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So it’s been a while since I last blogged because my time is very tight lately…I’m working, looking for a new position in the company, taking a class to get my Six Sigma green belt certification as well as a beekeeping class given by the Montgomery County Beekeeper’s Association here in Montgomery County. Even so I’m trying to keep up with what’s been going on in the state of economic affairs and last night’s New York Times story about A.I.G. is a doozie.

A.I.G., once the world’s largest insurance company and who has to date taken $170 billion dollars from the U.S. government (i.e. taxpayers) in bailout money is now planning to pay $165 million dollars in bonuses to executives in the same business unit that last year brought the company to the brink of financial collapse (Andrews, Edmund L. and Peter Baker, “A.I.G. Planning Huge Bonuses After $170 Billion Bailout“, The New York Times, March 14, 2009). The reasoning, according to the government appointed chairman Edward Liddy is that

We [A.I.G.] cannot attract and retain the best and the brightest talent to lead and staff the A.I.G. businesses — which are now being operated principally on behalf of American taxpayers — if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury

(Andrews, Edmund L. and Peter Baker, “A.I.G. Planning Huge Bonuses After $170 Billion Bailout“, The New York Times, March 14, 2009)

Retention bonuses? Where does Mr. Liddy really think these guys (and gals) are going to go in today’s Wall Street environment? Mr. Liddy also points out that these bonuses are contractually obligated in that they were agreed upon in the early part of 2008 — before A.I.G. fell apart and that both A.I.G. lawyers as well as Treasury Department lawyers have determined that there is no way to abrogate this contract.

This is truly an insult to the American taxpayers who are currently keeping A.I.G. afloat. In my mind these executives who are offered the bonus should be told that their services will no longer be needed if they take the bonus. The American taxpayer should not have to be continually insulted by Wall Street this way. We’re the ones who are bailing them out…it seems that A.I.G. executives still haven’t figured this out and seem to be playing the game as though they deserve this money. When will this administration and Congress get it. If they don’t find a way put a stop to this nonsense and these institutions that have taken taxpayer money in order to survive continue to behave this way then it will be the voters of this country who will make their voice known in 2010. And if that means that every single Congressman (and woman) and Senator should be voted out of office then that’s just what it might take.

Not less than 24 hours after being elected the new President, Barack Obama has been saddled and blamed for the current economic mess. It seems that the conservative right couldn’t wait until George Bush was out of office before shifting the blame onto the President-elect. Mr. Obama barely had time to relish the victory of the election before being blamed for putting this country into a recession. Rush Limbaugh, on November 6th 2008 started his assault with

The Obama recession is in full swing, ladies and gentlemen. Stocks are dying, which is a precursor of things to come. This is an Obama recession. Might turn into a depression. He hasn’t done anything yet but his ideas are killing the economy. His ideas are killing Wall Street.

(Limbaugh, Rush, “Obama Recession in Full Swing“, November 6, 2008 )

The “Obama Recession”! President-elect Obama has yet to even take the oath of office and Limbaugh as well as other pundits like Sean Hannity are already pinning the blame for the current economic mess on Barack Obama. Unbelievable!

Our current President who just happens to be vacationing, once again, at his ranch in Crawford, TX. is trying to lie as low as possible so that he can quickly get out of town on January 20th. This is a man who has been in charge for the last eight years and is leaving office with an economy that is on the brink of collapse with billions spent on propping up banks (without the necessary oversight to ensure that the money is used appropriately) the automobile industry and who knows what else and Limbaugh and Co. feel that the responsibility truly lies with the President-elect. How far will these guys go to deny the hand that President Bush has had in this debacle?

President Bush may well go down as one of the worst (if not the worst) Presidents in modern history (or perhaps all U.S. history). I cannot imagine how the conservative pundits and talk show hosts make the connection that this is an “Obama Recession” but they do. Limbaugh goes even further with this fallacy by blaming the entire mess on — you guessed it — the Democrats.

So how can you not attribute the market plunge, the market fall to him? In fact, even the 4,000-point plunge, the markets work six to nine months ahead. Believe me, I know these people on Wall Street that run these firms. They’re a bunch of lib Democrats. No question about that. We’ve figured this out. The average investor and these people to whom the money really counts are trying to get as much thrown into this calendar year as possible. People are selling off, taking their gains, which is what led to the plunge. There’s no question it’s the Obama recession. There’s no question. We didn’t have any of this going on during the heart of Bush economic times.

And isn’t it interesting that China is now… We’ve got a story from China today about their demand. The Chinese nation’s demand for oil has plummeted; their demand for gasoline has plummeted. Why? Because the situation in the US economy has led to a slowdown all over the world. Can you believe..? You want to talk about us being a superpower no longer? You want to talk about people who think we need to be cut down to size? Can you believe that the United States subprime mortgage debacle has led to this global mess? So it’s not only correct to say that this is the Obama recession. It’d be even more accurate to say that the worldwide recession has been brought on by the Democrat Party in the United States of America.

(Limbaugh, Rush, “Rush and the Obama Recession“, November 17, 2008 )

I’m astounded by his lack of logic in his arguments. Wall Street is run by a bunch of liberal Democrats (“lib Democrats” as he calls them). They sold off (thereby causing the plung in the Dow in November) in order to take their profits — months before Obama is even sworn in. Then China, seeing the slowdown in the U.S. economy, is also slowing down and dropping their demand for oil. So the overall recession is due to — yep, according to Rush — the Democrat Party! In his twisted mind George Bush and the Republicans had nothing to do with it at all. And I guess Rush believes that “If you tell a lie big enough and keep repeating it, people will eventually come to believe it.” (Goebbels, Joseph, found at Next thing you know Limbaugh might claim that Obama is the anti-Christ — oh, wait a minute, that’s already been tried. Somebody get him off the air.

Majority Leader Harry Reid, D-Nev., called the bill’s collapse “a loss for the country,” adding: “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

(“Auto industry bailout plan dies in the Senate,” MSNBC,, December 12, 2008 )

Am I wrong to wonder why Harry Reid — a Democrat and one of the more liberal ones at that — is dreading having to look at Wall Street today? Ok…I understand what he really means — he knows that Wall Street will take a dive today (500, 600, 700 points?) because of the failure of the Senate to pass the Auto Industry bailout bill. But what about the people on Main Street? I would think that as a Senator (well, as a legislator in general) he should be more concerned about having to look people out on Main Street in the eye rather than worry about how far Wall Street is going to plunge.

I for one am not particularly in favor of the auto bailout — the “Big 3” got themselves into this mess and now they want a handout to get out. I understand that if GM and Chrysler collapse (or, more likely, go into Chapter 11 bankruptcy) then the impact on the economy will be severe and, who knows, may well set us up for another Depression similar to the one of the 1930s. But I also realize we cannot continue to prop up these companies if they won’t make drastic reforms to become more competitive in the global marketplace.

I see the role of the government in this situation as providing a “soft cushion” to an otherwise hard landing. The government should help facilitate either the merger GM and Chrysler with another company or they should provide some assistance in an effort that will result in these two automakers (and possibly Ford as well) becoming smaller, more agile and producing higher quality vehicles at lower cost. This assistance should be done with the idea that, in the long run, this will help Main Street America and that is good for Wall Street.

If the Big 3 want to survive this mess they’re going to have to do some major restructuring internally. We’re not talking about a surgical cut here or there but rather some amputations and they will need to start with executive management and go all the way down. On the flip side, the UAW needs to also make concessions. Their choice is simple — stick to the negotiated contract terms and not yield at all or make concessions that will help the companies weather this storm. I realize that Republicans tend to claim that UAW members make $73 per hour but there’s more to this story than just a number. Well, yes that is the bottom number, however, a good breakdown of that number shows that there’s more to it than that:

  • $40 per hour is cash (wages/overtime/vacation pay)
  • $15 per hour is health insurance/pension related
  • $15 per hour is retiree benefits and represents fixed costs

So in reality the UAW workers are making $55 per hour (compared to the average $45 per hour of the non-unionized workers at the Japanese auto plants) (Leonhardt, David, “$73 an hour: adding it up“, The New York Times, December 9, 2008 ). The UAW fought hard to get the wages and benefits that it has in this current contract. What the UAW now needs to realize is that they must make concessions soon if they want to see Ford, GM, and Chrysler survive this economic crisis (in one form or another) — otherwise they might all be left holding the paper of their contract while standing outside of the shuttered plants.

Both sides must come to an agreement on deep, long-lasting and substantive changes if they are to survive. But Harry Reid should be more concerned about seeing the impact on Main Street rather than on Wall Street by the failure of the Senate to help provide soft landing to these companies.

June 2020

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