U.S. Auto Maker Bailout: There Better Be Major Strings Attached

The US auto industry has been in decline since the first oil crisis in 1973. Even during the heyday of SUV's and big trucks in the 90's and 00's, anyone with a serious forward-looking focus could see that any major blip in oil prices, oil supply, or macroeconomic health would send the industry off the cliff.

Why? Because American consumers change their buying habits quickly, and the American auto makers have never built a diverse enough fleet to satisfy consumers' changing whimsy.

The major foreign makers, like Toyota, Nissan, and (yes) Hyundai have built and maintained a diverse fleet of vehicles of useful features and high quality that meet customer expectations. You can buy a bad-ass pickup or SUV from them, and you can also buy quality subcompacts and alternative fuel vehicles.

Meanwhile, Detroit has fought long and hard against improvements in the most basic standards for safety, fuel efficiency, and emissions. They claim that better standards will cripple the industry. At the same time, they spend years developing buggy, butt-ugly vehicles that fewer Americans are willing to buy. Just look at Honda and Toyota, and what they have successfully done on their own in the same areas, using the same market forces that Detroit seems unwilling to heed.

Here we are now, and Detroit has been caught off-guard again, with a huge inventory of big clunkers and no answers for consumers' current demands for highly efficient and high quality vehicles. Auto dealerships for American cars are closing at a fast pace, too, and that's no wonder. I have rarely received good service on either the front or back ends of a car sale through an American dealer.

So now, Detroit has joined the mantra: "Bail us out!" Now, I certainly don't want the auto industry to implode, at least not right now. Job losses will be mounting over the next few months, anyway, and a few million more added to the jobless rolls would be nasty.

That being said, we can't just give money to Detroit and expect them to do the right thing. Left to their own devices, they would just go back to designing 20th century vehicles for the 21st century. And, they would still complain about improving standards, the same as before. Hey, Detroit, quitcherbitchin!

So, Congress, here's what we should ask for return from Detroit before handing them the money:

• Ownership stake in the companies (preferred stock)
  
• Observer status on the Board of Directors
• Commitment to design of vehicles which meet aggressive fuel economy and emission standards. (Additional tax breaks are welcome here.)
• Commitment to manufacturing processes which are sustainable. (Again, additional tax breaks are okay.)
• Retooling of the sales and inventory process, so that most vehicles are built to order. The traditional auto dealership should be moved to its proper place...a museum.
  

This is the short list. In any event, we should not allow Detroit to come to the trough without expecting some long term changes to their business model.

Why We're Royally Screwed, Part 1 (It's Only Greed)

What a surreal feeling: Vacationing in Europe while the next act in the financial meltdown of American financial markets played out.

Not that I was totally surprised. Many, even the FBI, warned that the subprime mortgage fiasco would create a domino effect that would last for months, if not years. And according to some, there is really no end in sight.

Why? Because of greed, plain and simple. Most analysts seem content to chalk it up to poor risk management. Nice euphemism. Risk and greed are totally interrelated. As far as I know, every human action we make that requires risk assessment includes a greed factor. Like playing poker. Or speeding while driving. Or crossing a busy street against the light. Greed is our human emotion (and human sin in almost every religion) to extract more than what we need from a given activity.

And we are constantly reminded that this is what makes America great. C'mon, the USA is predicated on the idea that every individual has a basic right to be as greedy as possible. All you have to do is stay within the letter of the law, or at least be able to afford a legal team to keep your ass out of trouble. There's nothing in the U.S. Constitution that discusses ethics, charity, or humility. No such words exist in the text. It's a framework to allow every white, landowning male (since amended, obviously, to include a few more citizens who have capital to burn) to suck every drop of worth out of whatever resources and labor he controls, to Hell with collateral suffering or future consequences.

Greed is a recurring theme of Western Civilization, which I witnessed over and over while visiting the castles, churches, and palaces of Europe. On whose backs were such monuments built, hundreds of years ago? (Hint: Review your European history if you think Napoleon himself built roads and laid bricks.) So if we want to blame someone for instilling our society with the notion that "greed is good," I suppose we can blame the Romans, or the Spanish, or the French, or the English, or the Germans.

Obviously, the complexities of the financial shenanigans perpetrated on us are beyond the understanding of most CPAs, but that was the whole idea, to confuse everyone, wasn't it? It really was pure genius:

• Offer incredibly unrealistic loans to uninformed people, sold on the idea that any real estate bought with the loan funds will appreciate in value forever. Oh, and don't forget to collect your broker and funding fees.
• Package up these crap loans in opaque financial instruments and sell them to other firms, pension funds, and local governments who are driven by their own greed to increase their ROI. (Don't forget to collect your broker fees when selling these instruments!)
• Package up some more crazy ass derivative, options, and futures investments based on the crap you have created and sell that, too. (Pssst! Collect fees!)
• But most important, when it all starts falling apart, don't forget to pull that Golden Ripcord and book that long vacation in Monaco you've been dreaming of.

We're now faced with the collapse of the most elaborate Ponzi scheme in the history of the world, elaborately constructed by financiers, accountants, lawyers, politicians, lobbyists, and bureaucrats. And, as with all other Ponzi schemes, those who got in at the beginning and got out before the shit hit the fan made out like royal bandits. The rest of us are left with the economic bankruptcy and social carnage, along with the final bill. Former senior executives, managers, and traders who concocted this mess will enjoy the rest of their days in Country Club comfort. There will be no consequences for them; after all, they played "by the rules" and "within the letter of law and regulation." (For the most part. There will be investigations, and a few minor lambs will be sacrificed, but that's all.) That these executives are ethical pigs and moral maggots seems to bother few people. Everyone else seems resigned to the reality that we have been collectively screwed. Or maybe they're just stunned, it's hard to tell.

Or, maybe we truly are morally bankrupt as a collective society. I recently had a conversation with an ordinary citizen who seemed totally perplexed when I opined that ethics should play a role in everyday life, including economics as well has how we expect others to treat us on a daily basis. If pressed, I'm not sure this citizen could even provide me a working definition of "ethics."

But the blame can't be placed on the usual reasons, like we don't go to church anymore, or our public schools suck, or our prisons are full, or we fill our heads with vacuous television and video game programming. It's because we are interpreting our Founding Fathers' intentions with a twisted slant. Yes, our Founding Fathers were mostly very religious men: humble, modest, virtuous. Those who weren't religious were of like mind, since this behavior was expected in those days. I am certain that they assumed that we who followed would be equally humble, modest, and virtuous. They saw no need to codify the teachings of Jesus, Moses, and Muhammad into the Constitution, since it had already been written before.

So, even though we can tear our collective hair out over the crisis we find ourselves in, and we can lay blame on the greed of a very small group of individuals, these crooks were only following the standards and traditions of how our country and economy operate. And if we want to ever change that, we collectively need to take a hard look in the mirror.