02.25.09

Bigger Is Brokener: The Economy

Posted in Economy at 06:08 by lnxwalt

Stocks up on Bernanke remarks; focus now on Obama – Yahoo! Finance

Bernanke told Congress on Tuesday the recession might end this year, and that regulators aren’t planning to nationalize banks. The news alleviated some of investors’ worries about the economy and the banking industry, and lifted the Dow Jones industrial average and Standard & Poor’s 500 index off their lowest levels since 1997

The recession might end this year. True, it might. Or it might end in 2020. Personally, watching the way the government is still trying to bail out the bankers, I expect extended pain–on the order of years, not months–but I am not an economist nor a psychic. In other words, I could very easily be wrong, wrong, wrong.

What we do know, however, is that the increased size of our financial institutions and the dramatic increases in the quantity of funds that moved through them made everything they did more risky, not in the sense of increasing the chances of any particular outcome, but in the sense of making negative outcomes, like positive ones, much more intense than they would otherwise have been.

Big increases the danger to innocent bystanders. When big banks, big investment banks, and big insurance companies make big bets with lots of money involved, mistakes hurt everyone. Wnen my granddaughter, Vi, is thirty, we just may have finally paid off all the funds we borrowed to keep the big, mismanaged banks in business. She’s 11/2 now.

The hope of America is not a particular politician, no matter what his ancestry, no matter what political party he represents, no matter how many people proclaim him the messiah. That man can fail, and he will fail, even as King David failed. President Obama can make the mistake of thinking that the government is like Astarte / Asherah the fertility goddess whose multiple breasts not only symbolized fertility, but provision–if you could not grow or catch your dinner, she provided mother’s milk. Indeed, his past and present speeches tend to indicate this belief.

Yet, the truth is that just as large corporations have their own agendas and are not to be trusted, so the government has its own agendas and is not to be trusted. Many have suggested parallels between the Reichstag fire and 9/11. Certainly our present financial crisis has parallels in the Great Depression. Just as FDR’s work programs did not fix the problems then, the present initiatives will fail to fix the problems now. In seeking to preserve the status quo ante, the government and these corporations are spreading the harm to all of us. Instead of acute, but intense pain that lasts a few months to a few years, they are loading us down with chronic pain that will last many years into the future.

A shift from an economy based on unrestrained spending and borrowing to spend more, over to an economy based on saving, investing, and independent business will be wrenching. Remember that about 70% of our economy in recent years was related to consumer spending. As the unrestrained spending goes away for the long term, I would expect that far less than 70% of the economy will be devoted to consumer spending.

Expect a whole lot of crying. Large out-of-area corporations (LOOACs) have had a lot of money and a lot of influence. They will call in every favor they can in an attempt to survive, sticking us and our children and grandchildren with huge debts in the process. The hope of America is not the government. It is not GM or any other large corporation. It is not the man in the White House. (Thankfully, as we’d be in trouble eight years from now when he is replaced with someone else.) No, our hope, our only hope, is in God above and in individuals and small, locally-owned businesses (SLOBs) acting with an eye toward the long-term benefit of the families and communities they are a part of.

I mention God above, because of the ant problem. When ants try to navigate through the terrain in your yard, they cannot see far enough to know that moving an inch to the left will help them completely avoid an obstacle. But I, standing overhead, can see this. I cannot communicate with the ants to inform them of this. But God is not limited like I am. In dependence on him, we can have some inkling of obstacles ahead, which potentially could lead us to avoid such obstacles.

Think about it. The economy was bubbling up, based on unsustainable prices for real estate, unsustainable amounts of debt, and unsustainable levels of spending. All of those things need to be reduced sharply and to stay down. Yet, the whole premise of the recovery plans is that spending, lending, and real estate prices are going to return to their former levels. This is madness, I think, madness.

The economy was based upon «… unsustainable prices for real estate, unsustainable amounts of debt, and unsustainable levels of spending.»

… and of course those special “I can’t see what you’re doing” glasses for our regulatory agencies. That also played a big part, because they should have known that letting the financial industry invest in opaque securities was dangerous both to the industry and to its customers, and ultimately to our whole society. This is the same government that regulates what kinds of end caps must be on a bicycle’s brake cable. Yet they allowed companies to play games with people’s retirement funds without similar scrutiny. Sounds very suspicious if you ask me.

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02.20.09

Companies Suffer When They Devalue Their Staffers

Posted in Uncategorized at 07:24 by lnxwalt

Well-trained, motivated staff is the key that gives most businesses any value they have. A recovery plan for business that concentrates on getting rid of "productives" will produce at best a temporary reprieve.

I have been a fan of Ford Motor Company and its products since my parents bought a Country Squire station wagon when I was seven years old. And while Ford is not as bad off as GM or Chrysler, it still suffers from the effects of mismanagement.

Over the past several years, while Americans were binge-buying big trucks and SUVs, Ford was doing really well. But we have seen over the years since the late 1970s that there is a periodic oil price spike, which knocks the sales of big vehicles through the floor. The automakers then lay of thousands, close a couple of plants. They announce smaller, more fuel-efficient vehicles. By the time those vehicles hit the market, the crunch is over and Americans want to buy big vehicles again.

Both Ford and GM have multiple sales divisions with overlapping lines of vehicles. The cheapest way to deal with that is to build a single platform and then use mostly cosmetic differences to distinguish the products. Ford’s moribund Mercury brand tends to sell repackaged versions of the Ford brand's vehicles.

Now, one of the reasons the Detroit automakers focus on big cars is because they lose money on every small car they sell. We are told that this is because of union health and retirement benefits. This may well be partially true. But what we are not told is that the automakers are not suggesting that everyone in the company from the top on down take a drastic cut in their total compensation. They are suggesting that their hourly-wage productives take the deep cut, while the salaried management gets away relatively unscathed. I would like to suggest that if the managers took permanent 50% cuts, the unions would find a way to swallow similarly deep cuts.

Part of the problem with the automakers is that the industry is so concentrated. If there were still 100 separate "major" automakers in this country, there would always have remained some that were not controlled by the United Auto Workers, and the absence of union control would have acted as a brake on union demands, just as it would have acted as a brake on management salaries. In other words, a big reason that our automakers are in trouble is because they are not small, locally-owned businesses (SLOBs) any more.

We can see this principle in other areas. Microsoft, which still has nearly 90% share of PCs sold, is having some problems of its own. Its problems, however, are purely the result of its own arrogance, brought on by its rapid ascent to the top of the heap and then the extinguishing of nearly all competitors within that heap. It is hard to believe that stores like Best Buy would still be selling computers with Vista preinstalled if most people were willing to take the best product (where best equals most able to meet their needs) even when it is not Windows / Microsoft Office. Yet, as Netbooks and the rise of Macintosh & iPod / iTouch / iTunes / iPhone have shown, increasingly, end-users are willing to change, something which is a long-term threat to Microsoft's ability to charge higher prices for its products.

How can Detroit recover, then? Well, I think that part of the answer is an all-in reduction in pay. However, it cannot be like the Chrysler reduction that Lee Iacocca took. Remember, he made $1 per year until Chrysler came out of its slump, then got a bonus. That won't work this time. If the automakers want to stay in business, they need to make their employees their partners, reducing or even eliminating the industrial age separation between managers and productives. This is not a complete answer. A part of their problem is in the choice of models they produce, and that cannot be fixed by singing kumbaya around the campfire. And, yes, a big part of the problem is the financial distress that makes lenders reluctant to finance car-buyers. Again, labor and management cannot fix that problem.