The sand, silvered, carries the moon on its shoulders

We knew this was going to happen when The Big 3 said that they needed 25 billion USD to last until March. So, we gave them 25 billion, and the US economy nearly imploded since then. Now, with March looming ahead of us in just a few weeks, The Big 3 are back, and, well, nothing has changed for them.

One of the major reasons why Detroit has been uncompetitive is because they had the ridiculous policy designed to be just that. Detroit's hemorrhaging, you see, isn't caused by a one-off event that will be contained with a blank check from Uncle Sam. It's driven by factors that have been brewing for decades. Mainly:

*Uncompetitive labor and legacy costs.
*Reliance on vehicles nobody wants anymore.

The first issue could probably dropkick auto giants into oblivion all by itself. GM's health-care costs tack on $1,500 per vehicle. Toyota (NYSE: TM) and Honda (NYSE: HMC) spend a mere $400 per vehicle at their U.S. production plants -- in Japan, it's as low as $150 per vehicle. Futhermore, in recent years, GM had a staggering 2.5 retirees per current employee. The rough reality of globalization is that the country with higher labor costs -- us -- gets the shaft when it comes to manufacturing and production. Unless a bailout entails permanently subsidizing labor costs, Detroit will probably never be competitive.

The second issue -- a reliance on SUVs and trucks -- is really the 800-pound gorilla here. The profits Detroit gushed in years past didn't come from selling small, fuel-efficient cars, but from SUVs with downright stupendous profit margins. In some cases, Detroit could pull down five-figure profits per SUV sold, while accepting slight losses on small cars. Selling small cars at a loss probably didn't seem like a bad idea, because it built a stable customer base and enabled manufacturers to meet fleetwide gas-mileage requirements. Ford, for example, made as much as $18,000 profit on every Excursion SUV, while losing money on its Focus compact car. For years, that balance worked beautifully. But as soon as energy prices soared and the green movement took off, demand for those profitable SUVs drove right off a cliff.
In other words, the only avenue Detroit could rely on to remain profitable has been thoroughly roadblocked. And unless we discover another Saudi Arabia, it probably won't reopen.

Saving Detroit means saving it from bankruptcy. As we have seen with the airlines, bankruptcy can allow operations to continue while helping shed fatally unsupportable obligations. For Detroit, this means release from ruinous wage deals with their astronomical benefits (the hourly cost of a Big Three worker: $73; of an American worker for Toyota: $48), massive pension obligations, and unworkable work rules such as “job banks,” a euphemism for paying vast numbers of employees not to work.

In other words, the only avenue Detroit could rely on to remain profitable has been thoroughly roadblocked. And unless we discover another Saudi Arabia and somehow get credit flowing to the masses, it probably won't reopen.

If we don't save the Big Three, America will lose 3 million (some figures as high as 5 million) family-supporting jobs, and almost a million retirees would lose their health care coverage. Thousands of small and medium-sized business that support the auto industry would vanish. Hundreds of communities across the country would be devastated and the current nasty recession might become a full blown depression. How many cities do you know have "auto-malls" or "auto-centers"-- all of those jobs from manufacturing, to selling, to washing and oil-changing are in jeopardy.

All one needs to do is examine the impact of GM's closing on Janesville, which has the highest unemployment in Wisconsin and is among the nation's leaders in job loss. About 1,200 GM employees have already lost their jobs. Another 1,400 will be laid off when the plant finally closes. Supplier firms like Allied Automotive Group (117 jobs) LSI (159 jobs) and Lear (371 jobs) are also closing. The GM shutdown will ultimately cost Rock County 9,000 total jobs and nearly half a billion dollars of labor income.

Wisconsin is the home of hundreds of automotive supplier firms, such as Johnson Controls Inc., Dana Holding Company, Charter Wire Inc. and Strattec Security Corp., as well as hundreds of dealerships. We have seen what deindustrialization has done to cities like Milwaukee, which has the seventh-highest poverty rate in the country, and Racine. We simply cannot afford to allow auto, which accounts for one out of ten private sector jobs, to disappear.

Some have even argued that we need to keep the mnufacturing industry alive in America because it is vital to our national security. In the 1940's, the auto industry rolled out tanks and airplanes. If we let the auto industry implode, who will make the tanks and airplanes for the US in the future world crises? Others argued that once the economy is on the rebound (which it will), there will be a demand for the "greeneconomy" and that an American auto-fleet of energy efficient cars is necessary to have a competitive edge on the global market.


So, here' the question... do we continue to bail out the American auto industry in hopes to stave off a collapse of a huge section of our economy, or do we let them fail and figure things out via Chapter 11 and hope that they can reinvent themselves to be profit driven and competitive in the world market?

The Financial Sector...

The crisis in finance is a crisis of confidence. It is clear we are still in meltdown and will be for the next year. Moderate projections assume we will see another million jobs vaporize before this year ends. But it remains a crisis of confidence because the only way to actually fix the problem would be to grab hold of a few third rails that Obama does not have the courage to get close to yet.
Take Citigroup for example. This is one of those banks that was deemed 'too big to fail'. But the bank still has several billion dollars of toxic and worthless assets on its balance sheet. The company has gotten billions in free money from the government. Yet they still shell out for private jets and naming rights to ball parks which on average run $400 million per park. But the company with those toxic assets on its books has more liabilities then it does assets. The bank itself does not have enough cash flow. Businessweek a few weeks ago had spoken about this idea of 'zombie companies'...these are companies that don't have cashflow but are still functioning. Newt Gingrich this weekend was correct that we are going to have to consider letting these institutions fail.
The trap in that logic however lies with the Fed and with a Bush decision to allow the Fed to extend its balance sheet of loans to banks. And this is the murky portion of bank bailouts that no one has talked about. Now you knew that there was a vote near the election for this $700 billion dollar TARP program and you saw how pissed off people were about that. But what has been under reported except in financial journals is that the Fed has quietly through 16 different loan programs loaned banks over $2 trillion dollars in interest free loans. Those banks fail and the loans go bust too. This is why Congress keeps throwing money at the problem. The TARP program has created a trap.

We are suffering here in this country. But the economic slowdown may have greater political implications overseas. China is the perfect example of this. A week and a half ago China celebrated the 'Year of the Ox'. You know what else happened during that celebration? 20 MILLION Chinese workers lost their jobs. These guys were factory workers who were told go celebrate the new year and don't come back. Most of them were not even paid or if they were paid by communist officials to calm an uprising. Over 30 million Chinese are unemployed right now. If the communist government doesn't create jobs or put them to work if they organized it could be torch and pitchfork time. It will start in the poor rural communities in the West of China and spread like fire...

Russia is another example of this. I have a friend in Russia who works in their financial sector. Credit agencies recently downgraded Russian debt to two levels below junk status. That one action and change of rating cost the Russian government over $50 billion dollars in cash. Now they still have cash but not much it's being burnt fast. Notice the change in tone recently? You don't see Vladimir Putin throwing public fits anymore. In fact you see him offering to help the US and build bridges. Know why? With the oil economy Putin's country goes. And oil prices are in the shitter currently. Putin can't afford to throw fits...

A lot of the decisions surrounding Obama with the economy do lie around third rails. If a company is not you can either throw money at it, fold the company or nationalize. Nationalization is a third rail because it deals with banks. You do remember how Fannie Mae and Freddic Mac were nationalized and where was the outrage. If Obama did it with banks...banks that even without cashflow still managed to dump over $25 million in campaign contributions upon lawmakers the screaming would never end. That is a third rail.

Because of our debt picture for the country and all the entitlements most economists were in agreement that taxes would have to go up. You can't pay for everything on credit and expect it not to bite you in the ass down the line. It just has to. Benefits either have to change or taxes have to go up. That is a third rail.
I mean you saw this with Obama thundering about executives and limiting their pay. If you really wanted to make a greater impact for solving the debt why didn't he make it easier: no pay limits. But if you make more then $500,000 dollars then your taxes go up to 60% or 75%. Hell even higher. If you are making that many millions and shareholders are dumb enough to pay you that much then the government can take a bigger bite. Why won't that happen? Because elections in 2010 would be plastered with 'Obama raised taxes'. That is a third rail no one wants to touch...

What happens behind closed doors in politics is always fascinating to me. But Washington DC as a town by rule leaks all the time. Not many people know how to keep a secret at all. But a blogger recently stumbled upon something that revealed one of those closed door moments which helps put many things in perspective. I had no idea how close we had came to total implosion in the country. All the way back in September of last year. If you remember that month the candidates for both parties were campaigning and debating hard against each other. And in the middle of that month Lehman Brothers had been forced to file for bankruptcy on the 15th...http://en.wikipedia.org/wiki/Lehman_BrothersWell three days after that, the Fed chair (Ben Bernake) and the Treasury secretary (Hank Paulsen) called the leaders of Congress and the President together in an emergency meeting. And you might have remembered that on that day the stock market had suffered one of its biggest losses in history...I think it lost like 800 and some points. Most of the leaders that came out of that meeting were reported to be 'visibly shaken'. President Bush at the time turned to Mitch McConnell and told him, "I am going to be blamed for many things but I refuse to be Herbert Hoover too." So what did they see in that meeting that meeting that scared the living shit out of them? Now we know. A video dug up by a blogger featuring the head of the Capital Markets Subcommittee, Representative Paul Kanjorski explained what happened in that room that terrified everyone...Let me paste in a transcript because it shows how close the nation came to literally being ripped apart..."

On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it."Now that is scary stuff. Now that helps me make sense of why they have been shoveling money at this problem with no end in sight. It really is a house of cards...Ballpark it for me if you had to put a cost on this how many trillions of dollars will it take?

In 2004, President Bush campaigned for re-election on the need to fight terrorists to prevent another Sept. 11. Despite yet another election scandal, this time in Ohio, he eked out a victory in the face of a weakening economy and growing discontent over Iraq. Once again, he claimed a mandate.
"I earned capital in the campaign, political capital, and now I intend to spend it. It is my style," he said on Election Day. And he used that capital to push for something big: an overhaul of the Social Security system, promoting changes allowing younger workers to divert some of their Social Security taxes into the stock market. For months, the president pushed the idea, which got no traction in Congress or in the nation at large. But in the summer of 2005, Bush also got his first chance to fill a vacancy on the Supreme Court. Sandra Day O'Connar had stated her intent to resign from the bench, when on September 5th 2005, Chief Justice William Rehnquist passed away. President Bush nominated John Roberts, a highly regarded conservative to take the job. To fill the second seat on the bench, Bush nominated White House Counsel Harriet Miers. After 4 grueling days fo criticism due to her lack of adequacy for the job, her nomination was withdrawn and Samuel Alito was confirmed shortly thereafter.
Around the same time came one of the lowest points of the Bush Presidency: Hurricane Katrina. New Orleans was devastated. The Bush Administration seemed completely unprepared and one moment seemed to sum up it all up- when the president lavished praise on Michael Brown, the embattled head of the Federal Emergency Management Agency: " Brownie, you're doing a heck of a job."
Later that year came the midterm elections, when the democrats captured both the House and the Senate for the first time in a dozen years. Bush called it, "a thumping." It was a repudiation of the President, and a day after the election, Rumsfeld was out. In is two final years as President, Bush was often overshadowed by the race to replace him. His approval ratings continued to drift down through the 30 point range. In the presidential primaries, Democratic candidates cast him as a villain, while Republican candidates distanced themselves. The President did not attend the Republican National Convention in 2008. Then, this past fall, another blow: an economic crisis more severe than any since the 1930's. The President stayed mostly in the background as his appointees struggled to deal with the financial meltdown. At year's end, Bush made his final visit to Baghdad as commander in chief. An Iraqi journalist hurled hi shoes at the President in a gesture of defiance and protest.

President Bush leaves the White House under perhaps the greatest of (negative) turn-arounds for American prominance. From controversial nominations and elections, to torture allegations and unilateral approaches to foreign policy, to the dwindling value of the dollar and a banking system in ruins, to the Patriot Act and the outing of undercover CIA Agent Valerie Plame, there is no question about the immense failure the past 8 years have been for Americans.

A tour of some of the most iconic moments of the George W. Bush presidency starts with his inauguration on Jan. 20, 2001. On the surface, it was all ritual and routine — the peaceful transfer of power from the Clinton administration to the Bush administration. However, it was all a mask of the rancor over the 2000 Florida recount and the intervention of the Supreme Court.. which subsequently ended in Bush's favor. Despite losing the popular vote, the powers at be awarded Bush with the highest office in the land. And still, once in office, he proceeded as though he had won a mandate of the people for the people and by the people. With narrow Republican majorities in Congress, he immediately won approval for education reforms known as No Child Left Behind and for a series of huge tax cuts.
But by that first summer, there was a growing sense of public indifference toward Bush. A Republican senator defected, due to ideological differences foreseen in the newly minted Republican party. The president's job approval ratings began to slip, in September, the world as we saw it had changed forever. The Sept. 11 attacks. Bush sought to reassure the nation in a televised address, saying, "These acts of mass murder were intended to frighten our nation into chaos and retreat. But they have failed; our country is strong." Three days later, he stood with rescue workers amid the rubble of ground zero. To the cheering crowd, he declared: "I can hear you. The rest of the world hears you. And the people who ... knocked these buildings down will hear all of us soon." Americans felt sorrow and patriotism, revenge and shock. The first attack on the American homeland by foreign agents. It was momentous.
A week later came a speech to a joint session of Congress in which he brandished an aggressive foreign policy: "Every nation, in every region, now has a decision to make. Either you are with us, or you are with the terrorists." Unbeknownst to many Americans, it was this "cowboy" mentality of shoot first ask questions later that would come back to haunt them.
The president's approval ratings soared, exceeding 90 percent, higher than any other President in approval rating history. American forces went to war in Afghanistan and toppled the Taliban government. The Americans had support from just about every nation that had the sense not to mess with the sole super power remaining in the world.
Then Bush turned his attention to Iraq. There was no evidence of a connection between Saddam Hussein and the Sept. 11 attacks, but the Bush administration repeatedly made the case to the world. Bush et al warned of Saddam's weapons of mass destruction, though none would ever be found. Bush even included this line, known to be false at the time by the CIA, in his 2003 State of the Union address: "The British government has learned that Saddam Hussein recently sought significant quantities of uranium from Africa."
Six weeks later, with a meager international support, the war in Iraq began. Baghdad fell. In May, President Bush landed in a fighter jet on the USS Abraham Lincoln off the coast of California. A giant banner proclaimed "Mission Accomplished." "My fellow Americans: Major combat operations in Iraq have ended. In the battle of Iraq, the United States and our allies have prevailed," he said in a speech aboard the carrier. However, a cloud loomed on Bush's day in the sun. Reports that soldiers were not properly equipped to fight an urban war mounted with the lack of body armor for every soldier and vehicle. "Coalition" forces jerry-rigged steal plates to the sides of Humvees while Haliburton's stock soared. And still, al-Qaida leader Osama bin Laden eluded capture. It quickly became clear that the mission in Iraq was far from over. The insurgency grew; violence and chaos ensued..