GM=Government Motors?

First we bailed GM out with $17.5 billion last December...then an additional $6 billion in March.

At that time President Obama said "We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars. These companies -- and this industry -- must ultimately stand on their own, not as wards of the state."

After GM declares bankruptcy today, the U.S. Government will own 70% of the company, with upwards of $50 billion in federal money being infused into the new GM.

The United States will accept stock in lieu of the cash the company owes, and Washington -- that is, you, the taxpayer -- will become the owner of 70 percent of the new GM. When might the company stand on its own, to paraphrase Mr. Obama? When would the government exit the stage? The (Washington) Post reports today that administration officials hope to depart within five years, but the truth is that nobody knows when or whether taxpayers would recover their investment. (emphasis added)

Not only that, but the deal made goes against U.S. bankruptcy rules by giving other claimants more stock/money than secured bondholders (see earlier posts). And, the Treasury Department has given GM a list of which dealerships must be closed, without ever disclosing any kind of criteria for which should be closed and which should not (profitability is not the criteria, as the list shows).

Also amazing is that the Executive Branch has engineered this entire thing without Congress, even though something like this would traditionally be handled by Congress.

North Korea

On May 25th, North Korea detonated a nuclear bomb reportedly as strong as the bomb that was dropped on Hiroshima.

Global Warming, Climate Change, etc.

Here is some climate change logic for you...

Assume that there really is "global warming" or some kind of catastrophic climate change (even though the climate has changed many times over the millenia).

Then assume that this climate change is primarily cause by humans and our carbon emissions (even though there is evidence to the contrary on this point).

Even if you agree with those two assumptions, our government is not behaving rationally as it tries to "fix" global warming by forcing Americans to "reduce our carbon emissions." Why?

Because China, India and other developing countries will not impose restrictions on their carbon emissions, and they have high levels of emissions!! So we could cut our emissions to almost zero (and we would all be farming and living in poverty to do so) and it still would not "fix" global warming (in 2006 the U.S. emitted 20% of the world total, with China emitting 21%).

The Administration and its Congressional allies are trying to impose a significant carbon price in the U.S. through something like the Waxman-Markey bill, while entering an international negotiation process in which as much as 60% of global carbon emissions could face little to no carbon price. The likely outcome would dramatically tilt the global economic playing field, harming U.S. workers and firms relative to their counterparts in China and India. At the same time, it would make little progress toward addressing the risk of severe global climate change, as a large portion of global carbon emissions would remain effectively uncapped.

From an American standpoint this seems extremely unwise. It is an incomplete climate change strategy, with a hole about how to deal with China, India, and other large developing nations. (emphasis added)

This is from a very interesting and readable article...check it out.

Big Brother Knows What You Should Read...

Keep your eye on the Department of Justice (DOJ): they want to tell some newspapers what kind of editorial content and news they should cover!!

...the DOJ is currently pursuing litigation against two West Virginia newspapers, who have been operating for decades under a joint operating agreement. The DOJ wants to dissolve the agreement because it is dissatisfied with the editorial quality of one of the papers, the Daily Mail. The Newspaper Association of America, in a court filing, explained why that would be a bad idea:

"The government cannot properly base a claim on its negative evaluation of the Daily Mail's content. Nor could it properly seek a judicial decree that more newspaper editorial and news content be published in Charleston then currently exists. No branch of government in this Nation is entitled to determine the type or volume of the editorial and reportorial content of newspapers.

Editorial quality is in the eye of the beholder. One need only contrast 60 Minutes with Entertainment Tonight to see the subjectivity involved. In the field of newspapers, different publications may take vastly different approaches. The New York Daily News is not the same type of paper as the Miami Herald, the New York Times or USA Today, to arbitrarily pick a few. Which newspaper would the DOJ most want the Daily Mail to resemble and have the Court require?"

And don't think they are stopping at newspapers...The Federal Trade Commission (FTC) is thinking about ways to regulate the credibility of bloggers on the net.

Government Workers are Sitting Pretty

Years ago, my Dad suggested I get a job in the government, because they have rich benefits, short hours, and you can't get fired!! I never took him up on this advice, but you can really see how right he was....

A study in 2005 by the nonpartisan Employee Benefit Research Institute estimated that the average public-sector worker earned 46% more in salary and benefits than comparable private-sector workers. The gap has only continued to grow. For example, state and local worker pay and benefits rose 3.1% in the last year, compared to 1.9% in the private sector, according to the Bureau of Labor Statistics (BLS).

But the real power of the public sector is showing through in this economic crisis. Some five million private-sector workers have lost their jobs in the last year alone, and their unemployment rate is above 9% according to the BLS. By contrast, public-sector employment has grown in virtually every month of the recession, and the jobless rate for government workers is a mere 2.8%. For anyone who thinks such low unemployment numbers are good news, remember that the bulging public sector must be paid for with revenues that most governments don't currently have. (emphasis added)

Remember, we pay for those salaries and benefits.

In addition to having recession-proof jobs and rich benefit plans, the public sector unions yield great political power. For example:

The Obama administration is threatening to rescind billions of dollars in federal stimulus money if Gov. Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers approved in February as part of the budget.

California has a huge budget deficit, and unlike the federal government, cannot print money or issue debt to pay for their deficits. But it looks like they won't be allowed to cut public payrolls either, which will make it nearly impossible to get their deficits under control. Not to mention the philosophical issues with the federal government telling a state how to run their business...

Obama Misquotes Health Care Leaders

As you may have heard, the president had a meeting Monday with leaders from 6 major health care organizations. After the meeting, the president made the following statement.

These groups are voluntarily coming together to make an unprecedented commitment,” Mr. Obama said. “Over the next 10 years, from 2010 to 2019, they are pledging to cut the rate of growth of national health care spending by 1.5 percentage points each year — an amount that’s equal to over $2 trillion.”

Well, according to the health care folks, that was NOT what they said. They did agree to work to cut the rate of increase in costs, with the target being that eventually the annual rate of increase would be about 1.5%. That's a lot different than what the president said.

To add to the confusion, the director of the White House Office of Health Reform, said “the president misspoke” on at least 2 different occasions. But yesterday, she took that back and said that the president did not misspeak (wonder what the health care execs think of that!)

This is another case of the president saying something that is not correct, but sounds good. As you read the full article, notice the statement about hospitals putting major construction projects on hold, given all the confusion about what is going to happen in the health care arena.

White House Accused of Threatening Chrysler Debt Holders

Now there are accusations that Steve Rattner, the head of the Auto Industry Task Force (who is also under scrutiny in a probe of kickback schemes involving NY pensions), threatened to destroy the reputation of an investment bank that owns Chrysler debt if they didn't accept the government's plan for divvying up Chrysler (see earlier posts on the flaws in the government's plan).

Perella Weinberg Partners, Lauria said, "was directly threatened by the White House and in essence compelled to withdraw its opposition to the deal under the threat that the full force of the White House press corps would destroy its reputation if it continued to fight. That’s how hard it is to stand on this side of the fence."

...Lauria said his clients "are mainly fiduciaries for pension plans, college endowments, retirement plans and credit unions who invested in low yield supposedly very secure first lien debt" with Chrysler.

...President Obama singled out Lauria's clients for criticism when he announced the Chrysler plan on Thursday.

The White House is denying the report.

Chrysler to file for Bankruptcy

Chrysler announced yesterday that it would file for Chapter 11 bankruptcy. Chrysler and the government were not able to obtain approval of their restructuring plan from some of the senior debt holders.

The principle at stake is the long-standing legal precedent of senior debt holders having first rights to assets of the company that they have lent money to. In the proposed plan, unsecured creditors and union members would jump ahead of the debt holders claims. The debt holder group is divided in it's support of the plan. Those in favor are the large banks (who are receiving TARP and other bailout funds). Those opposed tend to be the smaller hedge funds and private investment firms (which by the way, are investing money for teachers, pension plans retirees and other investors like you and me). Of course, the Obama administration is portraying this group as "speculators who are endangering the future of Chrysler".

Here are the highlights of the plan developed by the Obama administrations auto task force.

1. The $4 Billion that we lent them so far is wiped out. Instead, US gets 8% equity ownership
   
   
2. Current equity shareholders are wiped out, and will have to contribute $600 million to cover pension obligations
   
   
3. UAW Retiree health care fund is currently owed $10.6 Billion by Chrysler. They will receive a $4.6 Billion promissory note to be paid back (with interest) over the next 13 years. In addition, the UAW gets 55% ownership of the company.
   
   
4. Pension obligations are untouched
   
   
5. Amounts owed to suppliers will be repaid over time, with assistance of TARP funds
   
   
6. Secured/Senior Debtholders would forgive $4.9 Billion of what is owed them. They would end up owning $2 Billion of debt from Chrysler (30 cents on the dollar).
   
   
7. Fiat gets 20% ownership now and 15% more later, in exchange for giving technology to Chrysler. (Editorial comment: what are the odds that they get the 15% later if they do not produce the kind of eco-cars that the US government wants them to make?).
   
   
8. U.S. to provide an additional $8 Billion dollars to assist during the transition.
   
   

Link to WSJ article

Mortgage Cramdown Bill Fails

The Senate voted 51-45 (12 Democrats voted with Republicans) against passage of the amendment sponsored by Senators Durbin (IL) and Schumer (NY). As you may recall, this was part of the "mortgage bailout" plan announced several weeks ago. The cramdown would have allowed bankruptcy judges to rewrite mortgage contracts, reducing the principal that would need to be repaid (I wish I could get one of those!). Opponents argue that this would increase the cost of doing business for lenders (banks), who would pass this along by increasing mortgage interest rates in the future.

Over the past few weeks, Senator Durbin has attempted various legislative maneavers to get this passed. For example, he tried to make it part of a bill that was going to increase funding for FDIC insurance. He assumed that there was no way the Senate would not increase funding. However, he was unable to do that.