The “Godfathers” of Detroit are concerned (Quick…Somebody cue the violins!)

When the CEOs of the Big Three automakers were asked yesterday how they reconciled asking for $25 Billion when they EACH traveled to Washington D.C. on their corporate jets, the answers were astounding. Forget, for a moment, the environmental waste here. God forbid these guys pool resources for fear of divulging corporate secrets via mental osmosis or “Vulcan mind meld.” What’s equally astonishing to me is that the corporate flights are listed by the press as ONLY costing $20k. Huh? I suspect someone at the AP has not checked all their facts. The fuel, air strip access costs, and proportional salaries for the pilots and ground crews surely add to more than that. By comparison, seats on Northwest Airlines flight 2364 from Detroit to Washington were going online for $288 coach and $837 first class. But we can’t expect corporate executives to fly public transportation, can we?

“It’s corporate policy that officers travel on private aircraft,” says Ford CEO Alan Mulally. Reality Check: In the past year, I’ve see the likes of NBA’s Eddie House (Eddie was on a flight with my wife & I not even a week after his team, the Boston Celtics, won an NBA title), HBO’s Doug Gray, and ESPN’s Chris Berman all flying public transportation. Heck, I even caught Coolio on a Southwest Airlines flight! If these guys, who are infinitely more recognizable than Mulally, can fly public aircraft then so should he.

“We don’t fly on public transportation because we’re concerned about security,” said one of the Big Three staffers. Excuse me? When did the security of a corporate CEO become tantamount to protecting a Mafia Don? Perhaps these guys are trying to bump one another off literally?—and not just in the marketplace? Raise your hand if you would even recognize Ford CEO Mulally or GM CEO Rick Wagoner if you saw one of them with a T-shirt with “Corporate CEO” on the front. I thought not. Talk about a superiority complex!

Tell you what guys, the American people should consider loaning your companies money when you’ve proven capable of managing a budget. How about some humility? How about recognizing that your business model of 20,000+ dealerships is bloated—GM has almost 7,500 franchised dealerships alone. By comparison, Toyota has about 1200. Even Starbucks, which had some 8,000 stores back in 2004 and plans for 25,000 shops worldwide had to curtail its plans and close over 500 shops over the past year. Not everyone can regularly afford a five dollar cup of coffee, same as not everyone can afford the $100k ZR1 Corvette. Now I recognize there are certainly more jobs at stake at GM than at Starbucks, but GM’s overhead from agreements with the UAW and its own compensation model each need a major overhaul. Speaking of GM, their quality has certainly improved over the years, but the diversity of their products has not. We’re still waiting for the Chevy Volt—the car that promises 40 miles on electricity alone—but it won’t be on the road until 2010. Dear GM: You might need to consider adjusting your time table if you want to keep the doors open! Meanwhile, with gas prices falling to “reasonable” (albeit temporary) levels, don’t expect the Big Three to take much focus off the gas-guzzling behemoths that are their principle profit centers.

Yes, something does need to be done for the American automotive industry. President-Elect Obama has already indicated that he will work to provide assistance. All I have to say is there better be a whole LOT of strings attached. This just in: Congress agrees with me and has set a deadline of December 2nd for the Big Three to submit proposals on how they would spend the money. I suppose that’s a start. I think Congress need to be hard-nosed on this one. The deal should be worked out the way dealerships sell cars. Picture the CEOs sitting in an office in the White House sweating over how much their companies get, while Chief of Staff Rahm Emanuel runs to the back room and emerges with several hundred pages of legal papers indicating all of the stipulations of the deal. Most likely it will include the government getting a preferred stake and control in decisions. Like GM’s own Saturn model, there should be NO negotiation. The deal is what it is. Now that would be poetic justice!

Peace,
+THINKER

When Did Capitalism Become Synonymous with Entitlement?

Capitalism run amuck has me concerned. To be clear, I’m not advocating socialism, but when one considers the economic landscape one really must question how a country this great has allowed ethics to go awry for this long. Wall St. purports to “create” wealth. You wouldn’t know it by the signs of the times. At the time of this writing, Wall St. has plunged to more than a 5-year low, the entire system has come close to the brink of collapse, and the American people have anteed up $700,000,000,000 with NO apparent oversight as part of the Troubled Asset Relief Program (TARP). Even after receiving over $100B of taxpayer dollars, executives and employees at AIG continue to act as if they’re entitled to maintain their standard of living even as thousands in their own ranks are sent packing. At exactly what point in time did capitalism become synonymous with entitlement? We probably can’t pinpoint a precise event, but there are several examples of excess that continue to ripple across our socio-economic landscape...

• In the world of sports, Americans have grown accustomed to stars pulling down huge salaries because these performers bring the masses to the box office. “If we don’t pay them (huge sums of) money then someone else will,” is the refrain. Is that so? The Texas Rangers signed Alex Rodriguez in 2001 for $252,000,000 in a bidding was with itself! Let me repeat that: two hundred fifty-two “MeeEEEeel-yun” dollars! The fact that then owner Tom Hicks grossly overpaid A-Rod continues to affect sports contracts today. Alex and his offspring shall be rich for years to come, but should A-Rod be considered rich or wealthy? To paraphrase Chris Rock, “People like A-Rod are rich. The man that signs A-Rod’s paycheck is wealthy!”
  
• The (American) Automotive Industry CEOs flew to Capitol Hill today with tin cups in hand begging for a bailout loan. Here’s the funny the part: GM is spouting that they’re going to be “strapped for cash” before the next administration takes office, but saw fit to send CEO Rick Wagoner to Washington D.C. via private jet at a cost of ~$20k. In fairness, the CEOs of Ford and Chrysler did exactly the same thing. Rewind: Three CEOs flew three different private jets from the same city to the same destination. Have these guys not heard of carpooling? Call me crazy, but when my funds are tight, I stop eating steak and start eating Top Ramen! Such excess exhibits how Wagoner, and the other Big Three CEOs, are completely out of touch. The Big Three CEOs expect to maintain their existing benefits while instilling fear over the thousands they’ll have to lay off in order to keep the Lear jet engines running.
  For the record, Wagoner’s salary and other compensation rose 64 percent in 2007 to $15.7 million (up from a paltry $9.57M). This is the salary GM paid him while the company lost money. Tell me again why this is a business model worth sustaining? Would you give “a loan”—[insert Sarah Palin wink here]—to a panhandler in an Armani suit knowing that he’s just going to use the Benjamin’s to purchase a pair of Bruno Maglis? Of course not. Why? Because the panhandlers—the Big Three CEOs—neither understand nor appreciate the complex nature of their business problem and, to this point, have not provided a viable alternative business plan.
  Most interesting of all: none of the foreign automakers—many of whom assemble automobiles in the Unites States—are asking for a loan or handout.
  
• Wall St.’s John Mack, chief executive of Morgan Stanley Inc., the second-largest U.S. investment house, received $40 million in stock and options for his 2006 bonus. This reflected the largest bonus awarded to a Wall Street CEO at the time it was given. Mack’s record for the biggest bonus ever paid to a Wall Street chief executive didn’t even last a week. It was smashed by the $53.4 million that Goldman Sachs gave its chief executive, Lloyd Blankfein. The windfall for Blankfein included a cash bonus of $27.3 million, with the balance paid in stock and options. But it gets better for Mr. Blankfein. Last year, Blankfein received a bonus of $67.9 million. At least Goldman Sachs reported record Wall Street profits of $4 billion—that’s more than Rick Wagoner can say! Goldman Sachs, which is part of the $700 billion US bail-out package, will not add to the $600,000 salary of chief executive Lloyd Blankfein and six other officials for this year. That’s mighty “right” of them considering Blankfein made more money in the last two years than Tiger Woods, Alex Rodriguez, and Roger Federer combined.
  

I still believe in capitalism, and I have no issue with a person’s ability to earn a buck. But the days of sustaining current executive compensation levels are over. To further complicate matters, there is not near enough dollars “trickling down” into the economy from those with the cash--think of the guy with high chip stack at the Texas Hold'em table who continues to play the minimum bet. If s/he doesn't "stimulate" the table with some chips, the wealth doesn't have an opportunity to get transferred.

Greed has taken a strangle hold in our economy and it’s not going to let go willingly. It’s evidenced by the lack of sacrifice by executives, and their willingness to purge those at the bottom of the economic food chain. Sadly, our economy can ill afford the time it will take for the market to drive the ethics correction of where we need to be. And that leaves government regulation to solve the problem—and we all know how good the government is at solving problems!

It’s that $700B bailout that agitates me the most. Why? Mainly because of the lack of control over how the money is being doled out, but we've also set precedent. Expect plenty more requests for federal bailouts from other industries preaching "doom and gloom" over the next few months. The American people must be asleep because there’s not near enough outrage coming through the airwaves, through the newspapers, or over the Internet. If you’re among the millions of Americans who work hard and pay your bills, you should be furious! Where is the justice for the people who are doing the right thing? Personally, I neither want a bailout nor need a handout; I just want the solution(s) to be fair to those who are fiscally responsible. If you’re among the responsible people sensing that you’re getting the short end of the stick, I encourage you to write your Congressman to remind them of your views. The (National) debt you save could be your own…
Peace,
+THINKER

Random Thoughts on tax cuts…and who needs them the most

The theory behind providing tax cuts to businesses is that in doing so the government provides incentive for them to do more to create jobs. Unfortunately, in practice, job creation is more hope than mandate and the theory has failed woefully. This should come as no great surprise to people who have a clear understanding of capitalism. As defined by Merriam-Webster, capitalism is an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

Businesses are not altruistic entities that create jobs for the betterment of the state, country, or mankind. The principle purpose of a business is to make money. Period. Business are vehicles that exist for the purposes of generating profit for the people who “matter”—preferred stock holders and investors, the board of directors, executive team, common stockholders, and employees—in that order. That’s not to say that there aren’t businesses out there that have a "corporate conscience," but they are few and far in between. Provide a thriving business a tax cut and they’re more prone to horde the money, pad the balance sheet, or pencil in some bonuses than to invest the windfall…unless it’s to their benefit, and that rarely translates into new job creation. In short, tax breaks alone without oversight or control provide no more incentive to create jobs—or keep them stateside—than does President Bush saying, “Pretty please with sugar on it: create some jobs, Damn it!”

President-elect Obama campaigned that he would advocate tax incentives for jobs created in the United States. What a concept! Call me selfish, but I’m much more concerned about the availability of jobs here than I am in improving the standard of living of various countries overseas or otherwise.

President-elect Obama’s tax cuts, if implemented, are also supposed to benefit those making less than $250k/year. Admittedly, he waffled a bit on the actual threshold amount, but it’s his philosophy that’s pertinent here. Given the current state of tax affairs, tax relief is needed for the American people and not American corporations. Consider how individuals are taxed today…

• Your income is taxed at the Federal, State, County, and City levels
  
• Your purchases of tangible goods and services you buy:
  - Auto Fuel
  - Food
  - Clothing
  - Electronics
  - Telecommunications (Cable, Satellite, Mobile Phone, etc.)
  - Utilities (Electric, Water, Sewage, Gas, Garbage, etc.)
  - Healthcare (Services, prescriptions, etc.)
  
• Property you buy is taxed at time of sale
  
• Your property you own is taxed annually
  
• Your gains on property you sell is taxed
  
• Your investment gains are taxed
  
• Your travel via Air, Land (Bus), Rail (AmTrak), and Sea (Pick one) is taxed
• Your estate is taxed
  

Taxes are as American as…well…America. The old adage, "the only 'for sure' things in life are Death and Taxes,” is truer than most recognize. In America we get taxed on income, gains, after death, and just about everywhere one spends money in between. Win the lottery--or "too much" dough in a casino--and Uncle Sam will take a piece of that, too! Suffice it to say, I’m definitely “on board” with the forthcoming administration giving the American people a break and taking a hard look at the spending our government is already doing. Just as most responsible consumers do today, our government must recognize that when it's spending more than it's taking in it must adjust accordingly. We can't deficit spend forever, can we?

The realities of compromise on capitol hill don’t always line up with rhetoric and propaganda. Still, I’m hopeful President-elect Obama is able to implement something remotely close to what was promised during his historic campaign. The more and more I think about it, the more I’m certain the American people could really use their own “bailout” in the form of tax relief! Stay tuned…


Peace,
+THINKER