Great article below uncovering a root of our current financial disaster. The euphoria of prosperity clouded reason. Despite the hysteria, a few were wise enough to see the inherent dangers and voice their dissent.
We must never forget that the past is a guide to our future.
http://www.nytimes.com/1999/11/05/business/congress-passes-wide-ranging-bill-easing-bank-laws.html
Numbers without Meaning
I’ve been avoiding the furor over bailout spending and executive payouts for 2 reasons, previous coverage and exhaustion. After dedicating much of this space to TARP earlier in the year, I was pleased to see the media push the issue into the spotlight. The story is now ubiquitous, cavernous, incessant, and, despite my contempt for corruption, I’ve grown weary. But the story below has blown my mind and made the wound fresh again.
Apparently Goldman Sachs is planning to return its TARP funds by mid-April. The move is not the result of any newfound stability within the operation. Instead, it is a means to avoid public scorn for being a corrupt, inept, and disorganized institution completely out of step with reality. Rather than acknowledge nationwide frustration with a company that saw its net-worth plummet into oblivion while at the same time setting a record for executive compensation, Goldman Sachs hopes to obscure itself from its role in sinking the country by giving back the $10 billion in TARP funds that were absolutely essential for their survival just a few months ago. By giving the money back, the bank hopes to escape from the public relations disaster. And they are not alone, JP Morgan Chase, who plan to spend $138 million on two new corporate jets and a luxury airport hangar, also plan to return their TARP funds to the government. Once they do, they’ll go ahead and finish their air travel upgrade, free of any public dissention. After all, Jaime Dimon, JP Morgan’s CEO was quoted just two weeks ago saying, “When I hear the constant vilification of corporate America I personally don’t understand it.” Clearly.
Of course you don’t, Jaime, neither do any of your colleagues. What is more troubling is that none of you are willing to understand it. The bailout was intended to keep the foundations of our economy intact by keeping your businesses alive. Now, more than ever, it is clear you should have been allowed to fail (that would have been better for you, as then your bonuses never would have been under the threat of congressional rescission). You refuse to learn from your mistakes and develop better, more efficient business models. You are intent on running everything straight into the ground so long as you can continue to line your overstuffed pockets. You claim that bonuses are essential to retain your top talent. Your companies have all devalued and eroded the global economy, you don’t have any talent. You did not require government funding, you just got in line for free money that the government never should have offered. But you took it, saying it was necessary. Now, under pressure for inept practices, you are eager to return it, despite no considerable gains in your performance. You have no credibility, no integrity, and deserve no respect. Oblivious to the frustration of millions, whose lives are stalled and even destroyed by your greed; continue on in your opulent, wayward, stupor. You are worthless.
Goldman Sachs to Return TARP Funds by Mid-April:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aW2jw0bHcg3s&refer=home
JP Morgan Chase Spending Millions on New Jets and Luxury Private Airport Hangar
http://abcnews.go.com/Blotter/WallStreet/story?id=7146474&page=1
Chase Will Repay TARP Funds Before Making Jet Purchase:
http://dealbook.blogs.nytimes.com/2009/03/23/jpmorgan-to-proceed-with-new-jets-and-hangar/?hp
A Different Tune
Chrysler is demonstrating a willingness to change through their proposed merger with Fiat. The two companies produce vehicles at opposite ends of the spectrum, Chrysler producing large, gas-guzzling trucks and SUVs, and Fiat producing small, fuel-efficient economy cars. The move is one of necessity, as Chrysler is fighting for survival. But this represents an open-mindedness to find a new path in order to sustain its business.
This is exactly what companies need to do at all times. However, American auto-makers have been particularly stubborn and resistant to change. Their obstinance has led them to the point of collapse. Forced to plead Congress for bailout funding, the government rightly imposed upon the automakers a quick deadline for a revised business model. In order not to forfeit the $4 billion they received, Chrysler has until March 31 to implement plans for a new business model offering innovation, reduced debt and reduced labor costs. Again, that is the general goal of any business worth their salt, but clout and power corrupt. And we are witnessing the price that must be paid. While the auto-makers appealed to the government for assistance, they were unprepared on their first attempt to face reality. Looking like a bunch of spoiled brats expecting a blank check, trying to be certain they still had a chair once the music stopped, they had no refined vision, no plan to lift their companies out of the morass they had presided over. The government wisely learned from the mistakes made by the vagaries of the financial bailout, and sent the automakers home to do some reflecting and number crunching. Their return plea was accepted, their funds granted, but with clear accountability.
Chrysler is responding to the challenge. Fiat offers them wider distribution, and more efficient vehicles. Sales should increase, allowing debt to decrease. The impending collaboration should help Chrysler catch up with the times, and not rely solely on hulking trucks and SUVs. The world is getting smaller, and is no longer the United States’ oyster. Cars are getting smaller too. The demand for broad, powerful trucks will always be there. But is not the vehicle of choice for the masses. By expanding its offerings and opening itself to more foreign markets, Chrysler is making a move that is right for the times. What is more encouraging is that the government bailout seems to have made a positive impression on the corporation. Let’s hope that’s contagious for all businesses receiving federal funds.
Fiat to Claim 35% Stake in Chrysler:
http://www.boston.com/business/articles/2009/01/21/fiat_to_give_chrysler_technology_markets/
TARP Case Study
Below are articles outlining the use of TARP funds by Bank of America, which is taking on water thanks to their acquisition of Merrill Lynch. As bad as the news is, the details provide a productive use of bailout funds, but it certainly is alarming to see that, not only the toxicity of Merrill Lynch, but also the awful (and high priced) recommendation of outside consultants J.C. Flowers and Fox-Pitt. Since announcing the merger, Bank of America stock has lost over 75% of its value. In order to stabilize, the company is now preparing to lay off 35,000 workers. This begs a reiteration of the question, what on earth did John Thain (CEO of Merrill Lynch) expect a $10 million bonus for?
Details of the Additional $20 Billion for Bank of America to Stave Off Crisis Caused by Merrill Lynch Acquisition:
http://money.cnn.com/2009/01/16/news/companies/bofa_new_bailout/?postversion=2009011609
Colin Barr’s Editorial on Bank of America’s Toxic Acquisition of Merrill Lynch:
http://money.cnn.com/2009/01/15/news/bofa.unfair.fortune/index.htm?postversion=2009011515
