December 05, 2008

Assigning blame

Digby has Limbaugh's take on the Big Three's trip to Washington. Limbaugh is, of course, blaming the Democrats.

PhotobucketI have some questions. You know, Pelosi, Reid, that crowd, they sent the auto execs home yesterday and they said, "You come back with a plan. We don't have the votes and you're not going to make us look bad. It sends a bad signal to the American people. We don't have the votes. So you come back with a plan. You tell us what you want for the $25 billion." Okay, I have some questions for the people like Pelosi and Reid and these other liberal hacks, just tough questions for you to ponder. With gasoline prices now under two bucks in most places and dropping, and the price of oil (I checked it right before the program) below $50 now ($49 a barrel it was earlier today.) So with the gas price under two bucks and oil plummeting, what would you say, Pelosi and Reid, if the car companies could become profitable by selling SUVs or go broke by turning out the green cars that you're going to demand they make? What would you say, Pelosi and Reid, if the best auto executive in the world could come in and fix the Detroit problem but he demands a hundred million dollars a year in income? Would you insist that they hire somebody who has no clue what they're doing and earns less than $400,000?

Lookit, Limbaugh and his ilk have always found it easier to carp than offer real solutions. They have none which is par for the course with the unimaginative who refuse to think. Instead, they offer criticism and angry commentary that, frankly, is nigh unto incoherent. The problem with the auto industry has never been that they were making what Washington demanded, the problem was their planning and long term strategy was wrong. As oil prices increased, they never shifted gears. As the market transitioned to a recession, they never altered to more affordable cars or sought out cheap long term debt to bolster their capital structure. Now the problem is very dramatic as wages are cut, incomes drop and fewer people are buying cars.

Their failure was a failure of management. For 30 years, they underfunded their pension plans. For thirty years they've been losing business to competitors who are just as large but far better at designing, building and selling what the market wants. Their failure is not the failure of liberal ideology, it's the failure of their leaders to adequately build for the future. They can blame CAFE, unions and anyone else they want but the failure is theirs.

Despite having some of the best paid managers and CEO's in history. So, no, I would say that managerial talent is not worth $100mn per year. I'd put it at about $500k. Limbaugh is clearly a very poor businessman if he'd overpay THAT dramatically. But then again, people like Limbaugh often do things like that when it's not their money.

There's one ally Democrats in Congress have on CEO pay and that's the millions of small investors like myself (those with net worth less than $1mn) who wholeheartedly agree with caps on CEO pay. In fact, we'd like to see caps on ALL executive and managerial pay. Unions and low level employees aren't bleeding us, as owners, dry. It's the management that is always to blame.

And I'm all for creating problems for those parasites like Carly Fiorina who is best known for making Hewlett-Packard shareholders poor.

Limbaugh's rant blaming the Democrats is not unlike the one being circulated by some in the media regarding the cause of the mortgage crisis. From the WSJ to the WaPo, there has been a lot written about the CRA being to blame which isn't even remotely true.

While the issues are complex and ongoing, the bottom line is that a lack of regulation allowed people to create securities which hid the underlying risk. Subprime credits were packaged and credit enhanced to turn them into A credits. Investors looked the other way because whether it was A paper or subprime, they thought they were safe as houses since people always pay their mortgages. Well, they do as long as they have a wage. When all the equity they had accumulated has been used to offset the fact that borrowers wages hadn't really grown, they stopped paying their bills.

The CRA requirements, for the last damn time, CAN NOT be satisfied with subprime loans. This isn't a point of disagreement I have with the WSJ, this is me saying they are completely wrong.

Posted by mcblogger at December 5, 2008 09:13 AM

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