Senators Feinstein, Boxer & Colleagues:
Please vote "No" on the proposed Auto Industry bailout. This plan will be a disaster for our nation and taxpayers, and will only serve to prolong the destructive practices of the industry.
Rick Waggoner, GM CEO, testified yesterday that GM was losing $5 billion per month. If he received the entire bailout his firm would still run out of money in five months!
The industry needs restructuring, and the only credible path to achieve this is Chapter 11 reorganization. In this forum the companies can reject contracts that are not suited to the long term viability of the industry. This includes leases, supply contracts, and labor contracts, among others. It also gives the companies the opportunity to negotiate with lenders. Finally, it will not reward shareholders, as a bailout might (at least temporarily).
Please review this article in yesterday's NY Times - it is well thought out: http://www.nytimes.com/2008/11/18/business/economy/18sorkin.html?dlbk
I am not a big fan of Mitt Romney the politician, but as a corporate financier he knows a thing or two. Please review his op-ed piece that appeared today: http://www.nytimes.com/2008/11/19/opinion/19romney.html?hp
In lieu of a bailout, government should be ready to provide a "DIP" financing to these companies so that they can meet their operating obligations while in bankruptcy. This can be provided either in the form of a direct loan, or via a guarantee to banks providing these funds.
But funding without fundamental change will only prolong their disastrous strategy of gas guzzling and polluting cars, outdated models, over capacity, and over priced labor (on average $70/hour).
These companies need to be redirected to 50 MPG cars which pollute less and reduce our reliance on foreign oil (a national security issue). Currently hybrids cost over $8,000 more than their traditional counterparts. An effective corollary strategy would be an $8,000 tax credit for buyers of hybrids.
We need to be aware of the failure of other auto industry bailouts. Please review this article about the disastrous results of the bailout of the British industry:
http://www.nytimes.com/2008/11/18/business/economy/18car.html?em
Please vote "NO" on the proposed bailout.
Sincerely,
Michael Bloom
Showing posts with label Congress. Show all posts
Showing posts with label Congress. Show all posts
Wednesday, November 19, 2008
Wednesday, October 29, 2008
Pay Regulation To Creep Into Wall Street
You cannot take their money and expect they won't have something to say about how you run your business. Well, Congress does have something to say, and today's something regarding executive pay is: Are You Kidding Me!
In an election year, when the government has allocated $860 billion to a bailout, given $250 billion already to the banks, given almost $40 billion to AIG, back stopped deposits in excess of FDIC insurance, and forced the takeover of Bear and Merrill and WaaMu and Wachovia, the executive pay of these same firms is an easy target. So Congress is taking aim.
http://www.reuters.com/article/ousiv/idUSTRE49R7WC20081028
Congressman Waxman has requested a break down of compensation from banks receiving half the bailout money. Don't worry you other half, a similar document should be in a Fed-ex pouch very soon.
Wall Street has always argued that it is a meritocracy, in a meritocracy pay for performance is fair, and that there should not be a cap on it.
This may be true, it may not be. In the old days, when Wall Street rarely committed capital, when it made its money on expertise and execution rather than prop trading, this was probably true. Now, when it makes its money on allocating capital, making directional bets, and competing with its customers with seemingly limitless funds, perhaps not. Profit derived exclusively from your wits is one thing, profit requiring the use of investor capital quite something else, irrespective of the brilliance.
Congress is questioning how much pay is merited while trillions of investor and taxpayer dollars are lost.
Wall Street has also always warned that capping pay would lead to a brain drain: that all those clever MBAs will go elsewhere; and that experienced deal makers and rocket scientist product guys won't have enough incentive to stick around. I for one think most guys still show up to work earning $1 million - $5 million instead of $10 million to $50 million, but thats just my opinion.
In any case, we are soon to find out.
In an election year, when the government has allocated $860 billion to a bailout, given $250 billion already to the banks, given almost $40 billion to AIG, back stopped deposits in excess of FDIC insurance, and forced the takeover of Bear and Merrill and WaaMu and Wachovia, the executive pay of these same firms is an easy target. So Congress is taking aim.
http://www.reuters.com/article/ousiv/idUSTRE49R7WC20081028
Congressman Waxman has requested a break down of compensation from banks receiving half the bailout money. Don't worry you other half, a similar document should be in a Fed-ex pouch very soon.
Wall Street has always argued that it is a meritocracy, in a meritocracy pay for performance is fair, and that there should not be a cap on it.
This may be true, it may not be. In the old days, when Wall Street rarely committed capital, when it made its money on expertise and execution rather than prop trading, this was probably true. Now, when it makes its money on allocating capital, making directional bets, and competing with its customers with seemingly limitless funds, perhaps not. Profit derived exclusively from your wits is one thing, profit requiring the use of investor capital quite something else, irrespective of the brilliance.
Congress is questioning how much pay is merited while trillions of investor and taxpayer dollars are lost.
Wall Street has also always warned that capping pay would lead to a brain drain: that all those clever MBAs will go elsewhere; and that experienced deal makers and rocket scientist product guys won't have enough incentive to stick around. I for one think most guys still show up to work earning $1 million - $5 million instead of $10 million to $50 million, but thats just my opinion.
In any case, we are soon to find out.
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