MiddleOfRoader

Pension Underfunding: The Next Earnings Shock?

Is real estate cheap in Nebraska? I believe that is the only state which does not have unfunded liabilities, as they are barred in the state constitution. Then I would only have to worry about unfunded Federal promises.

Detroit Bailout: No News Is Bad News

Health care - subsidized for elderly and by allowing pre-tax dollars to pay for it.
Housing - subsidized by deduction on mortgage interest.
Agriculture - subsidized by farm support payments.
Oil and gas - subsidized by depletion allowances and tax credits.
Private equity - subsidized by lower tax rate, capital gain rate versus ordinary income.

What's the big deal about one more subsidy?

Who Might Benefit From Detroit's Failings

I disagree that consumers will benefit if Detroit shrinks or closes divisions. Less competition = higher prices.

I'm guessing if there is a bankruptcy filing, the imports will start marking up their prices the next day. The public is going to pay one way or another.

A Radical Solution for U.S. Automakers

Good article conceptually, but no details on a solution are offered other than suggesting that resources be directed to vehicles which are greener than current internal combustion engines.

Let's say the cost of 8 million new vehicles a year are subsidized by the public to the tune of $10,000 each to make them greener than the current models. If my math is right, that is $80 billion a year. An initial investment in refueling infrastructure might be needed as well.

I'm not sure how much of an increase in efficiency can be achieved for that cost.

If the Big 3 do not possess the technology ready to make a decent jump in efficiency right now (maybe they have it but there is no market at the current cost), perhaps it could be licensed from competitors. Otherwise, a bunch of money would be needed for life support until the technology is ready.

Gas prices are getting so low, such an investment might be difficult to justify using conventional cost/benefit analysis.

Why the Detroit Bailout Should Include Bankruptcy

Perhaps an economist can comment on how long it would take, in the event of no bailout and a bankruptcy filing, for the foreign makers to raise prices due to lesser competition such that the cost to the public for new vehicles over the next couple of years exceeds the current cost plus proposed bailout.

Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor?

Besides lives I should have mentioned communities.

Perhaps if the government takes a passive equity stake, there is a chance of recouping the investment when there is a recovery.

Regarding mortgage workouts, that is another tough situation.

The consequences of both situations go way beyond just those directly involved.


On Nov 10 08:31 PM fergus wrote:

> "Should we destroy the lives of as many people as possible because
> the government (aka the public) mismanaged housing, energy, credit
> and the economy generally? Or should we give as many people as possible
> a chance to get through this? "
>
> How? By printing money? There is no wealth being created to pay for
> the bailouts. It's simply a transfer from public to private hands.
> And it's those same private hands that have proven they are incapable
> of building a sustainable business.
>
> Do you also advocate the public paying the mortgages of people who
> signed up for the cheap ARMs or bought a house way beyond their means?
> When you make stupid decisions you should have to deal with the consequences,
> whether it involves your house or a multi-billion dollar industry.
>
>
>

Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor?

As to the question, should U.S. taxpayers really be providing billions of dollars to bailout companies (GM (GM), Ford (F) and Chrysler) that compensate their workers more?

The answer is yes. Why?

The foreign makers have the benefit of green-field plants sited in low-cost areas, probably with long-term tax breaks from state and local governments, and an initial workforce likely cherry-picked to be younger rather than older.

Now that the earliest foreign plants are getting close to 30 years old, the true legacy costs for the foreign makers is just starting to emerge. I'm guessing wages and pensions are not that different between domestic and foreign US plants after adjusting for location cost-of-living. Perhaps the retiree medical for domestics is more generous, I'm not sure.

Given a level playing field, the difference is probably not much.

The Big 3 were prepared for a garden variety recession, but unfortunately we're looking at a near-depression, especially if the Big 3 goes under (if one goes, the others will likely have to quickly follow to maintain parity -- however, nobody wants to buy a car if they think the manufacturer is not going to be around to back a warranty -- so sales may drop to near zero while companies are in Chapter 11.)

Should we destroy the lives of as many people as possible because the government (aka the public) mismanaged housing, energy, credit and the economy generally? Or should we give as many people as possible a chance to get through this?

The writing has been on the the wall for twenty years now that employment-based health-care is a big handicap for US industries versus foreign competitors. Basically, nothing was done about the health care system.