Monday, April 27, 2009

What Say You, Bondholders? Michigan's Future Lies in Your Hands

GM. 21,000 jobs - which translates into probably well over 100,000 when you factor in suppliers, local business, etc. and so on and ad nauseam to infinity and beyond. 16 plants by 2012. 42% of the dealers by 2010. Pontiac, Hummer, Saab, Saturn - gone. Labor costs from $7.6B to $5B by 2010 as well, a whopping 34% reduction.

You wanted restructuring? You got restructuring. You wanted labor to make concessions? You got that too. The UAW has reached acceptable terms with Chrysler, Fiat and the government.

When our elected officials went off on the banks last week, I have to admit that I was a bit hesitant to jump right on that bandwagon. A part of me was still a bit resentful of the "tough love" attitude of the Obama administration towards our automakers, knowing that the people who are going to pay the price of that "tough love" had nothing to do with the demise of the manufacturers in the first place. Take your "tough love" and shove it; this state has already paid its dues. Add that to the double standard that seems to exist between the value of blue collar vs. white collar worth, a life-long irritant to me as well, and I just didn't trust "the man" to make this right. Last week, it all seemed a bit of a dodge to put this solely on the banks. Don't get me wrong, I was 80% there, but there was a nagging feeling that the Obama people could do a little more to reel them in as well.

Governor was all up in arms. Watch the video. Kinda freaks me out when she gets like this.



The sternly worded letters were sent. Other Michigan officials jumped in with letters and pleas as well. All good, but asking bankers to have a heart is like.... well, asking what is left of the Republican Party to have a heart. The chances of these people having a "come to Jesus" moment is slim indeed.

What cost to Michigan? The Freep had some guesses from Comerica's Dana Johnson. Given what we have seen in the past five months or so, I think these are a bit low.

Even if Chrysler does not disappear, Moody's Economy.com is forecasting that about 260,000 jobs would be lost in Michigan between the end of 2008 and mid-2010.

If Chrysler has to liquidate, the estimate goes up to 315,000 jobs lost.

If General Motors Corp. were to disappear and sell off assets, the estimate goes up to 360,000 jobs lost between late 2008 and mid-2010.


More fuel for the fire? Reports from this weekend tell us the bankers have taken their billions and are back to their high-flying ways, drawing the ire of one Paul Krugman this morning.

Still, you might argue that we have a free-market economy, and it’s up to the private sector to decide how much its employees are worth. But this brings me to my second point: Wall Street is no longer, in any real sense, part of the private sector. It’s a ward of the state, every bit as dependent on government aid as recipients of Temporary Assistance for Needy Families, a k a “welfare.”

I’m not just talking about the $600 billion or so already committed under the TARP. There are also the huge credit lines extended by the Federal Reserve; large-scale lending by Federal Home Loan Banks; the taxpayer-financed payoffs of A.I.G. contracts; the vast expansion of F.D.I.C. guarantees; and, more broadly, the implicit backing provided to every financial firm considered too big, or too strategic, to fail.

One can argue that it’s necessary to rescue Wall Street to protect the economy as a whole — and in fact I agree. But given all that taxpayer money on the line, financial firms should be acting like public utilities, not returning to the practices and paychecks of 2007.


And if they drive Chrysler under, I'll help gather the pitchforks and torches, if y'all are so inclined. While that is fun to think about, why is there still that sneaking suspicion that they are going to get away with this?

Thursday will tell the tale. Our state is in for a world of hurt anyway, on that day we will have a better indication of just how bad it's going to be. No matter what happens though, we need to plow ahead with our diversification efforts so this doesn't happen to us ever again.