Thursday, December 11, 2008

No Deal, Soon No Job, Ho Home, No Hope

I've been on the road all day, since six this morning. I listened to CNBC at different points during the day and besides listening to Jamie Diamond, CEO of JP Morgan Chase tell us how he didn't really need the $25 billion the government foisted upon his bank, he said he took it to be a good citizen, but no, he couldn't tell us how it was spent or if it was spent at all, mostly because he didn't know. It was just more money in a big pile of money. "Fungible" was what he called it -- just like wheat or oil. Once you mix it together you can't tell what was yours or his. Now it is all just his. Congress is made up of slow learners but from the TARP experience they learned that you never give, loan or otherwise dispose of money without knowing how it is going to be spent and how you're going to get paid back.

Which brings us to the auto bailout which I have watched with interest over the last several weeks. It was pitiful, truly pathetic by any standard. The Big Three represented by Moe, Larry and Curly dressed in Zegna suits could never answer the hard questions, or many of the easy ones, either. "What would do with this money if we gave it to you?" "How will you change your business in order to make the money make a difference?" "How can you compete with your union employees making $75 an hour (with benefits) compared to Honda, Nissan, and Toyota whose employees earn $41 an hour (with benefits)?" "Why can't you go through the Chapter 11 bankruptcy process like other broken companies, reject the contracts that aren't working for you, rid yourselves of the legacy liabilities, lay off half your workforce, and come back lean and ready to compete?"

"Uhhh . . . "

Nope, no answers, at least none that made any sense to those who speak and understand English. What's left of the free market was finally defended, much too late, but the theater was spectacular.

A few minutes ago, at 10:20 p.m. CST Harry Reid announced that the compromise plan to provide emergency finding to the U.S. auto industry was dead. The major sticking point? The unwillingness of the United Auto Workers union to accept reductions in employee compensation as part of the deal, abide by equivalent work rules and give up a benefit no other employee in America enjoys (except perhaps a few CEO's) -- 95% of their pay if they are put on the street in a layoff.

Now it is over, and absent some Hail Mary pass in the final moments, General Motors and Chrysler will file for bankruptcy and soon. Ford won't be far behind. And then the Big Three (who by market cap aren't really very big anymore) will need to make a decision -- reject the collective bargaining agreements with the UAW, take long and bitter strikes, and then negotiate new agreements competitive with the wages and benefits of their foreign competitors who have found a way to make a buck making cars in America, or convert to Chapter 7 -- a total and complete liquidation sale where you can buy a lathe or a nice office chair for pennies on the dollar.

Either way, hundreds of thousands of autoworkers will be put on the street and what they will find will not resemble their $75 an hour positions screwing on nuts and bolts. No, what they will find are $9 an hour jobs flipping burgers or making beds at cheap motels on the outskirts of what is left of the cities they once lived in. And there is a part of me that says, "It's about time."

But, it is not really their fault. They just took what they were offered by fat, dumb and happy companies that once had a monopoly on the car market in America. GM, Ford and Chrysler figured they could pay anything as long as they paid the same thing. They could have stood up to the UAW years ago, taken a deep, long and bitter strike, then downsized and learned to compete. Now, they get to the same thing except with billions of dollars in debt and formidable competitors like Toyota, Honda and Nissan. My bet is that none of the three will survive, at least not for long.

Hundreds of thousands of other workers who serviced the auto industry in one way or the other will lose their jobs, too. Big businesses will fail. Small businesses will fail. Unemployment, already at a 26-year high, will skyrocket and the mortgage default rate, already disturbing, will help Jamie Diamond at JP Morgan Chase find a use for that $25 billion he "didn't really need" but only took because the government had him over a barrel.

Between now and then comes tomorrow. We will all wake up in a new world, a tougher world, all because of a single human flaw -- greed. Indeed, as I close this out the Dow futures are already down $350 at 10:56 p.m. on this cool night in a La Quinta motel on the outskirts of San Antonio, Texas. My window is open and the electricity in the air is palpable. Two railroad workers are standing outside by their truck, drinking beer and smoking cigarettes, and both wonder openly "how much longer we'll last."

A good question indeed.


Anonymous Staying Awake said...

You are so right. Let's bail out the auto companies who can't figure out how to make money with billions in gross income, support the workers who can't figure out how to survive on $50-80 per hour, bash and trash the hedge funds for loaning the Big Three money and then actually wanting it paid back, tax the oil companies who put billions at risk for not giving their products away....Hmm. Sounds like the end of free enterprise, doesn't it?

5:41 PM  

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