An apology of sorts

I admit it, I'm a bad boy. It's been over a year since I've posted. I do have some rationale for the delay. In that time I've bought an apartment, moved, had a baby and worked like a madman to finance (and refinance) the aforementioned.

It's a pleasure to do so.

Today I'm posting because I'm tired of reading about "greedy Wall Street". It's a joke.

In the last 72 hours three major corporations have blown up (LEH, AIG, MS), essentially because of their exposure to the US mortgage market and related instruments. What does this really mean? It means that millions of Americans borrowed money and then failed to pay it back.

That's it. It's not evil spirits, an alien invasion or a guy in a three piece suit with an accent and a sneer. It's the neighbor who makes $50k/year that has a plasma screen in every room of his newly built 3,500 sq ft McMansion, a giant SUV in the driveway, and like $50k in credit card debt. Everything we're dealing with flows from this. If your neighbor just gave back the money with a little interest (hell, even without the interest) the problem goes away.

It is inconsistent with any aspect of American freedom of self-determination to blame Wall Street for consumer greed. Is it ever OK for someone to order the most expensive wine on the list and then blame the restaurant for offering him the choice?

Scarier still, I'm not a wingnut. I'm just a guy who works like hell and invested a huge amount of time, energy and money in getting an education. I support the local homeless shelter, I adopt stray cats and donate money to the Humane society. I don't steal, I tip service waitstaff well and I'm not sorry.

I also work in M&A. This means that I my job involves working on behalf of shareholders to get them as much money as possible when they sell, and I only get paid if I'm successful. So I must be a Wall Streeter who is to blame for this mess, despite the fact that I'm current on my mortgage and all of my bills, and I DON'T OWN A PLASMA TV. This is another aspect of the paradox, people who blow their money on crap and then complain about being broke accusing hard working people like me of being crooks. I've never lied on a loan application nor have I defaulted on a financial commitment.

Everyone who is wondering who is to blame for the mess should first look hard in the mirror and then look out the window at his neighbors. It's not Wall Street, it's a general lack of accountability and individual responsibility.

It occurs to me that one reason that the rich tend to get richer is that they aren't idiots. Or at least they hire people who aren't idiots to manage their money.

PS I'm going to paper my walls with my AIG shares. Competency has its limits.

Shock and Awe

Well, a few years later than scheduled, President Bush delivered on his promise of a display that would both shock and awe. It came in the form of the destruction of the city of New Orleans.

The levels of incompetence displayed at the highest levels of our federal government since Katrina was first identified as headed for Louisiana defy comprehension.

My onetime Sportcenter guru, Keith Olbermann has summarized the situation as well as anyone might on MSNBC.

If a blowjob is an impeachable offense, what should happen to our leaders after this debacle?

A coward dies a thousand deaths

The American auto industry is dead. Like a doornail. The only problem is that the domestic industry is in denial. Proof of this can be found in the most recent proposals concerning fuel economy. The SUX, I mean, SUV, is going to get a pass on fuel economy because it's the only product left that American manufacturers can sell (if they discount the hell out of it). This is a sign. When a large company at scale can no longer compete in its core business, it's time to close up shop. Instead, the lobbying will increase, the politicians will get paid, and GM will die one Toyota at a time (actually more likely one or two percentage points of the U.S. market at a time).

Why? Because gas is expensive and Toyotas are better. Oh yeah, a lot better. Hondas too. I'm not sure if Subarus are better, but they aren't worse and they run for a long time without much trouble.

It's amazing that the U.S. industry still pushes these gas guzzling heaps instead of just innovating and delivering a better product. A hero would compete, a hero might even win. As cowards, the U.S. auto industry will die piece by piece, a point here and a point there. When GMAC is finally spun out of GM, the whole mess will come falling down unless they do some serious deals.

I could easily see a JV of Chinese, German and Japanese firms putting in cash along with a group of oil companies to prop up the charade for a few years in exchange for political favors. But, ultimately cowards die many times, slowly.

If people think that they are protecting U.S. jobs, forget it. Those jobs are already moving to Canada because a huge number of blue-collar Americans can barely read thanks to local control of the schools and horrible Federal stewardship of education.

Someone needs to say it. American cars still suck unless they cost a lot less. Japanese and German cars are worth a premium and month of waiting. Giving Detroit another five years of pollution and gas guzzling isn't going to help anyone and isn't going to prevent the inevitable.

Thinking About Energy Policy

Every day we experience the problem of dependence of foreign energy. Energy politics and competition over a scarce resource drive us to extremes, whether this means supporting brutal regimes abroad, or invading them. Once reason for this is that while demand is ever increasing, supply is every decreasing. This problem manifests itself as a simple problem balanced out by higher prices. Of course, higher prices bring a whole host of issues most of which we simply don't face.

I try to keep abreast of the latest thinking on the topic but I have a simple idea that might help alleviate the problem.

I want the Federal government to step up to the plate and do something selfless for the American people. The Federal government needs to announce a plan to cease purchasing of generic internal combustion-powered vehicles in favor of a mix of gas-electric hybrids and hydrogen-powered vehicles.

Simply stated by shifting Federal purchases to these types of vehicles, the Federal government will create legitimate demand for them and generate the steady and predictable need for increased production that should motivate automobile manufacturers to produce better vehicles sooner.

Don't get me wrong, it won't happen overnight. But if 10% of the total Federal spend shifted each year, it would make a difference. This means that on year 1, the government allocates 10% of its fleet purchases this way, and in year 2, the government allocates 20% toward hybrids and hydrogen vehicles. Over a decade, the government can completely shift its buying habits.

I'm not suggesting that tanks, jet fighters, heavy equipment and other "application-specific" vehicles be purchased this way. Just the plain vanilla fleet.

The biggest issue that I see is that the American auto industry will get crushed by the Japanese and Germans. This may be actually be necessary. Further consolidation of these industry will make for more economies of scale and encourage investment in competitive technologies. There is no reason that GM and Ford cannot compete with the Japanese and the Germans, but probably they will just buy some politicians and try to raise trade barriers.

Either way, sooner or later, the Chinese will make a quality car and then it's game over for the U.S. industry, unless they have dramatically enhanced the value proposition and attractiveness of their offering, as they will not be able to compete on price.

I need to pull together more facts on the government auto spend to see what this looks like. I did find a site run by The Government Purchasing Project that discusses the overall scale of Federal purchasing.

Some unverified facts from a report available at their site at http://www.gpp.org/gpp.pdf details this:

"Federal, state and local government purchasing accounts for nearly 20 percent of the U.S. Gross Domestic Product. The federal government spends more than $200 billion a year and state and local governments spend more than $1 trillion a year on products and services. Government officials can use this enormous purchasing power to stimulate the market for environmentally preferable products and spark innovation that creates new markets, offering producers early economies of scales, lower unit costs and lower risks.

The government has had success using its purchasing power to stimulate new markets. In the 1970s, automobile manufacturers failed to offer cars equipped with air bags, despite the fact that the technology to do so already existed. In 1984, the General Services Administration- the federal government's central purchasing agency-ordered 5,300 airbag-equipped automobiles. After it had filled the order, Ford began offering air bags in several models and other companies soon followed. Air bags are now standard in all automobiles."

It's possible and has been done before, but nobody is talking about doing it again. All those tax dollars thrown down the drain on pork projects and inefficiency, why not have the government do something for the people?

I'll keep looking for more info on this issue. In the meantime, engage both braincells and think about it.