Thursday, December 25, 2008

Good People Worked Down There

G.M. shut down its factory in Janesville, Wisconsin on Tuesday, it had been in service for 90 years employing generation after generation of local workers. As with any other job, the employees here became lifelong friends, not colleagues. Job security had been high for decades, as this factory was responsible for manufacturing S.U.V.s (Chevy Tahoes), at a clip of 20,000 a month, producing over 3.7 million since the early ‘90s. With a 40 percent drop in S.U.V. sales nationally, G.M. decided it couldn’t sustain this production, it had starved it off as long as possible. 5,000 workers, who had various jobs in that factory, good paying jobs, jobs they knew how to do better than anything else they did in life, we’re taken away.

Most of the plant’s 1,100 remaining workers were not scheduled to work the final day, but many showed up for an emotional closing ceremony. Dan Doubleday, who had 22 years on the job, broke down in the plant’s snowy parking lot afterward.  “I was a fork lift driver,” he said, glancing at his watch through welling tears. “Until about seven minutes ago.”…

“It’s been a good ride, man,” said Frank Hereford, a body shop worker, as he left the plant with a microwave oven that heated up countless lunches during many of his 38 years with G.M. “Good people worked down here.”

Its hard for a majority of young people (millennials) to imagine what that feels like. There are many arguments on both sides of whether these companies deserve to be helped by the government. Free market advocates are outraged at government spending to ‘bailout’ mis-managed corporations that were passive to innovation and adaptation in changes within the global automobile industry. But every analysis and decision needs both sides of the argument to be heard without bias. Letting these companies fail, falling into bankruptcy would erase debts (payables) of the GM's, Ford's, and Chrysler's to thousands of suppliers who employee even more people just like those in Janesville, that took those supplier’s parts and put the S.U.V.s together. It’s a domino effect that starts on the showroom floor, trickles down to the production line, which trickles down to the sheet metal factory. These factories are the epitomes of these towns; they become the social and economic foundations of the thousands of Janesville’s across the country.

So that same domino effect within the auto industry begins to filtrate in the Janesville’s of our nation. The family that doesn’t have a paycheck coming in Friday anymore doesn’t shop at the corner store or dine at the diner anymore. The franchisee or local entrepreneur won’t start that new small business downtown anymore.

The Janesville plant once employed more than 5,000 workers and turned out 20,000 Tahoes, Yukons and Suburbans each month. With its closing, residents worried about the future of this city of 64,000 people, about 75 miles southwest of Milwaukee. “Janesville will lose a lot,” said Patti Homan, as she finished a strawberry-topped waffle at the nearby Eagle Inn restaurant. “I expect my electricity to go up, water rates to go up, property taxes to go up, and the value of my home to go down.”

These are the ruins recessions procure and they are a dynamic and a contagious force in so many aspects of communities and lifestyles. While the drama of this bailout brings hyped congressional hearings, over blown transistions from private jet travel to photo-op hybrid roadtrips, and the endless loop of elitist speaker panels, to the people of Janesville it’s a lot simpler than that…they just want a place to show up to next year.

Saturday, December 20, 2008

Breaking it Down

Two good articles from The New York Times this week on the intricacies within the world's financial crisis; how they all worked indirectly, some more malicious and ill-advised than others, but all interwoven, unable to escape this globalized economic downturn:

The first is from Paul Krugman , equating what happened in the Madoff scheme to what happened in the financial services sector as a whole. Money quote:

Consider the hypothetical example of a money manager who leverages up his clients' money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it's almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he'll keep those bonuses. O.K., maybe my example wasn't hypothetical after all. So, how different is what Wall Street in general did from the Madoff affair?

The second is from Tom Friedman on U.S. China trade and how the downturn in the U.S. housing sector is effecting China exports related to new home-buying. Money quote:

This division of labor not only nourished our respective economies, but also shaped our politics. It enabled China's ruling Communist Party to say to its people: "We will guarantee you ever-higher standards of living and in return you will stay out of politics and let us rule." So China's leaders could enjoy double-digit growth without political reform. And it enabled successive U.S. administrations, particularly the current one, to tell Americans: "You can have guns and butter — subprime mortgages with nothing down and nothing to pay for two years, ever-higher consumption and two wars, without tax increases!" It all worked — until it didn't.

Thursday, December 4, 2008

Leverage on Ice

A fascinating look into the rapid rise and fall of Iceland's financial system and its perils from exploiting an addiction to leverage in both its commercial banking system and by consumer's accessibility to cheap and easy credit. For our more visual learners there is the chart below which outlines the epidemic in a simple elementary style flow chart. 

The innocence of the chart by no means should undermine the seriousness of what has been lost. The complications of this rise and fall are intricate and involve billions of dollars in investments by regular working people mostly within the U.K. but also throughout the world (in the form of pension funds and retirement accounts); all of which took advantage of the flatness of our globalized financial system.