Sri Lanka bankruptcy - the canary in the coal mine?

Sri Lanka has recently petitioned for bankruptcy. There are a few reasons it's come to this, but Business Insider provides a good explanation:

If you are waiting for the Biblical apocalypse, we now have pestilence/plague, war and famine all visible - that's three of the four horsemen of the apocaplypse. Could it get that bad?  Or worse?   Maybe, maybe not.  But the thing is, Sri Lanka is not alone, they are simply the first nation to hit the wall. They are the canary in the coal mine, and others may soon follow:

No pun intended, the Sri Lankan crisis is food for thought.

4th of July explosion as a metaphor

"Every picture tells a story, don't it?" Rod Stewart (and Ron Wood) said that back in 1971. It's true. On the 4th of July in San Diego, apparently a fireworks display meant to go on for 20 minutes exploded in about 15 seconds. Oops.  Not the desired outcome.

(HT Drudge) 

The irony of such a massive blowout happening in California, a state perilously teetering on bankruptcy, is not lost on some. The sudden, unexpected and explosive mistake serves as great metaphor for the state, if not the nation.

The no-due-diligence presidency

Here are a couple of quick anecdotal examples of why this is the no-due-diligence presidency.

1. Obamacare and as Nancy Pelosi pointed out - we have to pass it to see what's in it.
2. During the BP oil spill the President claimed to be on top of the situation but blamed the disaster entirely on BP. This despite the fact that his slow response and clearly not knowing all the facts indicated that there wasn't much due diligence coming out of the White House and it seemed entirely befuddled.  Angry, but befuddled.
3. His last address to the joint session of Congress demanding they pass the bill - that he still hasn't fully released (see item #1 for a historical comparison).
4. The $0.5 billion loan to Solyndra to make solar panels a year before the company declared bankruptcy, when the GAO had concerns about this sort of lending;

Plenty of venture capitalists made foolish bets on Solyndra, but the federal government was the most reckless. The Obama administration wanted to throw money at the likes of Solyndra without due diligence, or much diligence at all. In 2008, the Government Accountability Office warned that the Energy Department loan program — created in a 2005 energy bill — had inadequate safeguards.

Bankrupting Medicare

Sometimes I find myself tempted to say, “Let Medicare go bankrupt in 12 years.”  Like I and others, said with California. If Democrats are so eager to stick their heads in the sand and say there’s no problem, or that the problems are merely waste and fraud that need more policing, then let’s let the chips fall where they may and hold them accountable in 12 years when it goes broke and the baby boomers, so eager to ignore reality get a really big dose of “there’s nothing left, you’re on your own now.”

Wait, who pays for laid off oil rig workers?

After meeting with President Obama, BP agreed to set aside a special $100 million to compensate oil workers laid off as a result of President Obama's six month moratorium on deep water drilling. Why does it feel more and more like the United States is operating at the whims of an emperor?

Keynesian Debt and Inflation Crisis

Is inflation inevitable? Maybe. Is America bankrupting itself? It sure seems that way, and that in itself is likely to contribute to hyper-inflation as the government struggles to manage its debt.

Rasmussen Survey - Let California Go Bankrupt

According to Rasmussen 55% would prefer for California to go bankrupt rather than be bailed out.  Wow.  That's good.  Some of us were saying that - last May. 

The folks on the left coast have only themselves, their leadership and probably Ed Begley Jr. to blame.

It's not that anyone really wants a state to fail - we want them to wake up from their false Utopia and breath in some reality.  That's all.

National Bankruptcy - Lessons From The Past

People have short attention spans. It was probably always true, but it is especially so in today's fast-paced Internet age. People are daily bombarded with non-static external stimuli - television, radio, text messages, cell phones, the Internet. The ability to keep up is dependent on weeding out information and focusing on items of core importance. This is not a symptom of a degrading mental capacity nationwide, rather it's a sign that people have adapted to the pace of today's daily life as has been required.

For most Americans, aggravating as it is to those of us who focus on politics and national interest, this means filtering out the daily flow of information involving political events. It's not important to the day-to-day lives of most Americans. That works as a positive for politicians of every stripe, who seemingly can get away with virtually anything and still be re-elected or even elected (like the President). People's attention focuses on those issues only during a narrow election cycle window that typically doesn't even include the primaries. And when it comes into focus, it's easy enough to throw up an array of interpretations that are at odds with the truth and obscure people's understanding enough to get re-elected (like Ayers, et. al.).

So it comes as no surprise that lessons from the distant past are not learned by the people or by the politicians in charge. The public doesn't have time for it and the politicians don't have a need for it. That's why they can recycle the Keynesian arguments in pretty new packaging and make it seem innovative and a break from the past. People don't have time to fact check this stuff, and the 'journalistic' press typically won't do it for them because they (1) love the Democrats and BELIEVE in them, particularly Obama and (2) they suffer from the same myopic problem of attention span as everyone else, plus they are apparently afflicted with a good dose of sloth, too busy parroting what someone else has said to actually do investigative work. Maybe it's just budgetary constraints, I can't say for certain.

But there are lessons to be learned from the past, that have clearly been missed. Case in point back in 1975, New York city was on the verge of bankruptcy. Milton Friedman wrote in Free To Choose;

New York City is the most dramatic example in the United States of trying to do good through government programs. New York is the most welfare-oriented community in the United States. Spending by the city government is larger relative to it's population than any other city in the United States - double that in Chicago. The philosophy that guided the city was expressed by Mayor Robert Wagner in his 1965 budget message: "I do not propose to permit our fiscal problems to set the limits of our commitments to meet the essential needs of the people of the city." Wagner and his successors proceeded to interpret the "essential needs" very broadly indeed. But more money, more programs, more taxes didn't work. They led to financial catastrophe without "meeting the essential needs of the people", even on a narrow interpretation, let alone Wagner's. Bankruptcy was prevented only by assistance from the federal government and the State of New York, in return for which New York City surrendered control over it's affairs, becoming a closely supervised ward of the state and federal governments.

New Yorkers naturally sought to blame outside forces for their problem, but Ken Autella wrote in a recent book, New York "was not compelled to to create a vast municipal hospital or City University system, to continue free tuition, institute open enrollment, ignore budget limitations, impose the steepest taxes in the nation, borrow beyond its means, subsidize middle-income housing, continue rigid rent controls, reward municipal workers with lush pension, pay and fringe benefits."

He quips, "Goaded by liberalism's compassion and ideological commitment to the redistribution of wealth, New Yorker officials helped redistribute much of the tax base and thousands of jobs out of New York."

Anyone paying attention to that situation that occurred back in 1975, would know the obvious lessons encompassed in those 3 short paragraphs. California didn't learn the lesson and got themselves as a state into the same trouble. The President, being not much older than myself (he's closing in on 48) might not be aware of the events that transpired in NYC in the late 1960's and the 1970's. But he certainly either hasn't seen or hasn't learned the lesson. He talked about much of the same time-worn, disproven policies that NYC was trying decades ago and failed. He specifically mentioned spreading around the wealth to Joe the plumber during the election campaign. If he wasn't aware of the lessons from NYC, surely he must of seen the same problem being faced in California today? Could he not learn from that scenario instead? Apparently not.

If he weren't ruining the country, the President could be forgiven for his blind ideological allegiance to a socialist agenda. But he is ruining the country and should not be forgiven. He should be challenged.

He SHOULD have been challenged by the press during the election campaign but we already know why he wasn't (see paragraph 3 above in case you've already filtered that out). Should they be forgiven for dereliction of duty? Absolutely not.

He SHOULD have been challenged by voters but we know why he wasn't (paragraph 2). Should they be forgiven? Well, no. Unfortunately they require some of the blame for the current fiscal nightmare that is snowballing under the Obama administration. When the country goes bankrupt, who will be there to bail out the USA? NYC had an out, America's only possible bailout could come from China. Is that what people want: "in return for which New York City surrendered control over it's affairs, becoming a closely supervised ward of the state and federal governments." Substitute New York City for the US and 'state and federal ' with Chinese and see how that reads.

What can be done? Can Obama be rehabilitated to fiscal sanity? Doubtful. Can the press be rehabilitated to do their jobs properly? Doubtful. That leaves only the American public to come to their senses before it's too late. 2010 may be meaningful, but that may be too late. Realize the fierce urgency of now to borrow a phrase, and kill any effort towards cap and trade, and towards nationalizing health care before they set the country back decades and put it on an unstable bankruptcy-inducing path.

No, really? These guys in charge of health care?

Joe Biden:

“And folks look, AARP knows and the people with me here today know, the president knows, and I know, that the status quo is simply not acceptable,” Biden said at the event on Thursday in Alexandria, Va. “It’s totally unacceptable. And it’s completely unsustainable. Even if we wanted to keep it the way we have it now. It can’t do it financially.”

“We’re going to go bankrupt as a nation,” Biden said.

“Now, people when I say that look at me and say, ‘What are you talking about, Joe? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, that's what I’m telling you.”

C'mon America! Are you serious???!!!

Maybe an anvil fell on her head?

Why did Justice Ruth Bader Ginsberg put a stop to the Chrysler bankruptcy filing process, albeit a temporary one? It's out of line with Obama's plans, and Ginsberg is notoriously liberal. Maybe an anvil fell on her head.

Or

Maybe there's a reason behind it. I can think of a couple of possible scenarios.

1) She's interested in justice and not liberal bias.

2) Democrats want the deal to fail but don't want the responsibility for crossing the UAW.

3) Democrats want the deal to pass but if it fails they want the to be able to dump the political fallout on the Republicans.

4) The pause is just to look good.

UPDATE: Looks like it's number 4. Arg. Apologies to Hugh Hewitt.

GM RIP

As much as I hate to see an American icon go bankrupt, it needed to be done. The bloating and hemorrhaging could not continue unabated.

That said, I'm not so sure this 'solution' that involves government ownership is the smartest thing to do. In fact, I'm sure it's NOT. GM could not protect itself from it's myopic decisions of the past, and now, it's going to have another layer of not only myopia, but political considerations layered onto it's decision-making process. How does that help? The answer is of course, it doesn't. When the government is involved, particularly one beholden to the UAW, decision making on what, where, when, and how to produce automobiles becomes a political question and not a business decision. How to sell them, how to price them, how to package them, what color to make them all are impacted by the new dynamic of government not only oversight, but direct involvement in the decision-making process.

And if the business decisions were poorly made before, they will be absolutely unfathomable going forward. It makes more sense to let GM die completely than to nurse it back to supposed health for the sake of the UAW. The talent from GM would be better suited to a new domestic automotive venture - one not beholden to dealers, auto workers, pensions, previous bad decisions, and legacy issues or government micro-management.

This bankruptcy so far looks like it will really only solve the dealership problem, and if Chrysler's Dealergate turns out to be an indicator, then the dealership problem looks like it's positioned as too many Republican dealerships 'solution'.

The government also puts itself in a conflict-of-interest position here. By owning a car company and dictating the rules to ALL domestic manufacturers, it risks the viability of the other companies (i.e. Ford, and possibly Chrysler) by being able to stack the deck in favor of GM.

No matter which way you look at the bankruptcy there's nothing good coming out of it. The government will have major control of a failed company. Who does that premise instill with any sort of confidence? If you are one of those who thinks this is a glorious opportunity (like Michael Moore), then you need to consider some of the great government involvements of the past.

Look at what it has managed to do for Hugo Chavez in Venezuela. Look at what it has done for Iran under the regime of Ahmadinejad. Those who think they know best, are often the least prepared for the unintended consequences of their decisions. Why is that? It's because people, especially those most motivated by dogma, are blinded to the realities that surround them - far more so at least, than the free market which manages to supply a demand or fill a void so efficiently. Free markets are a truly wonderful thing and a spectacle to behold. In that light, a GM bankruptcy is not to be viewed as a death of an American icon, but as an opportunity to birth something even better. And in that light, a government managed salvaging of GM, should be viewed as an attempt to keep alive a patient that is already, well...dead.

As much as I argued for bankruptcy, I now find myself arguing for a non-managed bankruptcy, free of politically motivated oversight. This does not bode well for the automobile industry in America. It does not bode well for debt holders of GM, it does not bode well for freedom from government tyranny and it does not bode well for the future of America.

Once again, a crisis is being co-opted for political purposes, and a philosophical bent. How much longer can that trend continue before something gives out for good? And by something, I mean something really big - like capitalism, or the Constitution, or the entire country.

Michael Moore - out of touch on GM.

To no one's surprise now, GM made it official and declared bankruptcy today. More on that in another post. For now I'd like to concentrate on the miracle that is Michael Moore.

Michael Moore, crocodile tears flowing, is calling for the Government Motors to arise from the ashes to build mass transit vehicle. What these green socialist forget to consider is that you can't mandate behavior. If people want to drive cars, it won't matter how amazing Government Motors could become at building zero emission ultra sleek buses with Utopia-on-board, people won't ride in them. Cities will buy them if they have no alternative and they are cost competitive. But consumers, the engine of the economy, will continue to buy cars. They'll just be buying more Japanese cars. And maybe some Korean, Italian, German, Chinese and Swedish cars thrown in to boot. But they won't ride buses.

Why? The same reason they don't ride them today. They're cramped, they're uncomfortable, they don't have the flexibility of schedule that is needed in a free society. America, is still the land of the free isn't it? If someone wants to drive down to the corner store to buy a pack of cigarettes they're still allowed to do so, right? Given that choice or the option to take a bus where smoking is definitely not allowed (I'm a non-smoker by the way), what do you think America is going to choose?

Apparently Michael Moore knows better. And he's pretty happy about it;

It is with sad irony that the company which invented "planned obsolescence" -- the decision to build cars that would fall apart after a few years so that the customer would then have to buy a new one -- has now made itself obsolete. It refused to build automobiles that the public wanted, cars that got great gas mileage, were as safe as they could be, and were exceedingly comfortable to drive. Oh -- and that wouldn't start falling apart after two years. GM stubbornly fought environmental and safety regulations. Its executives arrogantly ignored the "inferior" Japanese and German cars, cars which would become the gold standard for automobile buyers. And it was hell-bent on punishing its unionized workforce, lopping off thousands of workers for no good reason other than to "improve" the short-term bottom line of the corporation. Beginning in the 1980s, when GM was posting record profits, it moved countless jobs to Mexico and elsewhere, thus destroying the lives of tens of thousands of hard-working Americans. The glaring stupidity of this policy was that, when they
eliminated the income of so many middle class families, who did they think was going to be able to afford to buy their cars? History will record this blunder in the same way it now writes about the French building the Maginot Line or how the Romans cluelessly poisoned their own water system with lethal lead in its pipes.

...

But you and I and the rest of America now own a car company! I know, I know -- who on earth wants to run a car company? Who among us wants $50 billion of our tax dollars thrown down the rat hole of still trying to save GM? Let's be clear about this: The only way to save GM is to kill GM. Saving our precious industrial infrastructure, though, is another matter and must be a top priority. If we allow the shutting down and tearing down of our auto plants, we will sorely wish we still had them when we realize that those factories could have built the alternative energy systems we now desperately need. And when we realize that the best way to transport ourselves is on light rail and bullet trains and cleaner buses, how will we do this if we've allowed our industrial capacity and its skilled workforce to disappear?

Let's just be glad this guy is not in charge. Supply does not drive the marketplace. Demand does. Supply results from Demand.

His hatred of the auto industry and bias has been on display since Roger & Me. To see it now, when so many people are scared and in financial trouble and to see it used to promote an agenda, particularly one that won't work, is truly disgusting.

Gangster Politics

Find a liberal - any liberal you know. Get them to read the articles below;

Gangster Politics on Chrysler

...Lauria represented one of the bondholder firms, Perella Weinberg, which initially rejected the Obama deal that would give the bondholders about 33 cents on the dollar for their secured debts while giving the United Auto Workers retirees about 50 cents on the dollar for their unsecured debts.

This, of course, is a violation of one of the basic principles of bankruptcy law, which is that secured creditors -- those who loaned money only on the contractual promise that if the debt was unpaid they'd get specific property back -- get paid off in full before unsecured creditors get anything. Perella Weinberg withdrew its objection to the settlement, but other bondholders did not, which triggered the bankruptcy filing.

After that came a denunciation of the objecting bondholders as "speculators" by Barack Obama in his press conference last Thursday. And then death threats to bondholders from parties unknown.

The White House denied that it strong-armed Perella Weinberg. The firm issued a statement saying it decided to accept the settlement, but it pointedly did not deny that it had been threatened by the White House. Which is to say, the threat worked.

Crisis abuse on Chrysler

The Obama plan to save Chrysler would have sold Chrysler's most valuable assets into a new company co-owned by the U. S. and Canadian governments, Fiat and the United Auto Workers (UAW) -- with the UAW getting the biggest piece, 55%.

The trouble was: those assets belonged to somebody else. They belonged to the company's bondholders, who had a legal first claim. Under the administration's plan, those senior-secured creditors would have received just 29¢ on the dollar.

For a failing company to shuffle assets so as to favor some creditors over others with a stronger claim is a very serious wrong, potentially even a crime. There's a sound economic reason for this rule of law: Bondholders accept lower returns in good times in exchange for greater security in bad times. Protecting bondholders in bad times ensures that future borrowers will be able to borrow in good times.

Lies, misdirection, and deception on the deficit

President Obama continues to distance himself from this "inherited" budget deficit. But the day he was inaugurated, the 2009 deficit was forecast at $1.2 trillion — meaning $600 billion has already been added during his four-month presidency (an amount that, by itself, would exceed all 2001-07 annual budget deficits). And should the president really be allowed to distance himself from the $1.2 trillion "inherited" portion of the deficit, given that as a senator he supported nearly all policies and bailouts that created it?

The president also talks of cutting the deficit in half from this bloated level. But even after the recession ends and the troops return home, he'd still run $1 trillion deficits — compared to President Bush's $162 billion pre-recession deficit. In other words, the structural budget deficit (which excludes the impacts of booms/recessions) would more than quintuple.

Polls suggest the public tolerates these large deficits because they erroneously believe them to be temporary. Conservatives need to emphasize that the president's agenda would use a temporary recession to create a permanent restructuring of Washington, with historic tax increases and permanent budget deficits to follow.

Anyone who pays the slightest bit of attention should be more than a little frightened, and less than a little enamored.

A different take on the banking crisis

A thought occurred to me yesterday regarding the AIG bonus kerfuffle, if I may be so bold as to call it a kerfuffle. What the Democrats are doing regarding taxing back the 'talent' at AIG is in a weird way, analogous to allowing the bankruptcies to happen.

True, the bailouts are spreading the pain from those stupid enough to make bad decisions to the taxpayers as a whole. Bankruptcy would allow the taxpayers to escape the financial impact because only those invested in the specific at risk institution(s) would be impacted. However, looking at it from a personnel perspective, the result may end up being the same as a bankruptcy.

In the case of a bankruptcy the 'brain trust' of the banking institutions would be out of work. In the case of the bailouts, you'd assume the same people would still be working. However, given that the claw back of 90% of the agreed upon bonuses is occurring, many of these people while not yet out of work, are most likely looking for alternative work. And by alternative, I mean outside of the financial services industry, which apparently is subject to imperial whim at this point.

So the net effect of either approach is that there will likely be a talent drain away from the financial services sector, given that at least some of the talent has skills transferable across other industries (project management, mergers, acquisitions, legal, marketing are some examples).

This may be a good thing for the economy. If the true talent shoe horns it's way into manufacturing or technology industries, then that can only be a boon to those industries, and potentially for American manufacturing. There's no guarantee of that happening of course. But while the financial sector is key to a prosperous economy, manufacturing is still arguably the backbone of any nation.

On the other hand, it may speed the nationalization of the banking industry. This would definitely start a downward spiral of American economic power, and start the thought process of "what else can we nationalize?" Both of those things are bad, and both can be brought on by the same symptom - exodus of talent from the industry.

Conversely perhaps Democrats believe that these people are trapped - their skills are too specific to change industries and they are too American to go work in Hong Kong or London. If that's the case their cynicism and antipathy towards those affected is pretty harsh.

Overall, losing executive talent in the financial industry nets out as a bad thing. While creating a climate where executive resources are self-diverted to manufacturing, creating American jobs in the process would be a good thing, it's not being done that way, and there are just too many down sides to letting or causing it to happen.

Dick Morris was on Sean Hannity's show this week arguing that the Obama administration, by offering a hand to the industry and then using the same hand to slap the people in the industry, is complicit in trying to drive the failure of the banking industry precisely so that it can be socialized. At first I thought Dick Morris was being over the top to help flog his latest book, but on reflection, there may be some truisms in his points.

Omnibus bill vote Friday?

The $410 Billion omnibus spending bill is set to be voted on this Friday. Another drop in the bucket of endless spending that will drive America into federal bankruptcy.


But Democrats don't want you looking at it, or hearing about it. They'd rather you focus on Rush Limbaugh. They're still thinking distraction, they're still thinking triangulation. James Carville is involved.



Don't bite on this. Keep focused on the real issue - bankruptcy level spending, the Dow Jones continuing to nosedive.

Don't fall for the distraction.

Is bankruptcy so bad?

The Big 3, no longer face the imminent threat of bankruptcy that they should be facing thanks to yet another Bush betrayal of conservative principles. Bush, by saying he'd like to stick to his principles but these are not ordinary circumstances so to resolve it let's throw money at it.

If you abandon your principles when the going gets tough, are they really your principles? I don't think so. They are convenient talking points to placate your party faithful. But they don't placate those who listen closely.

Conservatives believe in the free market system. That system entails both risks and rewards. Innovation comes from America more than any other nation because it rewards that innovation. It has made America a wealthy and powerful nation. If you contrast that to the direction of many European nations who chose a socialist leaning path, clearly the United States has fared better. That's the upside of the system. People are willing to take risks because the payoff can be well worth the effort.

The Big 3 automakers revelled in that reward for decades, while over time making foolish decisions that deteriorated their ability to continue to innovate and prosper. And that's the downside of the system. Risk. Trying to innovate, trying to run a business does not guarantee success. There is typically no safety net. You try because the reward, you try work hard to avoid the risk, but the risk is always there. As it should be. Risk and reward guide market efficiency.

If you privatize profit and socialize failure the mixture cannot possibly succeed. The numbers just don't add up. Businesses have to be allowed to fail. It's the responsible course of action. Efficiency comes from investing where it makes the most sense. Larry the liquidator said it best:

Yes, there will be jobs lost. But if you continue to prop up an unsustainable business, you are maintaining jobs that really aren't efficient. Why can foreign auto makers run their plants so much more efficiently than the Big 3? It doesn't matter - they just do. But the government wants to reward failure and support its continuance. As an investor in America, is that what you want with your money? I wouldn't.

The thing is, in this case, bankruptcies would not be an all-out shutdown. And perhaps this is where a compromise can be reached. If the auto makers were to have a managed Chapter 11 protected restructuring, bankruptcy protection, they could reverse so much of the damage they have caused themselves, allowed themselves to be subject to and they could perhaps even entreat government to standardize the CAFE 'standards' so that the external forces buffeting their ships could be calmed somewhat.

They would not shut down. They would continue. The jobs would exist. And if a worker is unhappy about making a combined $44 per hour instead of a combined cost of $71 per hour then let them see if they can find that pay working at some other employer. I'm sure there are thousands of capable people who would be happy to be gainfully employed at the lower rate.

As for the American public perception of a bankrupt Big 3, it's a canard. A ruse. I'd still buy a Chevy if GM were under bankruptcy protection. Woudn't you? And if the answer is no, would you have been a potential customer of GM in the first place? Is the reputation of GM so fragile that the perception would be any worse under Chapter 11 than it is today? I really don't think perception would change substantially. In fact, I bet it would inspire a bit of patriotism, perhaps even guilt, and people would be willing to give them a shot at their business. And even if they don't, remember the words of Larry the Liquidator, 'who cares'?

I've always said America needs a strong manufacturing base. I don't think being a service economy has a future. A mixed economy that has both elements is absolutely required. When Rome started outsourcing it's military it was doomed. Today's armies are both military and economic. Offshoring everything is the first step down the road to being a dependant nation.

But why is so much being offshored? Efficiency. Well guess what, the only way to fix that is to fix efficiency at home. If Toyota can make a car here cheaper then so can GM, so can Ford. If you are willing to let them. The same is true in a broader sense. Government has to stop making it difficult to manufacture in the United States. Social engineering is a major detriment to free market efficiency. The efficiency has been grossly distorted in so many industries by government interference that business has become unrecognizable. Union employees continue to operate with a 1950's mentality in a 2000's world, distorted by damning laws that their votes helped create. Sorting that out is the only real way out of this mess.