Unfortunately there may be no solution in the sense of "saving"
GMC, Ford, American, Delta, Northwestern, Boeing, Lockheed, etc.
etc. etc. All appear to be in the same situation as were the
steel companies, i.e. terminal H.I.V. patients. Like the typical
HIV patent, these companies sought immediate gratification at the
expense of their long-term survivability, using credit to support
their "lifestyle," using derivatives as their "crack cocaine."
Congress is currently nibbling around the edges of this critical
problem by holding hearings into the possible impact on the PBGC
if one or more of these companies/sectors should collapse. The
problem is that it is a question of "when," and "in what
sequence," *NOT* if.
Most of the underlying real assets such as physical plant, tools
and dies, knowledge base, customer base, and production/operation
expertise appear to be largely intact although obsolescent.
However, these have been "submerged" under mountains of debt and
neglect while "management" chased the latest fad, dissipating any
real income while not paying stock holder dividends nor
reinvesting in new products, equipment, etc. in their
core/foundational business. Additionally, these "assets" have
significant value only for an on-going business.
While automobile/truck manufacturing, and the design, production
and operation of jumbo civilian aircraft appears to be
economically viable in the United States, it does not appear the
existing cadre management (and corporate culture) of these
organizations is capable.
"Desperate situations demand desperate remedies" is a time-proven
adage. Given the disastrous impact that the cascading failures of
these major players will have on the U.S. economy/society, I
propose a "super bankruptcy court" be created to establish the
likely economic viability of these organizations, with immediate
liquidation (Chapt. 7) [not reorganization (Chapt. 11)] of those
unlikely to survive, with a 10 year suspension from any
management position of the current and previous corporate
executives and directors. (The stockholders have already lost
all their equity, although they might not yet realize this.)
The PBGC should have priority claim on any assets for full
pension funding, and any trust-fund/lockboxes established for
management retirement benefits and/or "differed compensation"
should be recaptured on the basis that this was an attempt to
conceal corporate assets.
The choice is not between a "good" and better" solution, but
between a "bad" and a "worse" solution.
This simply echos a legal fiction. In fact 'shareholders' have
almost no control, otherwise the corporations would have been
forced to declare dividends rather than hording cash, and the
executives would have received human salaries. While there is
more than ample "blame" to go around, the major enablers were the
financial institutions that handled the IPOs, made the loans,
audited the books, created the "special purpose entities,"
managed the pension funds, etc. As such, these should be the
people that get the big "hair cut" [like down to their knees]
rather than the employees or taxpayers [who tend to be the
shareholders when the music stops].
On Thu, 16 Jun 2005 10:56:39 -0700, F. George McDuffee
The neocons have a planned fix for this.
Default on Social Security (worthless junk bonds, like
T bills) and force the new money into stocks & T bills ...
where, if needed (and it will), it is all handy to be taxed again ....
Australia used to tax unrealized capital gains. Stock went up?
Pay taxes on it ... they still may for all I know .....
I have received many emails on this.
I will repeat that it is a legal fiction that the stockholders
control a corporation. If this were not the case, corporations
would not be allowed to hoard cash (rather than paying
dividends), squander profits on extraneous and unrelated business
ventures of doubtful potential, and pay exorbitant executive
compensation and perquisites. Additionally, some stockholders
are more equal than others. Different classes of stock have been
introduced so that control is no longer proportional to
The real controllers of corporations are their financers as they
can fund or not fund the operations, issue or not issue their
IPOs, etc. Note that in making " secured " loans, operational
[policy] control is achieved without any concurrent/concomitant
risk. As most of the problems of the basket case corporations
have been created, maintained and exacerbated by the availability
of " easy money, " it is only reasonable the people that supplied
the " easy money " [and earned enormous profits] should be forced
to stand the resulting losses.
When a corporation goes bankrupt and is either reorganized
[chapter 11] or liquidated [chapter 7] the stockholders generally
lose their entire investment. In too many cases the employees
are also the stockholders where the company has crammed their
defined contribution plan [401k] with the company stock. When a
corporation is reorganized, new stock is issued and may be used
to " pay off " the unsecured creditors. Stock in the old
corporation is worthless. Another typical scam is to create an
ESOP or employee stock ownership program, where the employees may
own stock but have no voting rights. It is this " vapor paper "
that several corporations are proposing to use to pay their
obligations to the PBGC.
While it would have not affect on the terminal corporations we
have been discussing, it would be worthwhile to force the
remaining major US corporations to distribute 50% [or more] of
all claimed annual earnings as dividends. This would prevent the
pyramiding of phantom profits from year to year, flush out bogus
acquisition assets such as " good will " and capitalized R&D,
frustrate attempts to create cash hoards to be squandered on CEOs
" pipe dreams " [generally with kickbacks] and force any real
corporate profits into the mainstream economy. DRIPs [dividend
reinvestment programs] would allow any stockholder that still
believe they are better served by having their share of the
[claimed] earnings to be " retained " by the corporation for "
reinvestment " to do so.
===========================On Thu, 16 Jun 2005 10:56:39 -0700, F. George McDuffee
Let me offer you a little encouragement in the interim Ed. 65 million
dollars per year worth of manufacturing will be back in the US from Korea
beginning in October of this year and the customer involved will be able to
reduce their price, improve their margin and put a little sugar on it for me
and my guys. The meeting ended an hour ago and before you ask me where we
found the capacity let me just tell you that we did, and we did it without
pushing any capacity envelopes.
I realize this is a small sum in the grand scheme of things but you know
what they say -it does add up. I also have to say that pulling something
like this off is better than sex -it lasts longer as well. I will probably
be bouncin' off the ceiling for a day or two at least.
John R. Carroll
Machining Solution Software, Inc.
===========================Big problem is that you can't tell what also comes off the bottom
line as a result because is concealed as higher taxes, and/or
quality of life issues such as higher crime rates with increased
insurance and alarm costs. It is also displaced in time, in that
you may see an immediate benefit now, but much higher costs
later. Think about changing the oil in your car. Don't change
it now, save a little money now, pay a lot more later or do
without a car.
This isn't a problem at all. Calculating the value in manufacturing is a
reasonable precise and very doable exercise.
It is not much of an art but does require a thougough understanding of every
John R. Carroll
Machining Solution Software, Inc.
=============================Our buzzwords are "maximizing sharholder value" with "free
market" for the rondo.
People go out and drink too much even though they know they will
have a hang over the next day. The major difference in this case
is that the people who are enjoying the party are not the ones
who will suffer the hangover (and have to pay the bar tab).
Greetings and Salutations...
On Thu, 16 Jun 2005 07:01:33 -0700, F. George McDuffee
Yea, I have held for QUITE some time that the biggest
problem with America's businesses is that the MOMENT they
suck up to that investor money tit, they lose sight of
the ORIGINAL purpose of the business (to produce a goods or
service, sell it, and, make a decent profit off it) and become
focused completely on the idea of sucking as much money
out of the customer's pockets as possible, and producing the
bare minimum product to get this to happen.
This is true, too...folks have a long history of
making bad decisions. The best we can do is try to make
better ones...and hopefully, learn from our mistakes before
the crisis gets so bad that we cannot survive.
Keep your powerder dry.
Major problem about learning from your mistakes [other than you
may not live to learn] is that from the perspective of the
decision makers these were excellent decisions resulting in
wealth for themselves beyond the dreams of avarice.
From the perspective of everybody else: the first major mistake
was letting these people get into and stay in their position of
power; the second one is letting them keep any of the money they
looted. [RICO anyone?] There is however there is a deeper
problem. In a line originally used about politicians, "they are
like cockroaches - its not what they carry off, its what they
fall into and spoil."
Conventional national defense considerations by themselves should
be enough to justify the retention of our basic manufacturing
capability, cadre and infrastructure.
Several people have indicated the Current Accounts Ballance of
Payments [trade] deficit was meaningless.
Among other problems, accumulation of U.S. dollars allows the
purchase of U.S. companies, and the transfer of U.S. jobs. See
Reuters article below for details of how the jobs at Maytag were
traded for cheap imports. Another example is the sale by IBM of
their line of personal computers.
The problem is not with the Chinese, they are just good business
men and take an opportunity when it is available. The problem
is with the people who made the opportunity available.
How much tax revenues will be lost to the U.S. and how much of a
hit will the taxpayer take through the PBGC on the pensions?
========== Reuters article follows ======Haier, equity firms bid for Maytag
By Doug Young 36 minutes ago
SHANGHAI (Reuters) - Top Chinese appliance maker Haier and
private equity giants Bain and Blackstone have bid $1.28 billion
for Maytag Corp., trumping Ripplewood's offer for the ailing U.S.
Haier's global ambitions would be boosted with the addition of
Maytag, the maker of washing machines and Hoover vacuums that has
fallen on tough times amid rising costs and competition from
Maytag said in a statement released late on Monday in New York
that it had received a preliminary bid of $16 a share from a
consortium comprising Haier Group, Bain Capital and The
That would be about 14 percent higher than a $14 per share offer
by U.S. buyout firm Ripplewood Holdings LLC., part of a
consortium whose members include Goldman Sach's GS Capital
Partners and the J. Rothschild Group.
Under the Haier proposal, due diligence is expected to take six
to eight weeks to complete, Maytag said in its statement. The
group would look to Merrill Lynch to provide debt financing, it
"We continue to support the Ripplewood transaction," Howard
Clark, Maytag's lead director, said in a statement.
"However, we also believe that it is incumbent on us to pursue
this possibility of achieving a higher price for our
No official counter offer had been submitted yet, a source
familiar with the matter told Reuters. Bain and Blackstone
declined comment. Haier has said it was interested in Maytag, but
a spokeswoman would not comment further on Tuesday.
"Chinese companies don't have brand equity outside of China," a
Tokyo-based analyst said.
"To build that themselves, in the same way the Toyotas of the
world do it, is pretty hard. It's the intangible assets they're
THE LONG HAUL
Their competing bid would also mark the first major attempt at an
international acquisition by Haier Group, a state conglomerate
that controls Shanghai-listed Qingdao Haier Refrigerator Co. Ltd.
and Hong Kong-listed Haier Electronics Group Co. Ltd.
Haier Electronics had climbed 2.6 percent to HK$0.198 by 0611
GMT, vastly outperforming the market's 0.21 percent dip.
Haier is probably willing to pay a premium for Maytag because it
could keep the company over the longer term for its brand, while
Ripplewood would be more likely to sell in the long run, the
Tokyo-based analyst said.
The consortium, whose Haier component came from Haier America
Trading LLC, had expressed its interest in the run-up to a
deadline last Friday for competing offers.
Maytag shares closed up 7 cents at $15.23 in Monday trading in
New York. Its shares are up about 5 percent since word first
emerged last week that Haier and others were considering rival
bids for the company.
Haier is a well-known name in China, commanding 26 percent of the
domestic refrigerator market and 17 percent of the air
conditioning market at the end of 2003.
It is also one of the nation's few brands to make headway in
foreign markets, cornering nearly half the U.S. compact
refrigerator market and more than half that for wine coolers.
Haier's foray would follow similar moves by some of China's
biggest firms as they look beyond their domestic strongholds.
Generally, Chinese companies have picked up struggling businesses
in mature industries, hoping to use their growing prowess as
low-cost manufacturers to turn those assets around.
Earlier this year, Lenovo Group Ltd. purchased the PC-making unit
of IBM for $1.25 billion. It later brought in private equity
firms Texas Pacific Group, General Atlantic LLC and Newbridge
Capital LLC, which contributed $350 million as part of the deal.
TCL Corp. has also been active, buying the cellphone-making
assets of France's Alcatel S.A. and the TV-making assets of
But the Chinese move abroad has also included some stumbles, such
as an aborted takeover of struggling British carmaker MG Rover by
top car maker Shanghai Automotive Industry Corp.
Oil company CNOOC Ltd. has expressed possible interest in U.S.
oil company Unocal Corp., and China's Minmetals Corp. has
expressed interest in Canadian mining firm Noranda Inc.
(Additional reporting by Godwin Chellam in Shanghai, Chawadee
Nualkhair in Tokyo and Michael Flaherty in New York)
And the doomsayers were saying this about Japan when a Japanese
businessman bought pebble beach in the 80's. He
subsequently sold it back to an American consoritium for a
(Note that quoting an entire article from reuters is not considered
fair use. An excerpt, yes, but for the entire article you should have
just included a URL.)
One problem with this approach/attitude is that it ignores the
human costs. This is actually 1,600 well paying manufacturing
jobs affecting 1,500 or more families, and 14.8 million dollars
in local tax revenues.
Second problem is that this gives the Chinese an opening wedge
into the U.S. major appliance market with an existing brand and
dealer network, directly threatening #1 Whirlpool with all the
jobs and local taxes revenue they represent.
Third problem will not be come apparent for a few years when
anguished messages are posted to these news groups lamenting that
blanking and forming die tool makers and press set-up men are
If this were an event that affected only a few players, I would
be selling tickets. Unfortunately, this almost entirely affects
only the average person with roots in their community and many
years invested in learning a trade.
See these URLs for additional/background info
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