless specifically solicited from the faithful with the understanding the ultimate destination was Rome. Lastly, there would be a strict covenant that prohibits the church from making any public statements dealing with matters of the State. Of course the Catholic Church could object and under such circumstances, it should be broken up and sold off just as any other defunct business would.