Sunday, November 09, 2008

Send Lawyers, Cars and Money, The Shit Has Hit the Fan!

In the celebratory atmosphere many of us are feeling after the election (some exceptions are...), I am waiting to see who is the most trusted advisor on the economy. Will it be someone with a free market bent, a Friedmanite or a Keynsian? or some mixture in between. If you have not read The Shock Doctrine, read it. For me, it puts into an understandable context Confessions of an Economic Hitman and fills out so much of the background of South American politics I was just too stupid or naive to understand when I was younger. It makes listening to Thom Hartmann easier too. It is hard to drive, listen to him on the car radio and have your brain hurt. and it also helps put into perspective Rush Limbaugh's comments of the necessity of rolling back the New Deal.

Speaking of New Deals, I see the US auto industry may become part of the bailout. GM was looking at purchasing Chrysler LLC, but has no money with which to do it. GM needs $19.4 billion to meet commitments to retirees, payroll, benefits and suppliers. They are about out. They have already cut 401k matching payments. The industry is needed for an American economic recovery. There is no doubt about it. They are meeting with Pelosi to see what can be done.

But how should these industrial giants retrench? And can their administrations which have made so many STUPID decisions (just last week Ford, for the third time in ten years, is placing hopes of recovery on big pick ups and SUVs - do they know more than one note?) Ford could not figure out how to make small cars profitable earlier in this decade and now has problems. The November 2008 issue of Automobile magazine lists 10 cars that are needed for today's world and three of them are are already existing Fords, one GM (Opal/Saturn). They are out there and will be needed.

I often wonder if we are not in a situation now where you need to make a product and break even, just to keep the doors open. I am sure that will get you no bonuses (at that level are bonuses really tied to economic metrics or are they just expected. evidence recently shows the latter option as the way it is done.) You may even lose your job as investors take no dividends for a while. Aren't we in a situation where country needs to come before return on investment. Maybe keeping the doors open and lowering ROI is a necessary step.


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