Greedy Hedge Funds Stomp Feet and Pout

Wizardkitten asked if hedge funds were trying to force Chrysler into bankruptcy and Jonathan Tasini answered: American Car Industry Held Hostage by Greedy Hedge Funds

...in a blazingly short amount of time, the Administration has forged a deal that could save thousands of jobs at Chrysler--the major banks are on board, the UAW has made more significant concessions. But all that may come crashing to a halt because of a few hedge funds who are holding the entire car industry hostage because, boo-hoo, they aren't getting enough out of the deal. What a spectacle.

Spectacle? Yeah, in a Bonnie & Clyde or Godfather sort of way.

As Tasini points out, the president lived up to his pledge, the UAW accepted concessions...

On top of concessions already given in 2005, 2007 and 2008, the UAW members have agreed to accept cuts in pay and benefits.

And even the major debt holders were on board.

Led by J.P. Morgan, the banks holding 70 percent of Chrysler's debt agreed to a deal that would effectively mean they would have to write-off a health chunk of change.

Everyone sacrificed and the administration even tossed more cash on the table and it still wasn't enough for the greedy hold outs.

Three of the bank-debt holders on the bank-steering committee, Oppenheimer Funds, Perella Weinberg Partners' Xerion Capital Fund and Stairway Cap Management, told J.P. Morgan and the other large lenders on a bank call Tuesday that they wouldn't support the deal and would advise other lenders not to support it.

I'm not a financial expert, but I think that's just dumb. Tasini thinks it's dumb too.

Even if the hold-out hedge funds refuse to make a deal by midnight tonight, forcing Chrysler to file for bankruptcy, they are unlikely to do any better in the swift bankruptcy proceedings envisioned. Do the geniuses at Perella et al. think that a bankruptcy judge, looking at a deal that has the blessing of the U.S. Treasury, the banks holding 70 percent of the debt, and the the union representing tens of thousands of workers (not to mention Fiat, which is waiting in the wings to scoop up Chrysler) will dramatically alter the outlines of the deal? No.

But, here we are: American workers, the Administration and the public generally is being held hostage by a few deal makers who run the very kind of financial firms that evaporated trillions of dollars in wealth. [emphasis mine]

And they wonder why a majority of the public believes corporate America (and particularly the financial industry) needs a new moral direction.

The Problems Facing Big Three Belong to All of Us

Finally. A journalist with some common sense comes to the Big Three's defense. Thank you, Warren Brown.

According to the MOP [Mob of Pundits] crowd, American car companies have messed up -- making too many trucks and sport-utility vehicles, ignoring consumer and governmental demands for more fuel-efficient vehicles and, as Will stated in a column last week, entering "improvident labor contracts" with the UAW.

It's baloney.

Americans went truck crazy in the 1990s and in the early years of this century, making light trucks more than 50 percent of new vehicles annually sold in this country, for the same reason they are in danger of re-embracing that madness -- cheap gasoline. They were enabled by lawmakers who, with one hand, pushed car companies to increase technical fuel efficiency while using the other to give American consumers the least-expensive gasoline in the developed world.

Increased technical fuel efficiency plus low-cost gasoline fueled consumer demand for more driving and bigger and more powerful vehicles with which to do that driving. Gasoline consumption in the United States soared . . . until high fuel prices restored some sanity to the U.S. consumer automotive market.

As Brown reminds us, Honda, Nissan, Toyota and even Mercedes-Benz all had some kind of truck or SUV too because they were following "market demand." Nobody twisted our arms and forced us to buy the gas guzzlers.

What about the critics who say, "but look at that fuel-efficient, gas-electric Toyota Prius hybrid?"

Go ahead and look at it, preferably in Japan, where the Ministry of International Trade and Industry (MITI) has done a marvelous job of coordinating industrial and energy policy into a vehicle development and consumption strategy that makes sense. We have no such government-industry cooperation in the United States. We have no industrial policy, no energy policy, which largely is why we now have a core segment of our natively owned manufacturing infrastructure teetering on the brink of collapse.

Furthermore, Brown points out that European and Asian countries tax horsepower. The least-efficient motor fuels are taxed heavily, while favorable treatment is given to more efficient fuels, such as diesel.

That cost-sharing creates a kind of honesty. Car companies aren't inclined to design, develop and produce gas-guzzlers because European and Asian consumers are not inclined to buy them. It creates market predictability, contrary to what we have in the United States, where vehicle markets can flower or wither in an instant, depending on the price of fuel.

What did Brown have to say about the unions?

It is the rankest hypocrisy for well-paid journalists to decry the "high" pay of UAW-represented employees. I doubt that there is one UAW critic in the media, or on Capitol Hill, who would be willing to settle for a UAW paycheck. I'm almost certain there isn't one who would be willing to trade his or her relatively cushy employment for a year on an auto plant assembly line.

Criticism of "improvident labor contracts" thus smacks of class bias. It reeks of the notion that some work, such as that involving manual labor, inherently deserves less compensation than others, such as expressing one's opinion. It's more baloney.

Brown doesn't excuse the Big Three and he admits they've made mistakes, but he also points out they've done many things right - "contributing to the defense of this country; helping to create a viable middle class, especially in America's minority communities; and contributing to technological advancements in the global automobile industry."

The bottom line: "The potential failure confronting GM, Ford and Chrysler is not Detroit's alone. It belongs to all of us."

The solution to this problem belongs to all of us too - consumers, domestic automakers and the government. We have to keep pushing for meaningful energy policies regardless of the price of gas and we have to demand industrial policies that level the playing field for our domestic automakers and workers.

Turning America Around for Working People

Union leadership is fired up about working conditions in this country - rightfully so. UAW President Ron Gettelfinger gave a speech in Cleveland last week and stressed that public policy must change to support manufacturing. These are the key areas he touched on:

National health care -- "What's needed, as our union has long advocated, is a single-payer, universal, comprehensive, national health insurance program that covers every man, woman and child in America. Because we believe health care should be a right, not a privilege for those who can afford it."

Fair trade -- "Let's just a write the trade agreement on a postcard -- human rights, workers rights, environmental protections, protection from import surges, no currency manipulation and an enforcement mechanism. ... Our trade deficit is $2 billion a day."

Industrial policy -- "In this country, we have the most open market in the world, and we have stood idly by while entire industries have disappeared -- toys, textiles, televisions, computers and the list goes on. Unless we take action, we are going to see a continued decline in manufacturing industries."

America is not working for working people. Union busting tactics are on the increase, good jobs are disappearing, health care costs are soaring, and retirement security is being threatened. Here in Michigan workers are living with the ramifications of decisions made by politicians, corporate America and bean counters.

Michigan fell 10 places among the states in per capita income to 26th between 2000 and 2006 - the latest available year - as it shed thousands of manufacturing jobs, according to the Michigan Future study.

The state's per capita income was 8 percent below the national average in 2006, the worst performance since the Great Depression year of 1933, according to figures for the study prepared by University of Michigan economist Don Grimes.

Something needs to be done, but what? AFL-CIO President John Sweeney has some ideas he'll be outlining via live webcast tonight. "Turn Around America" is being sponsored by the John F. Kennedy School of Government and the Labor and Worklife Program at Harvard Law School.

In the first-ever address by an AFL-CIO president to the influential Harvard University’s John F. Kennedy Jr. Forum, Sweeney will describe why America is not working for working people and what the AFL-CIO will do to create an America that works for all, including increasing member mobilization this election year and working to reform U.S. labor law to give workers a free chance to form unions. Says Sweeney:

We have an opportunity not only to restore the voice and vitality of the union movement, but to change the direction of our economy and our country. We’re faced with a fundamental choice: continue down the low road we’ve been taking and end up in a swamp of inequality where corporations and the wealthy always get more, or turn around America and head back up to higher ground where working people get a fair share of the wealth they help create.

After his address, Sweeney will take part in an interview and a question and answer session with the audience. You can see the live webcast of the forum on Feb. 12 at 6 p.m. at www.iop.harvard.edu/events_forum.html.

(Cross-posted at Blogging for Michigan - A blog so good Republicons had us censored!)

The Flint sit-down strike's role in history

The anniversary of the Great Flint Sit Down Strike was December 30. The strike took place in 1936 and is important because it resulted in General Motors' recognition of the UAW as a bargaining agent. For the next 41 days, Christine at Blogging for Michigan will be writing a series of posts describing what life was like during the strike. Christine asks the following:

Feel free to comment, or not, but I do hope you'll at least spend a minute thinking about it. Let it become part of who you are ... carry it with you, and pull it out when someone starts twaddling on about the right to work for less. If you really care about the future of the working men and women of this country, you'll do your best to understand their past.

I have a post over there too that reminds everyone it's important to understand the past. The Flint sit-down strike is a history lesson about the birth of unionization. For instance, what was the auto industry like prior to the Great Depression? Historian Stephen Sears described it as follows:

Before the Great Depression, unionism was in truth not much of an issue in Detroit. The vast labor army recruited during the auto boom of the twenties — white dirt farmers, poor city dwellers, southern blacks, recent immigrants — was docile and innocent of trade-union experience. Any labor grievances were defused by pay scales higher than those in most other industries and by a system of “welfare capitalism” (group insurance, savings programs, housing subsidies, recreational facilities, and the like) in which General Motors was a pioneer. Openshop Detroit had little to fear from the nation’s largest union, the American Federation of Labor. The craft-minded AFL devoted itself to horizontal unionism—organizing all the machinists, for example, regardless of industry. It studiously ignored industrial unionism, the vertical organization of the unskilled or semiskilled workers within a particular industry such as autos, steel, or rubber.

Then the Depression hit and everything changed.

[...] In the early 1930's Detroit auto workers found themselves powerless as the industry collapsed like a punctured balloon. Welfare capitalism was silent on job security. Wages and work time were slashed. As layoffs mounted, workers with ten or twenty years’ experience discovered that their seniority counted for nothing; it counted for nothing, either, in the call-backs that marked an upturn in auto sales beginning in 1933. Assembly lines were speeded up mercilessly to raise productivity and restore profit levels. Bitter men protested. “You might call yourself a man if you was on the street,” a Fisher Body worker recalled, “but as soon as you went through the door and punched your card, you was nothing more or less than a robot. ” “It takes your guts out, that line. The speed-up, that’s the trouble,” another said. “You should see him come home at night, him and the rest of the men … ,” a Flint auto worker’s wife testified. “So tired like they was dead.… And then at night in bed, he shakes, his whole body, he shakes. …”

The auto workers saw unionism and the strike as their only hope of redressing the balance. Stop and think about the courage those workers showed. As wizardkitten pointed out at BFM, "the fact that they did this in the middle of the Depression is astounding."

Sears described the gains the workers made like this:

Victory in the Flint sit-down by no means ended the discontents of the auto worker. Yet now, for the first time, he could envision himself as something more than simply an insignificant part of a great impersonal machine; as “Solidarity” phrased it, the union had made him strong. “Even if we got not one damn thing out of it other than that,” a Fisher Body worker said, “we at least had a right to open our mouths without fear.” [emphasis added]

Unions are more than just bargaining units for better wages and benefits. They give workers a voice. That's something you can't put a dollar sign on.