Monthly Archives: December 2008

Go for the gold

If you want further signs of the economic apocalypse, consider this story from a friend of mine.

He was speaking to a friend who is in a Geneva-based hedge fund. About six months this financier decided to get a lot more conservative with his personal portfolio. So he moved into about 50 per cent cash, 50 per cent gold. That’s not so wild, particularly in Switzerland, where even hedge fund folks have always had a conservative tinge. Here’s the rub. When this guy said he moved into gold, he meant the actual gold, not a certificate of a holding in a bank. He plonks down however many thousands of Swiss francs and takes a whole gold ingot home.

If things get so bad that he needs to head for the hills, I hope he has a car with very good suspension to transport his gold bars.

GM over the cliff

James Hamilton at Econbrowser looks at appalling November car sales and tells readers just how bad things are for General Motors:

Remember that this volume decline is hitting an industry with huge fixed costs, and that these are decreases relative to 2007. GM, for example, reported a loss of $38.7 billion for 2007. That’s billion, with a “b”. Back when things were good.

Evan Newmark on The Wall Street Journal’s Deal Journal is equally bleak:

If you’re a U.S. taxpayer you ought to read GM’s “Restructuring Plan for Long-Term Viability.” By the end of next year, you’ll own a good chunk of this company, so you might as well familiarize yourself with what’s going on there.

On first read, you’ll think that’s too rash a judgment. The document is well-reasoned and thoughtfully crafted. There are lots of numbers “proving” GM’s commitment to restructuring.

But at its core, it’s propaganda aimed directly at warming the hearts of Congress.

It is not a viable business plan.

Dog bites man

For those who like the stamp of officialdom.

National Bureau of Economic Research:

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

GM: hoisted from the comments

I pointed the other day to Bob Sutton’s excellent reflection on GM. Bob Massie, who was a classmate of mine at Princeton and someone who had the courage and energy to take our student-days’ struggle against apartheid into his adult life, just posted a comment that echoes Sutton’s thoughts, and goes further to speculate what the one-time power of American manufacturing might have been able to do:

I also dealt with GM many times at a high level when I was the executive director of Ceres. I found that there was deep schizophrenia in the company – when asked about some international issues they showed some foresight, but when asked about anything going on the US, they exhibited all the traits of arrogance and absurdity that were described.

Whenever I think of what it means for a corporation to have a “culture,” in fact, I think of GM because it was absolutely pervasive – the way problems were discussed, the “Can’t Do” mentality (which I used to call “American No-How”) – the absurdity of appointing Bob Lutz, the sadly aging super-macho, MiG flying, 1950s muscle car guy to a company that needed churn out 21st century cars (and who blocked hybrids for years, still intimidates everyone around him, and continues to affirm that climate change is “crap”). What would it take to get you fired in this company? Apparently you could run naked down the hall lighting fire to the furniture and to shareholder value, but as long as you maintained the self-delusional speeches, you would be backed up.

Think of what this company could have done if it had 1)learned from the 1970s experience with Japan 2) fought for national health insurance for the last 20 years thus lowering the unit cost of production per car 3) recognized the science of climate change at the time of McKibben or Gore’s books 4) put real advocates for change on its board 5) given the hydrogen fuel cell car as much support as the Hummer division 6) pushed for infrastructure changes under Clinton and Bush or fired Lutz and Wagoner years ago.

They made every possible mistake, lost $72 billion in the last few years and 90% of shareholder value in the last few months and who do they blame? The workers. Enough is enough. Break up the company, fire the top brass, and bail them out with new leadership and partial government ownership committed to reversing their grotesque years of missed opportunity and outright failure.