What is wrong with the US economy? Part 2

[Astronuc]

• Circuit City seeks bankruptcy protection amid pressure from vendors ahead of the holidays

Days after announcing layoffs and store closures, the retail giant files for Chapter 11 protection.

• Oil prices near $63 per barrel on higher stock markets

• Deutsche Post to cut 9,500 jobs from DHL unit in US, end U.S.-only express shipping

And it's getting more surreal -

• Lawmakers, Detroit calling for Treasury aid for auto makers

• In a record bailout of a private company, the government on Monday provided a new $150 billion financial-rescue package to troubled insurance giant American International Group, including $40 billion for partial ownership

 

[edward]

AIG needs a new category to describe most of their assets. A writer at the Wall street Journal has suggest the term: Anybodies Guess.

 

[Ben Niehoff]

Circuit City was always an inferior store. I'm not too surprised about that. I could never find what I wanted there.

 

[Proton Soup]

Circuit City deserves to go under. it should have happened a long time ago.

 

[mheslep]

Circuit City deserves to go under. it should have happened a long time ago.

There are America jobs at stake! The press releases are already done, just find/replace 'auto industry' with 'consumer electronics retail, but don't actually make anything themselves, industry':

House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada, in a letter Saturday, formally requested that Treasury Secretary Henry Paulson consider giving "temporary assistance to the industry" using money originally appropriated to shore up the banking system.

Don't forget a me to photo op for the CC guys.
http://s.wsj.net/public/resources/images/NA-AT870_BAILOU_D_20081109181048.jpg

 

[Jimmy Snyder]

There are America jobs at stake!

I don't know whether CC is a good company or a bad one, but this argument is only reasonable for good companies. Keeping bad companies afloat is no way to improve the economy.

 

[mgb_phys]

There are America jobs at stake!

I thought these were the kind of low skilled low paid jobs that all went to illegal immigrants?

I don't know whether CC is a good company or a bad one

It charges more than Best Buy while making up for it with less knowledgeable staff (which must have been a challenge)
It's one of those big box electronic stores that make money from selling people that don't know any better $100 HDMI leads and $100 extended warranties on $50 DVD players.

 

[mheslep]

I don't know whether CC is a good company or a bad one, but this argument is only reasonable for good companies. Keeping bad companies afloat is no way to improve the economy.

Hopefully it came through that I was tongue in cheek there. I don't think 'jobs are at stake' is ever a sufficient argument for having politicians picking and choosing which companies get to stay and which should go.

 

[Jimmy Snyder]

Hopefully it came through that I was tongue in cheek there. I don't think 'jobs are at stake' is ever a sufficient argument for having politicians picking and choosing which companies get to stay and which should go.

My bad. I should read more carefully.

 

[Astronuc]

GM shares plunge after analyst sees them hitting zero
http://news.yahoo.com/s/afp/20081110/bs_afp/stocksusautocompanygm

NEW YORK (AFP) – General Motors shares plunged more than 30 percent Monday after an analyst forecast their price would fall to zero, saying that even if there is a government bailout of the auto giant, shareholders would not benefit.

"We are lowering our target on GM equity to zero dollars," the Deutsche Bank report said.

"Even if GM succeeds in averting a bankruptcy, we believe that the company's future path is likely to be bankruptcy-like," it said.

"While we believe that GM's secured creditors may get a par recovery, unsecured creditors may get very low recovery. Equity shareholders are unlikely to get anything."

Ouch!

There are America jobs at stake! The press releases are already done, just find/replace 'auto industry' with 'consumer electronics retail, but don't actually make anything themselves, industry':

Who needs an auto-industry, software industry, retail industry, construction industry, aircraft industry, airline industry . . . anyway? Manufacturing and engineering can be done cheaper overseas, so there's no point in hiring anyone in the US since the labor cost is too high - eh?.

We could save a lot by shutting down the entire economy. Just think of the savings.

People could grow their own food, or hunt the abundant herds of deer and other large herbivores - just like in the good ol' days.

 

[Proton Soup]

I thought these were the kind of low skilled low paid jobs that all went to illegal immigrants?


It charges more than Best Buy while making up for it with less knowledgeable staff (which must have been a challenge)
It's one of those big box electronic stores that make money from selling people that don't know any better $100 HDMI leads and $100 extended warranties on $50 DVD players.

eh, best buy does the same deal with over-priced cables. they kind of have to when they mark down regular electronic items to the bare margin.

they don't need saving, though. plenty of other retailers out there will pick up the slack. they will not be missed.

 

[mheslep]

...Who needs an auto-industry, software industry, retail industry, construction industry, aircraft industry, airline industry . . . anyway? Manufacturing and engineering can be done cheaper overseas, so there's no point in hiring anyone in the US since the labor cost is too high - eh?.

Meaning you support direct government injections of the kind being asked for now in the automotive industry for all of these industries, or not? What about the horse and carriage, gas lamps, and ice block refrigeration industries?

 

[mgb_phys]

Who needs an auto-industry, . . . anyway? Manufacturing and engineering can be done cheaper overseas, so there's no point in hiring anyone in the US since the labor cost is too high - eh?.

Posrche manages to make money - because of the slave labour wages and conditions of German car workers.
Toyota even makes money building cars in the US - it must pay it's executives bigger bonuses.

GM and Ford have been making tons of money over the last few years selling SUVs - presumably they have been investing this profit into research on new models and more efficent plants.

 

[Astronuc]

Meaning you support direct government injections of the kind being asked for now in the automotive industry for all of these industries, or not? What about the horse and carriage, gas lamps, and ice block refrigeration industries?

Well - people could make their own cars, muskets/rifles, cooking ware, lamps, etc. I mean isn't it about time people became fully self-sufficient?

No. Actually I was being facetious - toungue-in-cheek.

Off-course, they way they did locally 100+ years ago, was wait until the river froze in winter and chopped the ice into blocks. The problem is now we have global warming and the river doesn't freeze as it did in distant past. And the water is polluted with PCB's, agricultural run-off, and a variety of bacteria, e.g. coliform, which cause a variety of intestinal illnesses if ingested.

 

[Astronuc]

I do wonder why the government (really the taxpayers) are loaning the banks so much money at so little interest rate, only to be refused a loan, or if one gets a loan, the interest rate is much higher.

Perhaps the federal government doesn't want to compete with the banks - that wouldn't be fair.

But then if the banks are doing such a bad job that they need all this help - why are the managers still making multi-million dollar salaries + bonuses?


The seems to be a surplus of bad managers - surely that should put downward pressure on salaries. Or does the law of supply and demand not apply to management and their salaries?

 

[Astronuc]

Seriously, I have heard that if GM/Chrysler and Ford go down, then it could probably take out about $1 trillion worth of economic activity based upon all the other companies that support the auto industry, e.g. tires, parts, . . . .

What is the viable alternative to what Congressional leaders and the auto-industry are proposing?


AIG appears to be in worse shape than originally believed, and the government is throwing $150+ billion at that company alone.

The US economy is in deep doo-doo and it is becoming mind-bogglingly surreal.

 

[mgb_phys]

But then if the banks are doing such a bad job that they need all this help - why are the managers still making multi-million dollar salaries + bonuses?

You're a manager of a business that just persuaded the government to give you $700bn of raw materials for free with no strings attached - I'd say that deserved a pretty good bonus!

 

[mheslep]

...The problem is now we have global warming and the river doesn't freeze as it did in distant past. And the water is polluted with PCB's, agricultural run-off, and a variety of bacteria, e.g. coliform, which cause a variety of intestinal illnesses if ingested.

That's a great side by side illustration of my main objection to throwing finite resources at AWG. First there is the water in your river which is polluted to some degree and is a measurable fact; the effects of that pollution on human health are well known. The effectiveness of means to clean it up are clear and well understood, that is, we know quite well how much cleaner the water will become from a dollar of clean-up. Second we have AWG, where the degree of warming credited to CO2 and feedbacks is based on theory and sketch models, that even the temperature trend itself since '98 is debatable, and most importantly it appears even colossal amounts of carbon cap money will do little about it. All of that pig in poke AWG money is to be spent immediately or supposedly the entire world will suffer the most dire consequences, while the pollution in your river (and mine) becomes a "we'll do it later."

 

[Astronuc]

You're a manager of a business that just persuaded the government to give you $700bn of raw materials for free with no strings attached - I'd say that deserved a pretty good bonus!

Sadly - the managers didn't persuade the government - the government persuaded itself that it was necessary to go down the path it did with the bailout. And it's going much further down that path apparently.

Like I said - it's becoming mind-bogglingly surreal. It's like watching a bunch of monetary crack addicts.

 

[Astronuc]

That's a great side by side illustration of my main objection to throwing finite resources at AGW. First there is the water in your river which is polluted to some degree and is a measurable fact; the effects of that pollution on human health are well known. The effectiveness of means to clean it up are clear and well understood, that is, we know quite well how much cleaner the water will become from a dollar of clean-up. Second we have AGW, where the degree of warming credited to CO2 and feedbacks is based on theory and sketch models, that even the temperature trend itself since '98 is debatable, and most importantly it appears even colossal amounts of carbon cap money will do little about it. All of that pig in poke AWG money is to be spent immediately or supposedly the entire world will suffer the most dire consequences, while the pollution in your river (and mine) becomes a "we'll do it later."

Note that I didn't mention AGW, just GW.

We also get brown air from PA and OH - and heavy metals like Hg - that blow in on the wind. As soon as one gets about 4 to 5 thousand feet in the air, one can look eastward and see how brown the atmosphere is. I've seen that brown air all the way down the east coast from NY to Atlanta.

But that's a whole other topic.

 

[mheslep]

Seriously, I have heard that if GM/Chrysler and Ford go down, then it could probably take out about $1 trillion worth of economic activity based upon all the other companies that support the auto industry, e.g. tires, parts, . . . .

What is the viable alternative to what Congressional leaders and the auto-industry are proposing?...

Detroit is not the be all and end all of the auto industry. There >100,000 good American auto jobs in Ala, Tn, and elsewhere. In any case I've seen no prediction that all three of these companies would cease to exist. At least one or two is bound to continue operations after bankruptcy. Its the management, shareholders value that would cease to exist, and rightfully so, along with some line jobs. Id favor unemployment benefits and retraining money before creating United States Automotive.

 

[Astronuc]

Detroit is not the be all and end all of the auto industry. There >100,000 good American auto jobs in Ala, Tn, and elsewhere. In any case I've seen no prediction that all three of these companies would cease to exist. At least one or two is bound to continue operations after bankruptcy. Its the management, shareholders value that would cease to exist, and rightfully so, along with some line jobs. Id favor unemployment benefits and retraining money before creating United States Automotive.

I think GM/Chrysler and Ford are hoping to survive long enough to retool and produce more efficient and consumer-desirable vehicles. The respective financing arms however are probably also in trouble with increases in repos and bad investments outside the auto-industry.

That other side of letting them go under is that millions of people (consumers) with GM/Ford cars and trucks my be stuck without service. Lots of dealerships have gone under as well, and those surviving might not be able to switch to competitors' brands.

I'm quite happy with Honda.

 

[mgb_phys]

So is the problem.
A, years of producing expensive gas guzzlers where the only R+D was how to fit more cupholders?
B, managers that haven't yet realized it's not 1950 and there are competitors out there?
C, unionised autoworkers that all make $250K a year?
D, that the car companies are really banks - they make their money by investing the returns on high interest car loans?
E, All of the above

 

[mheslep]

...That other side of letting them go under is that millions of people (consumers) with GM/Ford cars and trucks my be stuck without service.

You mean warranties. Service would not be under any threat. As long as there are vehicles on the street there will be shops to service them.

 

[Astronuc]

You mean warranties. Service would not be under any threat. As long as there are vehicles on the street there will be shops to service them.

With what parts? How long would inventories hold out? And wouldn't people raise prices because of concern over future supply?

 

[turbo]

With what parts? How long would inventories hold out? And wouldn't people raise prices because of concern over future supply?

The businesses supplying parts (equivalent, not OEM) would continue to operate and may actually thrive.

 

[mheslep]

With what parts? How long would inventories hold out? And wouldn't people raise prices because of concern over future supply?

?? The parts and inventory channels are fueled mainly by non big three suppliers, the big three largely slap the parts together. The parts suppliers would continue to run based on service demand for vehicles on the road, long after the original new year model becomes history, just as they do now.

Example - Ye olde Holley Carburetor:
http://www.autopartswarehouse.com/shop_parts/carburetor/ford/mustang.html

 

[mheslep]

Here's some jobs popping up: oil workers - $100k rig workers, $500k engineers, $80k to start BS out of school.

Offshore Rig Workers Call the Shots
Shortage of Specialized Labor Means High Salaries, Perks for Engineers and 'Roughnecks'
By JOHN W. MILLER

STAVANGER, Norway -- Industries world-wide are slashing costs and laying off workers. But one sector continues to recruit employees aggressively, dangling before them six-figure salaries, signing bonuses and job-training programs.

Multinational oil companies are grappling with a shortage of specialized labor for offshore rigs that promises to get worse. Drillers plan to erect 180 new offshore rigs over the next three years -- adding to the current total of 640 -- spanning the globe from the Vietnamese coast and the Caspian Sea to the Gulf of Mexico and Brazil. Every new offshore drilling operation requires an average of 200 workers, some offshore and some onshore.

Oil companies slowed hiring in the 1980s and '90s, resulting in too many workers over 50, and too few in their 30s and 40s.

It will take more than the recent drop in oil prices to $65 or $75 a barrel to derail these rig projects, companies say, even if the price downturn since the summer has led to postponements elsewhere, such as in oil sands and refineries. Oil development projects "take an average of 10 years to complete and operate for more than 30 years," said Susan Houghton, a human-resources official at Chevron Corp. "In 2008, we hired approximately 6,000 new employees and will continue that rate in 2009," she said.

Salaries for the most sought-after categories of oil workers have risen about a third over the past four years, according to Stephen Whittaker of Schlumberger Ltd., the world's biggest oil-services company by revenue. An experienced "roughneck," the nickname for rig workers, can make $100,000 a year, and top white-collar engineers can make as much as $500,000 a year, industry analysts and officials said.
...
Shawn Dawsey, one of Dr. Schechter's undergraduate students, switched his major to petroleum from electrical engineering last year. It has paid off. He will graduate in May and already has received eight job offers of around $80,000 a year. He said some of his peers worry about how declining oil prices could affect their prospects, "but the job offers keep coming," he said...

http://online.wsj.com/article/SB122627626533412099.html
(subs. rqd)

 

[Ms Music]

With what parts? How long would inventories hold out? And wouldn't people raise prices because of concern over future supply?

Just look at Cuba. It can happen.

 

[turbo]

Just look at Cuba. It can happen.

One huge difference, though. '57 Chevies are pretty low-tech. I can tear down and rebuild a carb with no problem. I cannot tear down and rebuild an entire fuel system in a modern vehicle - injectors, pumps, computers and sensors controlling aspiration, ignition timing, excess oxygen, etc, etc.

 

[mgb_phys]

I cannot tear down and rebuild an entire fuel system in a modern vehicle - injectors, pumps, computers and sensors controlling aspiration, ignition timing, excess oxygen, etc, etc.

Whats worse is that even if you can buy the parts the service codes are covered by DRM and under the DMCA it is illegal for you to reverse engineer them.

 

[mheslep]

One huge difference, though. '57 Chevies are pretty low-tech. I can tear down and rebuild a carb with no problem. I cannot tear down and rebuild an entire fuel system in a modern vehicle - injectors, pumps, computers and sensors controlling aspiration, ignition timing, excess oxygen, etc, etc.

Yes but that is a difference only in the need for service expertise, not parts.

 

[turbo]

Yes but that is a difference only in the need for service expertise, not parts.

OEM computers might not be reproducible, though - the manufacturers don't even give out the diagnostic codes to independent mechanics. Small businesses (and around here that can mean a shop with 2-10 bays) can scan the diagnostics, but then you have to go to a factory dealership with error codes to get interpretation/service. Been there, done that.

 

[Proton Soup]

But then if the banks are doing such a bad job that they need all this help - why are the managers still making multi-million dollar salaries + bonuses?


The seems to be a surplus of bad managers - surely that should put downward pressure on salaries. Or does the law of supply and demand not apply to management and their salaries?

i think much of this is about extortion. sure, they're doing a bad job and are absolute failures. but without the extortion pay, you can't be guaranteed they'll stay and risk losing the whole business. that's the kind of thing we need to find a solution for. sending people to pound-me-in-the-*** prison might just work.

 

[Astronuc]

Just look at Cuba. It can happen.

That's great if one lives in Cuba.

Here's some jobs popping up: oil workers - $100k rig workers, $500k engineers, $80k to start BS out of school.

There are also positions in major league baseball, basketball, football, . . . . , that pay $1+ million/yr. But seriously, how many positions are there for top white collar engineers making $500 K?

http://www.upi.com/Business_News/20...l_rig_count_up_last_month/UPI-73091162920687/

HOUSTON, Nov. 7 (UPI) -- The number of oil and natural gas rigs running outside the United States last month rose by 16 to 965, a private company said Tuesday.

Houston's Baker Hughes Inc. (NYSE:BHI) also said October's international rig count was up

62 from the 903 counted in October 2005. Also, the international offshore rig count for October 2006 was 274, up 10 from the 264 counted in September 2006 and up 10 from the 264 counted in October 2005.

. . .

I doubt there are more than a couple of dozen job openings (if that) at $500 K/yr, and maybe at most a few thousand openings on various rigs.

Back in May of this year, AP reported

Published: May 10, 1988
LEAD: The number of working domestic oil and gas rigs rose by 17 last week, to a total of 897, Baker Hughes Inc. reported today. The rig count, the widely watched industry index of drilling activity, totaled 767 a year ago, Baker Hughes said.

The number of working domestic oil and gas rigs rose by 17 last week, to a total of 897, Baker Hughes Inc. reported today. The rig count, the widely watched industry index of drilling activity, totaled 767 a year ago, Baker Hughes said.

Still not a big number.



Meanwhile - Fannie Mae posts $29B loss, may tap gov't funding
http://biz.yahoo.com/ap/081110/earns_fannie_mae.html

WASHINGTON (AP) -- Fannie Mae on Monday posted a $29 billion loss in the third quarter as it took a massive tax-related charge, and said it may have to tap the government's $100 billion lifeline in the coming months.

The mortgage finance company, seized by federal regulators more than two months ago, posted a loss of $13 per share for the July-September quarter, mainly due to a $21.4 billion non-cash charge to reduce the value of tax assets. That compares with a loss of $1.4 billion, or $1.56 a share, in the year-ago period.

Analysts surveyed by Thomson Reuters had expected a loss of $1.60 per share.

Washington-based Fannie Mae's net worth -- the value of its assets minus the value of its liabilities -- fell to $9.4 billion at the end of September down from $44.1 billion at the end of last year. If that number turns negative, Fannie Mae would be forced to obtain funding from the Treasury Department.

The ultimate bill for taxpayers remains unclear. Jim Vogel, a debt analyst with FTN Financial in Memphis, Tenn., said total aid for Fannie and its sibling company Freddie Mac is unlikely to exceed the $200 billion initially pledged by the government.

Despite worsening housing market conditions, Fannie Mae is "still setting aside way more for future losses than they're absorbing today," Vogel said.

Others aren't so sure. Barclays Capital analyst Rajiv Setia said the government's arrangement with Fannie and Freddie "may need to be amended" next year. Many analysts consider Freddie Mac, which is expected to report earnings later this week, to be in worse financial shape.

. . . .

I heard a comment tonight on the news that Fannie Mae might be out of money and would have to shutdown by the end of the year. I don't know if that's without the government line of credit or not.