Blogito, Ergo Sum - 30 March 2009

You don’t have to like this concept, philosophically, but you have to recognize that it does make some sense:

The decision to ask G.M.’s chairman and chief executive, Rick Wagoner, to resign caught Detroit and Washington by surprise, and it underscored the Obama administration’s determination to keep a tight rein on the companies it is bailing out — a level of government involvement in business perhaps not seen since the Great Depression.

President Obama is scheduled to announce details of the auto package at the White House on Monday, but two senior officials, offering a preview on condition of anonymity, made clear that some form of bankruptcy — a quick, court-supervised restructuring, as they described it — could still be an option for one or both companies.

Mr. Obama’s auto industry task force, in a report released Sunday night assessing the viability of both companies and detailing the administration’s new plans for them, concluded that Chrysler could not survive as a stand-alone company. ...

Along with Mr. Wagoner’s ouster, the task force said most of the company’s board would be replaced over the next few months. In a statement Monday, Mr. Wagoner said he had been urged to “step aside” by administration officials, “and so I have.”

His resignation is the latest example of the government taking a hands-on role in making major decisions at companies it is bailing out. The government has already pushed banks to make management changes and sharply reduce or eliminate their dividends, and it also is directing many of the decisions at the troubled insurance giant American International Group, which is nearly 80 percent owned by the government after its rescue.

In deciding to urge Mr. Wagoner to step down, the Obama administration seemed mindful of the public’s growing outrage over bailouts of private companies, as well as the bonuses paid to employees of A.I.G.

Mr Waggoner, one of those who flew to Washington in his corporate jet the first time he begged for taxpayer money, should have stepped down voluntarily some time ago. And it certainly has seemed to me for some time that having a seat on a major corporate board is little more than a sinecure, an extra way to funnel money to a favored influential few rather than constituted of people actually intent on representing the shareholders. All of the fat-cat CEOs getting huge salaries and bonuses and golden parachutes are all receiving them thanks to the voting power of the boards of directors, it’s a highly incestuous relationship, anyhow.

And if we (as in ‘the government’) own an 80% share then we should be making 80% of the decisions. It’s easy to say that government doesn’t know how to run corporations, but there are two weaknesses in that argument: one is the fact that the current boards don’t seem to know how to run them very well, either, and the second is the fact that the members of our government quite often come from business and industry and DO have some idea what to do. It’s the life-long politicians with no business experience who you have to worry about making decisions.

And one dirty little fact remains: it is that the unions garnered so much power (which corrupts) during the go-go years that they forced management into wage and benefits concessions that were not sustainable in the long term, but the management was concerned with their own short-term vested interests, too, and so they didn’t care about the long term.

And only the government has the power to straighten out the unions, whose absolute power has ultimately corrupted absolutely.

The plan Mr. Obama is to announce on Monday will also include government backing of warranties for G.M. and Chrysler cars and trucks, to give consumers enough confidence to buy them, even if one or both are forced into bankruptcy.

In Detroit, the G.M. board said Monday in a statement that it “has recognized for some time that the company’s restructuring will likely cause a significant change in the stockholders of the company and create the need for new directors with additional skills and experience.”

“The board intends to work to nominate a slate of directors for the next annual meeting that will include a majority of new directors,” the board said.

Smart move...do it while you still can. I hope a lot of other corporate boards are looking around in much the same fashion.

Here are two interesting paragraphs taken from widely-separated portions of the article and in reverse order:

G.M.’s share of its most important market, the United States, declined steadily under Mr. Wagoner. In 1994, when he took charge of North America, G.M. held 33.2 percent of the American car market. Last month, G.M.’s share was only 18.8 percent, according to statistics from Motorintelligence.com, which specializes in industry data. ...

“The bigger surprise is not that he resigned. That was going to happen sooner or later,” said Michael Useem, professor of management at the Wharton School of Business at the University of Pennsylvania. “But the moment seems inexplicable.”

Yes, it does...but not in the way the professor means. Clearly almost any time between say 1996—give him two years on the job to see what he can do—and 2009 would have been better. How much money and stock did GM pay him during that long decline? How much compensation in money and stock and perks did the boards get during that long decline?

For most of the last three decades, the lobbyist Paul Magliocchetti might have been mistaken for an owner of the Alpine, a wood-paneled Italian restaurant across the Potomac River from Washington where he routinely presided over boisterous tables of lawmakers and their staff members.

“Get me some oysters! Get me some steamed crabs! Get me a rack of lamb!” Mr. Magliocchetti would tell the cooks, strolling into the kitchen. “Every day a different thing,” the chef and owner Ermanno Tonizzo recalled fondly. “I don’t think he has ever seen the menu.”

That impresario act — pulling bottles from the private wine locker labeled “Mags” to entertain lawmakers at the clubby Capital Grille steakhouse, sending gift baskets or wine to lawmakers and their aides, or leasing each of his lobbyists a Lexus — helped Mr. Magliocchetti, a protégé of the powerful Representative John P. Murtha, build his lobbying firm into one of the 10 biggest in Washington.

Now, however, Mr. Magliocchetti’s generosity is coming to an abrupt halt: his firm, the PMA Group, is closing its doors next week, after reports that federal prosecutors had recently raided his office and his home.

I think Murtha is a disgrace to my Marine Corps and I resent the fact that he survived Abscam.

And many on Capitol Hill, recalling the scandal that mushroomed around the lobbyist Jack Abramoff, are wondering who else will be ensnared in the investigation as prosecutors pore over the financial records and computer files of one of K Street’s most influential lobbyists, known both for the billions of dollars in earmarks he obtained for his clients and for his open hand toward those he sought to influence. ...

And several former PMA lobbyists and former Congressional staff members, speaking anonymously for fear of retaliation from lawmakers close to Mr. Magliocchetti, said that for decades he sought loopholes to shower food, drink and gifts on the members and staff members of the House defense appropriations subcommittee.

Finally, some honest anonymous sources: “for fear of retaliation,” indeed!

He regularly arranged food deliveries for late-working committee staff members, for example, taking advantage of an exception written into the fine print of the ethics code, the former PMA lobbyists and Congressional staff members said. And each year he hosted lawmakers and their staff members at a legendary Christmas party at the Alpine or, more recently, at the Army Navy golf club, that fit into a gift-rule exception for “widely attended events.”

Mr. Magliocchetti helped pioneer the lucrative specialty of helping contractors lobby for military earmarks, the several billion dollars in pet spending items that members of the panel insert in annual spending bills, often with little oversight.

Mr. Magliocchetti came to know Mr. Murtha more than 20 years ago, working as a Navy budget analyst for the subcommittee during the Reagan boom in military budgets. Both grew up in Western Pennsylvania — Mr. Murtha in Johnstown, and Mr. Magliocchetti in Pittsburgh. ...

Since 1998, for example, employees of the firm and its clients have contributed more than $40 million to lawmakers, including more than $7.8 million to members on the House defense spending panel and $2.4 million to Mr. Murtha, its chairman. The same lawmakers, meanwhile, have helped finance hundreds of pet projects sought by PMA clients, including earmarks for more than $300 million in the military spending bill passed last year alone.

I was writing about the global warming scam recently when a friend complained that every time I brought up Gore’s name it looked like I had some sort of personal vendetta against him. Well, I do, just as I do in Murtha’s instance. Not them as individuals, since I hardly know either of them personally, but in the roles they are playing in their various fields. It wouldn’t matter what Gore’s name was, what offends me is the fact that he is using his political influence to sell snake oil. And in Murtha’s case, I object to the fact that he once wore a Marine Corps uniform and since has behaved the way that he has. Marines are not supposed to behave that way.

City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal — from legal fees to maintenance — exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

In Ms. James’s case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

I’ve long held that the origination of this entire housing mess began when lenders and borrowers started to become separated from one another such that they no longer had any relationship to maintain. Banks and other lenders should service their own loans, not third-parties.

And I know only California real estate law of nearly a decade ago now, but exactly who has the legal authority to foreclose besides the actual mortgage holder? If you don’t know who actually holds the mortgage, as a result of financial manipulations, how do they foreclose? If its through a proxy then there’s another glaring error in the way loans should be managed.

It sounds to me like the banks and other housing lenders are the ones who defaulted on their responsibilities, first of all.