Category Archives: Business

Proof Positive General Motors Still Doesn’t Get It

Tuesday, September 15, 2009

General Motors, in its continuing desperate attempts to resuscitate itself, is now offering a new program that allows buyers to return any GM car within 60 days of purchase for a full refund, no questions asked. Will it help? Will it produce sales they wouldn’t have made anyway? I don’t know. I doubt it, but this posting is about how General Motors is marketing the program.

To sell its newest ploy to attract customers, GM is running television ads featuring the company’s new Chairman, Ed Whitacre. (Apparently Megan Fox wasn’t available.) Before going any further, let me say that I don’t know Mr. Whitacre, and mean him no disrespect. He’s an experienced, accomplished senior executive who may very well be God’s gift to auto industry workouts. What he’s not is a marketing guy.

Take a look at the ad and ask yourself, “Who is their target audience?” Ed Whitacre is 67 years old, and looks it. He’s unattractive. His head’s too small for his torso. He’s pale and wearing a dark, not particularly well-tailored business suit that’s more appropriate for an undertaker – How prophetic? – than the comeback kid, dynamo-technician/salesman GM needs. And he has a strong regional accent* which sounds more harsh than charming, and may not appeal to some demographics.

So, what are we talking about here? What’s the customer base he’s trying to attract? Sixty-plus rural Texans? It’s breathtaking, and exactly what you would expect from an auto manufacturer known for being behind the times and out of touch with its industry’s consumers.

I say we, the People, cut our losses and dump our collective stock in GM while it still has some value.

-wf

*Whitacker is from Ennis, Texas, current population 20,000, 40 MapQuest miles south of Dallas.


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Wall Street Insiders: The Conning of America

Thursday, October 16, 2008

Com’on. Admit it. Who among us doesn’t get a certain kick out of a good crisis now and then – as long as it doesn’t affect us personally. Other than for the beer and barbeque, people go to NASCAR races for the danger in which the drivers put themselves, and for the occasional times when they overdo it. Hurricanes are big news, not just to warn the people who may need to evacuate, but because the rest of us find it interesting. Did you see the dramatic pictures of the southern California fires on all the cable news websites? Oh, and then there’s the new reality series, “Celebrity Rehab.” Google it if you think I’m kidding.

Unfortunately, the current economic crisis is adversely impacting most, if not all of us in one way or another. It’s not funny, not at all, and yet there are some who would take advantage of the situation. Sure, there are always jerks and career criminals out there who will scam whatever they can. To them, I offer my apologies for implying any relationship to the people I’m really talking about, the scale of whose selfish deceit is infinitely more grand and despicable.

Everyone lately has been fixating on the stock market, wildly fluctuating up and down hundreds of points a day. The stock market has a real and a speculative component. The real component moves the prices of stocks based on the actual performance of their companies. The speculative component is driven by expectations which are usually based on more or less reasoned guesses about individual company and economic conditions – but not always. Right now the speculative component of the market has taken charge, fueled, in part, by irresponsibly negative rhetoric from our Administration, by Henry Paulson and Ben Bernanke in particular, by Congressional leaders and Presidential candidates, and by the media for whom all this drama is good for its bottom line. Some of these players don’t fully understand what’s happening, others do, but what they all have in common is the adrenaline rush, power trip and ratings these times afford them.

The stock market is not moving this radically because of day to day changes in the performance of corporate America – whose financial statements are only published on a quarterly basis. Nor is it behaving so radically because of the lightening fast, en mass reactions of ordinary Americans and traditionally conservative institutional investors who hold stock. So who does that leave? Who, not what, but who is propelling all this movement?

Unquestionably, our economy, more so in some sectors than others, is having problems, serious long-term problems we’ve been discussing, but doing nothing about for years and, in some cases, decades. The wild and erratic fluctuations in the stock market just isn’t one of them. How can I be so cold, so harsh when the life savings of so many ordinary people are in jeopardy? Because they’re not. Because the speculative panic we’re watching will subside and stock prices will return, eventually and probably sooner than you think, to where they should have been, all things considered.

Real or not, we focus on daily movements in the Dow and other market statistics because they’re more dramatic, more exciting than droll, monthly employment statistics. The thing is, while we’ve all been distracted by these market fluctuations, astute Wall Street insiders are taking advantage of these swings, and no doubt doing their best, within the law of course, to encourage them. Just today, the Dow Jones Industrial Average opened at 8,577, went as low as 8,198 (down 379 points), and then as high as 9,013 (815 points above today’s low), to close at 8,979 in, as they like to say, “positive territory,” finishing up 402 points. Breathtaking, isn’t it. And these are only the Dow Jones Industrials. Can you imagine what’s happening to other, less prominent stocks?

Certainly some of this volatility is the natural and unsuspicious behavior of an anxious and confused speculative market. But the rest of it, particularly the wild in-day and day-to-day swings, smacks of having been engineered, not by one person in particular, but by various and hopefully independent specialists who do all this for a living, and a very good living at that. Academicians please, there’s no need for any sophisticated mathematical model of speculative behavior, fodder for a future episode of “NUMB3RS.” Look to the obvious. Odds are that specific people are making this happen – our government leaders, their unwitting accomplices.

If only you had money, tons of money, so much money and expertise that you could leverage these swings to your advantage. Imagine if you were so good, you could see them coming. Think of the billions you’d stand to make, literally overnight or within a single day’s trading, by buying and selling at opposite ends of multi-hundred point swings. Somebody’s got to ask, which is what I’m doing here and encouraging you to do the same, who stands to benefit from speculative swings in stock prices this radical?

Hold on now. I not suggesting any conspiracy, any secret organization that is to blame. No. Not even close. What I’m talking about is a flaw in the system – more like a tear in the time-space continuum from the size of it – which allows for the triggering and support of dramatic, across the board shifts in stock prices having no foundation other than the leveraging of other stockholder anxiety for personal gain – without regard for the consequences. What do we know about the pattern, timing and sources of selling and buying initiatives? Who’s making money at the expense of the American psyche, without regard its real consequences for consumer confidence and business investment, and the effect on our economy?


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Separation of Economy and State

“It is not the business of government to own, even on a limited and fleeting basis, our financial or other private sector corporations…”
Thursday, October 9, 2008

I’m an ardent capitalist who understands the occasional usefulness of traditional fiscal and monetary policy to accomplish marginal changes to the economy in an effort to smooth out naturally occurring business cycles. I emphatically do not, however, believe in the nationalization of our country’s financial institutions. It is not the business of government to own, even on a limited and fleeting basis, our financial or other private sector corporations, nor should it attempt to affect the behavior of our financial and other markets through the establishment and support of quasi-public institutions such as Fannie Mae and Freddie Mac.

Forget President Bush, the first zero President in my lifetime. He understands and does nothing. Our current Administration and the Federal Reserve, under the leadership of Secretary Paulson and Chairman Bernanke, have told us that our economy in very deep trouble of a nature and to an extent that requires extraordinary measures to avoid catastrophic consequences from which only they can save us.

For the second time in this Administration’s history – the first being the authorization of the use of military force in Iraq due, in large part, to the threat of non-existent weapons of mass destruction – our Administration has convinced Congress to authorize the use of massive amounts of money to solve a major problem which they have blown way out of proportion. Without question, their rhetoric and sense of panic has contributed to the problem, to a loss in consumer and entrepreneurial confidence, and has allowed us to be played for everything we’re worth, and then some, to the advantage of certain corporate interests. (Unbelievable, but I’m beginning to sound like some nutball talk radio host – and all I really wanted to do is write stuff.)

Their solution – from the same people who allowed and even encouraged the problem – has been hurriedly and ill-conceived. It is not at all clear that other, less expensive solutions might not have been more effective at facilitating the natural recovery process in which the economy was already engaged, and would have been more helpful to reduce the extent and duration of the negative impacts of any downturn on our families and businesses.

Careful, wise regulation of financial institutions is prudent and essential. No doubt about it. No, what I find disturbing is the way in which the Administration has chosen to involve itself in the finances of specific companies such as AIG, for example, Morgan Stanley and Goldman Sachs which they have now allowed to become banks, and others. Paulson and Bernanke are selectively reaching into the economy and using public money we don’t have to affect the fortunes of specific firms. With what impact on their competitors? With what consequences for their markets? Not that our economy doesn’t need help from time to time, but from a government that understands the difference between assistance and control. This is not fiscal policy which focuses on employment and income (personal and corporate) on a broad spectrum basis. This isn’t monetary policy that uses changes in the interest rates to affect the cost and supply of money on a broad spectrum basis. This is something very different.

It is, at the risk of sounding overly dramatic, nothing less insidious than a form of the nationalization of our economy – and I don’t think partisan politics has anything to do with it. Republicans, as a party, certainly don’t believe in this kind of government. Quite to the contrary, Senator McCain is a champion of less government participation in our economy. If anything, it’s more consistent with Democratic thinking given the endless stream of promises Senator Obama has made, the realization of which will involve much more government spending and involvement in our lives. This is a Paulson/Bernanke thing. – with President Bush having lunch on the sidelines.

In today’s headlines, and within the authority granted by the bailout program legislation Congress has just passed, Secretary Paulson is considering taking an ownership interest in certain of our major banks. This is not a good thing. True, it’s something which has happened in Europe, but I don’t live in Europe. This is my country, and I like our brand of capitalism.

I want Paulson and Bernanke out of office. Paulson goes in January with the change in Administration. Bernanke should be replaced as quickly as possible – by Greenspan II, if we can find one. And I want a new Administration which is, from the top down, committed to assisting the economy by using traditional fiscal and monetary policies in a way which allows a well-regulated, but otherwise free market economy to accomplish its own recovery.


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Financial Armageddon: Weapons of Mass Destruction, the Sequel?

Monday, September 22, 2008

Much in the same way the Bush Administration convinced us of the need to invade Iraq, once again it is asking us take emergency action to spend hundreds of billions of dollars to solve a problem that we have little more than its word to believe exists. Sound familiar?

We need to calm down, and demand that the Administration answer the following questions, among others, in detail and with hard evidence to prove their assertions:

1. Define the objective(s). What, specifically, can we reasonably expect to accomplish by spending the $700 billion dollars our Administration has requested?

2. Other than the understandable panic and tightening of credit associated with our government leaders predicting a worst case scenario for the economy, what specific evidence is there that our financial markets will not recover in due time, on their own? What proof is there, in other words, that the private sector will not recover, that there will be vast and horrendous repercussions for our citizens, without government assistance?

3. How does the government explain the resolution of problems at Merrill Lynch, Lehman Brothers and other corporations involved in trading (Constellation Engery, for example) without the need for government support? Please include in that list the pending merger of Wachovia with Morgan Stanley which was derailed when the Administration allowed Morgan Stanley and Goldman Sachs to become commercial banks.

4. Other than spending $700 billion to buy defaulted subprime mortgages, what other solutions might accomplish the same objectives, perhaps even more effectively? Alternatives to be considered might include: Guarantying the firms who hold these notes against losses resulting from their liquidation, including the sale of collateral real estate, to be paid when those losses are realized, and not before. Directing our resources to protect those ordinary citizens who may eventually suffer as a result of this bad debt – given that it’s not clear what these losses might be, if any. And my personal favorite, doing nothing at all.

5. Precisely how was the $700 billion calculated, within what margin of error? What assurances do we have that this $700 billion will accomplish the objective, rather than just being the down payment on a more expensive program with additional installments to come?

6. And finally, what specifically are the negative consequences of our incurring this gross amount of additional national debt, while interfering with the natural corrective measures and other competitive behavior of our economy?

For being asked to spend $700 billion dollars we don’t have, and to put control of that money in the hands of a single person without meaningful oversight, answering the questions I’ve posed would seem to be the least our government can do – which is ironic given that doing the least it can do is certainly a major explanation for how we got into this mess.


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Our Government’s Bailout Plan: The Assumption of Armageddon

“What if we just left well enough alone and let the economy do its thing?”
Saturday, September 20, 2008

Our government, which does not have a particularly good record for handling the economy, and whose policies almost certainly facilitated, in not outright contributed to the current housing and financial sector crises, is suddenly operating at warp speed on the assumption that we are teetering on the verge of the second Great Depression. I’m not exaggerating or jumping to conclusions. That’s what they’re telling us, but where are the signs of this pending financial Armageddon?

Keep in mind, our government’s bailout plan is coming from the same officials who didn’t see this crisis coming, but who are now in a panic to stop it. This isn’t studied management. It’s a knee-jerk, “Yikes!” reaction. If they were oblivious enough to have missed it or even contributed to it, why should we have any confidence in their ability to fix it? My overwhelming sense is that our government, at least in so far as the economy is concerned, is being run by people who have no idea what they’re doing.

Has it been too easy for too many people to buy homes? Sure. Have certain Wall Street firms gone nuts doing overly leveraged, high risk business that never should have been funded? Absolutely. Are there large numbers of innocent people who will suffer as a result of these Wall Street indiscretions who we need to help? Definitely. So, other than helping the innocents, what if we did nothing? On what basis are we getting ready to spend, by all accounts, between $500 billion and $1 trillion to save investment banking firms which clearly haven’t behaved in a way that justifies their continued existence? What if we just left well enough alone and let the economy do its thing?

At the risk of sounding like John McCain – not that there would be anything wrong with that – except for subprime mortgages, their implications for the housing sector and, most importantly, their relationship to our nation’s largest investment banking firms, the fundamentals of our economy are holding. The banking system, far from hanging on by a thread, continues to do business and is adjusting its behavior with remarkable speed. Two of our largest banks are swallowing up two of our largest investment banking firms – and doing it without government assistance. Bank of America has purchased Merrill Lynch. Wachovia is negotiating to acquire Morgan Stanley. Lehman Brothers has just been sold to Barclay’s Bank – again, without government assistance. If we can just get the government to procrastinate a few more months, the economy may resolve the current financial crisis on its own.

In the meantime, the availability of subprime mortgages is evaporating from the housing market. Families who shouldn’t have been able to buy houses will have to rent. Others will have to buy more modest homes. People’s expectations will have to be downsized, but then they were obviously out of line with reality, so they need to adjust. So there will be less personal and business credit available, at rates which more accurately reflect the risks which lenders are taking. Who knows, American’s might actually start reducing the extent of their personal debt in favor of saving. You remember savings? Maybe you don’t, but it’s a good idea, sort of like having an extra bottle of water or frozen Lean Cuisine dinner in your freezer, just in case. The point is, making adjustments is what a fundamentally strong, mostly free market economy does periodically to fix itself.

I just don’t see it. The stock market isn’t real. It’s a speculative market. Real is the way our domestic car manufacturers have failed to innovate. Real is our over-dependence upon foreign oil. Real is a struggling education system that is having trouble producing the work force we need for this generation, let alone the next one. Real is a lack of competitiveness in international markets. Real is our government’s inability to live within a reasonable budget – and these are the people we’re trusting to cure excess on Wall Street?

Let’s help the innocent who will be hurt by the failure of the Wall Street giants, but we need to demand that Washington calm down and prove that we really are on the verge of the next Great Depression before their actions put us into one – only to have them look back, retrospectively, and argue, “See, I told you so.”

If we’re hell bent on spending $500 billion to $1 trillion, there’s got to be something better we can do with it.


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Our Government’s Bailout Plan: Holding our economy hostage.

To paraphrase the late Senator Everett Dirksen, “A trillion here, a trillion there, pretty soon you’re talking real money.”

Friday, September 19, 2008

This situation is beyond ridiculous.

I don’t know about you, but lately, ever since our national financial crisis started coming to a head, I’m been feeling a lot like a sap. I can’t get over the impression that the obviously overpaid managers of our most prominent financial institutions are holding our economy hostage to save their collective asses at our expense, that is, at the expense of ordinary Americans and our progeny for perhaps generations to come.

My gut tells me we should dismiss these troubled institutions with the old phase, “Never write a check with your face that your ass can’t cash.” (Don’t you just love that expression?) Unfortunately, we’re apparently now to the point that, if we don’t do something, large numbers of regular people will suffer. Okay, I get it, but would like to make a seasoned suggestion to at least minimize the cost of a solution while imposing some real, albeit minimum consequences on the firms that let all this happen.

Do not buy the bad debt these institutions are holding, and do not loan them money. It’s way too expensive, much more than we need to spend to fix the problem, and it sets an horrific precedent.

Instead of buying the bad debt, all our Government needs to do is insure – under carefully controlled circumstances to avoid cheating – the potential losses which these institutions might incur pursuant to an orderly, properly paced liquidation of their troubled assets. Losses pursuant to liquidation, particularly given that this bad debt is largely collateralized by real estate, are likely to be far less than the balances of these bad debts.

We can still protect these companies, but there’s no reason to put the cost of a solution up front, or to save them the effort of getting themselves out of trouble. Let the companies manage the liquidation of these assets at their own expense. Our government doesn’t do stuff like this well.

In return for this insurance against losses, all the offending executives are out, without their whopping severance and retirement packages. These executives are being fired, and should not be allowed to benefit from the extraordinary costs their greed and poor judgment have imposed upon the public.

And finally, we should demand a premium for this insurance in the form of a special, priority class of stock in these companies which we can eventually sell and which will assure us a reasonable share of these companies’ corporate profits which they will enjoy precisely because the American people have stepped up to save them.

There. How ‘bout them apples?


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“I had no idea the SEC was reading my stuff.”

“Maybe there really is a Tooth Fairy, after all.”
Friday, September 19, 2008

Yesterday evening, I posted a short piece with the long title, “Crisis on Wall Street: Feeding the frenzy to make money at everyone else’s expense.,” which asked if someone, anyone, would please look into who is making money on the wild stock market swings which have characterized and, to some extent, helped cause the current crisis among our financial institutions.

This morning, to my pleasant surprise, I awoke to the headline, “SEC imposes emergency ban on short-selling.” I haven’t felt like this since I left my last tooth under my pillow. Maybe there really is a Tooth Fairy, after all. And to think, all these years, I thought my mother was just patronizing me.

Short selling is the practice of selling stock you don’t own in anticipation of a decline in the value of that stock. If and when it does fall, you can buy it at that lower price to fulfill your sales order. The spread between the sell and the buy price is your profit. “Sell high, buy low.” The problem is, selling short can actually help force the price of the stock down, and declining stock prices are contributing to the severity of the problems many of our financial institutions are now having.

Anyway, I want to thank SEC senior management for visiting the WordFeeder and for taking such prompt action on my request for which I take full credit.  Wow.  I had no idea these pieces we publish on the WordPress, hunched over our desks at the end of a long day, lost in the glow of our screens, could have such a profound and immediate impact.  I’m thinking I’ll stop writing so much about politics and start working on world peace.

-wf


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