E-mails From Strategy

[ShakeZuma 585]

haha lly's a whore

[mrdannyg 274]

So your claim is that we no longer have banks? Uh, I'm pretty sure we do. Lots and lots of them. Many of them didn't even require corporate welfare to survive.And your evidence for this is that this recession is the longest lasting since.... the last time the government intervened that actively into the economy?Wow, that is about the most amount of economic ridiculousness that could be packed into that few words.Digging holes and filling them back in is *always* bad for the economy. Always. The reason is because our standard of living is based on producing the things that improve our lives. Digging holes doesn't do that -- it wastes resources and labor that could've been used for improving our lives. And that's why the bailouts are so harmful -- they take resources that could've been used on highly valued efficiently produced products and services, and moved them uses that were inefficiently produced.If the industry is profitable, then it didn't need propping up. If it was not profitable, propping it up was the wrong move. You can't have it both ways.The industry would've survived because Americans love cars. GM *might* have gone away -- and the pieces sold to efficient producers, which is a huge net improvement in societal good. Never, not once, in all of history has the bankruptcy of a single company brought down an industry. Never, not once, in all of history, has the bankruptcy of a single company done more than minor passing harm to the economy. These bailouts were pure corporate welfare and capital cronyism of the worst kind.

Why do you consider a response to half of an argument as a full response? Yes, we still have banks. Just like if the automakers in question failed we'd still have automakers. Just less, and missing some important ones. The situation, in the aspects we're discussion, is not materially different.And digging and refilling a hole is not always useless. Maybe we're an irrigation company, I don't know. In my example, it was an explicit assumption that digging had value. So instead of responding to the argument, you questioned the assumption, which was not meant to provide any value except to define the argument.Were the bailouts corporate welfare? Yes, a hundred times yes. Were they necessary? Almost certainly no. So if you want to argue that the companies were crying poor, looking for a handout, and they could've reorganized themselves, then I wouldn't disagree. Maybe you want to argue that the conditions for any bailout should've been much more advantageous to the shareholder. I'd agree even more strongly. But if we acknowledge they'd have been bankrupt without, thern we just need to look at the before and after. They are profitable now, regardless of help. Despite your libertarian ideals preventing you from accepting this, this does not explicitly mean they could've been profitable without help. Cash is a big part of business. Cash is a big part of lending. They were short cash. There are millions of companies that would be profitable, if they only had a chunk of cash, that, for one reason for another, they are not able to raise through operations or equity/debt issues. You may disagree with that statement, but you'd be wrong. It is an easy and obvious truth to anyone who works in banking, and has become many times more true as credit conditions have tightened in the last 15 years.Maybe you're right that, historically, a bankruptcy has never done long-lasting harm. I don't think we've ever seen a bankruptcy that would be the scope of Ford/GM going under though, while they were still major players in a viable industry.I agree with you that the supply chain aspect is severely overblown. Even with the specialized aspects of automakers, suppliers of those types of products are designed to be flexible. If they're not flexible, that is their own shortcomings, and a risk they shouldn't be bailed out for.

[hblask 1]

Why do you consider a response to half of an argument as a full response? Yes, we still have banks. Just like if the automakers in question failed we'd still have automakers. Just less, and missing some important ones. The situation, in the aspects we're discussion, is not materially different.And digging and refilling a hole is not always useless. Maybe we're an irrigation company, I don't know. In my example, it was an explicit assumption that digging had value. So instead of responding to the argument, you questioned the assumption, which was not meant to provide any value except to define the argument.Were the bailouts corporate welfare? Yes, a hundred times yes. Were they necessary? Almost certainly no. So if you want to argue that the companies were crying poor, looking for a handout, and they could've reorganized themselves, then I wouldn't disagree. Maybe you want to argue that the conditions for any bailout should've been much more advantageous to the shareholder. I'd agree even more strongly. But if we acknowledge they'd have been bankrupt without, thern we just need to look at the before and after. They are profitable now, regardless of help. Despite your libertarian ideals preventing you from accepting this, this does not explicitly mean they could've been profitable without help. Cash is a big part of business. Cash is a big part of lending. They were short cash. There are millions of companies that would be profitable, if they only had a chunk of cash, that, for one reason for another, they are not able to raise through operations or equity/debt issues. You may disagree with that statement, but you'd be wrong. It is an easy and obvious truth to anyone who works in banking, and has become many times more true as credit conditions have tightened in the last 15 years.Maybe you're right that, historically, a bankruptcy has never done long-lasting harm. I don't think we've ever seen a bankruptcy that would be the scope of Ford/GM going under though, while they were still major players in a viable industry.I agree with you that the supply chain aspect is severely overblown. Even with the specialized aspects of automakers, suppliers of those types of products are designed to be flexible. If they're not flexible, that is their own shortcomings, and a risk they shouldn't be bailed out for.

At this point we don't seem to have any real big disagreements, just stuff around the edges. There is no particular reason why GM couldn't have sold off parts to the other automakers or to smaller, more nimble competitors. There is a zero chance that every job would've been lost, every factory permanently closed. Infrastructure is a huge part of the auto industry, so if you can buy a big chunk of that at a huge discount, that is a big competitive advantage. So that immediately means that those exact factories probably would've re-opened within a short time -- to pick up the extra capacity required by Ford, Honda, etc. Yes, there would've been fewer employees, but that's *exactly* why GM should've gone bankrupt -- to wring out the inefficiencies that plagued it for so long.The other issue is the moral issue, in which the people who invested in GM *should've* been punished for their mistakes. Instead, money was taken from those made wiser choices, and companies that had wiser management, to reward a company and investors that proved themselves incompetent. That should offend the morals of everyone.

[vbnautilus 48]

So wait.... you have to make up your mind here. You are saying they are profitable, and therefore need the help of the government? Or are you saying they are not profitable and we are propping up failing industries?

False dichotomy, obviously. A company can be profitable in the long term and still have local minima and maxima in production. A very large, rare wave does not indicate that the tide is permanently high and all the homes in the region should be abandoned.

[BaseJester 1]

False dichotomy, obviously. A company can be profitable in the long term and still have local minima and maxima in production.

And the world's investors are too stupid to realize this?

[vbnautilus 48]

And the world's investors are too stupid to realize this?

Right, investors know everything, are never wrong, and their interest always aligns with the greater good. They're omnipotent too!

[BaseJester 1]

Right, investors know everything, are never wrong, and their interest always aligns with the greater good. They're omnipotent too.

I'm not saying that, obviously. The greater good has nothing to do with your argument about long-term profitability. A government agency's willingness to invest other people's money says very little about profitability.

[vbnautilus 48]

I'm not saying that, obviously. The greater good has nothing to do with your argument about long-term profitability. A government agency's willingness to invest other people's money says very little about profitability.

I didn't say that it did. My point was that the fact that the company was in danger during an unusually severe economic downswing does not mean that it is superfluous and won't be profitable in the long term.

[BaseJester 1]

My point was that the fact that the company was in danger during an unusually severe economic downswing does not mean that it is superfluous and won't be profitable in the long term.

If they were in danger because of a cash flow problem, then people would invest. Then they wouldn't have a cash flow problem.

[mrdannyg 274]

At this point we don't seem to have any real big disagreements, just stuff around the edges. There is no particular reason why GM couldn't have sold off parts to the other automakers or to smaller, more nimble competitors. There is a zero chance that every job would've been lost, every factory permanently closed. Infrastructure is a huge part of the auto industry, so if you can buy a big chunk of that at a huge discount, that is a big competitive advantage. So that immediately means that those exact factories probably would've re-opened within a short time -- to pick up the extra capacity required by Ford, Honda, etc. Yes, there would've been fewer employees, but that's *exactly* why GM should've gone bankrupt -- to wring out the inefficiencies that plagued it for so long.The other issue is the moral issue, in which the people who invested in GM *should've* been punished for their mistakes. Instead, money was taken from those made wiser choices, and companies that had wiser management, to reward a company and investors that proved themselves incompetent. That should offend the morals of everyone.

I disagree with a lot of what you say in the first paragraph, but not in a way that is interesting to discuss.I agree with the second part. I think that, for the goverment to intervene, they should only have been willing to do so on approximately the same terms as an investor would at that stage - with the potential benefits to them more closely aligning to their risks. If a financial institution rescued GM in the manner the government did, any reasonable structure would see them reaping a huge windfall in case of a turnaround. The government should be entitled to close to the same deal, and because the deal was far too generous, taxpayers are taking it in the shorts.

[Balloon guy 158]

Let's quit pretending that the GM bail out was a bail out to save the auto maker.It was a bail out to pay back UAW union members.

But Obama did not “save” Detroit. A bankruptcy that followed the rule of law would have “saved” Detroit better than Obama’s, which left GM under the federal government’s diktat, unable to borrow, and with high labor costs. Obama’s favoritism towards the UAW “elevated costs in a way that damage prospects for a successful reorganization.” Obama’s corrupt bailout will lead to higher prices for the middle class, crippled job growth in the auto industry, and more manufacturing jobs exported abroad.People confuse bankruptcy with closing the factory gates. American Airlines has valuable assets, trademarks, airport gates, routes, and skilled employees. Either a more competitive new American Airlines will emerge from bankruptcy, or it will be acquired by another owner. American’s pilots, engineers will continue to work, although at lower pay, tougher work rules, and less generous pensions. American’s suppliers and creditors will take “hair cuts.” Shareholders will lose most of their investment. Pain will be felt all around. Decisions will be based on business judgments and not payback politics. The American taxpayer will not pay, and a federal judge, experienced in bankruptcy law, not politicians, calls the shots.

[LongLiveYorke 38]

Let's quit pretending that the GM bail out was a bail out to save the auto maker.It was a bail out to pay back UAW union members.

That argument that Republicans are making is so politically inept. It exactly plays into the narrative that Obama is trying to establish: that he saved the auto industry, which is showing record profits, and managed to maintain much of the workers' benefits.Republicans are instead arguing that the American auto companies should have been left to die and the investors in those companies are the ones who should have received any bailout money.Good luck running on that.

[InternetExplorer 2,609]

I really don't like that we did those bailouts, because it just opened up a massive can of worms--having to pick winners in the reorganizations, etc. the UAW shouldn't have had a seat at the bargaining table, period. they probably did some admirable stuff for auto workers in the past, but the auto industry allowed it to grow into a gigantic monster with too much bargaining power.and to hear how much they spent lobbying washington during that time, and all the circus show with flying vs. driving to washington, god, it makes me sick to think about it.as a young guy who just wants to see shit get better ASAP, I don't know how I should feel about it. but the objective person in me says the above.

[mk 11]

i was very anti auto bailout at the time because the big 3 had been so boneheaded and terribly run for so long it seemed inevitable they'd go the way of the dodo, even without the six sigma event to push them over edge, and i still feel they were headed that way.after the fact, i'm happy they were intelligent with the line of credit extended to them and got much, much leaner and stopped focusing single-mindedly on trucks and suvs.

[hblask 1]

Right, investors know everything, are never wrong, and their interest always aligns with the greater good. They're omnipotent too!

Compared to Washington bureaucrats who know nothing about the auto industry? Which would you rather stake your future on?

[hblask 1]

Republicans are instead arguing that the American auto companies should have been left to die

You haven't read a single thing I wrote on this topic, have you?

[BaseJester 1]

Republicans are instead arguing that the American auto companies should have been left to die and the investors in those companies are the ones who should have received any bailout money.Good luck running on that.

Which Republicans are arguing that? I didn't get that impression from the article. I would think that the UAW and bondholders would rightfully be creditors and receive some fraction of their due, but not the stockholders.

[LongLiveYorke 38]

You haven't read a single thing I wrote on this topic, have you?

You wrote things on this topic?

[Balloon guy 158]

That argument that Republicans are making is so politically inept. It exactly plays into the narrative that Obama is trying to establish: that he saved the auto industry, which is showing record profits, and managed to maintain much of the workers' benefits.Republicans are instead arguing that the American auto companies should have been left to die and the investors in those companies are the ones who should have received any bailout money.Good luck running on that.

Why not? Most solar companies are facing this exact scenario with the only difference being the investors were direct contributors to President Obama's election.So please ask the democrats to make this argument as soon as possible.

[InternetExplorer 2,609]

look, we're the party of fiscal responsibility, ok? just believe us. don't ask for any details. that's who we are. it's our favorite thing, to deride the other side for fiscal profligacy, and we'd rather not have to stop that.obama admin plans to cut corp taxes, but no net change to budget

The proposals from the administration and Camp are designed to not increase the federal budget deficit, in contrast with policies promoted by the Republican presidential candidates.Mitt Romney, the former Massachusetts governor, wants to reduce the corporate tax rate to 25 percent before eliminating any tax breaks. Rick Santorum, the former Pennsylvania senator, wants to cut the rate to 17.5 percent and eliminate corporate taxes for manufacturers.Newt Gingrich, the former House speaker, wants to cut the rate to 12.5 percent and let companies write off all capital investments immediately.

I really hope we never cave on the tax holiday thing google and apple are lobbying hard for. it would send the absolute wrong message.

[Balloon guy 158]

President Obama doing what he does best...Using class warfare rhetoric to justify destroying the economy of the United States.

President Obama's 2013 budget is the gift that keeps on giving—to government. One buried surprise is his proposal to triple the tax rate on corporate dividends, which believe it or not is higher than in his previous budgets.Mr. Obama is proposing to raise the dividend tax rate to the higher personal income tax rate of 39.6% that will kick in next year. Add in the planned phase-out of deductions and exemptions, and the rate hits 41%. Then add the 3.8% investment tax surcharge in ObamaCare, and the new dividend tax rate in 2013 would be 44.8%—nearly three times today's 15% rate.Keep in mind that dividends are paid to shareholders only after the corporation pays taxes on its profits. So assuming a maximum 35% corporate tax rate and a 44.8% dividend tax, the total tax on corporate earnings passed through as dividends would be 64.1%.

[InternetExplorer 2,609]

milton friedman wrote about the impact dividend taxes have on a corp's desired size/scope, capital structure, etc. I really wish I could find it, but I have to go to work now. it's a really interesting read.this tax tweak is a step in the right direction, but the best solution is the mk solution.

[SilentSnow 1]

Are you seriously arguing that dividend income should be treated differently than salary income? Why?I can't think of any good reason.Also, the double taxation argument is almost always nonsense. Just about all income would fall under this mythical "double taxation" depending on how you interpret things.

[Balloon guy 158]

Are you seriously arguing that dividend income should be treated differently than salary income? Why?I can't think of any good reason.Also, the double taxation argument is almost always nonsense. Just about all income would fall under this mythical "double taxation" depending on how you interpret things.

You've never done anything but collect a paycheck your entire life haven't you?

[hblask 1]

Are you seriously arguing that dividend income should be treated differently than salary income? Why?I can't think of any good reason.Also, the double taxation argument is almost always nonsense. Just about all income would fall under this mythical "double taxation" depending on how you interpret things.

The double taxation argument is not nonsense. If I start a business and declare myself a sole proprietor, I pay a certain level of taxes on my income, based on my personal tax rate. If, for some reason, I decide to become a corporation, any money that I keep on the business books is taxed at a corporate rate. When I then pay myself a salary or dividends the following year, it is taxed again. (This can be avoided by paying out all income in the year earned, but that is really bad business practice and defeats the purpose of organizing as a corporation). Exact same business, exact same people running it, exact same income, but because it is declared one particular legal structure it is taxed differently than another business structure. It makes no sense, is incredibly unfair, and creates economic drag by distorting business decisions toward tax avoidance rather than productivity.