Wednesday, May 06, 2009

Sawing Off the Branch You're Sitting On

What our new government is faced with is a nightmare, and what it needs to do is throw lifelines to the millions of us struggling to survive. That unemployed workforce is going to keep growing, as businesses that depend on the Mighty Consumer keep going under. It's not going to happen quickly.

One example is happening here, and I participated yesterday, in the death throes of that old southern institution, the Piggly Wiggly. Ours went out of business, unable to keep on without those longtime deep pockets and overtaxed by the competition of price slashing big supermarkets/superstores. Bargain hunters will be well stocked for awhile, but the prices are rising daily and cutting back on what we can afford.

The kind of slice and dice business practices that is ending numerous business histories like Piggly Wiggly's is alive and maiming businesses big and small. Our newly elected government for the people is struggling to keep the wolves at bay, and whether they will succeed or not is still a big question.

The hedge funds suing Chrysler because it's charged with keeping its commitments to retirees is symptomatic of the struggles President Obama and his executive branch are going through. This morning WaPo features an unusually informative editorial on that crunch. Harold Meyerson stands out for his deep and serious factual writing.

Liquidation is what the hedge funds want, on the theory that they could realize more than what the Treasury's plan offered them, from the sale of -- well, it's not clear what they think Chrysler can sell off at a decent price. Old auto factories in Michigan and Indiana? Who would buy them? To what end?

If the hedge funds are standing on principle, it's the principle that holders of secured debt should always have first claim to a bankrupt company's assets. But if they thought the administration would honor their claims above those of the public and other Chrysler stakeholders, they didn't do their due diligence about the Treasury officials who are in charge of restructuring the auto industry. In particular, they missed a 2006 speech delivered to a group of investors by Ron Bloom, the onetime investment banker who left Wall Street for the Steelworkers union, which he represented in scores of steel company restructurings, and whom President Obama tapped, along with Steve Rattner, to head up the administration's auto task force.

The banks and bondholders that lend companies money, Bloom said, constantly track the value of the bonds they hold, which enables "those who like the risk-reward ratio to take it and those who don't to liquidate their position and move on." Compare that, Bloom went on, to the position of retirees who deferred wage claims so that they could have a pension and medical benefits in retirement. If the company can't honor those claims, the retiree, unlike the bondholder, can't "take the company's promise, convert it to its present value and sell it to someone who would like to own it."

The Treasury's plan for Chrysler, and its proposed plan for General Motors, gives those retirees stock in the company -- the only way to keep afloat their otherwise unredeemable investment in Chrysler (that is, their medical benefits). It gives the public a stake in the company in return for its loans. It scraps the old management and board of directors, and downsizes the company to a point where the government believes it can become profitable again. It requires that 40 percent of Chrysler's production be performed in the United States -- a perfectly sensible, if groundbreaking, condition from a government that is committed to preserving and boosting domestic manufacturing.

In other words, the Treasury's approach to the auto industry is equitable, responsible to taxpayers and economically sensible.

The mogul horde that has brought this country to its lowest point since the Great Depression is peculiar for its resistance to any vestiges of decency. True to Business School rationale, greed is tantamount to godliness to these new criminal class members. Destroying the trust our system is founded on has been the last, worst, step, and they took it with gusto. Agreements are sacred only when they get more for the CEO, not when they protect the employees or the retirees.

Another deeply factual, and scary, analysis of the corporate monsters is presented at Mother Jones. It outlines the differences that Meyerson has pointed out, that the bosses took over running the country, and they have ruined things for us all.

....corporate executives have, for the past 35 years, managed to gild their retirement benefits even as they hollowed out workers' pensions. It started with the 1974 Employee Retirement Income Security Act, the law ostensibly designed to ensure that workers could collect the retirement benefits they'd earned. erisa brought some important reforms—including establishing the federal Pension Benefit Guaranty Corporation (pbgc) to help workers whose pensions went bust—but it also was riddled with favors to business. And in the decades since, legions of lobbyists have helped create numerous new loopholes, exemptions, and special deals. The result is two separate and unequal pension systems: Executives get the equivalent of antebellum mansions, while workers get leaky shacks liable to collapse at the first harsh economic wind.

It is a step beyond, to see as we have here at the cab, that business has suffered as much as individuals in the general collapse. What was supposed to be in the interests of the business leaders has ruined their own prospects by ignoring its basic dependence on disposable income, the basis for consumer largesse.

We've written the modern day myth of the destruction of that goose that laid the golden egg. It will take modern day miracles to bring that goose back to life. Even when the consumers are revitalized, they will not be inclined to roll those golden eggs back into vapid consumption again.

Labels: , ,


Blogger PurpleGirl said...

Even when the consumers are revitalized, they will not be inclined to roll those golden eggs back into vapid consumption again.It's simple, whatever a future salary might be once I find a new job, I'm going to have to save every damn cent I can in about 10 years time before I can retire. (If I'm ever able to retire!)

7:25 PM  
Blogger Ruth said...

Social security is the outgrowth of the Great Depression, it's much needed and must be protected.

2:55 AM  

Post a Comment

<< Home