Posts filed under 'Uncategorized'
February 2nd, 2009
Published Jan. 4:
I could be in the market for a new car right about now.
The car I have is nearly 10 years old and sports more than 100,000 miles — rather jauntily, if I do say so. I love my car, but it’s probably about time to be looking for a replacement.
I’m not.
I could also be in the market for a house, now that I think about it. I’m an apartment dweller, so I don’t have a house to unload first, with a decent credit rating. I might be a favorable candidate.
I’m not really pursuing that, either, even though I hear this economic climate has created a marvelous environment for negotiation.
As it turns out, I — like many of you — have fallen victim to the economy’s long-running con game.
Or should I say its ex-con game.
For thousands of years, as long as one guy had something another guy thought was valuable, the confidence game — so called because it relies on the mark’s certainty that he’ll get his money back and the grifter’s certainty that he won’t — has been a profitable profession. Usually for the bad guy because there seems to be no end to the number of scams grifters can dream up and the number of people who can be convinced that the MetroCentre is for sale. Cheap.
Sadly, that inflated confidence, plus a prolonged absence of reason and a healthy dose of arrogance — that we are smarter and more wily than the grifter — has been the driving force behind the financial climate in which we find ourselves.
Ladies and gentlemen, I give you the economy, the most expensive con game ever created.
Consider the humble Beanie Baby.
People I formerly considered reasoned, rational human beings used to ask me — with a straight face — how much I thought they could get for a chicken or bulldog.
I could only shrug because I never really saw the value in a stuffed chicken.
“Whatever somebody thinks it’s worth,” I’d say, utterly nonplussed.
It’s Wall Street 101. The value of every company on the market is determined using variables including revenues, earnings, investments, debt, return on equity, return on invested capital and so on. But in the end, it all boils down to our confidence in the company — what we believe that company is worth.
Two years ago, everybody was confident. Banks and mortgage brokerages played fast and loose with lending rules, global financial markets gorged on those questionable loans, governments didn’t examine the practices of those markets, consumers racked up more debt than income, and corporations leveraged themselves to the hilt.
Today, we’re reeling from the consequences of those actions. And the circuitous nature of the U.S. economy is what will keep us in this cycle for a couple more years.
Consumer spending makes up about 70 percent of the economy. But we have no confidence in the future right now. So we’re not spending.
That’s enough to bring the economy to a near-standstill.
Still, the economy is driven by more than just consumers. About 20 percent comes from corporate spending. Except consumers aren’t spending, which means there’s no demand for the company’s products. So they hunker down, slashing production, cutting jobs and creating even more uncertainty among consumers.
The good news is that the government, which contributes about 10 percent to the gross domestic product, is chugging merrily along.
The $1 trillion it has spent, plus the estimated $1 trillion the new administration pledges, mean the government will be in business for quite a while yet.
I take little comfort from that. It doesn’t really help as I consider my vehicle options.
Even if the government was kind enough to buy us a couple of car companies.
February 2nd, 2009
Published Dec. 21:
If the past few months were tense, the mood in Detroit must have been downright rapturous this weekend.
It gets to keep its automakers. Which seems to be OK, because nobody else wants them.
Despite President Bush’s tough talk about forcing two of the former Big Three companies into bankruptcy — a toothless threat likely meant to force concessions from General Motors, Chrysler and the United Auto Workers — he promised them more than $13 billion Friday, with $4 billion in reserve, from the Troubled Assets Relief Program.
To keep the money, the automakers must come up with a plan, by the end of March, to prove that they can show positive cash flow and fully repay the government loans. If they don’t, they have to give the money back.
But because both companies have said they are a whisper from bankruptcy — and that the bailout money is just enough to keep them in business through March — they won’t actually be repaying anything. Next stop, bankruptcy.
Of course, they just have to show a plan. They don’t actually have to accomplish anything. Which is also OK because the UAW, not surprisingly, is already objecting to the concessions outlined in Bush’s loan conditions and planning to make its case to President-elect Barack Obama.
I used to do that, too, when I was a kid. If Dad said no, I’d try for better luck with Mom. It never worked. My parents were too smart for that.
Luckily for UAW, however, there will be no such obstacle. Instead, there will be a Democratic administration in the White House.
Just to make sure everyone’s keeping up, let’s recap: Billions upon billions of dollars are being loaned to the automakers because they don’t want to file for bankruptcy. They have to come up with a plan that lays out how they will return to profitability. The only real timetable in the program is the one that requires this plan to be filed by March 31. The union is saying it won’t play along.
But the real issue is that two companies, which Bush said are so fundamental to the U.S. economy that he couldn’t let them fail now (March, apparently, is a different story), either can’t or won’t be profitable until someone else is keeping an eye on them.
So really, all Bush has done is put off the automakers’ bankruptcies until it’s someone else’s problem.
In the meantime, taxpayers will be part-owners in two bankrupt companies.
Only in America are you so richly rewarded for such abject failure.
December 17th, 2008
Published Dec. 15:
These days, there are only two words to remember about the economic crisis — until February, at any rate:
Lame duck.
That applies as much to Wall Street as it does to Capitol Hill — especially since Wall Street is now officially owned by Capitol Hill — where the 110th Congress is spending its twilight hours bickering over the various details of one bailout or another.
In a lame-duck world, we see a lot of activity but very little action. And we probably shouldn’t expect to see any real substance until after Jan. 20, when Barack Obama assumes the mantle of president and the power brokers in Washington and Lower Manhattan resume their regularly scheduled hysteria.
Until then, a general lassitude has gripped both regions — except, of course, congressional Democrats, who spent most of the fourth quarter looking less like lame ducks and more like Goosey Loosey, running in crazed, squawking circles and scattering feathers hither and yon in so-far vain attempts for some kind of loan money to throw at Detroit’s automakers.
It was no different last week, when they pushed a trimmed-down, $14 billion, no-frills version. They even managed to get President Bush’s buy-in before they were brought up short by skeptical Republicans.
But even if Republicans are successful in temporarily halting any sort of real action on the plan — I get the feeling that the GOP has already pounced on one of its talking points for the 2012 presidential election — both sides seem to like the idea of hiring a baby sitter to keep an eye on the automakers, gleefully dubbed the “car czar.”
I already feel sorry for the poor slob who gets tapped for that job.
As Congress sees it, this is the guy who will dole out the loans, with the power to force General Motors and Chrysler into bankruptcy by next spring if the two don’t cut quick deals with labor unions and creditors to restructure their businesses and become viable.
So the guy has to get tough with the automakers, with the United Auto Workers, with suppliers and other creditors. In other words, he has to start smacking around the very corporations Congress won’t because those same corporations tend to be sizable contributors to political campaigns.
Into this thankless job walks our hapless middleman, who must report to Congress every couple of weeks.
He has to rewrite the rules for the auto companies and get them to play a new kind of game, one that will almost certainly never be over because nobody has specified what “viable” means. Profitable? Green? Leaders in market share? Downsized? Research and development scions?
In this day and age, and with the companies in question, those results don’t necessarily go hand in hand.
December 17th, 2008
Published Dec. 14:
We’ve been reading quite a bit about the Big Three lately. Some of it, you’ve read here — despite my vow, made about 10 columns ago, that I’d write nothing more about the embattled automakers until some sort of inevitable and ill-advised bailout plan is finalized.
Sadly, I vastly underestimated the volume of hot air to be generated by Detroit and Washington. Not to mention me.
The debate, of course, continued last week, when a last-ditch effort by House Democrats and the Bush administration couldn’t get past Senate Republicans.
Afterward, most headlines read something like this: “No deal for Big Three bailout.”
But something has gotten lost in the veritable forest of headlines that has sprouted around the U.S. auto industry in recent months:
There is no Big Three. Not, at least, how we in the U.S. traditionally recognize it.
For most of the 20th century, General Motors Corp., Ford Motor Co. and Chrysler Corp., in that order, earned the moniker. They dominated the global market even through the 1990s, when the trio controlled two-thirds of global market share.
But by 2007, only one remained in that vaunted group. After commanding the top spot for nearly a century, General Motors fell to Toyota Motor Corp.
Volkswagen AG muscled Ford into the fourth spot, while Hyundai-Kia, Honda, Nissan and PSA/Peugeot pulled ahead of the then-recently-renamed Chrysler LLC, which ranked ninth.
And that doesn’t count the crippling sales drop of 2008. After this year, I suspect the scorched earth of the global auto industry will look substantially different.
Which brings us to this month, and the dramatic pleas from two of the former Big Three for $14 billion in emergency cash from Congress to stave off bankruptcy. Until March, that is. When, I expect, they’ll be back for more money to stay in business for another three months or so.
In the meantime, because Congress couldn’t agree on the time of day, let alone a Detroit bailout, the Bush administration has as much as promised to pony up the money from the Troubled Asset Relief Program, the $700 billion plan Congress passed this fall to prop up Wall Street’s rickety banks.
Here’s what I still don’t understand: Why would a bankrupt Chrysler or GM be so catastrophic? In too many cases I’ve seen “bankrupt” being used almost interchangeably with “collapse” or “closed.” And lots of reports are featuring a “3 million jobs lost” figure when they speculate darkly about the automakers’ future without a bailout.
That unemployment number comes from a study by the Center for Automotive Research in Ann Arbor, Mich. — whose chief, David Cole, firmly supports the bailout idea — which suggested that 3 million people would be out of work if all three of Detroit’s automakers closed for good.
Which isn’t going to happen, with or without a fistful of government money. And Congress knows it.
That’s why, as a provision in its bailout package, it authorized — indeed, demanded — that a newly named “car czar” force GM and Chrysler into bankruptcy by the end of next year if the companies didn’t demonstrate some kind of commitment to solvency.
Examine, if you will, Exhibit A: Northwest Airlines. United Airlines. Delta Air Lines.
Or Exhibit B: the U.S. steel industry.
All of them were forced to file for Chapter 11 protection, without so much as a peep from Congress. And there is still a U.S. steel industry. There are still U.S. airlines. They’re smaller, to be sure. But they’re here. And hopefully smarter and leaner than they were before bankruptcy.
Or how about Exhibit C: Delphi Corp., GM’s former parts-making arm, which filed for Chapter 11 protection in 2005. Not a peep from Congress then, either.
Three years later, Delphi is still in bankruptcy and still producing parts for the auto industry.
It’s not ideal. It’s not pretty. But a nationalized auto industry is uglier. And all the gnashing of teeth about the jobs lost under a bankrupt automaker just doesn’t wash.
Thousands of jobs have already been lost. Thousands more are in the works. And what about the number of jobs the federal government will demand once it’s in charge of the industry?
The automakers got themselves into this mess. This is the consequence of their actions. They should have to face up to it.
Not surprisingly, the automakers think it’s a terrible idea.
Nobody will buy a car from a bankrupt automaker, they argue, because consumers will have no confidence in the company.
No offense, but I think that’s what got their as-yet-not-bankrupt companies into this mess in the first place.
December 17th, 2008
Published Dec. 8:
Musical chairs was so much easier when I was a kid: When the music stops, sit down. If all the chairs are taken, you’re out.
But there’s an updated version playing out on Capitol Hill as the Treasury Department decides which companies get to tap into the $700 billion bailout package. And it’s getting out of hand.
In the early days of this new game, the losers would slink off to file for bankruptcy and the winners got a fat payout from the federal government.
But the players have since become far more sophisticated, and the rules have changed somewhat. Companies without chairs have a chance to convince Treasury that they should have one. And if that doesn’t work, the company will build its own.
Such is the case with GMAC, the financing unit of General Motors Corp., which is becoming a bank holding company so it can get its hands on some of that $700 billion. Otherwise, it doesn’t qualify.
GMAC, which is 51 percent owned by Chrysler parent Cerberus Capital Management, says the change will increase its stability so it can keep providing automotive and mortgage financing. In fact, it has several reasons, most of which seem to revolve around the fact that it needs money.
It’s a little less clear why taxpayers should start footing its bills. Not to mention why a car and mortgage lender gets to suddenly declare itself a completely different kind of company.
In the simplest terms, a bank holding company is one that owns two or more banks. Well, it had been until the government started giving away so much money.
But once American Express and Goldman Sachs — a credit card company and investment bank, respectively — got the nod to become holding companies, the floodgates were opened.
These days, I could probably qualify as a bank holding company if I did my homework.
And that makes me nervous.
Billions of dollars are being spread around to companies and industries of every stripe. Who’s keeping track of all the rules? Who’s making sure the money is being used correctly? Who makes sure these companies repay the public?
Since March, when the Federal Reserve announced a rescue package to provide up to $200 billion in loans to banks and investment houses and loaned $29 billion to JPMorgan Chase & Co. to buy collapsed investment bank Bear Stearns, the rescue money has continued to pile up.
When IndyMac failed in July, it cost the Federal Deposit Insurance Corp. billions to compensate deposit holders. That’s the same month President Bush signed a housing bill that included $300 billion in new loan authority to back cheaper mortgages for troubled homeowners.
In September, the feds:
Took over Fannie Mae and Freddie Mac, pledging up to $200 billion to back the mortgage giants’ assets.
Injected $85 billion to shore up failing insurance giant American International Group. That number has since been modified a few times — increased each time, of course. At last count, taxpayers were into AIG for $150 billion.
Guaranteed money-market fund losses up to $50 billion; boosted to $620 billion the amount available to the Federal Reserve through currency swaps.
Tripled the amount available for short-term loans to financial institutions.
And that’s before the $700 billion bailout package took effect in October.
Now for the really troubling news: The Government Accountability Office said last week that the Treasury Department has no mechanisms to ensure that banks comply with the rules around the $700 bailout package.
The GAO is one of three watchdogs assigned by Congress to monitor the Troubled Asset Relief program. A congressional oversight panel is scheduled to issue its report Dec. 10, and an inspector general’s position created to oversee the program hasn’t yet been filled.
Then of course there’s Neel Kashkari, head of the Treasury Department’s Office of Financial Stability, who said the agency is developing its own compliance program.
I wonder how many chairs those guys get.
December 17th, 2008
Published Dec. 7:
Rick Wagoner said he felt “optimistic” after the first day of testimony — a mind-numbing six hours worth — Thursday on Capitol Hill.
I’m glad somebody was.
The General Motors CEO, suitably chastened from the embarrassing debacle in Congress three weeks ago, submitted to two full days of grilling two weeks later, joined by his counterparts at Chrysler and Ford, as well as the president of the United Auto Workers.
The automakers can almost taste the $34 billion in emergency loans they’re asking from the government. And because no politician wants to return to his or her district bearing thousands of lost jobs, from autoworkers to car salesmen, the three companies will likely get their money — as long as those politicians, whose questions to automakers have ranged from the ruthlessly critical to mawkishly sentimental, can convince their constituents that they did not hand the U.S. auto industry a blank check.
They seem to think they can. Hence Wagoner’s buoyant attitude.
I guess I’d feel a little perkier about the whole thing if I were at all reassured that somebody at the car companies had a solid grasp — any kind of grasp, actually — on how business is going. Because I’m fairly certain Wagoner and his compatriots don’t.
In the fall, GM approached Congress about a mere $15 billion loan so it could buy Chrysler. It was having fair to moderate liquidity troubles at the time and had its eye on the $11 billion-plus in cash Chrysler had on its balance sheet.
Those talks ended abruptly the first week of November, when the three automakers reported wretched October sales and GM just as abruptly announced it would not have enough cash to continue operating through the end of the year.
At the time, I thought the timing was a master stroke — infuriating, but a master stroke — coming as it did the day before Barack Obama won the White House.
But let’s give them the benefit of the doubt. It could be just a coincidence that their bank accounts just happened to disintegrate as Democrats prepared to take over Capitol Hill.
Still, somebody please tell me Wagoner and Chrysler CEO Bob Nardelli — whose company has apparently burned through its $11 billion and will close before January — weren’t flabbergasted to learn this. That some flunkie didn’t tiptoe into their respective offices the day before and inform them that they had successfully run their once-respected companies into the ground.
If they were, they need to find a different line of work. But I’ve always thought the guy in charge should have at least a working knowledge of the company’s financial picture. How naive of me.
If they weren’t, they need to find a different line of work. Even humble business editors know you don’t operate a company by hoping the economy will suddenly right itself over the weekend.
Then came November’s sales numbers (also wretched) and the CEOs’ first appearance in Congress. If you’ll recall, they were looking for a $25 billion loan at the time.
Two weeks later, they realized they needed $34 billion in loans or, they told lawmakers sadly, the effects would be “catastrophic” by March.
Do you suppose it really took them two weeks to realize that they had done the math wrong the first time? That they had no idea they would need an additional $10 billion to stay in business for four more months?
In other words, this loan will be the first installment.
One way or another, we’re going to end up paying through the nose for our American-made cars. Even if we don’t drive them.
December 2nd, 2008
Published Nov. 23:
With their recent sojourns to Washington to plead for money from the government, the Detroit automakers have managed to lose their respective identities.
They have officially become the hottest political potatoes on Capitol Hill.
After days of hysteria, during which the CEOs of the companies offered disastrous testimony to Congress, Democrats not only balked at writing the companies a blank check — a notion they have been desperately promoting for weeks — but abruptly joined their Republican counterparts by demanding some kind of justification from the automakers.
It seems that the CEOs managed to talk for two days and read a combined 30 pages of prepared testimony without ever telling congressional leaders why taxpayers should be responsible for saving the companies they can’t.
Actually, I think they gave the lawmakers too many reasons but not enough real answers.
They tried, of course, nodding like a row of bobblehead dolls when asked whether the investment would be a sound one.
It’s not bad management, the bobbleheads assured lawmakers solemnly. They just can’t get a loan these days.
Of course. That’s why every other American company is going to fail — within minutes! — if they don’t get their hands on some government money, or so their testimony suggested.
They should have stopped talking right then.
Unfortunately, they didn’t.
Ford CEO Alan Mulally acknowledged that the U.S. auto industry has made mistakes “in the past” and went on to argue that “the mix of the housing crisis, credit crunch, wildly fluctuating gas prices and major spikes in commodity prices has led to an unprecedented reversal in the business environment.”
Seems valid, although he failed to note that the “wildly fluctuating gas prices” have dropped to their lowest levels since 2004 without causing a dramatic uptick in sales, which I would expect, based on his argument.
But it was Chrysler CEO Bob Nardelli who came up with the most creative reasons the automakers should get handouts.
“The crippling of the industry would have severe and debilitating ramifications for the industrial base of the United States, would undermine our nation’s ability to respond to military challenges and would threaten our national security,” he told Congress.
To which “industry” is he referring? Halliburton?
He certainly can’t be talking about the domestic auto industry, which hasn’t worked for the Department of Defense for decades, or its suppliers, who have competitors around the globe.
And wrapping the No. 3 U.S. automaker in the U.S. flag under the guise of “national security” is hysterical, irresponsible hyperbole.
General Motors jumped on the same bandwagon last week at gmfactsandfiction.com.
What’s the justification for invoking such a claim? “Buy a Pontiac or the terrorists win”?
November 20th, 2008
 Published Nov. 24:
When it comes to the histrionics gripping Wall Street — and Capitol Hill, for that matter, remember this:
It’s all a matter of perspective — what you see depends on where you’re standing.
From the CEOs’ side of the looking glass, their plight has all the romance and tragedy of a Herculean drama.
These mighty titans, like the mythical Greek hero, once ruled their empires armed with nothing but brute strength and clubs. In modern parlance, that’s synthetic collateralized debt obligations.
Sapped of their strength, stripped of their status, a final indignity — the last insult to their injured pride — is threatened: The treasure they amassed during their reign will be looted.
How have the mighty fallen, to be sure.
I wonder if these guys realized, when they began begging Uncle Sam to save them, that their least favorite uncle was going to hit them where they live: their take-home pay.
From this side of the looking glass, they must have. There has been entirely too much criticism levied at the enormous sums they and just about every other CEO on the planet take home every year.
Today’s CEO takes home 275 times what the average working stiff does, according to the Economic Policy Institute, the left-leaning think tank based in Washington. That means the average CEO earns more in a day than I do in a year.
But it isn’t their fault.
I don’t necessarily begrudge those higher salaries, as long as certain provisions are met:
The CEO’s salary must be commensurate with that of his (or her) work force — which doesn’t mean the average Joe on the production line should also take home several million dollars a year.
CEOs must provide a solid return on their shareholders’ investment.
CEOs must position the company for growth, among other things.
Some of them do well with this. Oracle Corp. CEO Larry Ellison comes to mind — his annual salary is $1 million or so, although his actual take-home is closer to $72 million — or Jeff Bezos at Amazon.com, whose compensation over the past six years has averaged about $1 million but whose take-home is considerably larger.
Others, in retrospect, are so suspect as to be laughable.
One of my favorites: Angelo Mozilo, the former chairman and CEO of Countrywide Financial, which was eaten by Bank of American before it could collapse this year.
His annual paycheck averaged $66 million. But once you factor in his total compensation — including salary, bonuses, options and stock — his take-home pay neared $200 million by 2006.
His company, one of the leaders in what later turned into the subprime-mortgage mess, was among the first casualties of this brave new financial world.
From my perspective, not a great return for shareholders.
Another one: Richard Fuld, former chairman and CEO of Lehman Bros., which declared bankruptcy a few months ago. Salary: $40 million.
Stanley O’Neal, former chairman and CEO at Merrill Lynch. Salary: $46 million.
James Cayne, former chairman and CEO at Bear Stearns. Salary: $40 million.
You get the idea.
But here’s a question for you: What do those four have in common, other than being rich, white, male and fired?
They were not only the chief executive officers of their respective companies, they were also chairmen of the board of directors, which set their overall compensation packages.
And which, of course, the CEOs lead.
The only person I recall who turned down a pay raise is Al Kaline, the former ballplayer, who once famously rejected his increase because he didn’t feel he deserved it.
A quaint notion, certainly, but one to which our modern CEOs don’t, apparently, subscribe.
Congress has wasted a lot of time this year calling the CEOs to Capitol Hill, asking them to justify their salaries.
Instead, let’s find out why the boards of directors think those numbers are justified.
November 20th, 2008
Published Nov. 17:
It is only a matter of time, I suppose, before the Bush administration steps in for another rescue of Detroit’s collapsing automakers. At this point, the only question is how much it will cost us.
The companies first received a mere $25 billion loan. But, as it turns out, they need more than that. And they need it right now.
They’ve since upped the ante to $75 billion, plus permission to tap into the government’s $700 billion bailout money.
Not that they don’t have reason. General Motors Corp. is hemorrhaging money, reporting a $2.5 billion loss and a cash burn of $6.9 billion in the third quarter — and offhandedly remarking that it could run out of money before the end of the year.
Privately held Chrysler LLC, for which its parent, Cerberus Capital Management, has been shopping for suitors, is doubtless in similar shape.
Ditto Ford Motor Co, which reported a mere $129 million quarterly loss but managed to burn through $7.7 billion in the quarter, although a massive loan it clinched last year puts it in a slightly better cash position than its crosstown rivals.
Into this fray steps the Center for Automotive Research.
The Ann Arbor, Mich.-based industry research group, which gets part of its funding from the automakers, wanted to know what would happen if two or all three of Detroit’s automakers folded.
“The circumstances are such that either of these scenarios is possible, and indeed one or the other is probable, within the next 12 months,” according to the report.
What comes next reads like Cormac McCarthy’s “The Road” written for auto industry analysts. Presumably without the cannibalism.
Consider:
If all three Detroit automakers go under, the first-year employment hit would be a loss of nearly 3 million jobs in the U.S.: 239,341 at the automakers, 973,969 at supplier companies and more than 1.7 million others who would suffer without the wages of the autoworkers. By 2011, the net job loss will have been reduced to 1.8 million because of increased U.S. production by foreign automakers and dislocated workers finding new jobs.
If just one or two of the companies fails, the first-year U.S. job loss would still approach 2.5 million before coming back somewhat in the second and third years. That’s because the domino effect of one major automaker going under would push several financially fragile auto suppliers under, interrupting production at the remaining companies, including foreign-owned automakers.
The loss of one or two companies also would reduce personal income by more than $125.1 billion in the first year and $275.7 billion over three years. If all three go, income would be reduced by nearly $400 billion.
And that’s just the first three years.
“However, it is assumed that the international producers would recover fully by the third year” and will have taken over about a quarter of the Detroit automakers’ production. Otherwise, the report says, the surviving domestic automakers would resume production of at least 50 percent of the pre-apocalypse era.
The report, issued on Election Day (which, I’m sure, was just a coincidence), is breathtaking, to be sure.
But it doesn’t change the fact that another government bailout won’t change the domestic industry’s business model.
And it just plain doesn’t work.
They’re still hamstrung by a slew of federal and international regulations, to which they have adapted only clumsily. They allowed themselves to be held hostage by the United Auto Workers and for years kowtowed to the union’s extravagant, sometimes-to-the-point-of-comical demands.
They again gravely misinterpreted the swings of the market and were left holding a bag full of trucks when consumers — presumably we actually mean it this time — clamored again for fuel efficiency.
Could they have foreseen gas prices that rose so swiftly? I doubt it.
Should it have occurred to them that gas prices would eventually, inexorably rise? That consumers would at some point want a variety of models to meet their financial needs?
Put it this way: If it didn’t, they don’t deserve to be in business.
November 20th, 2008
Published Nov. 16:
If you’re not feeling particularly upbeat about the economy lately, you have plenty of company.
But you probably already knew that.
Consumers en masse have retreated to the financial equivalent of bomb shelters, waiting for the markets to stop exploding. Wall Street, pale and emaciated, is feebly searching for a foxhole of its own. Retailers are already hoarding provisions, anticipating torpid holiday sales and the long, hard drought which will inevitably follow.
And industry after industry is lining up on Capitol Hill, hoping desperately the federal government will throw them a lifeline.
There is, however, light at the end of this long, dark tunnel. Unfortunately for most of us, the good news these days too often comes disguised as bad news.
But here it is: There is an end to the lean times. Market contractions are an inevitable part of market expansions. That’s cold comfort to many of us, crouched in our shelters and waiting for the fallout to dissipate, but the lean times, like the boom years, will pass.
Now for the actual bad news: The depth of a market contraction can usually be measured by the breadth of the euphoria that drove the expansion. And the expansion that began nearly a decade ago was, by 2005, edging out of euphoria and preparing to leap headlong into hysteria.
So I don’t expect to see any solid growth, and then only in some sectors, until 2012 or so.
But there is one thing you must keep in mind, however, as we weather the storm around us: The government isn’t saving you.
It’s trying, of course. Lately it’s been throwing money around as though it grew on trees (as luck would have it, the federal government does, in fact, own a Mint).
But that’s cold comfort, too, since we at the consumer level will start seeing the trickle-down effects of that money in, oh … 2012 or so.
More than two years ago, when we were still living blissfully beyond our means and banks were actually loaning money, a few number crunchers on Wall Street were giving their ledgers a second look. Some of their investments were failing. Spectacularly.
Then more of the moneymen began scratching their heads.
And suddenly, the majority of Wall Street’s power brokers were wondering how in the world they were going to talk their way out of the mess they had created.
That was in the third or fourth quarter of 2005, depending on how closely they were watching their books.
Remember, this contraction may have been heralded by the stunning — well, at the time it was — collapse of investment bank Bear Stearns in March, but it was growing long before that.
In fact, the week before Bear Stearns’ abrupt failure — when Bear executives were loudly proclaiming their financial good health — Federal Reserve Chairman Ben Bernanke made what, at the time, was an extraordinary announcement, calling the Fed the lender of last resort. Just in case, you know, anybody needed money.
The trillions of dollars (you heard me) the government will end up throwing at the loudest problems in the market may help. At this point, it may not. There’s only so much the government can do, after all, beyond forming regulatory committees and scolding the financial institutions who are obstinately refusing to abide by the rules set by the regulatory committees.
At the end of the day, the government — bogged down as it is in bickering over who gets how much — won’t be the force to pull us out of this mess.
As always, we’ll pull ourselves out of it. We got ourselves into it — you’ve heard me countless times, Faithful Reader, decrying the debt that always destroys our booms — and no matter how much of our money the government spends, it will be up to us to get us out.
With or without the U.S. auto industry.
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