I imagine that there are different possible ways of transliterating Japanese characters into the Western alphabet, and that at some point in recent history the "Toyoda" family went one way while the company that shares their name, "Toyota," went the other. Here's what a blogger says, but of course you will take it with the proverbial grain of salt.
At any rate, the testimony of Akio Toyodo, and of other high-ranking Toyota execs, was the center ring of yesterday's Congressional circus. This isn't a policy inquiry: more like a public shaming.
I have to say that, in accord with some of the members of the House committee involved, I have some curiosity as to whether this is a software problem. Toyota seems convinced it is a mechanical matter -- sticky gas pedals and so forth. But there is a lot of software involved in cars nowadays, and in particular there is a lot involved in the act of braking a hybrid.
There is (a) the software that does the pumping for you, making for anti-lock brakes, and (b) the software involved in converting the energy exerted in braking into electrical energy, thus re-charging the batteries, and (c) the software involved in the anti-slip. I suspect it is possible that these systems are interacting in some unexpected way in the few cases that have caused all the furor.
Showing posts with label auto parts. Show all posts
Showing posts with label auto parts. Show all posts
25 February 2010
17 January 2009
Lending out the TARP funds
So ... what should banks do with their TARP funds -- the money Uncle Sam has given them under the bail-out program Congress enacted in September?
Given them to their top executives? Good idea. "Job well done guys, you led your company into so much trouble that the feds had to give you money. Here's your personal chunk!"
Let's assume, just for giggles, that some of it won't simply be divvied up among the honchos in charge as takehome. What should they do with the rest? Lend it out to the buyers of homes or of cars and large appliances? lend it out to businesses and entrepreneurs for start-up ventures or expansions?
Or just sit on it and call it a capital reserve? There has been some sentiment that larger capital reserves are good. If the balance sheet looks better, that fact might increase the confidence of bank counter-parties, hastening a return to normalcy.
Frankly, it seems to me that the argument gives much too much importance to cosmetics.
Banks can only be self-sustaining private corporations, then can only cease to be wards of the state, if they get themselves back in the loan-extending business.
Does this mean government should use its new leverage as the provider of the capital infusion to order them to make loans? Heaven forbid! Japan's policy of directed credit, once seen as part of the "Japan Inc." juggarnaut, is now regarded by almost all who've studied it as a colossal failure. South Korea's efforts at directing credit have likewise amounted to waste and the promotion of stagnation.
So, you might ask: what should be done? If banks aren't lending out the money, and should be lending out the money, then how can they be induced to do so?
IMHO, the down side of the housing cycle simply has to play itself out. There won't be any lending activity in that particular field for awhile. A burnt cat doesn't get right back on the stove.
The automobile market is a different matter. If banks were convinced that there was once again a basis for a sound US auto industry, they would resume lending both to that industry, to its accessories (auto parts and the like), AND to their customers for the purpose of buying their products. So the solution to the question: what to do about the banks? depends in large part upon the answer to the question: what to do about automobiles?
And the answer to that is: consolidation. It appears that in the world market and given locked-in cost considerations such as pension commitments, there is only room for one domestic US automobile manufacturer. The government may have a positive role to play (I seldom type those nine words): enter into negotiations and facilitate a merger of the three battered and torn-up US auto makers. They can, together, constitute ONE decent productive auto maker.
That one in turn will enliven the ancillary industries, and together they'll give the banks some one to whom to make loans again.
Given them to their top executives? Good idea. "Job well done guys, you led your company into so much trouble that the feds had to give you money. Here's your personal chunk!"
Let's assume, just for giggles, that some of it won't simply be divvied up among the honchos in charge as takehome. What should they do with the rest? Lend it out to the buyers of homes or of cars and large appliances? lend it out to businesses and entrepreneurs for start-up ventures or expansions?
Or just sit on it and call it a capital reserve? There has been some sentiment that larger capital reserves are good. If the balance sheet looks better, that fact might increase the confidence of bank counter-parties, hastening a return to normalcy.
Frankly, it seems to me that the argument gives much too much importance to cosmetics.
Banks can only be self-sustaining private corporations, then can only cease to be wards of the state, if they get themselves back in the loan-extending business.
Does this mean government should use its new leverage as the provider of the capital infusion to order them to make loans? Heaven forbid! Japan's policy of directed credit, once seen as part of the "Japan Inc." juggarnaut, is now regarded by almost all who've studied it as a colossal failure. South Korea's efforts at directing credit have likewise amounted to waste and the promotion of stagnation.
So, you might ask: what should be done? If banks aren't lending out the money, and should be lending out the money, then how can they be induced to do so?
IMHO, the down side of the housing cycle simply has to play itself out. There won't be any lending activity in that particular field for awhile. A burnt cat doesn't get right back on the stove.
The automobile market is a different matter. If banks were convinced that there was once again a basis for a sound US auto industry, they would resume lending both to that industry, to its accessories (auto parts and the like), AND to their customers for the purpose of buying their products. So the solution to the question: what to do about the banks? depends in large part upon the answer to the question: what to do about automobiles?
And the answer to that is: consolidation. It appears that in the world market and given locked-in cost considerations such as pension commitments, there is only room for one domestic US automobile manufacturer. The government may have a positive role to play (I seldom type those nine words): enter into negotiations and facilitate a merger of the three battered and torn-up US auto makers. They can, together, constitute ONE decent productive auto maker.
That one in turn will enliven the ancillary industries, and together they'll give the banks some one to whom to make loans again.
11 January 2009
Prosecutors drop charges against David Stockman
David Stockman, the one-time Republican budgetary wunderkind, later the CEO of an auto-parts company, and for the last year and a half a defendant on criminal charges stemming from lies he allegedly told investors about that company's financial health -- is off the hook. Criminally, at any rate.
The US Attorney's office for the southern district, NY, filed a request for a "nolle prosequi" with the court Friday.
I may as well say, then, that I regret my own previous comment on the case in this blog, which now seems to have been guilty of ... what's that German word?. Schadenfreude.
The prosecutors say that they have reassessed the evidence, concerning Stockman's time at the helm of Collins & Aikman, "including evidence and information acquired after the filing of the Indictment, [and] concluded that further prosecution ... would not be in the interests of justice."
The document is not at all forthcoming about what this new evidence is.
My understanding is that the civil litigation, SEC v. Collins & Aikman et al., continues unaffected. Sine I believe in transparency, I expect and hope that the as-yet-unpublicized exonerating evidence to which the prosecutors paid heed will show up in that context.
By the way, I wonder why this blog hosting site doesn't allow an ampersand in the labels. You'll note that in the labels below I've had to write "Collins and Aikman" rather than the actual name of the firm, Collins & Aikman. What gives, blogger???
The US Attorney's office for the southern district, NY, filed a request for a "nolle prosequi" with the court Friday.
I may as well say, then, that I regret my own previous comment on the case in this blog, which now seems to have been guilty of ... what's that German word?. Schadenfreude.
The prosecutors say that they have reassessed the evidence, concerning Stockman's time at the helm of Collins & Aikman, "including evidence and information acquired after the filing of the Indictment, [and] concluded that further prosecution ... would not be in the interests of justice."
The document is not at all forthcoming about what this new evidence is.
My understanding is that the civil litigation, SEC v. Collins & Aikman et al., continues unaffected. Sine I believe in transparency, I expect and hope that the as-yet-unpublicized exonerating evidence to which the prosecutors paid heed will show up in that context.
By the way, I wonder why this blog hosting site doesn't allow an ampersand in the labels. You'll note that in the labels below I've had to write "Collins and Aikman" rather than the actual name of the firm, Collins & Aikman. What gives, blogger???
05 October 2007
Jerry Flint
Jerry Flint is a columnist for Forbes, who wrote a wonderful piece there this week called, simply: Quackery.
His subject, General Motors, a company with a long history of "resorting to gimmicks to resolve labor issues or just to get out of a sticky spot."
He gives two cases in point: one from the company's recent past, the other from its VERY recent past (one might say, from its specious present).
1) A few years back, GM decided that it was paying too much money to those of its workers who, in its Delphi subsidiary, made various auto parts: its power trains, its HVAC, etc.
It 'solved' this problem by spinning off the subsidiary -- making Delphi a theoretically separate company. But to avoid trouble with the union for this bit of domestic outsourcing, it had to give Delphi various guarantees. The guarantees have undermined the reason for the spin off, and as Flinto says GM has since given billions to those same workers. The whole notion of a spinoff was a gimmick, a bit of quackery.
2) The present. Late last month, GM settled with the auto workers union after a brief strike. The stickiest issue was health care for retirees.
The solution was the creation of a health care trust, funded by the auto companies but managed by the union. I've discussed this before, and expressed some of the same skepticism that Flinto expresses here, although he is more forceful on the subject than I was: http://cfaille.blogspot.com/2007/09/after-brief-strike.html
Says Flint, "It doesn't reduce any costs. The health care bill would remain the same" and although that eliminates the medical liability from the balance sheet, "What difference will that make if GM fails to make sexier cars?"
Precious little, surely.
His subject, General Motors, a company with a long history of "resorting to gimmicks to resolve labor issues or just to get out of a sticky spot."
He gives two cases in point: one from the company's recent past, the other from its VERY recent past (one might say, from its specious present).
1) A few years back, GM decided that it was paying too much money to those of its workers who, in its Delphi subsidiary, made various auto parts: its power trains, its HVAC, etc.
It 'solved' this problem by spinning off the subsidiary -- making Delphi a theoretically separate company. But to avoid trouble with the union for this bit of domestic outsourcing, it had to give Delphi various guarantees. The guarantees have undermined the reason for the spin off, and as Flinto says GM has since given billions to those same workers. The whole notion of a spinoff was a gimmick, a bit of quackery.
2) The present. Late last month, GM settled with the auto workers union after a brief strike. The stickiest issue was health care for retirees.
The solution was the creation of a health care trust, funded by the auto companies but managed by the union. I've discussed this before, and expressed some of the same skepticism that Flinto expresses here, although he is more forceful on the subject than I was: http://cfaille.blogspot.com/2007/09/after-brief-strike.html
Says Flint, "It doesn't reduce any costs. The health care bill would remain the same" and although that eliminates the medical liability from the balance sheet, "What difference will that make if GM fails to make sexier cars?"
Precious little, surely.
21 September 2007
Abu Dhabi Buys Into Carlyle
The Carlyle Group has just sold 7.5% of its equity to an arm of the Abu Dhabi government.
Specifically, the buyer is the Mubadala Development Co., which paid $1.35 billion for the stake. Oddly, the two parties announced that this deal values the whole of The Carlyle Group at $20 billion.
Really? If 7.5% of an enterprise's equity is worth paying $1.35 billion, then a straightforward calculation suggests the parties implicitly value the whole enterprise at $18 billion. Is my math wrong, or is theirs?
My math is right, backed up by my trusty Texas Instruments toy. Their calculation isn't so straightforward, though. They've announced that Mubadala is getting a 10% "liquidity discount" off what would otherwise have been the fair market value for their purchase. A liquidity discount? As in "Carlyle needs the money NOW"???
Carlyle is a very prominent private equity firm -- it owns Dunkin' Donuts, Nielson, and a maker of automobile seats, Britax. This spring, around the time of the Blackstone frenzy, there was talk that Carlyle, too, would go public. But the great market volatility of the summer seems to have put the kibosh on that, so it's evidently selling itself piecemeal.
Actually, there's a lot else that might have had the effect of putting on ice Carlyle's hopes for an IPO this year. There's the continuing debate in Congress about the taxation of carried interest. That debate seems to have been stoked by Blackstone and the honchos at Carlyle simply may not wish to be similarly provocative.
So, yes, Carlyle does need the money NOW. They can't wait until markets calm down and/or the political heat goes away to have their IPO and raise their hypothetical $20 billion. And the 10% liquidity discount is a disturbing sign of how bad the credit crunch has become.
Specifically, the buyer is the Mubadala Development Co., which paid $1.35 billion for the stake. Oddly, the two parties announced that this deal values the whole of The Carlyle Group at $20 billion.
Really? If 7.5% of an enterprise's equity is worth paying $1.35 billion, then a straightforward calculation suggests the parties implicitly value the whole enterprise at $18 billion. Is my math wrong, or is theirs?
My math is right, backed up by my trusty Texas Instruments toy. Their calculation isn't so straightforward, though. They've announced that Mubadala is getting a 10% "liquidity discount" off what would otherwise have been the fair market value for their purchase. A liquidity discount? As in "Carlyle needs the money NOW"???
Carlyle is a very prominent private equity firm -- it owns Dunkin' Donuts, Nielson, and a maker of automobile seats, Britax. This spring, around the time of the Blackstone frenzy, there was talk that Carlyle, too, would go public. But the great market volatility of the summer seems to have put the kibosh on that, so it's evidently selling itself piecemeal.
Actually, there's a lot else that might have had the effect of putting on ice Carlyle's hopes for an IPO this year. There's the continuing debate in Congress about the taxation of carried interest. That debate seems to have been stoked by Blackstone and the honchos at Carlyle simply may not wish to be similarly provocative.
So, yes, Carlyle does need the money NOW. They can't wait until markets calm down and/or the political heat goes away to have their IPO and raise their hypothetical $20 billion. And the 10% liquidity discount is a disturbing sign of how bad the credit crunch has become.
14 September 2007
WTO
The US has several outstanding complaints against China before the World Trade Organization.
In conjunction with Mexico, the US has complained for example that China is providing illegal subsidies to its paper industry. Separately, the US claims a failure on China's part to protect intellectual property rights, and has joined with the European Union to object to China's tax system which effectively blocks the import of foreign-made auto parts.
Some of this is simply political cover. The administration wants to be able to make the case that its addressing the trade imbalance. The fact, though, is that the imbalance has macro causes and the WTO offers only micro solutions.
"So what is a solution" you might ask. I don't know that there is one, certainly not on a bilateral basis. To use an example I've picked up from George Will: I have a grave trade imbalance with my barber. I regularly pay him for a haircut and a shave, and he never buys anything from me - because he has no need of a writer.
The trick is to be in balance over-all. If my writing -- or Mr. Wills' -- brings either of us enough income to buy haircuts and everything else we want to buy, we needn't worry about bilateral balances.
Unfortunately, the US isn't in that situation either. We have an over-all trade deficit, and have had one for a long time. It amounted to $190 billion dollars more spent than received in the second quarter of 2007. That is worrisome.
Should I now act like a responsible citizen and propose something that can be done about it? Nah. I'm an anarchist, after all. An anarcho-capitalist, to be exact. Sovereignty is at the heart of the world's problems, and what to do about all of them is to free our minds from the grip of that premise.
Still ... such statistics do indicate to me that we in North America have a rocky road ahead of us and we continue to fall into debt buying the rest of the world's stuff. The bills will come due. And complaints to the WTO won't help us much.
In conjunction with Mexico, the US has complained for example that China is providing illegal subsidies to its paper industry. Separately, the US claims a failure on China's part to protect intellectual property rights, and has joined with the European Union to object to China's tax system which effectively blocks the import of foreign-made auto parts.
Some of this is simply political cover. The administration wants to be able to make the case that its addressing the trade imbalance. The fact, though, is that the imbalance has macro causes and the WTO offers only micro solutions.
"So what is a solution" you might ask. I don't know that there is one, certainly not on a bilateral basis. To use an example I've picked up from George Will: I have a grave trade imbalance with my barber. I regularly pay him for a haircut and a shave, and he never buys anything from me - because he has no need of a writer.
The trick is to be in balance over-all. If my writing -- or Mr. Wills' -- brings either of us enough income to buy haircuts and everything else we want to buy, we needn't worry about bilateral balances.
Unfortunately, the US isn't in that situation either. We have an over-all trade deficit, and have had one for a long time. It amounted to $190 billion dollars more spent than received in the second quarter of 2007. That is worrisome.
Should I now act like a responsible citizen and propose something that can be done about it? Nah. I'm an anarchist, after all. An anarcho-capitalist, to be exact. Sovereignty is at the heart of the world's problems, and what to do about all of them is to free our minds from the grip of that premise.
Still ... such statistics do indicate to me that we in North America have a rocky road ahead of us and we continue to fall into debt buying the rest of the world's stuff. The bills will come due. And complaints to the WTO won't help us much.
31 August 2007
Oleg Deripaska
Things are rolling ahead for a deal in which Russian mogul Oleg Deripaska will buy the Canadian auto parts concern Magna International. The European Commission has approved, [why is the EC ruling on a deal involving chiefly Russian and Canadian firms? Ah, the wonders of globalization!], as have Magna's shareholders, and a Canadian court.
The deal is that Deripaska's firm, Russian Machines, will buy US$1.54 billion in Magna's stock. When the smoke clears, OD through Russian Machines and another company he controls, Stronach Trust, will control 70% of the target's voting shares.
Also, the Toronto Stock Exchange has given its approval to the issuance and listing of the new voting shares the arrangement requires.
Why should you care? Recall that this spring, when Daimler was auctioning off its Chrysler division, Magna was a serious bidder. Deripaska was already then in the market for contgrol of Magna. Although Magna didn't get Chrysler, the fact that the Deripaska deal went forward anyway does illustrate a continuing story of great significance, the consolidation of the automotive and related industries.
http://cfaille.blogspot.com/2007/05/rise-of-deripaska.html
The deal is that Deripaska's firm, Russian Machines, will buy US$1.54 billion in Magna's stock. When the smoke clears, OD through Russian Machines and another company he controls, Stronach Trust, will control 70% of the target's voting shares.
Also, the Toronto Stock Exchange has given its approval to the issuance and listing of the new voting shares the arrangement requires.
Why should you care? Recall that this spring, when Daimler was auctioning off its Chrysler division, Magna was a serious bidder. Deripaska was already then in the market for contgrol of Magna. Although Magna didn't get Chrysler, the fact that the Deripaska deal went forward anyway does illustrate a continuing story of great significance, the consolidation of the automotive and related industries.
http://cfaille.blogspot.com/2007/05/rise-of-deripaska.html
17 August 2007
Auto Parts, and the Whole Auto, Too
Don't lets all panic. People paying too much attention to biz news lately may feel a bit frazzled, but that means this is a time to look for signs of hope.
There may be such signs, even in the fractured North American auto industry. Here are three:
1. The auto parts company, Dana Corp., which filed for bankruptcy in March 2006, says it plans to exit bankruptcy by the end of this year.
That isn't just an optimistic rosy-tinted sayso, either. Dana's reorganization plan has been picking up some support. The company's bondholders formally approved it earlier this week.
2. Ford Motor Company has set a new land speed record. Its Ford Fusion Hydrogen 999 reached 207.28 miles per hour on the Bonneville Salt Flats. The reports I've seen aren't clear about the date, but it appears to be something of a breakthrough for the fuel cell technology involved.
http://www.autocar.co.uk/News/NewsArticle/Ford-Concepts/227307/
3. GM, too, is making a "green push" and seems ready to show off the results at the upcoming auto show in Frankfurt, Germany.
http://www.autobloggreen.com/2007/08/16/frankfurt-preview-lots-of-debuts-and-a-green-push-for-gm/
So ... think good thoughts!
There may be such signs, even in the fractured North American auto industry. Here are three:
1. The auto parts company, Dana Corp., which filed for bankruptcy in March 2006, says it plans to exit bankruptcy by the end of this year.
That isn't just an optimistic rosy-tinted sayso, either. Dana's reorganization plan has been picking up some support. The company's bondholders formally approved it earlier this week.
2. Ford Motor Company has set a new land speed record. Its Ford Fusion Hydrogen 999 reached 207.28 miles per hour on the Bonneville Salt Flats. The reports I've seen aren't clear about the date, but it appears to be something of a breakthrough for the fuel cell technology involved.
http://www.autocar.co.uk/News/NewsArticle/Ford-Concepts/227307/
3. GM, too, is making a "green push" and seems ready to show off the results at the upcoming auto show in Frankfurt, Germany.
http://www.autobloggreen.com/2007/08/16/frankfurt-preview-lots-of-debuts-and-a-green-push-for-gm/
So ... think good thoughts!
29 June 2007
GM Decides What is "Core"
Yesterday, General Motors announced that it's selling Allison Transmissions to a pair of private-equity firms, for about $5.6 billion.
GM's stock price rose for the day, and one can take that as a "yes" vote in the ongoing referendum about corporate policies on Wall Street.
Still,it raises a puzzle. The spinners are portraying this as a case of a company selling off a "non-core" asset to raise some cash so it can better fix what ails its core.
But since when is the manufacture of transmissions non-core? What is the core? The assembly of automotive parts into a whole and their marketing and sale, presumably.
Isn't there something to be said for the view, though, that if the same company makes the transmissions, and then makes the cars, installing its own transmissions, there is an efficiency gain, because that company doesn't need to haggle with itself over transmission prices?
I suppose GM executives might well say, "yes, there is some gain in efficiency there, but the present discounted value of that gain is a good deal less than the $5.6 billion pricetag we've put on it." Maybe. The language of "core" versus "non-core" doesn't illuminate that question, though.
An old story about eating one's seed corn comes to mind, rather.
Do janitors clean out the GM executives' offices at night? Is that service contracted out to a separate operation, or are those janitors employees of GM? If the service isn't contracted out, should it be? The question of the boundaries of a firm, what it makes sense to keep within the hierarchical structure, what it makes sense to outsource, and why, is a complicated one, raised in clear theoretical form by Ronald Coase as long ago as 1937, in a fascinating essay, one that stills stands up to scrutiny today.
GM's stock price rose for the day, and one can take that as a "yes" vote in the ongoing referendum about corporate policies on Wall Street.
Still,it raises a puzzle. The spinners are portraying this as a case of a company selling off a "non-core" asset to raise some cash so it can better fix what ails its core.
But since when is the manufacture of transmissions non-core? What is the core? The assembly of automotive parts into a whole and their marketing and sale, presumably.
Isn't there something to be said for the view, though, that if the same company makes the transmissions, and then makes the cars, installing its own transmissions, there is an efficiency gain, because that company doesn't need to haggle with itself over transmission prices?
I suppose GM executives might well say, "yes, there is some gain in efficiency there, but the present discounted value of that gain is a good deal less than the $5.6 billion pricetag we've put on it." Maybe. The language of "core" versus "non-core" doesn't illuminate that question, though.
An old story about eating one's seed corn comes to mind, rather.
Do janitors clean out the GM executives' offices at night? Is that service contracted out to a separate operation, or are those janitors employees of GM? If the service isn't contracted out, should it be? The question of the boundaries of a firm, what it makes sense to keep within the hierarchical structure, what it makes sense to outsource, and why, is a complicated one, raised in clear theoretical form by Ronald Coase as long ago as 1937, in a fascinating essay, one that stills stands up to scrutiny today.
23 June 2007
Bankruptcy as education
The chapter 11 process is and should be a very public, very transparent one. There shouldn't be any secrets about what goes on when a company asks a court to protect it from its creditors, then re-structures its debt and in time, if all goes well, re-emerges from into the marketplace from outside the court's protective wings.
There shouldn't be any secrets for a couple of good reasons. The most obvious is that many of the parties interested in the proceedings are likely to get cheated to the extent back-room deals can be cut. They'll be cheated anyway, in a sense (it is the whole point of the process to cheat somebody!), but the distribution of the losses always shifts to the disadvantage of those who don't have the pull in those back rooms.
That, then, is enough: don't let the players step into the back rooms. Keep everything in the arena.
Still, there's another and a better reason for openness. Corporate bankruptcy proceedings can be a medium whence the public can learn about the nature of the business cycle, and can in time perhaps be roused to do something about these boom and busts that so dislocate our lives.
In boom time, when credit is easy, when the banks not only lower their interest rates and compete with each other but are eager to give away their money, then times are so good for business that managerial sloppiness goes unpunished. People who have no aptitude for business end up running large ones, and they can fool themselves into thinking they have a calling for it so long as the money stays easy.
The problem, of course, is that while they’re fooling themselves and working through these loans, other people come to depend on them: employees, suppliers, creditors. The marginal and the sloppy work themselves into the social fabric. The goodness of such ‘good times’ is deceiving, because rot is building up.
At some point the lenders have to stop being so generous. Whether this takes place with the prodding of a central bank is another question, but a turn will take place.
The more liquid institutions are among the first victims of a turn. As the expansion crawls to a stop, every trader, every brokers, everyone who hangs casually around an exchange building, knows the turn is coming. Somebody will call in a margin that will force somebody else to liquidate. Nobody wants to be the liquidate, so they all become very cautious at the same time, and as counter-parties they all become demanding at the same time.
Long-Term Capital Management goes down before Enron does. Why? Because Enron had assets other than cash – assets that couldn’t be marked immediately to market – pipelines and generators. For the same reason, Enron with its “asset lite” philosophy, had to seek bankruptcy protection before a necessarily asset-heavy firm such as Delphi did.
(Delphi is an auto parts manufacturer that sought chapter 11 refuge in the autumn of 2005 and remains there still.)
The bankruptcy system is the best public forum for the documentation of the boom-bust cycle. Immersion there in could teach people painlessly that the way up is the way down, that the cheap credit that allows for the build-up of the rot is the real cause of the subsequent collapse, even that “irrational enthusiasm” is a central banker’s term for the sort of dislocation that central banking can cause.
There shouldn't be any secrets for a couple of good reasons. The most obvious is that many of the parties interested in the proceedings are likely to get cheated to the extent back-room deals can be cut. They'll be cheated anyway, in a sense (it is the whole point of the process to cheat somebody!), but the distribution of the losses always shifts to the disadvantage of those who don't have the pull in those back rooms.
That, then, is enough: don't let the players step into the back rooms. Keep everything in the arena.
Still, there's another and a better reason for openness. Corporate bankruptcy proceedings can be a medium whence the public can learn about the nature of the business cycle, and can in time perhaps be roused to do something about these boom and busts that so dislocate our lives.
In boom time, when credit is easy, when the banks not only lower their interest rates and compete with each other but are eager to give away their money, then times are so good for business that managerial sloppiness goes unpunished. People who have no aptitude for business end up running large ones, and they can fool themselves into thinking they have a calling for it so long as the money stays easy.
The problem, of course, is that while they’re fooling themselves and working through these loans, other people come to depend on them: employees, suppliers, creditors. The marginal and the sloppy work themselves into the social fabric. The goodness of such ‘good times’ is deceiving, because rot is building up.
At some point the lenders have to stop being so generous. Whether this takes place with the prodding of a central bank is another question, but a turn will take place.
The more liquid institutions are among the first victims of a turn. As the expansion crawls to a stop, every trader, every brokers, everyone who hangs casually around an exchange building, knows the turn is coming. Somebody will call in a margin that will force somebody else to liquidate. Nobody wants to be the liquidate, so they all become very cautious at the same time, and as counter-parties they all become demanding at the same time.
Long-Term Capital Management goes down before Enron does. Why? Because Enron had assets other than cash – assets that couldn’t be marked immediately to market – pipelines and generators. For the same reason, Enron with its “asset lite” philosophy, had to seek bankruptcy protection before a necessarily asset-heavy firm such as Delphi did.
(Delphi is an auto parts manufacturer that sought chapter 11 refuge in the autumn of 2005 and remains there still.)
The bankruptcy system is the best public forum for the documentation of the boom-bust cycle. Immersion there in could teach people painlessly that the way up is the way down, that the cheap credit that allows for the build-up of the rot is the real cause of the subsequent collapse, even that “irrational enthusiasm” is a central banker’s term for the sort of dislocation that central banking can cause.
18 May 2007
Return of the Trojan Horse
God bless us every one. David Stockman is in the news again. Best remembered as Ronald Reagan's budget director, as the man who said that the Laffer Curve was a "Trojan horse," Stockman is now in trouble private sector budgetary shenanigans.
Collins and Aikman, an auto parts company, has been in chapter 11 since May 2005. Its efforts to re-organize having failed, C/O is now in the process of liquidating. Stockman was the chairman of its board of directors from August 2002 until the time of the bankruptcy filing. He was the company's chief executive, too, for most of that time.
This week, C/O filed a lawsuit (with an 80-page complaint) in a federal court in Delaware in which Stockman is the first-named of several defendants said to have failed in their fiduciary duties.
Stockman was recently indicted on accounting-fraud charges, and the civil complaint echoes those charges, although coached in the language of breach of fiduciary duties. On his own behalf, he has contended that the prosecution is trying to criminalize optimism. There's a grim irony here. It appears that Stockman was once again using an unrealistically optimistic Trojan horse projection to lead a large entity (not as large as the US government this time, thank heavens) deep into the realm of red ink.
Optimism, schmoptimism. Here's a graf from the complaint that gives the gist of the whole.
"By early 2002 [various negative factors] were dramatically depressing the Company's financial results and the Company was increasingly finding itself locked into long-term contracts with little upside earnings potential. Unfortunately for [C/O] ... instead of dealing with the issues facing the Company in an open and legal manner, Defendants concealed the true financial results of operations and condition of the Company, embarking on a fraudulent accounting scheme which hastened the demise of the Company and left it unable to right itself."
Collins and Aikman, an auto parts company, has been in chapter 11 since May 2005. Its efforts to re-organize having failed, C/O is now in the process of liquidating. Stockman was the chairman of its board of directors from August 2002 until the time of the bankruptcy filing. He was the company's chief executive, too, for most of that time.
This week, C/O filed a lawsuit (with an 80-page complaint) in a federal court in Delaware in which Stockman is the first-named of several defendants said to have failed in their fiduciary duties.
Stockman was recently indicted on accounting-fraud charges, and the civil complaint echoes those charges, although coached in the language of breach of fiduciary duties. On his own behalf, he has contended that the prosecution is trying to criminalize optimism. There's a grim irony here. It appears that Stockman was once again using an unrealistically optimistic Trojan horse projection to lead a large entity (not as large as the US government this time, thank heavens) deep into the realm of red ink.
Optimism, schmoptimism. Here's a graf from the complaint that gives the gist of the whole.
"By early 2002 [various negative factors] were dramatically depressing the Company's financial results and the Company was increasingly finding itself locked into long-term contracts with little upside earnings potential. Unfortunately for [C/O] ... instead of dealing with the issues facing the Company in an open and legal manner, Defendants concealed the true financial results of operations and condition of the Company, embarking on a fraudulent accounting scheme which hastened the demise of the Company and left it unable to right itself."
11 May 2007
The Rise of Deripaska
Daimler-Chrysler, the German-led automobile company that of late has come to regard its US-based Chrysler branch as dead weight, has found a buyer.
Actually, there are now three buyers bidding an at informal auction, but the most likely buyer by far is a Canadian auto parts manufacturer, Magna International.
Take that with a grain of salt, and recall for example that the last time I wrote about Chrysler here (on April 6) the favorite was Kirk Kerkorian and his company, Tracinda Corp. They seem to have faded from discussions over the last five weeks.
But assume for purposes of discussion that Magna does get Chrysler. Their bid is worth approximately $5 billion. Magna doesn't have that kind of money in its petty-cash drawer, and will likely raise some of it by selling some of its own equity. In other words, one question now is: if Magna gets Chrysler, who gets Magna?
Answer: an aluminum kingpin from Russia, Oleg Deripaska.
Deripaska is a fascinating character, who even if he does end up owning a large chunk of the company that in turn owns a controlling interest in Chrysler, won't be able to visit the Michigan offices thereof. He was stripped of his U.S. visa last year as a result of the FBI's view that he is (a) involved with organized crime and (b) was less than truthful when they asked him about it.
If what we want if for Chrysler to become and remain a sustainable, productive, even innovative car company: would the ascent of Deripaska be a good thing or a bad thing? I don't know, and I consider his difficult relations with the FBI to be a rather ambivalent bit of data for the purpose of answering that question.
Update, May 14. Oops. Shows what I know. Over the weekend, Cerberus apparently brought this auction to an end, bidding $2 billion more than had Magna.
http://www.freep.com/apps/pbcs.dll/article?AID=/20070514/BUSINESS01/70514037
Cerberus is everywhere, as I mentioned in March.
http://cfaille.blogspot.com/2007/03/not-conspiracy-theory.html
It continues to creep me out.
Actually, there are now three buyers bidding an at informal auction, but the most likely buyer by far is a Canadian auto parts manufacturer, Magna International.
Take that with a grain of salt, and recall for example that the last time I wrote about Chrysler here (on April 6) the favorite was Kirk Kerkorian and his company, Tracinda Corp. They seem to have faded from discussions over the last five weeks.
But assume for purposes of discussion that Magna does get Chrysler. Their bid is worth approximately $5 billion. Magna doesn't have that kind of money in its petty-cash drawer, and will likely raise some of it by selling some of its own equity. In other words, one question now is: if Magna gets Chrysler, who gets Magna?
Answer: an aluminum kingpin from Russia, Oleg Deripaska.
Deripaska is a fascinating character, who even if he does end up owning a large chunk of the company that in turn owns a controlling interest in Chrysler, won't be able to visit the Michigan offices thereof. He was stripped of his U.S. visa last year as a result of the FBI's view that he is (a) involved with organized crime and (b) was less than truthful when they asked him about it.
If what we want if for Chrysler to become and remain a sustainable, productive, even innovative car company: would the ascent of Deripaska be a good thing or a bad thing? I don't know, and I consider his difficult relations with the FBI to be a rather ambivalent bit of data for the purpose of answering that question.
Update, May 14. Oops. Shows what I know. Over the weekend, Cerberus apparently brought this auction to an end, bidding $2 billion more than had Magna.
http://www.freep.com/apps/pbcs.dll/article?AID=/20070514/BUSINESS01/70514037
Cerberus is everywhere, as I mentioned in March.
http://cfaille.blogspot.com/2007/03/not-conspiracy-theory.html
It continues to creep me out.
Subscribe to:
Posts (Atom)
