States too big to fail

First it was the banks: Citibank is too big to fail, so the federal government bailed it out. Then it was the automobile companies: General Motors is too big to fail, etc. And now it is the turn of the states. Michigan, for example, owes the federal government $3.7 billion it borrowed to pay unemployment benefits, and under current law must shortly start paying interest on this money. Meanwhile, unemployment taxes in the state would be ramped up. Does this sound like a very sensible system? The companies who hire people, and who lay them off when it's convenient, pay small percentage of those salaries into a fund to pay those benefits? And if the state's fund needs to borrow the money nevertheless, then it must pay interest on that borrowing? Sounds about right to me, but not to the Obama administration, which is also betting that it can carry the new Republican Congress along for another bailout of the improvident. Blue skies! -- Dan Ford

And now--the Maserati Grand Cherokee!

The alliance of Chrysler and Fiat was always a source of amusement, but nothing comes close to the latest bit of hilarity out of Detroit, to wit: Chrysler will build a Maserati SUV on the underpinnings of the Jeep Grand Cherokee!

This follows hard on the heels of other hybrids from CEO Sergio Marcchione, including a rebranded Chrysler 200 to be sold abroad under the Lancia marque, and an Alfa Romeo to be sold in the U.S. by Chrysler dealers.

Pricing will be something to watch. The Jeep Grand Cherokee starts at $30,000, while the cheapest Masarati goes for $118,000. Blue skies! -- Dan Ford

Selling off Governmental Motors

Two cheers for Presidents Bush and Obama (and one apiece for CEOs Rick Wagoner and Dan Akerson) for starting us on the re-privatization of GM. We taxpayers paid $50 billion for our shares; we are now on track to get about 80 percent of that returned to us--or, more likely, spent on something else. Assuming the net cost is a mere $10 billion, that comes to $87 per American household. God knows, we've made worse investments in the past. Blue skies! -- Dan Ford

On bowing to foreign opinion II

Bernard Shaw said there are two tragedies in life: one being not to get your heart's desire, and the other, to get it. Barack Obama entered office with a heart full of desires, including an end to what the historians call the myth of American exceptionalism. He went around the world, apologizing for his predecessors. We have sinned, he admitted! We are a nation like any other! Well, of course the world took him at his word. As a result, he went to the G-20 summit and got sand kicked in his face. He couldn't even get the Koreans to sign the trade agreement that the Bush administration negotiated three years ago, and that was blocked in the Congress by Nancy Pelosi!

This is very popular in the faculty lounge, but it will cost us dearly over the years, as European automobiles enter South Korea at more favorable terms than those from Ford and General Motors.... Oh, and did you catch the news that a Chinese automaker hopes to take 16 percent of those GM shares soon to go on the market, heavily subsidized by your taxes? Blue skies! -- Dan Ford

The man who saved General Motors

There's a delightful take-down of Steven Rattner's self-congratulatory account of the Overhaul of GM -- in The New Yorker, of all places! I would have expected TNY to revel in the surgical swiftness of Team Obama's remake of the company that was once America's premier builder of automobiles. (Today, of course, America's premier autobuilders speak with Japanese accents.)

Malcolm Gladwell's review is sub-titled "Who really rescued General Motors?" The answer (get ready for it!) is not Steven Rattner, and certainly not the man he installed as GM's new chairman (and who stuck to the job for just over a year before he quit). No, the man who saved General Motors was none other than Rick Wagoner, whom Mr. Rattner fired. It was Mr. Wagoner who got rid of GM's pension burden, persuaded the UAW to accept roughly half the prevailing wage for the company's new hires, and put in motion the new generation of automobiles that are now winning praise from critics (if not yet from buyers).

As for Mr. Rattner, he comes off sounding a bit like a college sophomore. In a devastating last paragraph, Mr. Gladwell lets the auto czar wind his own shroud, as he concludes the story of his second (only his second!) whirlwind tour of Detroit:

Then it was on to G.M. and finally to Chrysler. But not for long, because time was short and the real work of saving Detroit, of course, has nothing to do with Detroit. “We walked among the vehicles—sedans and trucks and even a Fiat 500—as the Chrysler people talked about advanced hybrid power trains and new, environmentally friendly diesels,” Rattner continues. “But by this point our goal was not to miss our flight back to the mountain of work that awaited us back in Washington.”

Blue skies! -- Dan Ford

Um, make that $40,000,000,000!

BP's presidentially mandated $20 billion cleanup fund may be only the half of it. Now that a rough figure has been put on the oil spill--something approaching 5 million barrels--the New York Times is having fun calculating the fines that could be levied, anything from $4.5 billion to $21 billion, depending on whether the spill is defined as an accident or the result of negligence, and whether the company gets credit for the 800,000 barrels skimmed off before it could spread through the Gulf of Mexico.

BP's market value yesterday was $123 billion, though it will no doubt drop a bit today. Perhaps it would be easier just to let the White House run the company through Chapter 11, split it into Good BP and Bad BP, and give the stock in the former to the workers. Mr. Obama claims a great success in having applied that formula to GM. Blue skies! -- Dan Ford

But will the hospital deliver on Saturday?

Now that the president has declared himself ready to remodel the U.S. health insurance system through the reconciliation process (now called an ‘up or down vote’), it’s rewarding to see what so recently was the conventional wisdom on this parliamentary maneuver:

• "My understanding of the Senate is, is that you need 60 votes to get something significant to happen, which means that Democrats and Republicans have to ask the question: Do we have the will to move an American agenda forward, not a Democratic or Republican agenda forward?"—CBS interview, Nov. 2, 2004

• "You know, one of the arguments that sometimes I get with my fellow progressives--and some of these have flashed up in the blog communities on occasion--is this notion that we should function sort of like Karl Rove, where we identify our core base, we throw them red meat, we get a 50-plus-1 victory. But see, Karl Rove doesn't need a broad consensus, because he doesn't believe in government. If we want to transform the country, though, that requires a sizable majority."--Center for American Progress, July 12, 2006

• "The bottom line is that our health-care plans are similar. The question, once again, is: Who can get it done? Who can build a movement for change? This is an area where we're going to have to have a 60% majority in the Senate and the House in order to actually get a bill to my desk. We're going to have to have a majority, to get the bill to my desk, that is not just a 50-plus-1 majority."--Change to Win convention, Sept. 25, 2007

• "You've got to break out of what I call the sort of 50-plus-1 pattern of presidential politics. Maybe you eke out a victory of 50 plus 1, but you can't govern. You know, you get Air Force One--I mean, there are a lot of nice perks, but you can't deliver on health care. We're not going to pass universal health care with a 50-plus-1 strategy."--interview with the Concord (N.H.) Monitor, Oct. 9, 2007

The speaker in each case is Barack Obama. See the video here. Blue skies! -- Dan Ford

F-22 and a nation in decline

Mark Helprin--novelist and conservative--has written a devastating critique of America's defense meltdown in today's Wall Street Journal. Ostensibly it's a defense of the F-22 Raptor, but in a larger sense it's a broadside at a people and a government that would rather bail out General Motors and the United Auto Workers than properly equip its armed forces. It begins:

Cancelling the F-22 Raptor, the most capable fighter plane ever produced, is yet another act in the tragedy of a nation that, bankrupting itself, embracing moral decline, and apologizing to its enemies, is losing the will to prevail. In pursuit of false prosperities that have failed even the economy, America for three presidencies and an entire generation has diminished its arsenals, unbalanced its military, and forgotten its genius for strategy.

I'm not so sure about that last bit: when did the US ever have a genius for strategy? (Tactics, yes, and even operational art, but grand strategy seems always to elude us.) But for the rest, I think I'd rather live in a country guarded by the F-22 than not. Read it. Blue skies! -- Dan Ford

Moteurs de gouvernement

Like General Motors and Chrysler in the US, the French automaker Renault has discovered that bailouts inevitably result in governmental meddling. The company hoped to shift production of its next-generation Clio subcompact to Turkey. Pas aussi rapidement! said employment minister Laurent Wauquiez: ‘Renault is not just any ordinary company - the state holds 15% [of its stock] and we are not going to be spectators because this is a company that has received a lot of assistance during the crisis. A company that sells to French consumers must, as much as possible, produce in France.’

The photo shows the current Clio, built in France and Spain. At that, it’s cuter than the Fiat 500 that is supposed to save Chrysler from ruination. Perhaps Turkey could build the Clio for the American market? Blue skies! – Dan Ford

Goodbye California, hello DC!

During the 1930s, Southern California (odd that we should still capitalize it, as if it were a state distinct from the northern half) was filled with aircraft companies. It would be an exaggeration to say that they thrived—nobody thrived during the Great Depression—but they did survive, and they enabled the US to build almost as many warplanes from 1940 to 1945 as the rest of the world combined. Now the last of them has pulled up stake and moved to—Washington DC! Northrop Grumman has announced it will relocate its headquarters to the capital city, the better to hold hands with (and write checks to) the US Congress. I shouldn’t make too much of this, given that only 300 jobs will actually change locations. But it does show how American power has shifted in the past eighty years, from the periphery to that steamy city on the Potomac. Blue skies! – Dan Ford

‘Look, I understand that these things have to happen’

Well, it didn’t take long for Barney Frank to make a shambles out of Obama’s pledge that the feds would run GM as a hands-off operation. Reports the Boston Globe:

‘General Motors Corp. will delay the closing of a Norton parts distribution center it planned to shutter by the end of the year, according to US Representative Barney Frank. The extension will temporarily preserve about 80 jobs.’

Good news for 80 GM employees. Bad news for American taxpayers. One reason GM had to go through the bankruptcy wringer was to rid itself of some thousands of dealerships and a distribution center or two. That was before our senators and congressfolk began sticking their forks into the corpse. Among the first of course was Barney Frank, the Massachusetts congressman who did so much to bring the Panic of 2008 upon us by his feckless meddling with Fannie Mae and Freddie Mac. Hearing that some of his constituents were slated to lose their jobs, he immediately got on the phone with CEO Fritz Henderson. Says the Globe:

‘Frank, whose district includes Norton, said he told Henderson, "Look, I understand that these things have to happen but they don't have to happen in the midst of the worst recession in years."

‘GM officials decided to delay the closing of the plant after analyzing their East Coast distribution network and realizing they would need more time for a "orderly wind down," said spokeswoman Elaine Redd.’

If you believe that, I’ve got a bankrupt auto company I’d like to sell you. It comes with a 535-person board of directors, each of whom is determined that you won’t close any dealerships in his district. Blue skies! – Dan Ford