Auto Companies Better If Dodd Got Out Of Dodge!

This is the season for jingles and not the kind that used to be in your pocket because a different kind of change is in the air.(See 1, 1a and 1b below.)

Livni responds and tells it like no one wants to hear it and Abu Ali plays the role of the UAW for the Palestinians and rejects Israel's offer of compromise. Consequently two Palestinian states will continue to exist - one controlled by Hamas,the other Abbas and both unlinked. Will Hamas eventually crush Abbas and cuse Israel to react? (See 2 below.)

James Moore gives thumbs up while dispelling myths about America! (See 3 below.)

Have a great week and go out and buy a car before Congress and Dodd start making Dodges!

Dick

1) To The UAW and Christoher Dodd

Tis the Holiday season and all through the nation
Unemployment was rising, t'was much exasperation
The UAW played chicken, hoping GW would cave
He did and the U.S. Treasury's about to save

Three U.S. auto companies from dire straits
The funding will come from taxpayer's plates
But what the hell, its only our money
Congress believes it's the Eveready Bunny

They dish it out with a diffident flourish
Who cares if future generations get churlish
About spending them into certain bankruptcy
Youth have no business getting so uppity

The ship is sinking, politicians must act
And that for sure, is a dependable fact
So Merry Christmas and a Ho Ho Ho
Congress is busy, wasting our dough!

Democrats like dogs are the UAW's best friend
Union bosses on Senator Dodd they depend
Dodd will protect them and keep them safe
While the companies are dying due to CAFE

Soon the government will appoint a car Czar
He'll run the companies like Congress, how bizarre!
No cars they make, will have buyer appeal
Who cares, as long as unions don't squeal

1a) Mitch McConnell's Finest Hour

The same can't be said for President Bush on the auto bailout.

In the Senate's Thursday night automobile showdown, the United Auto Workers said "No thanks" to a bailout with strings attached. Most Senate Republicans took them at their word and voted to block the bill. But within hours, President Bush blinked and Treasury is now scrambling to use money from the Troubled Asset Relief Program, or TARP. Who'd have thought Mr. Bush would want to join the long line of Detroit executives in caving to the UAW?

Senate Republicans had more gumption. Led by Tennessee Senator Bob Corker, they asked the auto workers to show they were serious about making Detroit competitive again. In exchange for a lifeline from Washington, Mr. Corker wanted the union to set a "date certain" in 2009 for lowering the Detroit Three's hourly labor costs to the average of foreign-owned auto makers in the U.S. He also wanted creditors to bring down Detroit's total debt by two-thirds through an equity swap, making sure debtholders share the cost of restructuring.

The union's counteroffer was that it would bring down labor costs in 2011, when its current contracts run out. Maybe we missed something, but we thought GM and Chrysler were facing bankruptcy now, not in three years. As Minority Leader Mitch McConnell said on the Senate floor, that sounds like "taxpayer money today for reforms that may or may not come tomorrow."

Thursday's showdown marked an important political moment for the Republican Party. By refusing to write a blank check to Detroit, Senate Republicans have started to reclaim some credibility on fiscal policy and the role of government in the economy. They did so standing up to a Republican President who doesn't want any more bad headlines, as well as to Democrats who will blame the GOP if the auto makers collapse.

They also stood up for the right reasons. No bailout will ever restore the car companies to profitability without a restructuring. Yet an explicit UAW goal is to use the bailout to avoid any such thing. The union and their Democratic protectors want to avoid the discipline that a bankruptcy could impose under Chapter 11. A government-directed salvation would also give environmentalists huge leverage over the cars Detroit builds, a power they and Democrats have wanted for decades.
Sorry to say, within hours Friday morning the White House was saying that it would be "irresponsible" to let the companies fail. If the Administration believes that, it would be equally irresponsible not to insist on the same commitments that Mr. Corker couldn't get. If the Treasury gives GM and Chrysler bridge loans without strict conditions, Democrats will pocket that precedent and avoid any serious changes when they work out a long-term deal in January.

The TARP wasn't designed and was never intended to bail out industrial firms. The moral hazard inherent in TARP was substantial even when it was limited to financial companies. If it becomes a pot of gold for any industry needing a hand, it will become a real monster. Treasury has already run through the TARP's first $335 billion, with just $15 billion left before he has to seek further authorization from Congress. That $15 billion might tide GM and Chrysler over until the new Congress convenes, but it will leave him with little running room to help out the banking system. As the recession deepens, more banks are likely to fail, and preventing a systemic financial collapse was the justification for giving Treasury the authority it enjoys under the TARP.

The bailout's backers argue that a GM bankruptcy would hold as much systemic risk for the real economy as a huge bank failure, but those risks are overstated. Chapter 11 is a well-established tool for financial restructuring. It is not tantamount to collapse or liquidation. If White House economist Ed Lazear is worried that no one will accept a car warranty from a bankrupt company, then Congress can address that specific problem rather than write an open-ended check. Chapter 11 could well offer a speedier resolution to the auto makers' plight than a slow-motion, politically infected catastrophe that could easily cost $125 billion or more.

President Bush is on a valedictory tour talking up his accomplishments, but he'd do more for his legacy if he refused to offer Detroit, Democrats, unions and the greens a taxpayer E-Z pass. At least the rest of his party has figured out what's really
going on.

1b) Here come the car czar wars
By Steven Greenhut

Remember the Trabant, East Germany's contribution to automotive history? U.S. taxpayers would become the crash test dummies, should the White House or Congress bail out Detroit's Big Three

I recall my kids having a heated argument over some factual matter, and I suggested they simply look up the question at hand. If something's demonstrably true, there's not much point arguing over it. Kids do this all the time, and even adults sometimes argue over ideas that have been debunked.

On the comment section of the Register's Orange Punch blog, for instance, some readers recently debated whether government or the private sector operated in a more consumer-friendly manner. Of course, the nations with government-dominated economies produce the worst products and are least able to meet the demands of consumers. Arguing over this is like arguing with someone who believes that O.J. Simpson is still looking for the real killer.

In a free-market economy – or at least in relatively free economies, given that government regulation is everywhere – individuals are free to start businesses, work for whomever they choose, buy whatever products they prefer. Private investment leads to innovation, as the most efficient businesses are the most profitable. Every business must lure consumers through better quality or lower prices, or else risk going out of business.

It's not a perfect world, but in such a world in general the cream rises to the top. Individuals have the most freedom and prosperity. In government-run operations, there are no consumers. The government produces what its planners choose. Those planners lack the incentive and knowledge – and, indeed, no one has the knowledge to run anything as complex as an economy – to funnel resources in their most efficient manner. Bad agencies rarely change and never go away. The results are bureaucratic operations that run by dictate, not by consumer choice. Resources are squandered and misdirected. There's a reason people still tell jokes about Russians waiting in line for toilet paper in the old Soviet Union.

I feel embarrassed even having to make such obvious points. Yet such arguments must be made these days as the nation is experiencing a bout of mass amnesia. The latest silliness: A plan to provide $15 billion in government bridge loans to bail out the failing Big Three automakers, who have lately been making a spectacle of themselves by heading to Washington, D.C., and threatening the end of civilization if their companies go into bankruptcy. The public here is smarter than the politicians, as polls show overwhelming public disapproval with these shameless raids on the Treasury.

Fortunately, the Senate killed the proposal late last week after the UAW balked at wage concessions, but the Bush administration wanted, as of Friday, to use money from the $700 billion financial bailout for the automotive basket cases. Still, the details of the almost-approved plan are worth thinking about. As The New York Times explained, the plan included "tight government control of the crippled American auto industry, including the possible creation of an oversight board made up of five Cabinet secretaries and the head of the Environmental Protection Agency and led by an independent chairman or 'car czar.'" The plan would have given "the U.S. government a substantial ownership stake in the industry and a central role in its restructuring," according to the Wall Street Journal.

These are ideas of almost comic proportions. Has anyone noticed the state of government-run institutions these days? General Motors, Ford and Chrysler face billions of dollars of debt, but the federal government's debt has topped $10 trillion and is expected to exceed $11 trillion following the financial bailout. The Big Three have a mess because of the "legacy" costs of retiree health care and pensions that spineless corporate leaders granted to the insatiable United Auto Workers, but governments at all levels have imposed many trillions of dollars in unfunded liabilities (debt) on the public because of spineless politicians' promises to public employee unions. Does anyone really think that the government can get anyone's financial house in order?

Imagine car companies controlled by the government. Government is notorious for its customer service – bad service, that is. There's no incentive for the Department of Motor Vehicles, the Internal Revenue Service or the Highway Patrol to treat the public well because they are coercive organizations. You must do as you are told. You cannot shop elsewhere.

Does it surprise you that government office hours are designed around the preferences of the government workers, not the so-called customers? Does it surprise you that government services and products, produced without competition and without a bottom line of profits and losses, are shoddy and expensive? Would anyone really prefer to drive a Trabant (made in the former East Germany) over a Honda? Yet why would the nation choose to put government officials more directly in control of private enterprises?

A taxpayer bailout of the Big Three is nothing more than a bailout of the current, failed corporate leadership of those companies, of the outrageous union contracts that make it hard for U.S. carmakers to compete with Japanese brands, and with the unsuccessful design and product choices of those companies. A bailout would keep the nation from rethinking some of the regulatory standards that have hobbled the domestic marketplace. It would also delay the day of reckoning, and could actually lead to the final destruction of the Big Three. The way those companies are hemorrhaging funds, the money won't be enough to save them. It might be enough to delay the serious reforms that a bankruptcy court would insist upon. The status quo is the real threat to their long-term viability.

The bailout plans simply transfer decisions from the market to government planners. That, by the way, is the obvious goal of its biggest supporters, from congressional Democrats to the Bush administration. As a Wall Street Journal editorial explained, "It's also becoming increasingly clear that the real goal of Democrats isn't to save jobs per se, but to tell Detroit what cars to make and how to make them. The goal is to turn GM and the rest into Big Green Machines that will stop making SUVs and trucks and start making small cars that run on something other than carbon fuel. If consumers don't want to drive them, well, the next step will be to impose subsidies or penalties and taxes to coerce them to do so."

Dan Neil, the Los Angeles Times' auto writer, calls for the full-on nationalization of the Big Three for that very reason: "We need government-size automotive help anyway. The country should be putting millions of plug-in hybrids and electric vehicles on the road." Yet I doubt Neil would apply that argument to his bankrupt newspaper company. Would he really want the government to take over the paper and for officials to decide what stories to cover (or not to cover)! Neil also argues that the "government can afford long-term planning," as if government-planned long-term budgets are in good shape.

Wesleyan University professor Jonathan Cutler, writing for the Detroit News, makes another one of those otherworldly arguments. The problem, he writes, isn't the automakers' management or unions, but the lack of unionization in the U.S. auto plants run by Japanese firms. His solution: Foisting unionization on Honda, Nissan and Toyota, and thereby forcing those companies to build shoddier, costlier products. The result would be a massive increase in automobile costs and reduction in consumer choice and sales, but that sure would make the UAW a lot happier in the meantime.

Obviously, Americans need to relearn the most basic economic lessons. Let's hope we don't have to do it the hard way.



2) Has Livni buried the two-state solution of Israel-Palestinian dispute?

Foreign minister and aspiring prime minister Tzipi Livni used an apparent paradox to bury the two-state solution. In a speech she gave to high school pupils Thursday, Dec. 11, she said: "The place for Israeli Arabs to exercise their national aspirations is a future Palestinian state - not Israel, which is the Jewish national home." Livni's next comment: "No single Palestinian refugee will be admitted to Israel" was a roundabout message in the same vein to the Israeli Arab minority (a steady one-fifth of the population).

She clarified this later by saying that while Israeli Arabs would not be forced to leave or lose their civil rights, "those who wished to realize their national aspirations should look elsewhere," namely to a Palestinian state when it rises.

But what Palestine was she talking about? For now and in the foreseeable future, there are two – one ruled by Hamas in Gaza and one by Fatah on the West Bank, as the foreign minister knows very well.

America and European leaders will no doubt do their utmost to breathe life into the two-state solution. It was first enunciated by President George W. Bush and is the only raison d'etre of the Middle East Quartet, which convenes next week at UN headquarters. In Bahrain Saturday, Dec. 13, US defense secretary Robert Gates promised the incoming administration would continue to back a two-state solution of the Middle East dispute.

But they are all in for a head-on clash with reality.

As long as Israel is not prepared to use its army to recapture the Gaza Strip, crush the Hamas government and make Mahmoud Abbas a gift of the enclave, only three eventualities are in store:

1. Either the Hamas entity extends its rule to the West Bank and ousts the Abbas administration, a recipe for war rather than diplomacy; or

2. The two Palestines endure as separate, unstable entities – Hamas-ruled Gaza sustained by Iran and the West Bank governed by Fatah, propped up by US-trained Palestinian security forces and the Israeli military presence; or

3. While Israeli sustains its blockade of the Gaza Strip from the north and east, Egypt will lift its closure in the south and so pave the way for its gradual domination of the territory.

The geographic duality of Palestinian rule is only one complicating factor.

Another was offered Saturday by former Palestinian prime minister, Ahmed Qureia (Abu Ala).

He, like the Israeli side, confirmed that the negotiations which he and Mahmoud Abbas conducted with Ehud Olmert and latterly with Livni for two years were hopelessly stuck in the mud. He then administered the last rites to the ideal of an Israeli and Palestinian states co-existing side by side

Their US sponsor's had assumed that had been the object and guiding principle of those talks.

Not so, according to Abu Ala.

He outlined Israel's proposal: The handover of 93.2 percent of the West Bank to the Palestinians while retaining the Jerusalem sector up to Ramallah (Givat Zeev and part of the Gush Binyamin), Maaleh Adummim, Gush Etzion and the Jordan Valley. Israel offered to trade the 6.8 percent remaining in its hands for a comparable stretch of the Negev. Jerusalem was not discussed.

The Palestinians rejected this proposal out of hand.

Abu Ala's frankness was motivated less by Israel's election campaign, in which Livni is running a close race against the right-of-center Likud party headed by Binyamin Netanyahu, than his wish to put president elect-Barak Obama and designated secretary of state Hillary Clinton in the real picture as seen by the moderate Palestinians which he represents.

He was advising them to give up the Middle East peace principles guiding the outgoing administration in the last two years, because the Palestinians had no intention of going through with the Bush administration's initiative.

Abu Ala did not try to haggle over the size of Israel's withdrawal from the West Bank, because that is not the point.

The Palestinians negate the basic premise of a Palestinian state within the pre-1967 Six-day War borders - the conventional wisdom of US and European diplomacy though not enshrined in any maps or international accords.

The Palestinians are demanding nothing less than Israel's retreat to the 1949 armistice lines and in some places the UN 1947 Partition Plan plus the Right of Return for all Palestinian refugees.

The two-state formula – now confirmed by Gates - cannot bridge this gap and is therefore unrealistic as a starting point for Middle East peace diplomacy.

(Res.) Brig. Giora Eiland, head of Israel's national security council under former prime minister Ariel Sharon, put the dilemma in a nutshell in a lecture to the diplomatic corps in Jerusalem on Nov. 17:

"When we talk about a two-state solution, we face a paradox: On the one hand, Israelis and Palestinians feel a genuine need to resolve their dispute. On the other, neither has any real interest – or belief - in the establishment of two states living side by side. This dichotomy is far deeper than generally appreciated and is getting deeper all the time."

Eiland pointed out that the career risks any Israeli or Palestinian politician runs by embracing this formula would far outweigh his chances of success. Neither side is therefore willing to gamble his personal future against such odds.

3) 5 Myths About Our Sputtering Economy
By James P. Moore Jr.


For months now, the nation's economic obituary has been splashed across the front pages of nearly every newspaper in the country. Journalists and pundits alike have warned that America's long-running global dominance has come to a screeching halt, eclipsed by growing markets in such places as China and India and frittered away by our own mismanagement, excesses and myopic approach to the future. We're long past due for a reality check. The United States and the incoming Obama administration face formidable challenges, but the country is by no means on its last legs. Here are a few key myths that need to be dispelled.

1. The United States has lost its competitive edge.

Not by a long shot. By almost any measure, the United States continues to outperform other countries around the globe (including rising giants China and India) in such areas as innovation, technology, higher education, worker training, the ability of the labor force to move from job to job, and more. Just this fall, the Swiss-based World Economic Forum released its latest global competitiveness report, and once again, the United States easily topped the list. The study noted that despite the current financial turmoil, the United States is blessed with strong productivity and can "ride out business-cycle shifts and economic shocks" better than other countries.

2. The United States long ago gave up its global lead in manufacturing to China.

Not yet. Yes, U.S. production plummeted this fall, and yes, the domestic auto industry -- the poster child for America's aging manufacturing infrastructure -- will never return to the output it could manage a decade ago. But even with all this grim news, the United States has held onto its manufacturing lead -- particularly in such key sectors as pharmaceuticals and aerospace, in which it produces almost 25 percent of the world's output, according to the World Bank. China produces roughly two-thirds that amount, the bank notes, and the global downturn has badly hurt its manufacturing sector over the past several months. Sure, China and India have been closing the gap, but with a little bit of creativity, vision and determination on the part of U.S. industry, the Obama administration and Congress, we can hold our own.

3. The U.S. economy is about to be eclipsed by China's.

Not for some time to come. The World Bank estimates that global GDP last year was more than $56 trillion dollars. The United States contributed almost $14 trillion (or 25 percent) of that amount. China's total economy amounted to a bit more than $3 trillion.

Of course, China and other countries such as India and Brazil are growing far faster than the United States, but then again, we were wealthier to begin with. Let's be realistic. The turmoil in the financial markets will reduce U.S. GDP in 2008 and 2009, but China's economy will contract too. No matter how you calculate growth projections, realistically, it will be decades before China is within striking distance of the United States.

And as for those other budding economies now coming on line, don't expect them to outstrip us any time soon, either. Despite its strong growth rates, Brazil has an economy that's approximately the size of Florida's and Illinois's combined. Russia, which spans 11 time zones and has vast natural resources, had an economy that was on a par with that of Texas last year. Even India, a bright spot on the global stage for almost a decade now, still has a GDP that's less than half of California's. These countries will be formidable indeed at some point, but they still have a long way to go.

4. The United States is no longer the economic engine of world trade.

Not true. For three decades now, we have amassed staggering trade deficits, amounting to several trillion dollars (and growing), but U.S. consumers have still helped add substantially to the growth of most countries around the world.

When it comes to imports, of course, the United States buys far more products from overseas than either China or Germany. But in terms of exports, all three countries are closely bunched together, at just over $1 trillion each. There is simply no country, now or in the immediate future, that can replace the United States' sheer global buying power.

5. The United States is no longer an attractive market for investment.

Hardly. Investments here are transparent, well protected and have a long track record of healthy returns. So even with Wall Street reeling, the United States is a compelling place to invest. Of course, today's liquidity crisis originated here, but the value of the U.S. dollar has risen dramatically over the past few weeks, and foreign investors have flocked to U.S. investments and financial instruments as a (relatively) safe haven amid global uncertainties. No wonder the United States attracted more than $2 trillion worth of foreign direct investment last year, according to the World Bank and the International Monetary Fund. (The United Kingdom, Hong Kong and France -- the next three top finishers -- each registered just over $1 trillion.)

So where does that leave us? As Warren Buffett put it recently, the U.S. economy has gone from springing a few leaks to spewing one big gusher. But given our history and unique ability to adapt, we are anything but down and out. The world has changed, and the United States must respond more nimbly to the hard realities of global interdependence. But as "the sage of Omaha" reminded us, this is a fine time to buy into the long-term future of America -- not out of blind patriotism but because it makes good, sound business sense.