Class Warfare at the Wall Street Journal

Good grief, the Wall Street Journal is now printing class warfare stories on the front page. In the 19 June 2009 daily edition, below the fold, there is a story titled, "CEOs of Bailed-Out Banks Flew to Resorts on Firms' Jets."

My first response is "who cares?" I sure don't. Corporate jets are whipping boys in the current game of nationalizing industries and taking the country down the road to socialism. There I said it. The current administration and Congress are turning this country into Venezuela! Special Sign Up Bonus: FREE rollover minutes. Order Today!

From the article:

"Disclosure of the flights comes at a t time when the Obama administration is setting limits on how banks that receive federal money may compensate their executives... Aid recipients' use of corporate jets, even for business, has been a sensitive matter since last fall."

Did you get all of that? The Executive Branch is setting limits on the compensation of publicly-traded companies. What? Who is "sensitive" to the matter? President Teleprompter who takes a $27,000 dollar flight to go one a date with his wife? But wait, you say, he is the President, he has to be protected. I agree, he does. But what about the President of a company that employs 250,000 people and generates over $97 billion in revenue? 
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That person would be Ivan G. Seidenberg, CEO of Verizon Communications. According to their most recent proxy statement:

"The Company provides certain aircraft and ground transportation benefits to enhance the safety and security of certain of the named executive officers."

For Bank of America's Ken Lewis, he too is entitled to use the corporate jet for "...primarily for business travel." If you read the proxy statement of any major corporation, they will say roughly the same thing, as well as noting it as an element of compensation. If you were paying an executive $1500 an hour, would you want them standing in the security line at JFK for 45 minutes? I sure wouldn't! Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

The fact of the matter is that most people won't ever fly in a corporate jet or earn what a CEO earns. While it is nice to dream those dreams and work hard to try to fulfill them, it probably won't happen. If you begrudge them, then don't invest in their companies. If you feel locked in because your tax dollars went in the form of a bailout, then vote the bums out! Frankly, I am sick of the whining.

France Denies the Law of Supply and Demand

Well, just when I was starting to like the French again, they go and try to void the law of supply and demand. More specifically, as reported in the Wall Street Journal, Luc Chatel, the junior industry minister, wants French automakers Renault and Peugeot Citroen to promise not close factories in return for a government bailout.

While I am all in favor of setting conditions for government money, those conditions shouldn't place the company in an uncompetitive situation. For if the company is uncompetitive, the taxpayer is chasing good money after bad. Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Consider that labor, in general, is demanded by manufacturers. Labor is then segmented by its market and skill. Different countries have different quantities of skilled labor at different prices. We have all seen that with BMW plants in South Carolina and Hyundai plants in Alabama. Well, Turkey is much like Alabama, relative to skilled labor.

For the French automakers to survive, they need to find cheaper labor than 35 hour a week union members who take 6 weeks off and go on strike when the wine in the company cafeteria doesn't pair properly with the foie gras. Let's also not forget the smoke breaks.

However, M. Chatel thinks that by forcing the factories to stay open and carry excess capacity (15% for Renault per Credit Suisse), that will make things all better. WRONG! Let's consider the US plan which is to provide badly needed capital in return for a stake in the automotive companies. The governement is working to set benchmarks to streamline production, control costs, etc., though isn't calling for make work jobs, at least not yet. Come on, Obama was just inaugurated and the Congress hasn't finished all of the Inaugural ball debauchery. Compare Auto Insurance Quotes and Save!

In short, demand for cars in France is down with French labor being some of the most expensive in Europe. To stabilize their automotive industry, the automakers need to reduce costs, and lower cost labor may be the key. In the meantime, M. Chatel should go back and take a basic economics course and let that be his basis for recommendations, and not politics.

Ken Lewis Cleans Up

Its good to be the king, or CEO of a major bank. Ken Lewis, the CEO of Bank of America, is looking quite smart.

Forbes did an article about the whole Freddie/Fannie mess call "BofA's Bailout Benefit" on September 8th.

The article calls out how Mr. Lewis was panned for his purchase of Country Wide, the large and failing mortgage company. Many thought BofA was chasing good money after bad. However, with the bailout of Freddie Mac and Fannie Mae, he is looking crazy like a fox.

From the article: "The Ladenburg Thalman analyst (Dick Bove) argues that Bank of America, and Countrywide, have the existing infrastructure to start buying and securitizing loans on a large scale. He even said in a phone interview that Bank of America's capital levels would allow it to guarantee mortgage payments. This promise to pay has been Freddie and Fannie's traditional role in the U.S. housing market."

Naturally, one questions if a company like BofA can handle the securitization and guarantee of mortgage payments, do we really need Freddie and Fannie anyway?? Arguably, the answer is "No." In my previous post "Taxpayers Cover Freddie's Fannie," I state the bailout is a done deal, but what to do with the Freddie and Fannie is an open question.

It would seem that a market solution may be the best solution after all. Yes, you can hear me grinning, as that is a common theme of mine. Although widespread home ownership is valid policy objective, let's keep the government out of it to the greatest extent.

Again, from the article: "“I would be shocked if Bank of America isn’t happy about how this worked out. For years, banks have been asking for Fannie and Freddie to be cut back in size because they have they an unfair advantage," said Bove.“The government says Fannie and Freddie handled 80.0% of the market this year and someone has to handle that market share.”

There you have it, companies such as BofA are well positioned to handle a piece of the hopefully dismantled Freddie and Fannie. The next question is whether other banks of similar size have enough capital to do the same. If Citi, JPMorgan Chase, and Wachovia can get their capital coffers refilled, then maybe this will be a reality. However, if they can't get their collective acts together, expect to see more Barney Frank (D-MA) and government intervention.