Ford’s 9 Billion Dollar Loan

So according to bloomberg.com, Ford has proposed a loan program that would provide as a “critical backstop” and a last resort to prevent a “liquidity crisis”. CEO Allen Mulally said he would even work for a one dollar salary if the loan needed to be accessed. My problem with this is not the intentions. I believe it is possible that Ford and the other big auto makers may even have the intentions to become profitable again. I believe that they intend to pay back the loan.

However, I really worry that they will not. They were extremely poorly managed throughout an economic boom period that lead to excess and a complete lack of foresight into the future. What i mean by that is their severe lack of fuel-efficient or even ‘not-fuel-inefficient’ cars. When times are good, get your house in order to prepare for the bad times. No one with any sense did not see a bubble burst in the American economy’s future and a company worth as much as Ford or GM should have had teams of economists projecting what we are going through. My guess is that the analysts who did project drops in earnings were probably just fired. But i am moving into speculation.

My second problem is that of the unions, due to favorable legislation and aggressive striking, the union workers now are making ungodly sums at close 70$ an hour for some, and are recipients of enormous health benefits. I’m not saying that there should not be unions and that they should not be well-paid and receive health benefits. And i am also not saying that management of these companies is not rife with corruption and over compensation. What i am saying is that these companies are wholly infected by an excess and mismanagement. Entitlement is abound and the fundamentals of the company’s financials are what is hurt. The climate and culture is that of unbalanced compensation.

I also do not see our government as being in great shape either. In fact it is in no position to lend out money. In fact it doesn’t even have any. If it grants the loan and the funds come from taxes, you and i and everyone else is subsidizing a poorly managed company so we can buy it’s inefficiently made overpriced cars. Thus hurting the overall economy.

If the government prints the money, then our purchasing power drops and inflation increases and it still hurts the economy. Furthermore because of inflation, the future payments made by the auto industry would be worth less in real terms (not nominal) and essentially they would be paying back an amount less than they should to our already strapped government. So not only are we getting a raw deal but we’re not even get paid fairly for it.

Competition is what drives free markets, lowers prices, promotes innovation. If we prop up failing corporations, how can the competition function properly? Why should we all have to pay for the mistakes of a few?

“Trillions are the new Billions…”

That is a quote from a blog i read this morning, the article and blog seem very informative with good writing but that quote in particular got me thinking. Are we already seeing the effects of severe inflation? Problems that were quoted as taking billions of dollars are now taking trillions. The purchasing power of the dollar that the government prints is weakening barely before they can get it out the door. I shudder to think what it will be like when it’s had time to filter through the system. Maybe Citi knows?

Does Minimum Wage Help?

Say you work at a company, you are one of the lowest paid employees there. You are paid five dollars an hour to do menial work. There are twenty other co-workers at the same level as you. You aren’t making much money for sure, but you do have a job. You don’t have a very good education or any marketable skills so any job is a good job for you to help put bread on the table. Now imagine the country you work in decides to institute a minimum wage law. It is said that the poor are being exploited and are working for terrible wages. The law passes because it sounds like the most obvious thing and to oppose it would be to oppose the poor and disenfranchised. The law states that no one can work for less than seven dollars an hour. Now your company is forced to make a decision, they cannot afford to pay all twenty of the employees the new wage, so some have to be let go. Imagine this situation replaying itself now across the entire country, hundreds of thousands of low-level workers laid off because their companies were forced to pay more to existing employees. Now, not only were they laid off, but now because there is a glut in similar workers, it is even harder to find a job. Do minimum wage laws create unemployment? Is it better to have a job at a poor pay or to be unemployed and perhaps have to depend on the state? What are your thoughts?