Saturday, November 3, 2012

Go and Do the Right Thing - VOTE

You are on the Board of Directors of a large enterprise in severe financial trouble. Will you vote to stick with the current executive team or hire a new one?


The current team admittedly inherited a tough situation four years ago, but all they have done is spend more than they could ever take in on schemes that are not economically viable. They wasted our money rewarding their cronies with “stimulus” schemes that have not panned out.

The leader of the current team is a charming and engaging speaker who had no leadership or economic experience when he took office, and does not seem to have learned anything in those departments in the past four years. He has sold us a bill of goods of “hope and change” and all he can promise is four more years of the same.

His sidekick has no visible qualifications except having fed at the political table for decades (which explains his “gravitas”). He seems to stick his foot in his mouth whenever he opens it (which explains his clean feet and dirty mouth).

The new team under consideration offers an alternative vision based on solid business principles and demonstrated leadership and achievement.

Sadly, when it comes to campaigning, the leader of the new team  is a bit lacking in the charm department. He sometimes gets into trouble for speaking the plain truth directly and in clear language. However, he is an experienced executive with tremendous business and leadership knowledge and a sterling record of success in turning troubled enterprises around.

His sidekick is a bit of a “policy wonk” with a great deal of legislative experience. He may be the only lawmaker who has actually read and understood most of the bills he supported or opposed. He has detailed knowledge of the budget but also the ability to explain it in plain language we ordinary people can understand.

The new team has an economic plan that is admittedly a bit painful, but it is the only hope (short of Divine Intervention) of getting our enterprise out of the ditch and back on the highway to progress towards economic viability.

It is your choice. Now, go and do the right thing! VOTE!


Howard Pattee said...

Ira, let me explain why you should be glad that Obama (“the Twit”) won the election.

You write, “. . . all they [Obama team] have done is spend more than they could ever take in on schemes that are not economically viable. They wasted our money rewarding their cronies with “stimulus” schemes that have not panned out.”

I am disappointed in your credulity in believing this right-wing propaganda that has no basis in fact. Here are some facts.

The worldwide financial crisis had many causes, but it was triggered by mortgage defaults. On Sept. 8, 2008, the U.S. Treasury seized control of mortgage giants Fannie Mae and Freddie Mac and pledged a $200 billion cash injection to help the companies cope with mortgage default losses. About a week later the government bailed out American International Group Inc. (AIG) with $85 billion. The Fed refused to save Lehman Brothers and the company was forced to file for bankruptcy. Most of the largest financial institutions were on the verge of collapse as the mortgage market melted down. As the crisis spread to the global market, credit became hopelessly frozen. The Treasury and the Federal Reserve began working on a $700 billion bailout plan. This was recognized here and abroad as potentially the greatest financial crises in history.

President George W. Bush signed the bailout plan (TARP) into law Oct. 3, 2008 against a majority of Republicans in Congress. All economic experts at the time felt the bailout was the only way to return stability in the world’s economy and prevent total meltdown of the international financial system (even Paul Ryan voted for it).

Under the Obama team’s direction the intended results of the bailout plan was a success. It stabilized the financial system with only a few glitches. In 2009, just one year after the bailout, all the major banks recorded historically high profits and paid the government back in advance. The government’s share received high returns on investment and helped reduce the financial deficit.

[The Wall Street Journal July 02, 2010] “The Treasury sold a second tranche [pool of assets] of Citigroup Inc. common stock, bringing the government’s profit from sales of the bank’s shares to more than $2 billion and reducing its ownership stake in the company to about 18%. Treasury Secretary Timothy Geithner told a watchdog panel last week that banks have repaid about 75% of the bailout money they received. The government’s investment in banks have earned taxpayers $21 billion, he said.”

[The Wall Street Journal December 06, 2010] “U.S.'s Citi Profit: $12 Billion or 26.7% return
The U.S. Treasury Department said late Monday evening it had sold its remaining stake in Citigroup Inc. The department said the proceeds from Monday's offering should allow it to realize a profit of $12 billion on the $45 billion investment in the firm.”

This is how the Bush-Obama “team’s” work actually “panned out.” (And why Romney and Ryan were careful never to mention Bush.)

Howard Pattee said...

Ira, you then go on with more propaganda. You say: “The new [Romney] team under consideration offers an alternative vision based on solid business principles and demonstrated leadership and achievement.”

In the summer of 1984 Romney’s type of leveraged buyouts was a target for virulent criticism by Paul Volcker, then Chairman of the Federal Reserve, by John Shad, chairman of the U.S. Securities and Exchange Commission, along with many other “solid principled” financiers. Their criticism was that these top-heavy reversed debt pyramids, designed to make money for individuals, were overall simply increasing debt. Sooner or later this expanding debt would be unsustainable and come crashing down, destroying everyone’s assets and jobs. This is exactly what has happened, as also happened with the other unregulated financial con games like subprime mortgages and credit default swaps.

If Romney were not so rich and famous he would be called a first class con artist ― a man who makes a personal killing by loading up companies with their own debt and then charging million-dollar fees for telling them who needs to be fired in order to finance the debt payments he saddled them with in the first place. It’s also called gambling with other people’s money. These may be Romney’s “solid business principles” but over half of his takeovers ended in bankruptcies leaving thousands of tax-paying workers without jobs or pensions ― and Romney with his millions.

Now, don’t you feel better?

Ira Glickstein said...

First of all, Howard, let me congratulate you on the victory of the candidate you favored. As you know, I am not pleased with the outcome, but I respect our democratic system and I am relieved that the result was decisive in the Electoral College.

Second, welcome back to what I hope will be more active participation in our Blog. I know you were involved in a publications project and I hope you can share some of the details of that on our Blog (or privately by email if you prefer).

Now to the meat of your comments, which is that I have been taken in by "right-wing propaganda that has no basis in fact."

You correctly describe the main proximate cause of the worldwide financial crisis as being "triggered by mortgage defaults". You recite the details of the bailouts of the quasi-government agencies Fannie Mae and Freddie Mac and the "too big to fail" financial and automotive corporations. You note correctly that the bailouts started in the Bush administration and gained additional steam under Obama.

However, you ignore the ultimate cause (or distal cause) which is the moral hazard that led investors to think (correctly as it turned out) that their high risk activities had a limited downside because the government would intervene and bail them out.

As you know, this is the second time we US Government Taxpayers have had to bail Chrysler out. As a stockholder in Ford Motor Company, a well-managed company that has not needed artificial respiration from the government, I am concerned about my hard-earned money being used to rescue our poorly-managed competition. Government intervention of this type creates the moral hazard whereby incompetent risk-takers are shielded from the consequences of their actions.

Of course the govenment must intervene in natural disasters when people and businesses, through no fault of their own, are ruined. But the financial meltdown was not a natural disaster. As I showed above, the ultimate cause was the belief that the government, through the SEC and quasi-governmental agencies Fannie and Freddie, was competent to regulate financial markets (which they were not and are not and never will be), and the belief that the government would rescue "too big to fail" enterprises from their own folly (which turned out to be true).

(Continued in next comment)

Ira Glickstein

Ira Glickstein said...

As for your second comment, Howard, you have bought into the fiction that Bain was destructive to corporations that were in trouble.

From time to time, business enterprises run off the tracks. The buggy whip factory experiences a drop in orders as automobiles take over from horse-drawn carriages. If their management does not branch out into a new and growing market, they will go out of business and the workers will be out of work.

Sometimes an injection of cash and better management can help the company recover, and sometimes not. As you may remember, I worked for IBM in 1994 when they got into financial trouble due to poor management. I was worried about my job and, as I had been putting 10% of my salary into IBM stock, I was worried about my investment. The Directors of IBM replaced the management team and the new management made some tough decisions, including selling the Federal System Division where I was employed. That was a scary time, but, as it turned out, IBM eventuially turned around and, as an IBM stockholder, my IBM stock recovered.

Obama, as CEO of Government Motors has presided over similar hard decisions, including the closing of many low-performing GM dealerships, the closing of many GM plants, with the resultant loss of jobs for GM workers and the communities that depend upon GM jobs.

Two examples:

1) Candidate Obama visited the GM plant in Janesville, WI (Paul Ryan's hometown) in 2008 and assured the workers that, if he was elected, the plant would remain ther for 100 years. It was closed within a year.

2) This recent video (from MSNBC, the strongest pro-Obama media organization) details how, under the GM bailout, Delphi, a GM company, cut pensions of salaried employees almost in half, while preserving the pensions of union employees at the same locations. The government favored the Obama-supporting unions rather than treat all employees alike.

I think it is clear that Obama has used his position to reward politically-connected unions and corporations that have supported him. In the process, he wasted Trillions of our US Government Taxpayer dollars with the result that the unemployment rate is higher now than when he took office.

Sadly, I think we are in for a very slow recovery over the next four years.

We blew an opportunity to have a real public servant with actual experience turning troubled enterprises around (not just corporations but also the Olympics and Massachusetts) and have re-elected a political operative and sweet talker who wouldn't know how to read a balance sheet if our lives depended upon it.

Ira Glickstein

Howard Pattee said...

Ira, your assessments of people you disagree with are sounding more and more like Fox News and Rush Limbaugh. You act like the problem with these people is just that they are dumber and less experienced than you are. To you, Obama is a twit, “a political operative and sweet talker who wouldn't know how to read a balance sheet if our lives depended upon it.” Of course you are entitled to your opinion, but with this kind of name-calling you are not entitled to respect.

Experienced and intelligent leaders, like Romney and Obama, know enough to listen to experienced and intelligent experts. Obama’s economics experts are very diverse, from Wall Street and Harvard and everywhere in between (e.g., Alan Krueger, Katharine Abraham, Christina Romer, Michael Boskin, Larry Summers). So are Romney’s, although his advisers are more from business schools and think tanks (e.g., Glenn Hubbard, Greg Mankiw, Vin Weber, Jim Talent, Kevin Hassett).

If you want to imagine what a Romney or Obama presidency would be like, you should know what their advisors believe. Look them up. (Note: Members of he President’s Council of Economic Advisors must be confirmed by the Senate.) Romney’s economic advisers include two former chairmen of Bush’s Council of Economic Advisers and a veteran of Bush’s 2004 re-election campaign. For example, Glenn Hubbard is one of the major designers of Romney’s tax plan, which proposes a tax cut four times larger than the Bush’s, and it would explode the federal debt while giving the rich another huge break. Hubbard was an advocate of Social Security privatization, and is also a fierce advocate of financial deregulation. Like Romney (at one flip), he supports dismantling the Dodd-Frank Wall Street Reform Act and the Consumer Financial Protection Bureau.

The fundamental economic disagreement is not over “no government control and no taxes.” That is nonsense. The question is about the optimal amount of government control and taxes. All academic economists and even bipartisan committees (e.g., Simpson-Bowles) agree that to fix the deficit taxes must be increased along with reduced spending. Paul Ryan, whose economic “expertise” is based on reading Ayn Rand, was a pivotal figure in killing the 2010 Bowles-Simpson agreement. Flip-flop Romney now holds it out as a model for putting America’s fiscal house in order. Romney at one time said he would repeal Obamacare and Dodd-Frank, but then he said both of them would have to be “replaced” by his own health care and regulatory laws that he would not discuss.

Eric Schayer said...

Howard, is a copy of your master's thesis on 24-hour schools available? I'm interested in your thoughts on the subject.

Also, it seems you've written on possible parallels between physical and social systems. I've found myself wondering about the same thing and understand Max Born to have mused on complementarity between capitalism and communism. Born's speculation has been compared to the so-called Sokol hoax - except it wasn't a hoax!


Eric Schayer said...

Please see my blog link below for commentary on Ira's economic views. Unless Ira would like to copy the post to his blog, which is even better. my android won't let me do this.