Socialism Comes to Town.

After the White House and the UAW shook down the bondholders of GM, they set their sights on the senior secured debt holders of Chrysler. The bondholders held their ground, and now bankruptcy court will resolve the disposition of the company's assets. The President may rant and rave about the treachery of the bond holders (many are retirement and pension programs), but the essential issue was whether the federal government and the union would be allowed to destroy corporate legal structure by usurping the holders of senior secured debt first claim to restitution in restructuring. Larry Kudlow described the actions of Obama and the UAW accurately and succinctly: theft. And socialist expropriation.

Inciting the Mob.

The of chorus of outrage at AIG has a disturbing tone: bulldozing the rule of law in order to satisfy the mob's bloodlust. Holman Jenkins summarized it quite well this morning, He concluded with:

But the biggest lesson here is the old one that the price of freedom is eternal vigilance -- beginning with insistence on the rule of law. Americans clearly cannot trust their elected officials to defend their rights and interests, or care whether justice is served, when the slightest political risk might attach to doing so.

Which brings us back to Mr. Cuomo, whose office has been implicitly threatening to publish names of AIG employees who don't relinquish pay they were contractually entitled to.

Mr. Cuomo is a thug, but at least he reminds us: It can happen here.

And for those of you holding a torch or pitchfork, consider this point of view.

Were So Sorry, Guvna' Granholm...

Jennifer Granholm did not make the cut as Secretary of Energy for the Obama Administration, and alas, she must trudge back the Great Lakes State and complete her second term as our governor. It's too bad she was so busy auditioning for Team O; the Detroit Three really could have used her up on The Hill to provide political cover for them as they were pilloried by the many Moronic Congresscritters. In fact, she seems to have been nearly invisible during most of the recent Big Three Crisis.

Cheap Shots at Detroit?

In a recent column Tom Friedman blasted the "Big 2.5", re-treading the usual claims: vehicles not suited for the market, poor quality and fuel economy, poor management, and lack of innovation. He pines for an American automobile industry that works like Steve Jobs' Apple.

Let's look under the hood at some of Friedman's arguements:

Vehicles not suited for the market. The market for vehicles is complicated and fickle. It is not dictated by fuel economy alone, despite the recent panic caused by $4-a-gallon gasoline. The market is a convolution of product capability, quality, economy, safety, and style. In the early 1990s Detroit made an excellent decision about the automobile market: the SUV. A vehicle now nearly despised, the SUV met the needs of many consumers. It could carry several passengers (spouse, kids, grandma, dog) or could carry the bulky loads from trips from home improvement stores. Drivers valued the improved road visibility and the feeling of greater safety over a compact car (although "improved safety" was a dubious claim). And consumers were willing to pay the premium that SUVs imposed in fuel costs in order to acquire the benefits from the vehicle. Some of the aspects that attracted consumers to SUVs were shared by light trucks, which also enjoyed robust sales. The profit margin on trucks and SUVs was substantial, which was needed to subsidize the production of economy cars, needed to reach CAFE requirements.

The market decision to produce SUVs was so successful that the Japanese automakers, finding themselves out in the cold on trucks and SUVs, began producing these vehicles for the American market.

American cars have poor quality and fuel economy. The claim that American cars have lower quality is no longer true (for example, see this article), but the myth is now engrained into the media brain. As for fuel economy, American makers offer mid-sized cars with conventional power plants yielding 30+ mpg (highway), such as the Chevy Malibu, Saturn Aura, Pontiac G6, Chrysler Sebring, and Dodge Avenger (with the Ford Fusion at 29 mpg). American SUVs have improved fuel economy (the Chevy HHR with 30+ mpg; the Jeep Patriot and Compass in the high 20s).

Poor Management. Why then didn't the Big Three switch to a majority offering of small, fuel-efficient passenger cars as the price of oil rose? SUVs and trucks were required to offset the loss in making smaller cars - because of the 2:1 labor rate disadvantage that the Big Three have compared to the Japanese North American operations. During the SUV Salad Days, the UAW staked an uncontested claim to the "record profits": it was just a matter of choosing a strike target and getting it. The blithe notion for Detroit to produce a larger number econo-vehicles ignores the fact that they would lose money on every such car, while the Japanese builders would not.

Lack of Innovation. Please - hybrids are a Green Vanity Vehicle: even after six years of operation, a Toyota Prius will not recover its price premium through higher fuel economy. The Chevy Volt is likely to list for $35K, so it is also a Green Vanity Vehicle. For the short term it is more efficient to increase the fuel economy of the gasoline-powered engine than to plunge into a crash program to develop alternate fueled-vehicles. This is Ford's principal strategy for the next few years. One exception may be making the new fleets "flex-fuel", able to use either straight gasoline or 85% alcohol mixtures. The modifications to make most vehicles flex-fuel is quite cheap, a few hundred dollars.

Have Car CEOs be more like Steve Jobs. Lest we not forget Jobs' NeXT Cube: so innovative in hardware and software, yet so catastrophically uncompetitive in the PC market of the early '90s. Jobs has done well since then with consumers that will accept the stiff Apple price premium and its proprietary hardware and formats. There are analogies to Apple in the car industry: Cadillac, Lexus, Audi, Volkswagen, Mercedes, and other upscale brands, but to map Jobs' business plan onto car making for the general consumer market is naive.

We Are A Bank!

We at Deaddrifts have decided that if you can't fight the lurch toward socialism of our economy, you might as well fight for your place in line for the Government Cheese. Therefore, we declare ourselves to be a bank and insist we are entitled to a handout. And if this doesn't work, we will consider building cars...

Covering Their Tracks.

...Fannie Mae and Freddy Mac - are not facing any kind of financial crisis...the more people exagerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing. - Barney Frank, D-MA, 2003.

The Investors Business Daily has a story about the principal obstacle to timely reform and oversight of Fanny and Freddy, namely, congressional Democrats who sought to use questionable loaning by the institutions for political patronage. IBD also names the congerscritters who received the largest political contributions from the two failed lending agencies. The top five are:

• Christopher Dodd, D-CT, $133,900
• John Kerry, D-MA, $111,000
• Barack Obama, D-IL, $105,849
• Hillary Clinton, D-NY, $75,550
• Paul Kanjorski, D-PA, 65,500

It's unlikely that you will hear much of the role that either the Clinton Administration nor the Congers had in making Fanny-and-Freddy-stein. No, it will be blamed on BushMcCain.

Big Oil on the Hill.

The nation's oil companies are being summoned by the Congerscritters to explain why the shareholders (read you and me) should keep their risk rewards, and why the Gummint shouldn't shake them down for a lot of it. Congers could put it to such productive use; for example, another $200B+ farm bill.

The Ethanol Disaster.

Does one need more evidence that government meddling in markets yields miserable consequences? Take the "ethanol initiative", a federal mandate to increase the production of the biofuel to 15 billion gallons a year by 2015. Ethanol is extremely costly in both energy and greenbacks to bring to the market, and has skewed the production and distribution of food grains causing higher prices and shortages. A political Frankenstein brought to life in the laboratories of the agribusiness and farm lobbies, it's unstoppable during the current election cycle (despite Republican intiatives to restrain it) and could very well be immortal. And the intiative's part in our energy strategy? The 15 billion-gallon target is insufficient to supply a 15% (E15) mixture to our current annual consumption of gasoline. The response of Big Ethanol of this critcism is to push for a 36 billion-gallon target by 2022. Corn-based production of this target would result in chaos in grain markets, risks to arable land management, severe inflation in food costs, no finanical relief for energy costs, and a minimal bottom-line reduction in overall oil consumption.

So are transportation biofuels a bust? Our opinion is that stupid ones like grain-based ethanol are, but others such as cellulosic ethanol, and non-farmed biodiesel and methanol sources are certainly viable. Methanol production costs are a fraction of ethanol (about a third), does not compete with food production (it can be made from coal, or natural gas from either geological deposits or from landfills and digesters). Methanol-gasoline mixtures can be used in vehicle engines that now burn ethanol-gasoline formulas. Biodiesel has more challenges, in providing economic and widescale production, as well as the changing puzzling prejudice that the American vehicle market has had against diesel passenger cars.

A Sound Call for Change at Exxon-Mobil.

The Rockefeller family has called for increased development of "alternative fuels" at Exxon-Mobil, citing the risk of declining profits in the future. We applaud not only this position, but also the manner of it and motive for it: speaking as shareholders, the owners-in-part of the corporation, and looking for the long-term financial reward of the shareholders, rather than some vague bloviation about excessive profits and class warfare schtick of the Left. All we are saying is - give capitalism a chance.