And, while on the subject of Detroit

Ignore UAW's Ron Gettelfinger when he whines that only the union has been asked to make sacrifices. The stockholders have already lost heavily, GM stock is down to a couple of dollars a share. Banks and bond holders were willing to forgive 70% of GM's debt. But the wily and well connected UAW knew that Bush would cave to them even if the Senate Republicans wouldn't.

Don't Bailout Detroit

The big three automakers are in a death spiral. Their labor costs $75 and hour where their competitors, the transplant makers, pay only $50. They have too many me-too models of cars, and none of them are as desirable as Toyota or Honda. They are afflicted with brain dead management, particularly GM. No way can Detroit be profitable with higher costs and inferior products. Detroit's small cars must sell better than Corolla and Civic for them to stay in business. Giving them $14 billion now just lets them keep on losing money for a few more months.
Put them into chapter 11, rewrite their labor contracts to $50 an hour like the transplants, reduce the number of car models to something reasonable, replace their senior management and boards of directors, write off their debt, and close excess car plants. Reduce executive salaries to $250,000 max. Require that dividends and bonuses be paid out of profits after taxes. No profit, no dividends or bonuses. And clean up their books. Last year GM "wrote off" $35 billion of phantom assets they had been carrying on their books for years. What other scams are still hidden by the big three accountants?
Chrysler has a parent company, Cerberus, which has plenty of money to keep Chrysler afloat. I see no reason why us taxpayers should subsidize Cerberus.
GM is too big to be profitable ever. Break it up into four companies, Corvette, Chevrolet, Cadillac, and General Motors Acceptance Corp (GMAC). Ford might be able to make it on their own. Don't merge Chrysler and GM. Tying two troubled firms together merely assures that they both sink together. Leave them independent, there is chance that one might float by itself.

How Fannie and Freddie caused the 2nd Great Depression

Let's work backwards. Wall St brokerage firms failed after it became impossible to sell their "mortgage backed securities" when they needed cash. The "mortgage backed securities" promised high yield with low risk, and the brokerage houses printed huge amounts of them and sold them to gullible investors and to Frannie and Freddie. They were so profitable that the brokerages became willing to buy sub prime and "liar's loan" mortgages, because turning them into "mortgage backed securities" was profitable.
Things came unglued in 2006 when the gullible investors discovered that the price of houses had dropped so much that the mortgages were worth more than the houses. All of a sudden the "mortgage backed" part of the securities began to look risky. The gullible investors wised up and stopped buying them. Leaving the brokerage houses with barrels of "securities" that no one would buy. "Illiquid" is the Wall St jargon for "so crummy no one will touch it".
Why did the price of houses fall in 2006? A better question is why did the price of houses rise the rapidly in the previous decade? Answer, the price of houses went up because the banks were willing do higher loans on the properties. Remember a mortgage is a simple deal, I loan you money, you pay it back or I take the house. This only works if the house is worth MORE than the mortgage. Successful banks are good at assessing property values and would not do mortgages that exceeded their idea of what the property was really worth.
But then, a horde of eager stock brokers descended upon the banks offering to buy the bank's mortgages for cash. So they could turn them into "mortgage backed securities". Such a deal. Once sold, the bank was free of risk, if the mortgage defaulted the gullible buyer had a problem, not the issuing bank. The bank gets to keep the closing fees, points, and perhaps a markup, and hustles out to do more mortgages.
Now that the bank can sell mortgages, it ceased to care that much about the quality of the mortgage. Do a low quality mortgage, offer to finance a little more than the property is worth, offer to waive the down payment. Sell the result before something goes wrong. Result, price of housing goes up, 'cause the bank is willing to loan more money on the same old property.
Why were the brokerage houses so willing to do mortgage backed securities? Simple, Fannie and Freddie were willing to buy enormous quantities of them. They had the money (borrowed on the credit of the United States) and the returns promised by the brokerage houses looked sooo good.
What's the moral of the story? Simple, shut down the entire secondary mortgage market, force the banks to risk their own depositor's money. To a large extent this has happened, the market for "mortgage backed securities" has dried up, no one will touch them any more. When the bank risks it's own money, it will be more careful. Just to make sure the secondary mortgage market stays closed, close down Fannie and Freddie for good.
And, remember that Barnie Frank and Chris Dodd defeated all attempts to limit Fannie and Freddie's borrowing power, leaving us taxpayers stuck with the horrendous losses they racked up.

The Great Ice Storm of 2008

Up here, north of Franconia Notch, it was too warm to freeze. We got rain and snow. Came down all day, but no ice, the trees stayed upright and the electric power stayed on. Town plows did the roads, twice. About noon it started to cool down. The driveway had a inch of very very wet snow which I decide to shovel off before it froze hard and gave me an ice coated driveway from the entire winter.
Down south, the ice put a lot of people in the dark. It also messed up our cable TV. Most cable channels froze up, leaving a frozen image and no sound. Channels 2 thru 13 and the Weather Channel stayed alive. Dunno how they managed that, I would have thought that dead channels would go dark rather than freezing up. The didn't get the cable working until just a few minutes ago.

What's in Concord for 2009?

Looks like another busy year for our state legislature. We have about a 1000 bills in the hopper. The hopper is online, click on the link to view it. When you think of it, that's an awful lot of new laws being proposed. We don't seem to have any text for the bills yet, just the names of the sponsors, and a title. Skimming the list we have quite a few bills related to school funding. The hopper has some funny formatting that I was unable to strip off, which accounts for the ragged look of the list.

2009-H-0022-L establishing a state income tax to adequately fund public education.
Sponsors: (Prime) Delmar D Burridge

2009-H-0557-L establishing a flat rate income tax and relative to a statewide enhanced education tax and certain other taxes.
Sponsors: (Prime) Jessie L Osborne

2009-H-0571-R relative to establishing number plates supporting New Hampshire public higher education.
Sponsors: (Prime) Sarah A Hutz

2009-H-0036-R relating to funding of public education. Providing that the legislature shall define standards for education, determine the level of state funding thereof, establish standards of accountability, and allocate state funds in a manner that mitigates disparities in educational opportunity and fiscal capacity, provided that a reasonable share of state funds shall be distributed on a per pupil basis
Sponsors: (Prime) David W Hess Sherman A Packard Shawn N Jasper W. Douglas Scamman

2009-H-0044-L establishing the cost of an adequate education. Sponsors: (Prime) David W Hess

2009-H-0072-R relating to public education. Providing that: the recognition of local control of education in the New Hampshire constitution is reestablished. Sponsors: (Prime) Daniel C Itse
Robert H Rowe




We have two representatives proposing a state income tax to fund education. We have one representative who thinks we can raise enough money from vanity license plates fund education. Lots of luck on that one. We have one bill to take control of education away from local school boards and give it to the state. We have one bill to set the cost of education by law.
The last bill proposes a constitutional amendment to make grade school and high school education a city and town responsibility, the way it was before the State Supreme Court messed things up years ago. This is the best solution. It restores "The Pledge". If the state doesn't fund education, the justification for an income tax is removed. No one wants a state income tax, except maybe the teachers. Local school boards, who have to meet their taxpayers face to face, can make better decisions about educational costs and quality than bureaucrats in Concord can.

Crummy camera work drives off Extreme Trains

Been watching "Extreme Trains" on the History Channel. Like many guys, and kids, I like trains and seeing them on TV is a reasonable substitute for going out and finding real ones to watch. Especially as they don't run trains in New Hampshire any more. The train was pretty extreme, a big 1940's steam engine, lovingly maintained by the Union Pacific, with 18 streamline passenger cars in tow, rushing across the prairie from Denver to Cheyenne.
Too bad the cameraman couldn't hold his camera steady long enough to watch this fine big hunk of iron rolling along. He panned, he scanned, he zoomed, he cut from one view to another. The camera never stood still long enough to actually see the train. As soon as my eye steadied in on the train, the cameraman would move the viewpoint and throw my eye off. It got so bad I finally turned the show off.

Chicago Tribune goes Chapter 11 & no one knows why

The Newshour with Jim Lehrer had a long discussion about the Tribune's bankruptcy. But never did the phrase "advertising revenue" pass the lips of any of the newsies doing the talking. Apparently they have never heard of it. One guy who used to edit the Tribune opined that ad revenue was un necessary, he wanted to print an ad-free paper of 36 page and thought he could make money selling it. Good luck to him.
The reason newspapers are in trouble all over the country is the ad revenue that used to fund them is going to the internet, to Vehix, to Craiglist, and to Google. All that ad revenue that powers Google came from competitors, like newspapers. Newspapers used to make money selling classified ads to sell cars and houses. Not any more. Cars and houses are advertised on the internet in the 21st century. Lot of their other advertising has gone the same way.
Surprising that three experienced newsies know so little about the economics of their business.