BAM! BAM! BIRDS AND JET ENGINES DON’T MIX – HERO PILOT LANDS AIRBUS PASSENGERS IN NEW YORK’S HUDSON RIVER

It was a cold winter day in New York when passengers boarded US Airways Flight 1549 bound for Charlotte, North Carolina.  Just after takeoff from LaGuardia and flying to the northwest over the Bronx, on a route skirting populous Manhattan Island, the fear of every pilot came true – the two jet engines simply stopped functioning, ending the powerful thrust forward that lifted and propelled the 50+ ton Airbus A-320 jetliner carrying 150+ passengers and crew members and a full load of jet fuel. (As the news media has reported, the plane apparently flew into the path of a flock of birds on climb out.)

 

So where do you go when the engines don’t (go)?  Well, down – and quickly!  Swiftly diminishing choices faced the cockpit crew: turn back to LaGuardia airport, glide to an alternative airport such as general aviation hub Teterboro in New Jersey, or to more distant Newark Airport; look for a large, flat piece of land – or land on the nearest waterway.  And so in the mid-afternoon of Thursday January 15, about where 50th Street intersects Manhattan Island east-west, the pilot and copilot glided their huge airship down to a textbook landing on the broad Hudson River between Manhattan and the New Jersey shoreline.  Splash!

 

Now New York City is a go-into-action town, as the world saw on that terrible day in September 2001 when two large jets were used as suicide bombers flying into the World Trade Center towers.  The waterway was soon alive with rescue boats steaming toward the now-floating jetliner.  Some of the little ferries that carry commuters to and from Manhattan Island from New Jersey were getting ready for the afternoon rush hour, and their crews cast off lines and raced toward the river’s middle.  US Coast Guard vessels sprang into action.  New York City Police Department helicopters quickly arrived and brave police divers dropped into the frigid waters to rescue passengers.  The NYC Fire Department’s Marine Unit raced to the scene. As help arrived, passengers and crew members were standing on the wings and floating tethered in emergency rafts alongside the giant airplane. What a sight!

 

And all of America tuned in to the drama, that afternoon and evening and into Friday and still today, Saturday, the drama is all over the news.  This is the story of the day in Gotham Town and on all the cable news channels.  And the word “hero” and “heroes” are part of very news segment.

 

Heroes Among Us

 

Those who have led men into combat know that is almost impossible to know who (among their squad or platoon or company or battalion etc.) will be a hero, and who will be the coward who cuts and runs when the action comes.  Ordinary men have earned a long list of Congressional Medal of Honor medals, or Silver Stars and Navy Crosses, or at the very least the gratitude of their comrades they served – and served with.

 

We expect certain people to perform as heroes when heroism and especially sacrifice is called for – it’s a given of leadership. We expect them to be accountable and responsible to and for those they lead, especially in difficult or crisis circumstances.  Our expectations are larger than life for the captain of the ship, in war and peace, responsible for the lives of many, whether shipborne warriors or cruise ship vacationers. And we have high expectations for the modern day and most ubiquitous of familiar captains, those with four stripes working in the cockpit of passenger liners in the air, responsible for safely ferrying passengers under every kind of weather and circumstance.

 

Doing His Duty – Accepting Responsibility

 

Today we as a nation are celebrating one of these hero-captains who did what he was trained to do, was supposed to do, and what he instantly recognized his fate would require him to do on January 15, 2009.  He flew his plane under the most difficult of circumstances, with zero power from the engines, just above the towers and cabling of the George Washington Bridge and on to the south, down the Hudson River…until he glided into the river in a picture perfect landing (at least for a land-based airplane!).  And in doing so he saved the people on board – passengers and crew, many “souls” in the words of pilots in command as well as sea captains.

 

Captain Charles B. Sullenberger III(“Sully”) is a veteran airline pilot with almost 40 years’ of service. He was graduated from the US Air Force Academy, served his country as a fighter pilot (Phantom F-4s, the same sturdy craft as the Navy’s famed Blue Angels once flew),  and is both a much-respected pilot and safety expert as well.  After the landing on the surface of the Hudson, the captain twice walked his stricken, sinking airliner to make sure everyone got out safely.  Then he headed for shore with all the passengers and crew.

 

We salute him today for doing his duty, for his care and concern for those souls in his charge, and for carrying out his duties as he accepted them.  All part of being in command, isn’t it?

 

New York Governor David Patterson calls it “the Miracle on the Hudson,” and indeed it is.  The city’s mayor, Michael Bloomberg said Capital Sully was a hero (and indeed he is).  The deputy secretary for public safety of the state, former state senator Mike Balboni (a longtime acquaintance and neighbor of ours) spoke to the captain and then told The New York Times: “There was no boasting. No emotions. No nothing…”  Captain Sullenberger told Senator Balboni that he did what he was trained to do.

 

That is not quite accurate; for all the flight simulation and rigorous training that goes on in the life of an airline pilot, they don’t simulate a crash landing on the Hudson River at somewhere north of 150 MPH with a full complement of passengers and a full load of jet fuel!  His long hours of training paid off; his attention to detail paid off; and his clear acceptance of accountability for the lives of those “souls” in his care surely was a deciding factor.

 

Let’s Celebrate All the Heroes on the Hudson

 

So we join the nation in saluting Captain Sully and his able co-pilot,Jeffrey B. Skiles. And hugs all around for the crew, those unsung men and women who helped save the lives of the passengers entrusted to their care once the plane hit the waters of the Hudson.  Thumbs up all around for the quick-thinking captains and crews of the commuter ferries, to tug boat crews, to the Coasties of the New York Harbor who raced in their [Coast Guard] vessels to the scene, and especially to New York’s Finest, the NYPD drivers who dropped into the cold waters to help those in need.  They rushed to the aid of their fellow human beings in a town that very frequently gets a bad rap for being “coldhearted” and mercenary to the rest of America.

 

As the news spread, these were cheering moments for folks not directly involved in the drama.  The rank and file folks who make US Airways hum had their delicious moment to savor, as their fellow workers demonstrated what being a member of an airline team on the line is all about.

 

In Charlotte, North Carolina the hometown folks awaiting the arrival of Flight 1549 that evening got some really good news, instead of the drumbeat of discouraging news about the hometown goliath, Bank of America, which has been buffeted by bad-news reports of late (including that day!).   New Yorkers, while a hardy breed for the most part, got their minds of Bernie Madoff and the missing billions of dollars entrusted to him by individual and institutional investors.   They briefly forgot about the now-fallen captains of prominent Wall Street who disregarded their accountabilities and wrecked so many lives. There was a brief respite from the constant waves of news about the failed leadership of Wall Street and American financial service organizations.

 

Leadership and Accountability

 

And that brings to a point we’ve been thinking about.  Does it take a courageous airline captain and crew and passengers to show us what personal and collective accountability is all about?  What responsibility to our fellow man and woman is all about?  The performance of Captain Sully and co-pilot Jeff Skiles are inspirations for all of us.

 

And what a contrast this is to the sorry performance of late of some other leaders – captains of industry and government — who had many “souls” in their care.  Employees, their dependents, retirees, shareowners, communities, charities – many have suffered because a certain few “in command” of mighty business organizations set aside their responsibilities in pursuit of … what?  Glory? Unseemly financial reward?  Reward without regard for risk?  Egotistical self-fulfillment?  Too much greed overpowering too little attention to risk?

 

As we await the arrival of the Obama Presidency next week, a spirit of renewal can be felt in the country.  There’s a feeling of we’re all in this together that has emerged as the mortgage crisis deepens, the capital markets continue on their nightmarish path, and as half million jobs a month disappear.  Thanks to all of the participants in this week’s New York City drama for showing us that most of us are still accountable and responsible for each other, and that when the chips are down, the great American Spirit will rise to meet the challenge.

 

The final word goes to another 30-year veteran of US Airways who speaks for many in her former airline and in the airline industry: Kathryn Keene’s letter today to the editor of The New York Timesurges the flying public to look closely at the plight of flight crews, pilots and attendants, and they way their salaries have been pillaged by management and their airlines have been merged mercilessly.  For too long flight crews have been overworked and underpaid, and abused, and yet their professionalism comes through when lives depend on them.  Gallantry and competence, she wrote, were much in evidence in the Miracle of the Hudson.

 

What a metaphor for the once proud and high-flying airline industry…of which this writer was a proud member for many years.  Maybe we can find some heroes once again to man the front offices of the nation’s air carriers.  People like CR Smith, the founder and four-decade CEO of American Airlines, who built his human assets until they were the envy of the airline industry, or Juan Trippe, the CEO of Pan Am as it became the world’s best-known airline, planting its flag everywhere.  It’s time!

SEC: AN AGENCY IN TRANSITION … TO WHAT?

As the calendar pages turn quickly toward January 20, 2009, when the reign of the new Obama Administration will begin, many eyes are focused on what happens now at the US Securities & Exchange Commission (SEC).  By federal statute the SEC is the official watchdog for the nation’s securities industry, its authority stemming from Great Depression era legislative measures passed by Congress in 1933 and 1934 and enthusiastically signed into law by President Franklin Roosevelt following each annual session of that 73rd Congress.

 

Obviously much has changed in the capital markets since then – but some events of 2008 and now moving into 2009 that affect investors sounds strikingly familiar to [some] conditions affecting investors after the stock market crash of October 1929.

 

There were no federal regulators of the stock markets then, and only a handful of states had securities laws – notably, New York State, where Governor Franklin Roosevelt had some legal instruments to deal with fraud and stock markets chicanery.  The “Martin Act” (1926) was said to be somewhat of a model for the legislation adopted for the national securities laws in ’33 and ’34.  Interesting:  The Martin Act was used by Attorney General Eliot Spitzer to pursue Wall Street’s top investment banks and brokerages houses in recent years.  And the present AG, Andrew Cuomo, is wielding the Act in pursuing wrongdoing in New York State right now.

 

Given the scope of the wreckage in the domestic capital markets, in equities investing, in the bond markets, in the Madoff Schemeblowup, in banking, in mortgage securitizing, etc. – there are important questions being raised about (1) what to do about strengthening regulation and oversight of the different federal agencies involved in the now very complicated markets under their jurisdictions and (2) who should be the government’s chief securities industry watchdog, in the present or perhaps future regulatory framework.

 

President-Elect Obama is fleshing out his leadership team and has named his choice for head of the SEC:  Mary Schapiro, head of FINRA (the Financial Industrial Regulatory Authority – the self-governing oversight board of the American brokerage industry, which oversees 5,000 firms and 680,000 registered securities representatives.  The agency has 3,000 employees and mission is “…to protect investors by maintaining the fairness of capital markets.”

 

Schapiro was an SEC commissioner early in her career; for a brief time was temporary chair of SEC; she later headed by the Commodities Future Trading Commission; and has been head of FINRA.

 

We commented on some of this in our November 10, 2008 column – “As We Survey the Carnage in the Capital Markets, the 2009 Burning Question Will Be:  What Regulations, and Oversight Are Really Needed Going Forward? (link here:

http://www.accountability-central.com/nc/accountability-matters-blog/articles/archive/2008/november/article/as-we-survey-the-carnage-in-the-capital-markets-the-2009-burning-question-will-be-what-regulations/?tx_ttnews%5Bday%5D=10&cHash=1fb27d05db

 

Now commentary regarding the appointment of Mary Schapiro to head SEC is beginning to shape the coming debate about her capabilities (and SEC’s) to be a tough enough watchdog of the capital markets, and about the future of the SEC itself.  We share with you these two commentaries –

 

From The Washington Post (January 7th)   Commentator Steve Pearlstein’s views (“Obama’s SEC Pick is No Joe Kennedy”):

 

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/06/AR2009010602938.html

 

And a fast rebuttal from the widely-read The Corporate Counsel.net Blog (edited by Broc Romanek and Dave Lynn): “Incoming SEC Chair Schapiro:  A Rebuttal”

 

http://www.thecorporatecounsel.net/blog/archive/001985.html

 

And what about the current head of SEC, Chairman Christopher Cox, as he heads for the exit door?  There has been commentary galore about SEC really being asleep at the switch while Wall Street took the American economy off the cliff with it – “Where Was the SEC?” sums up the headlines.  And about slumbering through the Madoff scandal. See “Rebuilding the SEC” after Chairman Cox leaves in the January 6th The New York Times “Breaking Points.com” commentary:

 

http://www.nytimes.com/2009/01/06/business/06views.html?scp=2&sq=Christopher%20Cox&st=cse

 

Read, too the excellent commentary by noted bio author Ron Chernow on the need for a tough capital markets investigator/prosecutor in 2009:

 

http://www.nytimes.com/2009/01/06/opinion/06chernow.html?_r=1&ref=opinion

 

Title:  “Where is Our Ferdinand Pecora?”  (He was the former New York prosecutor who paraded Wall Street leaders before the Senate after the 1929 Crash, and his landmark investigative work was an important factor in the 1933 and 1934 federal securities oversight debates.)

 

Should be an interesting time in our nation’s capital when the congressional oversight hearings get underway in both houses, and the Senate confirmation hearings begin on Obama Administration nominees

.

And then when everyone is finally in harness, what measures will come to help relieve everyone’s pain and misery from Capital Markets Overload.

 

The 73rd Congress passed The Securities Act of 1933The Exchange Act of 1934The Glass Steagall Act of 1933 (separating banks and Wall Street firms), The Economy Act of 1933The Federal Emergency Relief Act, The National Industrial Recovery Act, and many more measures, some lasting into the 21st Century and 2009.

 

What will we see out of the 111th Congress and our 44th President?

 

All this will be coming to you soon in “Living Color,” on cable channels (they used to say on NBC prime time when the “Walt Disney Hour” was announced).  Hmmm… The Disney Hour…may be an interesting metaphor for some of what is to come in 2009.

 

Do Stay Tuned!

MADOFF MADNESS: IF IT’S TOO GOOD TO BE TRUE…

If it’s too good to be true…maybe it isn’t.  Part of the wholesale abandonment of risk management in the current financial environment includes ignoring risk, whether risk is clearly evident or what should be at least a healthy sense of skepticism, and the growing lust for reward beyond the reasonable or traditional – despite the risks.

 

It once was that bankers followed simpler rules – say, having their own borrowing or capital costs at three percent, such as the bank-to-bank overnight lending rate or the intermediate and longer-term rates and then charging six percent or so to the borrower.  A slower way to make money, for sure, but “safer” compared to what’s been going on in this century on Wall Street and in banking circles.  Since the 1999 repeal of the Depression-era banking laws separating Wall Street brokerage and Main Street banking, this was looked on as a sort of Fuddy Duddy banking.

 

What was promised through securitizing of home mortgages, credit card outstandings (consumer-owed debt), auto loans, and a variety of commercial real estate loans – hey, that was the new road to riches.  The old ways belonged to George Bailey in that 1940 movie shown on Christmas Eve. Or the silly old E.F. Hutton ads – We make money the old-fashioned way – we earn it!

 

And there is now the strange case of Bernard Madoff and his billions of dollars assumed to be held in fiduciary trust – and that has that disappeared. We watch in fascination (and too many in horror) the continuing fallout of the scandal that almost perfectly has been summing up the recent fear-greed equation so prevalent in the 2008 capital markets. (As one expert said, Abandon ye all fear / pursue [we must] those outsized rewards based on personal and institutional greed.)

 

Bernard Madoff was a tower of the securities industry, as they said in the downtown Manhattan canyons, as well as in too many other locations where money was entrusted to Madoff Securities.  He was known as a very smart money manager who knew how to create solid returns in good times and bad – you could really count on Mr. Madoff to earn money on your money when all your friends were losing theirs in the market.  At heart, it was really the simplest of financial schemes.

 

A Simple System

 

You get people to trust you and then to entrust their money to you to invest on their behalf. The money comes in, and as trust (and referrals) build, you get more money, which you use to pay the early folks who have money in the pot.  Those early “winners” tell everyone how smart they are (for investing with you) and how smart you are (bragging rights for entrusting their money to you), and the game goes on.  If it goes on long enough, in theory, you will run out of people to bring new money in, but, hey, it’s a great game for a time.

 

In some ways this sounds like the some of the recent events in banking and the capital markets on a grand scale.  In some ways / some events, like the great collater-ized mortgage, asset and debt schemes, or the marketing of complex and exotic derivatives based on real or theoretical values from which the value of the derivative is said to be determined.  Too much confusion for you?  Then focus on one man’s role in all this – Bernard Madoff, the man at the center of the scandalous headlines of today.

 

He’s the go-to Man

 

He is the central figure in a $50 billion (“b,” that is) of an alleged grand investment fraud that involves wealthy individuals, family trusts, foundations, endowments, banks, not-for-profits, charities, hedge funds, the grandkids’ inheritances – did we leave anyone out?  Oh, he was such a good guy to know, according to those who knew him and some who knew of him.  Or people who knew people who knew him.  Trust, in tight circle at first that ever broadened.  And brought in new money.

 

New money and old money people got caught up the net.  The fall out continues – we like the quote from PR man Gary Lewi speaking to Newsday about one of his clients:  Much like an atomic detonation off on the horizon, the shock wave takes a bit of time to get to you.  But get to you it does, for a growing list of investors.

 

Let’s start with the professionals – those with fiduciary responsibilities to others, who pursued reward with Mr. Madoff:  Fairfield Greenwich Advisors, an investment management firm; losses are $7.5 billion.  Tremont Capital Management, a fund-of-funds investor; losses $3+ billion. Access International Advisors, a NY investment advisory firm; $1.4 billion. Note the irony:  advisors and investment management.  Banco Santander, a Spanish bank which own Sovereign Bank here in the New York area; just under $3 billion lost.  A private Swiss bank (Union Bancaire Privee), a billion dollars gone.

 

Bankers are a conservative lot, no?  Well, yes, when you are asking for a loan or a mortgage, in the past and much more recently. But when chasing rewards in the New Era financial marketplace, maybe not.  Ask the professional bankers who gambled and lost:  Royal Bank of Scotland. BNP Paribas. Nordea Bank of Sweden. Credit Agricole of France. Banco Populare of Italy. Or other investors (or trustees) who should be taking risk into consideration along with reward: The Korea Teachers Pension fund. RAD Capital, a hedge fund. Man Group of Britain, a hedge fund. And a long roster of social sector organizations.

 

Bloomberg News is reporting now that 400 US-based non-profits lost collective billions in the scheme.  These US foundations fund a variety of causes and activities and in 2007 they provided $73 million in funding.  With their investments vanished, what will 2009 look like for their recipients?  Well the JEHT Foundation, which gave away $24 million last year, to advance criminal justice reform, is going out of business now.  So is the Picower Foundation, which has given away $268 million since 1989 and is now forced to close. The list of social sector organizations who entrusted their investments Bernard Madoff fills almost 40 pages now.

 

Another “Ponzi Scheme?”

 

“A Ponzi Scheme,” the journalists trumpet.  Well, if the facts are as stated in the torrent of stories that followed the news break – that the $50 billion wasn’t there – it is way beyond the original Ponzi.  When all the facts are known and the losses tallied, and the fallout winds down at some point, this may well be the events referred to in the future as the “Madoff Scheme.” Ponzi was a piker in comparison.

 

The original Ponzi was an Italian immigrant (arriving in the US in 1903), Charles Ponzi, who set up the Securities Exchange Company (great name), in downtown Boston to wheel and deal with investors’ money. There were few securities regulations in that day, and theWonderful Era of Nonsensewas getting underway. This was what columnist Westbrook Pegler dubbed the speculative financial contagion of the 1920s.  The good times did last until October 1929, and the last great crash that the 2008 events are being compared to.  Mr. Ponzi’s schemes unraveled well before those October-November 1929 Black Days on Wall Street and on many Main Streets in America.  As with the current New Era of Financial Contagion and Epidemics, the mass media helped to fuel the scheme.  Consider the headline of the Boston Post,

 

“Doubles the Money Within Three Months”

 

…in a profile of Charles Ponzi’s operation on School Street.  After that story appeared $1 million a week of new money flowed into the nondescript offices of his firm (multiply that times 10 for an approximation in today’s dollars, at least while the 2008 dollar is still worth that).  The gullible were lined up at the door when Ponzi arrived in his splendid Locomobile auto and strode confidently up the staircase to his lair.

 

At the heart of his scheming was something no one today probably heard of, an International Reply Coupon issued by governments (especially the government of Italy) under the Universal Postal Union for trans-border mail.  This was a paper of fixed value that could be redeemed for stamps in other countries. Watching other get-rich-quick operators, Charles Ponzi went to work gathering dollars to build his pot, promising fantastic returns…especially compared to the paltry sums offered by the US Postal Savings Plan, or local banks.  This was real money!  You know, the kind ofreal money made in this 21s Century by real men!

 

Also – did we tell you he was charming?

 

Charles Ponzi was charming and dynamic and so smart – he was smart, wasn’t he, making all that money for investors?  The dollars flowed in.  The press clippings helped.  Word of mouth was the clincher for new investors. This was all so complicated no one really asked about “how” – like the way investors poured money into the Madoff coffers in recent years.

 

Money came in buckets, briefcases, pocketbooks, clenched in the hands of hopefuls-to-be-in-the-middle class or those who were really rich.  And the early investors made a ton of money when the payments were due; of course, most of them plowed money back in to make more.  More, more!  For a time.  And then the unraveling came.  In less than two years the scheme collapsed; he was accused of fraud; he went to jail, and after a few years was deported to his native Italy. The Massachusetts attorney general got him; he was indicted many times over on federal fraud charges; and he had no money at all in the end.  He moved to Brazil in the 1930s, but never returned to America.  He died in Brazil in 1949.  His name had entered the realm of legend – financial legends, especially! – but he was broke and had hidden no money away from prying eyes.  (The authorities are trying to figure out as 2008 ends how much money Mr. Madoff and his firm actually have on hand.)

 

A Drama Worth Reading About

 

There’s a marvelous book about all this – a really good read while we await the outcome of the Madoff media drama – by author Michael Zuckoff:  “Ponzi’s Scheme – the True Story of a Financial Legend.”  As Zuckoff writes, “with a maestros’ touch, Ponzi had struck a perfect balance among the forces competing to control the new America identity [in 1920] – altruism and avarice…”  (published in paperback by Random House Trade, 2006)

 

Sounds like 2008, doesn’t it?  If all that we read is only half true in the Madoff drama, this is (as the famed Yogi Berra was said to say) deja vu all over again!

 

The final word for now of things Madoff is that of actor-commentator-author Ben Stein, in the December 28, 2008 issue ofThe New York Times:  He writes that two years ago a little delegation from a major investment bank came to his house to sell him their “wealth management” services.  A large chunk of the money would be invested with a “money manager of stupendous acumen” whose genius was never losing money.  Up and down markets didn’t matter.  Ben Stein said he didn’t think so; he argued that a perfect hedge fund wouldn’t work the way they described.  And the money genius charged 2 percent on the money invested. They went away without Ben’s money.  Guess who the investor was?  Correct – Bernard Madoff (who Stein had never heard of until then).

 

Oh, did I mention who lost money in the original Ponzi Scheme?  Among the little people there were big fish:  Hanover Trust, a bank that earlier had turned down the once-broke schemer for financing, in effect swooned and became the de facto Bank of Charles Ponzi (writes Zuckoff), after the executive committee – throwing risk to the winds – elected him a director and sold him new stock for controlling interest. Hmmmm….

 

This, after all, was a unique time in America – in the 1920s, writes Mitchell Zuckoff, a new ethos was emerging, and a new definition of what it meant to be an American.  No more pennies saved and pennies earned, money was best when it arrived fast, easy and in large quantities…if wealth didn’t come knocking, go and get it yourself.  Charles Ponzi was the first roar of the 1920s, the author notes, and today his name lives on it infamy.  Until this year.  We don’t know yet how far the Madoff unraveling will go, who all will be swept up in the drama, how much money was lost, and how many people will really be hurt.  But this situation seems to be an apt metaphor for this year’s financial meltdown, abandonment of risk, chasing outsized rewards, and financial gimmickry, as we stumble toward 2009.

 

No doubt we’ll be reading all about it in a few books to come.  Hey, the book publishing business needs a lift!

BIG 3 AUTO INDUSTRY BAILOUT DRAMA CONTINUES

What the 110th US Congress could not or would not do in its last days, the good old Bush White House got done, in its own dwindling away and winding-down days.  Two of America’s remaining Big 3 auto companies will get almost $14 billion to tide them over to…what? Their spring 2009 mandated reorganization?  A dramatic consumer market recovery?  An upturn in the troubled financial markets?  The return of sensible corporate sector financing by the financial services sector (the original bail out folks)?  All of these and more?

 

The Ford Motor folks say they’re all right for now, thanks, but General Motors and Chrysler were in desperate need of cash and other public sector support, so the two companies are getting their first checks in a few days.  The Bush Administration used the last bit of money remaining in the much-criticized TARP as approved by the Congress before it adjourned.  The money is all gone now – the overwhelming amount to large bank holding companies and financial services organizations with little strings attached in comparison.  For the auto guys, it is a different story. There are strict mandates attached to the funding that GM and Chrysler must abide to, or return the money next year.

 

As always, there are a lot of back stories to all this.  The auto chiefs made a classic blunder, a huge miscalculation of perceptions and public relations, you’ll remember, by taking separate private jets to Washington to ask for public support.  They were all in the hot seat for hours on Capitol Hill.  One of the old lions of Corporate Public Relations fame, who ruled in days of yore, and sat at the right hand of the CEO, surely would have counseled their client – The Boss – on how to get to Washington and what to say when you are asked…what do you need?  (And they would have primed the pump so that the question asked by House and Senate was, how can we help?)

 


The good old days for Detroit

There would be this scenario:  The best example of a new era auto – high mileage, low emissions, affordable, “green,” etc. — would have been received at the production plant as it came off the line by the chief executive. Photos and video and a special Webcast would capture the moment as the Heartland auto workers delivered the car, signed by all the local plant workers on the rooftop where it could be seen later from the Capitol windows, and a well organized drive would take place, CEO at the wheel, through America’s hometowns and the key districts (if possible) of the members of congress and senate. Certainly through Ohio, Pennsylvania, West Virginia, and Maryland (through Baltimore and past all those piled up foreign autos at the docks awaiting delivery).

 

Along the way there would be stops at local dealers, maybe a few auto plants and one or two of the company’s Tier One suppliers, and at chambers of commerce rallies organized by local dealer organizations.

Message:  We are all in this together, folks.

 

Then on Capitol Hill there would be a “spontaneous” rally with hundreds of auto workers and dealers and suppliers welcoming the chief executive to town, and a grand display of The Car (and other examples of Detroit’s best) on the National Mall, or near to it.  Congressional staff and even members, along with journalists, and a few advocate leaders thrown in (Sierra Club sounds good), would be welcomed and invited to drive the car around the Capitol Hill neighborhoods. This is Show Time! This is all about the future of American Car Companies and how we can help them!

 

Alas, those well-experienced PR lions of yesteryear are all gone now. We worked with some, such as Willis Player, the brilliant head of PR for Pan American World Airways, and Holmes Brown (my boss and mentor) at American Airlines (before that, he was head communicator at , Ford Motor Company).  In recent years the corporate PR staffs have dwindled away – don’t need communications, right? – and an army of eager independent outside PR agencies stand ready to deliver. If asked.

 

Those PR legends of yore would probably have told the auto chief and the staff attorneys that was not a good idea to ask for serious money from the people you have been suing for years.  The carmakers have filed lawsuit-after-lawsuit trying to stop or slow down various environmental and fuel economy and other public policy initiatives.  I’m surprised that one of the conditions imposed by congress wasn’t a withdrawal of these legal challenges by GM and Chrysler.  Probably would be unconstitutional.  But hey, isn’t a lot that goes on these days in Washington…a little or a lot unconstitutional?  Never mind.

 

The auto companies now have marching orders, or at least strict terms and conditions applied to the paltry sums received.  I know, we’re talking about real dollars at stake, especially on America’s Main Streets, but not on Wall Street, in 2008 terms.

 

What’s ahead?

 

  • Probably a paring down of the number of models and makes of Detroit-built cars and trucks.  (As one American auto exec asked rhetorically, if Toyota can be Number One with only two marques and a handful of models, why do we need so many brands and models?  Stay Tuned.)
  • Wholesale re-alignment of the types of cars manufactured and marketed in the USA.  “Green” is the watchword of the day.
  • A slimming down of dealer outlets, although there are some tough state laws on the books to protect the home turf retailers.  But we might see one-third, or even one-half of dealerships eventually disappear.
  • A restructuring of the basic businesses, closing of factories, laying off even more workers, more aggressive outsourcing key items to suppliers, and more.
  • Changes in the financing of pension funding and the retiree benefit packages. (In bankruptcy, under existing conditions, the Pension Benefit Guarantee Corporation would have a first-in-line claims on pension shortfalls.)
  • Maybe a combination or two, with the Big Three becoming Two or even One.  Don’t bet against this in some form.  More fees for the investment bankers, too.
And therein are the sources of lots of future pain for Main Street, of which the American auto business has been a big factor for a century.  Manufacturing jobs have a 4-to-1 or 5-to-1 ripple effect, one auto worker helping to create four or five other jobs — and as these much-desired industrial jobs disappear from our hometowns, there will be lots of personal pain.  Not to mention the potential of hundreds of thousands more foreclosures and falling home prices in the future (these could occur in local markets where banks and home sales are not yet in trouble).

 

It is good that President George W. Bush stepped in to support, at least temporarily, the backbone of American industrial might – Detroit’s Big Three.  In the scheme of things, with many hundreds of billions flowing out to the nation’s financial services companies, this was a small amount to invest. (And these are investments, we must note.)  Let’s hope the leadership of the auto companies follow through on their plans (plans which were painfully absent at those first Capitol Hill hearings) and that they can revive their companies’ fortunes.

 

What would this Car Nation, the America we know and love, be without the Detroit companies?  I shudder to think of that possibility.  We are all in this together.  The good news: This is a really good time to buy an America-made car or small truck – the companies have some terrific products to offer at every price point!

YANKEE MONEY AND CITY MONEY AND TAXPAYER MONEY AND FAN MONEY…

Play Ball!  We’ll be hearing that cry at spring training soon, and in April, at America’s great baseballs cathedrals.  It seems that building great ball stadiums in our hometowns in turn brings great hopes to the civic interests, and if the home teams playing are good, great hope for the loyal (paying) fans.  Baseball is the great American pastime.  (So to some degree is football, basketball, hockey, auto racing, etc. – all privately owned and managed free enterprises whose owners also regularly line up for public sector financing and other handouts from the taxpayers.)

 

How about the [new] New York Yankees home stadium, in 2009 set to replace the 1920’s “House that Babe Ruth Built,” in the

 

Play Ball!  We’ll be hearing that cry at spring training soon, and in April, at America’s great baseballs cathedrals.  It seems that building great ball stadiums in our hometowns in turn brings great hopes to the civic interests, and if the home teams playing are good, great hope for the loyal (paying) fans.  Baseball is the great American pastime.  (So to some degree is football, basketball, hockey, auto racing, etc. – all privately owned and managed free enterprises whose owners also regularly line up for public sector financing and other handouts from the taxpayers.)

 

How about the [new] New York Yankees home stadium, in 2009 set to replace the 1920’s “House that Babe Ruth Built,” in the Bronx near Manhattan Island. The billion-dollar-plus facility is being financed in part by $220 million of New York City government funds…tax free bonds or other benefits or future revenues waived away by the decision-makers at City Hall.

 

In these times of discussion about financial rescues and sector bailouts et al, with rising public comment about the appropriateness of using public sector, taxpayer dollars for private sector beneficiaries, the practice of municipalities and states allocating hundreds of millions’ of dollars for private sports facilities is become part of the debate.

 

The headlines in New York newspapers told of the Yankees going on a spending spree and showering just three ballplayers signing contracts with almost a half-billion dollars (in future paychecks).  Three players – there are nine on the field; what does this say about the state of at least New York sports?

 

We watch the obviously wealthy New York Yankees organization, which is putting up $1.1 billion of its own funding, getting $220 million from New York City government — that’s $75 million for parking facilities, $135 million for nearby waterfront parkland, and a few other millions of odds and ends.  It could have been more. One of the stars in the political “conservative” movement firmament, former mayor Rudy Giuliani, was set to give the Yankees at least $800 million of taxpayer monies. The former mayor, an unsuccessful candidate for the presidency, was set to issue $1.6 billion in bonding to build the new stadium. Successor Michael Bloomberg, an admired finance and business leader before being elected mayor, has been much more conservative and cut the funding dramatically.

 

It seems that to ball team owners and management interests, New York City and New York State are presumed to be rightful funders of sports venues – consider the projects bandied about just in New York, including hundreds of millions of taxpayer dollars for a new New York Jets football stadium in Manhattan; the new Yankee Stadium; a new Met’s (baseball) Stadium – Citifield – in Queens; maybe a new New York Nets basketball arena in Brooklyn…and more. Fundamental questions are raised:

 

Does government belong in the sports business today?  What do you think of such involvement as municipal and state finances continue to deteriorate?  Are these “fields of schemes,” as one author asked – assembling public money and benefits destined for making private profit?

 

In addition to taxpayer dollars, there’s another important “free market” aspect of funding for major league ball teams (at least in New York).  Hey fans, here’s what the Yankees are offering you for the new season:  you can buy tickets for the Chicago Cubs – Yankees exhibition game for (priced from) $40 to $13,350.  No, that’s not a typo. That’s for Friday – the Saturday game ranges up to $14,118.  The Season Package including all regular season home games runs up to $68,000.  Want a bargain?  Look at the game with the Cleveland Indians on April 17th – topping out at only $9999.

 

How will fans afford this?  The average fan…well, let’s just see.  The large corporations lining up contracts for luxury boxes?  This about tax deductible business expenses, you betcha. Although, Associated Press has reported that selling suites may not be a sweet business for the New York Yankees in these tough economic times.  There were 51 suites priced from $600,000 to $850,000; 44 have been committed by contract. Still, the team isn’t hurting; almost all of the premium seats are gone (cost: $500 to $2500 per seat per game near home plate).

 

The Yankees’ owners are so confident that if you build it they will come – and pay – that they’ve opened their treasury for just three new ball players — Mark Teixeira signed a $180 million deal; C.C. Sabathia will get $161 million; and A.J. Burnett, $82 million.  In the last few days the team’s spending spree totaled $400 million plus.

 

Great argument, it would seem, for the major league interests (especially those in smaller cities) to come together and agree on salary caps before they lose the common fan (and hers or his ticket dollars).  And a good time as well for the Great Fathers and Mothers of Government to consider what they are investing in these days.

 

I’m all for people earning all they can, based and ability and merit, and all for sports and especially the great American pastime, baseball.  But, hey folks in leadership positions, can we get these things in proportion to life’s real needs?  Seems a bit unsightly – poor optics, we could say in business terms – for peoplewho can spending all that they can…while so many Americans are losing jobs, experiencing downsizing, losing their homes to foreclosure (10,000 foreclosures per day now), watching their 401-k’s become 201-k’s, and worse.

 

And a footnote from the financial scandaldu jour:  Jeff Wilpon, COO of the New York Mets team, also building a new stadium with $600 million in team money and $90 million in New York City public financing, and $75 million in rent credits from New York State — assures the media that the losses of money entrusted to Bernard Madoff will not affect the team’s finances. His father’s business (Sterling Equities) lost a reported $300 million in the Madoff Scheme of Things.  But not to worry, this won’t affect the team’s treasury.

 

New York City is allocating $85 million in FY 2006 capital budget funds and $4.78 million in capital reserve for the new Mets ballpark. A report by the Independent Budget Office says that the ballpark will cost the city taxpayers $177 million over 40 years and the state taxpayers $89 million.  The use of tax-exempt bonds will save $300 million for the team.  Citigroup is paying the Mets organization $400 million over 20 years for the naming rights to the stadium.  (Wags on the City Council said the new name should be “Citi/Taxpayer Stadium.”)  At the time it seemed like a stroke of genius in financial services and bank marketing.  In the current financial crisis, with 20/20 hindsight, there are some critics questioning the marketing investment.  But this is a long-term proposition for Citigroup, and a competitive marketing strategy.

 

Let’s hope no expensive signs have to be changed.  Enron Field became Minute Maid Park in Houston.  You know why.  Bank One Ballpark became Chase Field in Arizona (when JPMorgan Chase absorbed Bank One).  Given the shifting sands of business, hey, you never know!  Luckily, the ball teams are not as worried as some corporate leaders today.

 

Maybe all those high-priced ballplayers entertaining us in the splendid new taxpayer-supported stadia will help us take our minds off the financial woes of 2009.  Sounds like a plan

PART II: TWO TRAGIC INCIDENTS – WHAT DO THEY TELL US ..ABOUT OUR SOCIETY …ABOUT OURSELVES? AND WHO IS ACCOUNTABLE FOR …THIS? THE WAL-MART DEBACLE – A WORKER’S DEATH IN SHOPPING MELEE

Part II – As we wrote yesterday, in our next of the woods, here in suburban Long Island, New York, two recent tragic incidents have shocked newspaper readers and TV watchers, whether they live in these parts, elsewhere in the country…or in some distant place on the planet.  These incidents raise many disturbing questions about the state of the American society in this 21st Century.

 

“Black Friday,” they call it.  It’s traditionally the day after Thanksgiving, when many mass retailers supposedly can see black ink on the ledgers (vs. the red ink of lost sales, especially in these economic times), and the signal that the Christmas season shopping frenzy in on.  In our local newspapers, and on television, we saw endless promotions for store sales leading up to Thanksgiving.  One of the busiest manufacturers’ outlet malls in the nation is in our neck of the woods, and the stores there were open at Midnight on Thanksgiving.  The highways and byways were jammed with mall-bound bargain seekers, so much so that auxiliary parking had to be arranged nearby.

 

We should tell you that there are two populous counties on [the physical eastern portion of)] Long Island, Nassau and Suffolk.  (Two other counties to the west are part of the 5-county incorporated City of New York – Kings and Queens.  You know one by the name “Brooklyn,” and Queens is the home of LaGuardia and Kennedy International airports.)

 

In Part I yesterday we wrote of the tragic death of immigrant from Ecuador, Marcello Lucero, that has put Long Island, New York on the world’s media radars because of the way he died:  as police have alleged, and as a grand jury has agreed, at the hands of a gang of local youth on the prowl for immigrants to taunt and attack.  Part II is about the tragic death of another man – Jdimytai Damour – who was a temporary maintenance worker for giant retailer Wal-Mart in its Valley Stream store.

 

Valley Stream is a border town, also an incorporated village (equivalent to a small city elsewhere) like Patchogue an hour’s drive to the east.  If you landed at Kennedy International surely you have flown over this area, which lies below on your plane’s final approach, and right on the border of Nassau and Queens counties.  All roads seem to lead to Valley Stream:  there are several major highways and thoroughfares bringing heavy volumes of traffic eastward from the two heavily populated New York City counties on the west end of Long Island.  And so it was as Thanksgiving gatherings ended and late night approached that crowds headed for the Wal-Mart store and other retailers for the Black Friday events.  And here is where the national and even international news coverage would be centered.

 

The headlines on Saturday, November 29 in Newsday read:

 

LI Mall Stampede

 

Fatal Frenzy

 

Wal-Mart worker killed as crowd rushes door

 

At the Wal-Mart store literally thousands of people gathered through the night to await the opening of the store, scheduled for 5 a.m. on Black Friday. Nassau County Police Department officials estimate that at least 2,000 people were at the doors by that hour.  There’s an active post mortem of the day’s events going on now locally, but this is what Newsday is reporting in its extensive coverage.

 

In the early morning hours, police visited the store (which is located in a large regional mall) and found nothing unusual going on (“no criminality”) – the crowd (about 500 at that point) were told to remain orderly over a bullhorn.  Wal-Mart had hired its own security guards to keep order.  At 5 a.m. the crowd surged – breaking the store’s doors and overwhelming staff inside.  According to reports, 34-year old Jdimytai Damour (who was reported as being physically large) was told to help keep order.  He was not trained in crowd control or security.  As the mob –this is what the eager shoppers became – surged forward, the young man was knocked down, and despite the efforts of his co-workers, was run over by the crowd…and died.  Died.  In a mad dash to grab bargain-priced items off Wal-Mart shelves, this young man was stomped to death.

 

The recriminations have begun (also a couple of lawsuits with more to follow, you can bet.) Wal-Mart did not hire enough security guards, police say.  (The store was visited beforehand and police suggested some steps, they report.)  Newsday reported that the company left the decisions on security up to the store managers.  (Reading into this, given the Wal-Mart track record in recent years of allegations and lawsuit testimony on employee and contractor abuse, does this mean the cost came out of the store receipts?  You want security, they might say in Bentonville – you pay for it!)

 

At Bentonville, Arkansas company spokespeople were saying:  they were cooperating with the Nassau County Police Department; the store had hired outside security help; put up barricades; and had consulted with local police before Black Friday.  But – we learned that each store decides how much security to hire.  Each store is responsible for taking extra precautions on days like Black Friday to make sure that there’s a safe environment for shoppers and employees.  (As reported by Newsday, November 30, 2008.)  Retailing experts point out that other large chains develop standards to guide local outlets.

 

The store closed for a brief time.  You can see the video reports (being played over and over) on cable news shows now, as police and rescue workers try to revive Jdimytai Damour on the floor of Wal-Mart – as a few passersby and employees look on.  The broken doors were replaced that morning.  Shoppers continued to wheel their goodies to cars. And in the early afternoon two young people set up a prayer vigil, as the good people in Patchogue did two weeks earlier.  One of them told the reporters, “Jdimytai was a casualty of consumerism…we have placed such importance on material possessions that we would even trample someone to death…”

 

It’s another week now; the holiday shopping goes on at the Valley Stream Wal-Mart; his family and community mourns the death of the young man – whose family is in New York and Port-au-Prince, Haiti.  Jdimytai is described as a good man, always helping friends, who attended the local community college in Nassau County.

The tragedy is not only told in the death of this man, but also in the widespread reports that no one would stop in the mob’s run to the counters to help him!

 

And so expect continuing news coverage of this tragedy, and what these stories say about us as a nation and a people.  (If you look at Black Friday on Wikipedia, Jdimytai’s death is already part of the definitions offered.)  Criminal charges may be filed. The local police department is being criticized for its lack of officers at the scene; the department shot back that security is the job of the stores and the mall operators. The criticism of Wal-Mart will continue – in so many instances, this seems like a company whose management just doesn’t get it.  (Jdimytai Damour was a temp hired through a contractor to Wal-Mart.)

 

And we ask ourselves:  How could this happen?  How could we get to the point as a people that things (in the store) matter much more than people? In a microcosm, the Valley Stream mob stampede tells us a lot about the American obsession with things, shopping, bargain, sales, materialism, consumerism, and more.

 

We seem to have forgotten the reasons why we celebrate Christmas, and we have strayed a very long way from the way the Holy Day was celebrated in early decades and centuries.  Is this only about shopping frenzy for many Americans?

 

No matter where you live, chances are you’ll be following the aftermath of these two tragic stories.  For those of us who live where the deaths happen, many questions remain – and the answers (and lessons) to come are most important.

 

In Part I, December 1, we commented on the tragic death of Marcelo Lucero, an Ecuadorian immigrant, allegedly killed by a teen gang seeking immigrants to taunt and attack.

DETROIT BIG 3 RESCUE FAILS IN CONGRESS – NOW IT’S UP TO THE WHITE HOUSE … OR ARE THE BANKRUPTCY COURTS THE NEXT STOP? EXACTLY WHO IN THE FEDERAL GOVERNMENT IS ACCOUNTABLE TO THE AMERICAN PEOPLE?

As CNN anchor Lou Dobbs seems to ask (night after night) – “What in the world is going on with our government?”  Many more people of ordinary means as well as those in high places of power are now asking the same question. As we commented in this space on November 26th — Is there actually a Plan at work (in the federal government’s financial markets rescue plans)?  Doesn’t seem so.  More of a mindset. When you have a hammer, it’s said, everythinglooks like a nail.  So right out of the box the folks from Wall Street presiding in the Treasury Department zeroed in on the first to be rescued from the burning buildings in the downtown NYC canyons – Wall Street investment bankers and money center bankers. (It must be noted that not all bankers asked for rescue funding – some had it forced on them by Treasury.)

 

Not that a number of American commercial banks don’t need a helping hand.  But it seems that the Treasury Department reacted swiftly and dramatically to the unraveling of the great schemes of Wall Street Masters of Wizardry with a mindset:  Save the top management of investment banks and brokerages whose firms were failing (such as Bear Stearns, sold to Chase) or at risk of failure (Merrill Lynch, now part of Bank of America) – headed by the folks who over the past three years set aside risk management (and their fiduciary responsibilities) to plunge into risky and then totally risky and exotic investments, in the process taking all of the national economy over the cliff with them.

 

Not many strings attached; not many demands of the firms receiving federal money. The rescue effort so far totals in the trillions of dollars and the calculator tape is still running.  Will we see more money allocated? As US Senator Kay Bailey Hutchinson (R-Texas) said today – I am very disappointed and very reluctant to approve more monies…”  More House and Senate members seem to be expressing the sentiment we hear on the streets of Brooklyn, New York:  Fugghhaaboutitt!

 

Perspective – all this in the Scheme of Things

 

Some numbers here (promise your eyes won’t glaze over): The US Gross Domestic Product (GDP) is the estimated the sum of the total output of good and services that our nation produces, about $15-$16 trillion range. Maybe a bit more, if you count in certain other items, but let’s go with this number.  The federal government fiscal year budget for this year, as originally set out by President George Bush (February 7, 2007) was to run on $2.6 trillion cash plus $239 billion borrowed for a total of $2.9 trillion, projecting a budget with income equivalent to 18% of GDP and federal outlays of 20% of GDP.  Pretty big government, yes? And now getting really        BIG!  (budget summary tables:http://www.whitehouse.gov/omb/budget/fy2008/summarytables.html

 

(The president assumed a balanced budget by 2012; read the rosy message here:http://www.whitehouse.gov/omb/budget/fy2008/message.html

 

Our method of federal government financings isn’t necessarily financially “responsible.” You see, so as not to present us taxpayers with the bad news we don’t want to hear — or — the true cost we don’t want to bear, the true cost of running our government, with all the expectations of what Uncle Sam could / should do for us — our esteemed leaders set up the government to run in the red.  If you did this with your household monies, or with your business, or with your P&L responsibilities, how long would you last?  Every state government balances its budgets, at least until this year (many are facing shortfalls now).

 

In the budget process, the president proposes and the congressdisposes – the White House OMB (Office of Management and Budget) sends the departmental and other budgets up to the Capitol Hill where members of House and Senate haggle and finagle and add and subtract numbers and come up with the final budget for operating the USA.  Which has almost always approved with shortfalls since the grand “conservative revolution” of the 1980 elections?  You see, just about the last budget to be balanced was for FY 1969. A former client of mine, CEO Charles Zwick, the last head of Southeast Banks, regularly told people that he was the last manager of the OMB during the Lyndon Johnson Administration to send a balanced budget up to the Hill.  The Vietnam War was on, and LBJ decided to finance both “guns and butter,” with the financial means to wage war and provide “butter” at home with little sacrifice asked of consumers. (Sound familiar? It does to me.)

 

At the end of the Clinton Administration the budget was balanced for a year or two, and then the events of September 11, 2001 changed everything – quickly back to red ink.

 

When President Ronald Reagan and his conservative managers took over the government power levers in 1981, were they actuallyfinancially and fiscally conservative?  No! The Great Communicator presided over annual budgets with deficits – growing shortfalls – that eventually amounted on his watch to a sum equal to all of his predecessors.  Conservatives don’t talk about this much.   So today, our government owes just well north of 9 trillion dollars.   That’s $70,000+ for each family in the US.  (Did you know you owed that much?)  And as we say, the tape is still running up the shortfall.

 

You might find the U.S. National Debt Clock in New York’s Times Square interesting.  The Durst real estate organization put this up (in 1989) and it steadily ticks off our growing indebtedness as a nation, which stood at these numbers two years ago:

 

  • $20,000 new indebtedness per second
  • $1.2 million a minute
  • $1.7 billion a day
  • $51 billion a day

And this was before all the bail / rescue / nationalization if industry money began to flow!  (Check out the May 2006 story at:http://www.theledger.com/apps/pbcs.dll/article?AID=/20060514/NEWS/605140354/1036

 


Photo By The Editors

And now we come to fantastic events of winter 2008 – and the approval of the US Congress and White House of trillions upon trillions of dollars of relief for troubled financial
services firms – in banking, what was investment banking, insurance, and now the US auto industry.  The White House is scrambling today to find $15 billion or so to prop up General Motors and Chrysler — at least until the incoming Obama Administration gets settled.

 

This is obviously a Band-Aid on the critical and long-term issues that the US automakers are facing. What will it take after January to develop (we hope) long-term strategies to assure that there will be futures for what we affectionately know as “Detroit’s Big 3”?  Stay Tuned – this is very serious.  Did the lack of a plan torpedo the Big 3’s plea for federal help?  When asked by congress, the lack of plans to be offered up by the heads of Ford, GM and Chrysler at those first disastrous public appearances didn’t help.  But neither did the leaders in government have any plans for the auto industry.  This was a group grope in living color on cable TV, little more.

 

What’s important now?  Still – a Plan!  As the head of the federal bailout panel of monitors, Harvard Law professor Elizabeth Warren, reported last week, the panel still does not see a coherent strategy for easing the financial crisis, and the government seems to be lurching from one tactic to another without clarifying how each step fits into an overall picture (NY Times, December 2). One of the most telling comments from Professor Warren:  “You cannot repair this economy if you can’t repair families, and I’m not sure that the people directing the bailout see that as their job…”  Help!  The pleas for help can be heard on television broadcasts, on radio shows, in the halls of congress, in thousands of emails to congress, from the Main Street advocates struggling with broken dreams…HELP!

 

Back to mindset: When your mindset is on helping “the financial markets” (investment bankers, money managers etc.) the focus is not on Main Street and the woes of the folks who are struggling with household debt, underwater housing values, ARM mortgage triggers to high payment levels, the loss of a job (or fear of same), and more.  May be hard to relate to all that stuff when in your previous life on Wall Street the annual bonus was your annual salary (generous by itself by Main Street standards) and way beyond.   (And so it’s easy to shovel out money to Wall Street with little strings attached.) But if we don’t address the consumer’s needs – this flow out of taxpayer money will not turn the economy around any time soon.

 

And so, back to the massive and growing federal debt.  The debt clock in New York City has to be re-done – to accommodate federal government debt levels above $10 trillion.  Waaayyyy beyond $10 trillion will be needed.  The estimates now that the federal rescue efforts alone may require up to $7 trillion; then there’s the annual federal budget (with ballooning deficits); the cost of the wars in the Middle East; federal aid to states struggling with shortfall; the rising costs of Social Security and Medicare; President-elect Obama’s awaited health care reform; the cost of the failures of the leaders of the auto industry….all this and more surely awaits the incoming congress and administration (and cabinet officers).

 

Let’s hope they do a better job than the leaders we’re watching in action today in the nation’s capital.  HELP!

 

And so, Lou Dobbs, we will join you in asking: “What in the world is going on with our government?”

 

# # #

 

PS:  pick up this month’s The Atlantic Monthly and carefully readthe James Fallows interview of the US-educated manager of China’s foreign finances has to say about the United States economy, fiscal irresponsibility, and more. Scary!  The Chinese are among our major foreign creditors – and their patience may be running out.

THE AMERICAN HEARTLAND – WORLD CLASS MANUFACTURING CENTER? OR DESERTED AND ABANDONED RESOURCE LOST TO THE NATION’S FUTURE?

For generations of American workers and business managers, the Heartland states – western Pennsylvania, Ohio, Michigan, Illinois, Indiana, and others – have been the epicenter of American manufacturing know-how.  This was the important center of industrial output for the greatest armament build up in history, just before and all through World War II, when the US was the“Arsenal ofDemocracy” for the major democracies locked in mortal combat with the fascist nations.  American industrial output was a deciding factor in defeating the powerful armies of then-enemies Nazi Germany and the Empire of Japan.  (Both of which could boast of their own superior manufacturing capabilities and a head start in weapons making.)

 

Innovation was always in evidence throughout the heartland:  necessity drove the inventions that hardy pioneers needed, such as Cyrus McCormick’s reaper – from which the McCormick Harvester (manufacturing) Company would rise.  JH Patterson would create the cash register giving rise to the great National Cash Register Company (NCR) in Dayton, Ohio.  The John Deere Company first created steel plows for prairie farmers and grew to be one of the world’s premier earth moving and heavy equipment manufacturers based in Moline, Illinois, by the Iowa border and along the Mississippi River banks.

 

This region was the essence, once-upon-a-time, of America-the-Abundant:  Nearby hills contained the ores necessary for processing into metals, for iron and steelmaking. Rich veins of coal were within easy reach for firing up huge blast furnaces. Immigrant workers pouring into the country were eager workers for the factories. The Great Lakes provided inland seas for transport around the region. Great rivers throughout the region carried finished goods to markets in the US and Western Hemisphere and far beyond – think of the Mississippi as the central river of commerce flowing direct from the Heartland, down from the north through St. Louis and other cities to New Orleans and onto waiting ships bound for markets everywhere.

 

Over the years since World War II the work available in the local factories – especially in the auto business — grew in importance in many communities as the family farms began to disappear, or at least too much of the money the small farmers needed slowly disappeared.  There are many families with three generations at the local plant – men and women. We have been in many small Midwestern towns where the factory workforce had jobs outside the production lines, at home on their farms (working nights and weekends and with family members helping out).  These are proud, skilled, experienced American industrial workers, who want to work and to turn out the best products possible. (We’ve had plant hands describe with great enthusiasm and pride how the tractor engines turned out by the local guys and gals are so important to the giant companies they work for and to the end user who buys their products.)

 

The peak of the manufacturing era has passed for too many of America’s manufacturers, their workers, the unions, local civic leaders, tax collectors, railroad workers, hometown retailers, bankers, and on and on… Alas, nothing is forever. As author Kurt Vonnegut often wrote, And so it goes…  But does it have to?  Can we stop the decline?

 

One important factor in the decline: Wall Street mavens had other ideas for the publicly-traded manufacturing companies that arose from prairie and heartland ambitions and gritty work. Dump those workers – good for stockholders – the headlines of every 10,000 laid off workers in America’s factory towns were often cause for cheers in the narrow canyons of downtown Manhattan.  For at least the past 30 years this anti-worker attitude drove some of the financial analysis and investment decision-making that led to a distinct Wall Street vs. Main Street confrontation.  Corporate managers were constantly pressured by Masters-of-Financial Wizardry to downsize, outsource, shut the lines, move plants to foreign lands, and otherwise hollow out much of what we once could boast of:  dominant American industrial prowess.  There is lot left, to be thankful for – but too much gone, too.

 

How many things can you buy today marked “Made in the USA?”  Clock radios?  Invented here (by GE) now made who-knows-where – but not here.  How many color TV sets have the Made in the USA label?  (None.)  A decade ago I was in a large Pennsylvania warehouse loaded with RCA (remember that name?) color TVs.  Wow!  Then I looked at the label – Hecho en Mexico – and some ersatz other label purporting this was worked on an Indiana plant.  Even that slight-of-hand seems to be gone now.

 

Sure there’s a good amount of manufacturing still going on in the heartland.  But how much of the work that should be there now has been moved to foreign shores?  Or taken over by foreign manufacturers that come here and get generous tax breaks and looser trade barriers (than in their countries)? And so we come to the critical question of coming to the rescue of the three American auto and truck manufacturers.  There’s a lot at stake here.  Depending on how you figure things like this, maybe 1-in-6 to 1-in-9 American jobs depend on the Big Three’s survival.

 

We recently shoveled wheelbarrows of federal – taxpayer – money to the banking and financial services (and insurance) sectors, in the form of loans, guarantees, investment, direct support and more.  $25 billion of that was directed to the nine big banking firms.  So far, 150 financial services sector firms are lined up for federal aid.

 

This country, this congress, this administration, the American People, now have the opportunity to do something important about the tragic loss of American manufacturing over the past three decades:  We all can help stop the bleeding. We can extend the requested financial lifeline to the three automobile companies in Detroit.  Even if it is temporary until President-elect Obama and his Brain Trust gets to town in January.   Millions of jobs hang in the balance, and not just in the heartland – those factory jobs are throughout cities and town and states and many crossroads of rural America.  Hey, there in Washington — don’t we have enough failed mortgages to deal with right now?  Kiss off Detroit – and then watch what happens.

 

Yesterday was December 7 – the anniversary of the Pearl Harbor attack on the United States by armed forces of the Empire of Japan.  Just a week later Nazi Germany declared war on the United States.  The nation plunged into a true world war, one to be fought on all continents by America’s citizen-soldiers.  The war was also won on the home front — It was the American factories, where the heartland workers (and their peers in other states) turned out the endless flow of weapons and materiel that helped to turn the battle. Aircraft carriers, tanks, Jeeps, rifles, cannon, planes, and everything else that was needed.

 

And after defeating the WW II enemies, we as a People turned around and helped to rebuild the industrial base of western Germany, much of democratic Europe, and of Japan.  After the Korean War we helped build a mighty industrial base there in South Korea.  Can’t we continue to do that at home now?

 

Be aware friends, this can be a dangerous world, and while we are the world’s superpower today, there are no guarantees for tomorrow.  Large nations on distant shores are building mighty industrial bases. In the worst case scenarios, would you feel more secure (or less) if many more of our factories disappeared and their skilled workers went into part time retailing or forced retirement?  And their factories were closed?  The machinery dismantled. No further investment made. And then the materiel we would need in the future was turned out in…who knows where?

 

Stay closely tuned to the critical discussions going on not just this week in Washington about immediate help – but to the longer-term and very strategic public policy discussions about the future of American manufacturing.

PART I: TWO TRAGIC INCIDENTS – WHAT DO THEY TELL US ..ABOUT OUR SOCIETY …ABOUT OURSELVES? AND WHO IS ACCOUNTABLE FOR …THIS?

In our neck of the woods, here in suburban Long Island, New York, two recent tragic incidents have shocked newspaper readers and TV watchers, whether they live in these parts, elsewhere in the country…or in some distant place on the planet.  These incidents raise many disturbing questions about the state of the American society in this 21st Century.

 

The first tragic incident was the slaying of a man because of his ethnicity and Hispanic background, allegedly by a young bully with a knife running with a pack of six other teens the police say were on the prowl in the night hours seeking immigrants.  The Suffolk County district attorney said the gang was looking for any immigrant to beat up.  The victim they found was a 38 year old man from Ecuador, Marcello Lucero.   His “sin” that instigated the murder?  His background, color and status as an immigrant.  (After the murder, other Hispanic men have been coming forward to describe alleged attacks by these and other teenage suspects.)  The “sport” of these youths is called “beaner jumping.”

 

Just before midnight, near the local railroad station, the teens spotted two men walking and gave chase.  One man got away. Marcello was encircled by the young bullies and one put a knife in his chest.  Evidently the group made off, continued to hang together, and was rounded up by Suffolk County’s finest without a fuss.  No big deal, it would appear, to the attackers.

 

This event that made international headlines took place in a village called Patchogue, in eastern Long Island, about 60 miles from Manhattan’s Times Square.  (In another state, such as in the Midwest, this would be considered a small city.)  Patchogue has long been a retailing center, and is a gateway to the storied pleasure island just offshore, Fire Island.  Like a number of neighboring towns, this older village has attracted a number of immigrants, most seeking work and opportunity far from their native countries.  Some come and go, and others stay, settle down, build families and pursue the American dream.

 

The government of Ecuador reacted immediately to the New York events and people there poured out into the streets to mourn their countryman and demand justice in the United States.  Justice was swift; a grand jury indicted the young men on the prowl.  The people of Patchogue Village also poured out onto the streets, to mourn, and to condemn the alleged racist attacks in their hometown.  There were rallies attracting hundreds of local residents, decrying the violence and intolerance. But there’s more to this story.

 

You may remember the news stories from several years back, about the nearby hamlet of Farmingville being “overrun” by immigrant workers, most of them Hispanic.  One house contained dozens of immigrants squeezed into tiny spaces. The parking lot of the nearby 7-11 convenience store was filled in the early morning hours with day laborers eager for work.  Contractors, landscapers, people with money looking for cheap laborers needing a day’s wages picked them up.  The neighbors were riled up.

 

The local county legislator took on the issue.  His name is Steve Levy.  On many days this became the most important issue in his district.  Mr. Levy went on to be elected to the New York State Assembly, served with distinction, and in time, was elected County Executive of Suffolk (population 1 million-plus).  Steve Levy is a popular official; so much so that he ran unopposed with multiple party endorsements last time around.  And in all his official posts he has been outspoken on the issue of illegal immigrants in Suffolk County.  The burdens on public finances, on taxpayers, are more than they should bear, and the federal government should help the country address the issues.

 

He most assuredly is not a racist.  Mr. Levy is concerned with a number of issues regarding the impact of illegal immigrants, and has called repeatedly on the federal government to deal with the issues.  Not all of his press coverage on the issues has been favorable. And his independent positions on issues – and he has his finger on the mainstream pulse – have often put him in hot water with immigrant communities and their advocates.  So when this murder occurred, blame was quick in coming – some put blame for an atmosphere of intolerance encouraged by County Executive Levy.  Grossly unfair. His reaction to the tragedy is to us an example of a public official standing up, acting responsibly — and being accountable — to the residents of his county, whether native born or immigrant, “legal” or “illegal.”

 

He called on houses of worship to ask hard questions about how this happened and asked clergy to preach and pray about tolerance their communities. He suggested:  In this weekend of reflection, let us talk frankly and openly – within our churches, synagogues, mosques, and within our schools and community centers, within our homes, and even within our souls – and confront the divisive factors of hate and intolerance…

 

County Executive Levy asked in correspondence to clergy / community leaders these questions:

 

  • How can children, raised in a quiet suburban community not unlike the many others across the Island, harbor such twisted thoughts – beliefs that are the very anathema of what our great country represents?
  • How could the hatred and intolerance that seethed inside these teenagers go unnoticed and unreported, by their friends, siblings, peers, teachers, and families?
  • How can we all look past our differences to build better, stronger bridges anchored on common ground?

 

Mr. Levy pointed out that the good people of Patchogue had offered support and assistance to the Lucero family, and that spoke to the innate goodness that lies within the vast majority of our society.

 

The story goes on.  There will be trials of the attackers, generating news headlines in the US and in Latin America and beyond.  Elected officials in both countries (US and Ecuador) will continue to weigh in.  The school that the teens attended has been rocked by these events.  School officials and parents wrestle with the issues. The local daily, Newsday (one of the 10 largest papers in the US) has covered this story daily.  CNN, Fox and other news outlets have been all over the story.

 

We ask our own questions:

 

  • Could it be that the endless bashing of “illegal immigrants” in our midst (tune in to talk radio or certain cable programs to hear this first hand) instigate bad behavior?  Encourage intolerance?
  • Are local officials such as Mr. Levy or the elected mayor of Patchogue, Paul Pontieri, unfairly dealing with more macro issues – border control, determining immigration status, the burdens of providing health care through hospital emergency rooms, overcrowding in schools, etc. – without sufficient concern by federal officials with responsibility for these public policy issues?
  • How can we as Americans do the right things about / for / with the undocumented immigrants in our midst – if they got here by other than legal means, overstayed their visa, etc? How can we be compassionate and considerate and tolerant. .. without condoning their actions (e.g., moving in front of the line ahead of those waiting in other countries for their legal immigration status)?

 

Most important, as the county executive asked, are we doing all that we can to tone down the anti-immigrant rhetoric…to create an atmosphere of tolerance?  We are a indeed a Nation of Immigrants, some who came early on and some of us coming later.  We need solutions now to issues involving immigration, not encouragement of hatred of immigrants in our midst.

 

Tomorrow:  The tragic death of a Wal-Mart employee as a mob bent on shopping crushed him in an early morning melee.

 

######

 

Disclosure:  Steve Levy is a long-time acquaintance and a public official that I have admired over his career for his demonstrated accountability to the public he serves.  He is doing the right thing, not ducking any issues, in his handling of the events in his county.  We’ve shared work on projects with Mayor Paul Pontieri and admire the way he has rallied his community to help immigrant families in their neighbors.

AND THE BEAT GOES ON – MORE RESCUE MONEY WHEN AND WHERE AND HOW DOES THIS END?

The Hon. Everett McKinley Dirksen was a gravely voiced, avuncular US Senator from Illinois (he served 1951-1969) who helped to pass the Open Housing Act of 1968, a powerful piece of the Civil Rights legislation. We long remember his most famous quote, about federal spending:  “A billion here, a billion there, pretty soon, you’re talking real money…”

Real money. Yep, senator, that’s about where we are today as the folks up on Capitol Hill, down Pennsylvania Ave at the White House, right next door at Treasury, around the corner at FDIC, and a few blocks away at the Federal Reserve headquarters continue to fill wheelbarrows with cash to hurry on to the “capitalist sector” to steady our financial system.  (The flow continues to banks, credit card companies, student loan guarantors, Fannie Mae and Freddie Mac, maybe to the car companies, most certainty to the insurers, and who know where else!)

 

Is there actually a Plan at work?  Doesn’t seem so.  More of a mindset. When you have a hammer, it’s said, everything looks like a nail.  So when you and your crisis team come from Wall Street, and have sat at the catbird seat position of the Street at that (Goldman Sachs), what is the mindset?  It seems, after all these weeks and much sturm and drang, it started out as let’s save our guys on the Street.   Mindset.  It’s what we are most familiar with, and comfortable with, if we come from the mountaintop of Wall Street in New York to tell the naïve folks in Washington what they need to do. 

 

The first request then to the US Congress was for $700 billion or so (hear that, Senator Dirksen?) with little details about how the money would be used.  Improvising on the fly, we then got “TARP” (the Troubled Assets Relief Program), sort of like a cash-filled “CARE” package sent on to the biggest banks and investment bankers/brokerages of the United States of America.  Those “free market” “capitalistic” organizations that were, well, choking on “troubled assets.”  Assets.  Meaning…having value?  Maybe not in this case.

 

“Asset” is bank-speak for loans.  We’ve explained here before, in the reverse-mirror ofbanking accounting, an asset on the balance sheet is a functioning loan (not in default) that a borrower owes the bank.  (You and I might count our assets as a paid off car, or that equity which really do in own in our home, or the cash in the now-reduced 401-k.)  A liability for the bank: the cash on hand in the vault that the depositor owns…and could ask for (back) at any moment.  So the “assets” that were boasted of in recent years as banks grew the asset base – and on which growth bonuses were awarded…became troubled.  Got it?

 

How do assets get in trouble?  Well, for home mortgages, any number of reasons.

 

Borrowers over reached and bought more house than they could afford.  Happens.  Maybe the local Realtor urged the purchase because it will be worth a heck of a lot more next year, won’t it? 

 

Maybe it was a re-finance –maybe not the first at that.  With houses escalating in price, many homes became ATM machines.  Why not …because it will be worth much more money next year, won’t it?

 

Remember the bank and mortgage company ads just a short while ago? They urged us to:  Pay off your student loans, car loans, those piled up credit card balances by re-financing your house?  Well, a lot of us did!

 

And then there were the predatory loan practices.  No one is much talking about this – easier to blame the borrowers, I guess.  (We hear those conservative congressmen now – we shouldn’t be bailing out greedy borrowers!) 

 

Question:  When you closed on your mortgage, did you read every line of every document in the stack they placed before you?  (You know, Big Government’s RESPA closing documents for the “protection of the consumer?”) Most of us didn’t. But therein were some traps to ensnare the borrowers and later send their mortgages to the dreaded TARP heap.

 

Loans had hefty pre-penalty agreements – pay off the mortgage and hand over a big check to the lender.  If your house is below water (mortgage less than value), you can’t sell, can you?  There were all kinds of fees built in – and these got rolled into the mortgages, inflating them.   And then there were appraisals – what was the house really worth?  Wanna make the loan?  Inflate the Loan-to-Value (LTV) – how many appraisers really did that?  According to accounts at big mortgage lender Countrywide, MANY did (inflate value). (Read Gretchen Morgenson’s fascinating post-mortem accounts every week in the New York Times).

 

For the past three years or so, a slew of exotic mortgages went sailing forth to borrowers, Adjustable Rate Mortgages (the famous “ARMs” you are hearing more about.)  Zero interest and then kickers up, up and up, sometimes doubling the monthly mortgage payment for a family struggling today).  In the first years of the 21st Century, half the states passed “predatory lending” statutes in an attempt to protect their citizens.

 

But – the federal banking regulators, members of congress, and other “protectors” looked away.  This was a great game, wasn’t it?  Even Chairman Greenspan buried the famous “irrational exuberance warning” deep inside a speech to an inside group of financial wizards – you don’t take the punch bowl away too early in the party, do you?

 

And so the very efficient mortgage machines rolled on.  Local mortgage brokers sat at kitchen tables and promised… what?  Who can remember now?  The brokers then sold the mortgages on which they made a great fee to wholesalers, who then peddled them to banks and mortgage companies like Countrywide who then packaged them and sold them to investment banks who then peddled the packages to institutions and individual investors (like your mutual fund, or your pension fund, or even far offshore to central bankers in Europe).  Thick stacks of documents accompanied all this commotion – did everyone read these?  No more than you read the RESPA stack.

 

And now – we’re talking about trillions, good senator (of course, there’s also inflation since your day).  Trillions and trillions of dollars needed for saving the financial system.

 

About those assets.  Who owns them?  That would take another column this size.  Consider that 90 percent plus of mortgage borrowers are making their payments.  Good news!  The predatory or over inflated or whatever-they-are mortgages sitting in the “packages of assets” that at first were going to be addressed by the rescue money (before the Secretary of Treasury changed his mind) are still there.  A mess, yes?  Which way is the exit door?  There is no door – yet!

 

This will be over when it’s over.  How it will be over may well be up to President-elect Obama in 2009.  Where it all ends up is anybody’s guess.  Including Treasury’s, the Fed bankers, congresspeople, and everyone else in Washington at the levers of power. We’re all in this together – we need to work our way out of the mess and work to make sure this never happens again!