Senator Corker's Bailout Plan for the Big 3
I've praised Senator Bob Corker in the past for his opposition to poorly designed stimulus plans. I'll do so again for his opposition to poorly designed bailout bills. From his op-ed yesterday, here's a better starting point for what stakeholders in the Big 3 auto companies should expect from Congress:
To that end, I have put forth several measures that need to occur for any government-backed loan to be successful:
• One, give existing bondholders 30 cents on the dollar to help reduce their overall debt load.
• Two, bring wages immediately in line with companies like Nissan and Volkswagen.
• Three, GM owes $23 billion to the United Auto Workers' VEBA (voluntary employees' beneficiary association) account. The union must agree to take half of that payment in GM stock.
• Four, the union must agree to do away with payments to workers who are still receiving almost full compensation up to four years after their jobs ended.
These are the same types of conditions a bankruptcy judge might require but without some of the stigma and problems that accompany a formal bankruptcy. We need to insist the automakers get their balance sheets right on the front end, or they will be back over and over again and miss this opportunity to become viable and prosperous for the long term.
He should also add the condition that the moment any of these aspects of the companies' operations are changed, the government's loan is payable in full.
But even with that condition, this offer is more generous than it needs to be. The White House and Congressional Democrats are acting as if bankruptcy hurts the rest of us more than it hurts the stakeholders. Under that mistaken belief, it continues to offer them loans gifts to keep them afloat. Why do that? Why not drive the hardest possible bargain with them, one that exchanges the easy access to government funds for deeper cuts in operating expenses than would be imposed by the bankruptcy process, with the resulting saving flowing back to the taxpayer?
Why the double standard?
Why are employee wages part of the negotiation for the auto industry whil e hundreds of billions in taxpayer bailout is given to the finance industry, and nobody is talking about limiting the stock broker's salaries on Wall Street?
In fact, those guys make more per hour (and especially with bonuses) than an auto worker, often 3-4 times as much.
What's with that?
AIG workers to receive retention bonuses
Just want to point out the horrific double standard at work here . . . we are giving something like $200 billion in loans to AIG while they are handing out "retention" bonuses to 2,000 workers . . . up to a an extra additional year's pay.
What's wrong with this picture?
http://www.bloomberg.com/apps/news?pid=20601087&sid=al7HigWEZYgA&refer=home
"Dec. 13 (Bloomberg) -- American International Group Inc., the insurer under fire for paying 168 executives not to quit after a government takeover, is giving retention awards to at least 2,000 more employees, according to a person familiar with the matter.
The “retention bonus” equals as much as a year’s salary and recipients were ordered to keep the payment secret, said the person, who declined to be named because the plan was labeled confidential. Awards were offered to as much as 10 percent of staff at businesses that are for sale, including plane-leasing and insurance units in the U.S. and overseas, the person said.
AIG said in September that 130 executives will get awards, just days after the New York-based firm got a government rescue package that now totals $152.5 billion. AIG Chief Executive Officer Edward Liddy told Congress last week the payments will go to 168 people, with some getting as much as $4 million."
Union busting
Employee wages are part of the negotiation because the Southern senators are using this crisis to union-bust.
Elementary, My Dear Mom
Stockbrokers are commissioned salespeople, they don't get salaries.
The reason employee wages and benefits of the Big 3 are in play is because that is the source of Detroit's uncompetitiveness. Others build cars every bit as good as Detroit, but at lower costs:
http://www.heritage.org/Research/Economy/wm2162.cfm
How does he reconcile points
How does he reconcile points (1) and (3) - if he's paying off bondholders at 30 cents on the dollar - doesn't that mean that the stock has to be worthless? Anything less and he's breaking the entire capital structure - where bondholders come before stockholders.
Restrict commissions and bonuses
The government should put a cap on stockbroker commissions and bonuses at those investment banks receiving bailout money -- the equivalent of capping salaries for auto workers at companies that receive the loans.
I don't understand why it's ok to bailout one industry without strings attached to everyone's wages, but then impose these restrictions on another.
And don't tell me that commissions aren't the same . . . . compensation is compensation, and anything paid to employees of investment banks comes off the bottom line.
I'd also like to know why the salaries of AIG employees haven't been restricted. I own part of that company now too, and we should be looking at whether those people are overpaid.
It's a double standard, and hearing from someone who was in the Republican caucus room it appears this was a play to make sure certain Senators can get re-elected, as well as continue to receive campaign contributions from large business (other than auto companies).
This was a political play, and had nothing to do with "competitiveness".
New to Business, Are We?
Commissions are incentives to sales people to...make sales. I.e. bring new revenues to the company. You think it is a good idea to restrict revenues to struggling companies?
"We" are not new to business.
"We" are not new to business. I ran one for over ten years. Commissions are compensation, and they come out of the bottom line (profits) of a company. They are a deduction from the revenues . . . commissions don't fall from the sky. They are a part of salary, and, incentive-based or not, are counted as such against the bottom line. Bonuses are also "inventive based", and that has not excepted them from discussion in the bailout hearings . . . in fact they've been seen to be excessive, especially for upper level executives. It seems to me that commissions, also being incentive based, if deemed excesssive, could come under the same scrutiny.
Is there a reason why you are so patronizing?