US taxpayer to pay to export GM auto jobs to China

In 2003, when Bush invaded Iraq and the US govt started piling up deficits instead of surpluses, the writing was on the wall for a lot of things, including US auto makers. Some elements of the vietnam-era "Guns & Butter" economic turmoil were almost certain to come into play.

I looked at GM (and US auto makers generally) and thought to myself: "These companies are dead unless they start preparing to make small cars". Oil prices were going to be increasingly unstable. Interest rates were sure to rise. The US dollar was going to be a very unstable thing. That much was obvious to me, standing in my yard, looking at my huge willow tree, in 2003.

The US automakers and all the "experts" couldn't see any of it. Maybe they wanted top run the US operation into the ground so they could ditch the unions and "save" themselves by importing new cars from factories in China....all paid for by the US taxpayer.

We now have some confirmation that this may well be exactly what they have been doing. Because this is in the Wall Street Journal and we can have no confidence it will remain visible, I'll post it here in full:

By WSJ Staff

General Motors plans to start importing Chinese-built vehicles into the U.S. in 2011, according to an outline the auto maker has submitted to members of the U.S. Congress.

GM currently manufacturers vehicles in China for sale in Asia. But the company plans for the first time to ship some of those vehicles to the U.S. to save on manufacturing costs.

A summary of the plan, obtained by Dow Jones Newswires, shows that GM plans to import 17,335 Chinese-built vehicles into the U.S. in 2011. The imports from China would jump to more than 38,000 in 2012 and more than 53,000 in 2013, the document shows. Imports from other countries, including South Korea, Japan and Mexico, would also increase. The plan is part of a broader cost-cutting strategy by GM, which has said it intends to cut 21,000 manufacturing jobs in the U.S. while increasing imports into the country.

Those plans are being devised under the guidance of U.S. President Barack Obama’s auto-industry task force as part of GM’s restructuring.

A GM spokesman declined to comment Wednesday, saying that negotiations between the United Auto Workers union and the company are ongoing.

The plans are being strongly opposed by the UAW, which argues that the company, surviving on more than $15 billion in U.S. loans, shouldn’t be using taxpayer money to subsidize U.S. job losses. – Josh Mitchell

Great Depression II by 2011?

Paul B Farell again. He provides 30 reasons (as of November 2008, but nothing has really changed since then) why a depression is all but unavoidable in the near future. Farell picks 2011. I have to say that for me, too, the numbers haven't added up for some time. Today I add a "Depression" tag.

Goldman Sachs now rules America?

Paul B Farrell at Marketwatch argues that Wall Street bankers orbiting the Goldman Sachs banking empire have effectively staged a quiet coup in America through the financial crash: "Jack Bauer can't stop 'The Goldman Conspiracy'"

10 reasons why Wall Street has absolute power over America's democracy.

"Competitive devalutions"

I hate it when this happens. You look right at a thing and you know that something important is going on, but you can't yet see what it is or where it fits and you don't fully comprehend what it means......amid all the other noise and fragments.

The RBNZ has been dropping interest rates and one of the effects of that was to devalue the NZ$. The effects of that are obvious: imports become more expensive and exports become cheaper.

I got that far. I even wondered what would happen if everyone tried it. The answer to that thought was a big, fuzzy impenetrable "dunno". So I didn't think about it much more. Damn. As is so often the case, this was likely the most important question of the moment requiring answering or at least understanding. Yet these kinds of big, hairy questions are often the most difficult to identify and focus on. Where do you start?

More contextual information is now coming in (Telegragh UK). There appears to be a 'battle of currencies' going on right now. The "winners" get to improve their terms of trade while the losers will see themselves with higher currencies and placed at a disadvantage as imports become cheaper while exports wilt.

The Swiss are desperate to lower the value of the Swiss franc in order to avoid widespread default on loans in Eastern Europe denominated in their currency. Those with the most financial leverage appear to be dropping the value of their currencies successfully (US and UK), while others with less leverage (New Zealand, Australia, Canada) in the financial markets are seeing their currencies rise rapidly against those two currencies. The Euro is also rising, which is interesting. The yen has been going up and Japan's exports have crashed in recent months. China has lost 20m jobs in recent months and deflation is underway there.

Will the losers of the present stay losers? Or will they attempt to turn the tide by making their currencies less attractive? If we go into a war of currencies, what will the flow-on effects be? Does it matter? After all, deflation makes your cash on hand more valuable if you are fortunate enough to have cash rather than debt. Anyone with an income is better off if they can maintain that income despite deflation. That's where the problem will rest: To what extent will incomes (personal and national) be forced down as the 'losers' wear the cost of being priced off the global market due to the currency war?

If the comments above seem muddled, you're right. I'm trying to summarise a lot of details in a few words and distil the patterns out of it. Not there yet.

Who's getting the US bailout money?

One of the most interesting stories developing in recent weeks is the detail and circumstances (Joe Nocera - NYT) surrounding the bailout of the monster US insurance company, AIG.

AIG was insuring (assuming the risk in return for fees) banks and financial institutions against the possibility people who owed a bank money might not be able to pay. These are the "credit default swaps" (CDS) we have heard so much about.

The risk was too often a securitised bundle of mortgages, so AIG has been holding the bag for potentially hundreds of billions of US dollars in bad debts. In some cases, the amounts insured were being used by non-US banks to allow them to claim the money was part of their reserves. Yeah, they had lent it out anyway, but it's insured, so it's as good as in the bank, right?

Apparently not.

The result of this is that AIG has received almost US$200 BILLION worth of bailout cash. They have paid that money out to "counterparties" who have claimed their insured losses. So the bailout money is REALLY going to those counterparties.

Who are they? Sorry. That's a secret.

So US taxpayers are shovelling cash into the pockets of - whoever - and they aren't allowed to know who is getting their money.

Well.....that sucks. Can't see much enthusiasm for more bailouts if the people paying for it aren't even allowed to know who is geting their money.

It turns out, the crash was REALLY caused by.......

......gross incompetence.

You may have heard of CDSs and CDOs and how they ended up as worthless junk clogging bank balance sheets everywhere with trillions of dollars worth of "toxic loans" . You may even have some idea of what they are. But if you want to know WHY they...were ('cause they aren't, anymore)...then read on.

(H/T @bernardchickey via Twitter) Wired magazine explains how the "Gaussian copula function", developed as a finance tool by David X. Li, played a key role in the finance market crash.


The key idea here is that this mathematical model allowed risk to be reduced to a single number denoting the correlation between past and present pricing for something.....anything. Nice and simple, right? No so fast. It's key flaw was this correlation had no real connection to the actual underlying risk of the mortgages or risk represented by the CDOs and CDSs. It depended on the price, but the price itself depended not on real risk, but instead the single number this tool produced to represent risk.

In other words, bankers stopped looking directly at the real risk and instead used a seriously flawed tool to assess risk. Like driving a car blindfolded. You're fine until you hit something big you didn't see. The warnings of the tool's limitatons by David X. Li and others were ignored.

As the Wired article explains, there was too much money to be made.

Read the whole story. It's mundanely typical of what happens when any specialised group loses touch with the underlying reality of the area they work in and instead works through over-simplified models that are supposed to make it easier. The problem is, these models also introduce sources of error, as the finer points are discarded or ignored, until their effects over time become overwhelmingly and critically relevant.....and make a mess of everything. "Oops! We broke the model!"

The time-honoured equivalent, in public or private technocracies, would be the disasters wrought by managers / executives driving organisations through spreadsheets instead of looking at the real business and the real people in it. The sort of logic that saw people burn down villages in order to "save" them.

Bankers everywhere took their eyes off the only ball they really need to be watching: risk.

Uninentended consequences......and outsourcing

It appears IBM has a novel approach to both outsourcing and lay-offs in these troubled times. Big Blue's "Project Match" offers laid-off employees in the US (5,000 of them last month) a chance to apply for jobs with IBM in a sizable list of other countries, including India, Nigeria and Russia. Those taking up the offer, who are deemed to be good workers, will be assisted with travel expenses and obtaining visas.

The only catch is, you'd have to be willing to work for local pay and conditions in the country where you're located. This may appeal to some young folk looking for a ticket to an exotic location, but for most people it wouldn't really be an option. Of course none of this is new. IBM, like many other companies, has for several years been actively building its capability to outsource it's own functions, and those of its clients, to places with cheap labour.

I've been wondering how many tens of thousands of redundancies (lay-offs) recently announced in the EU and North America would probably have happened anyway - crash or no crash. The rush to outsource to China and / or India hasn't stopped as far as I know.

Tighter, tougher times may even have seen some outsourcing moves extended and / or brought forward.The US lost over 600,000 jobs in January '09 alone. Just over a third of those lost were in manufacturing. Just how many of those were surplus to requirements and how many were destined to be outsourced anyway, we have no easy way to tell. I haven't seen press releases anoucing the opening of factories in China or India, yet thousands have been opened by the world's largest manufacturers. Also consider, job losses in the target outsourcing countries will also tend to mask such shifts at their other end. For example, ANZ is recruiting like crazy in India right now, even as they seek ways to shed workers in Australia and New Zealand. With the crash they no longer have to make excuses.

CUSTOMER ASSISTANT:

ANZ OPERATIONS AND TECHNOLOGIES PVT. LTD, ( Karnataka-Bangalore)
GRADUATES CUSTOMER ASSISTANT: looking for candidates with 1-2 years of experience handling only credit card queries. Experience: 1 to 2

From: jobviewer.com - 5 days 21 hours ago Email More Research Salary

Excellent Opening with ANZ for Non Techical Graduates

ANZ Operations And Technologies Pvt Ltd (Bangalore, India)
We have Walk-in Event starting from 16th of Feb to 21st of Feb 2009 We have multiple positions open with us in Financial Process. If you are interested to work with world class organisation, please walk in to our office on the given date above with your updated profile. Candidates who don t meet .

Another local example of outsourcing that was likely going to happen regardless: Telecom NZ is outsourcing a further 250 jobs to the Philippines over the next 18 months. I'm betting that move on the cards before the crash. When that programme is complete, Telecom says there will 1,600 contact centre jobs in NZ and 700 overseas. That should help keep NZ wages down, as the threat of your job heading off-shore will be ever present.

Time to do some research on that one.

Of course all these lost jobs everywhere place ever more loans at risk and add billions more to the burden of bad debt that seems to grow ever larger every day. Many Kiwi families rely on having two incomes and losing just one of them can still leave a family in dire straits, chewing up the credit cards in the hope things come right before they hit the limit and fall over.

One might be forgiven for seeing the bail-outs now underway around the world as having the unintended side effect of making people unemployed and instead becoming massive subsidy programs for troubled companies to enable offshore outsourcing. All to "save the economy".

There's the idea. Raw and undeveloped and needing some research. I can see the opportunity there for people who want to mask outsourcing as necessary cutbacks in tough times...and a company in trouble will today be able to do things (more and bigger) like outsourcing to survive that were unthinkable a year ago.

Now let's see what's happening. I'm sure this will go into the mix with everything else.

So it goes.....

It seems that no matter what happens, the same folks always end up with their hands on the money. The people who didn't see the crash coming are now deemed to be the only people who can fix it. Their solution is to dish out mountains of taxpayer cash to the same people whose incompetence lead to the crash in the first place.

You'd laugh darkly if Kurt Vonnegut had made this stuff up. It seems bizarre, absurd and deeply irrational. The ultimate example of scammers and crooks privatising the profits and now socialising the losses and you know in your heart that it was never, ever going to be any other way.

For our own good, of course. There is something almost inevitable about it all.

In another Vonnegut moment, the solution to the resulting mess involves requires giving most of a trillion (US$) to the bank, but the folks putting up the money don't get to own anything they put money into. That's "nationalisation" and nationalisation is a bad thing, so we are told. So hand over the money, but the banks still belong to the folks who ran them into the ground.

The last Vonnegut twist is that some of the initial bailout cash to the folks who made the mess was being used to pay themselves bonuses and dividends......until that was judged to be too absurd (in the US, anyway) and stopped.

It seems that no matter what happens, the same folks always end up with their hands on the money.

Kurt Vonnegut would have loved these times.....while being as appalled as anyone by them. I doubt he would expect anyone to quietly accept the nonsense being dished up as The Only Way.

Soros and Volker agree: It's REALLY bad!

Investor George Soros sees no bottom to the world financial collapse.

"We witnessed the collapse of the financial system," Soros said at a Columbia University dinner. "It was placed on life support, and it's still on life support. There's no sign that we are anywhere near a bottom."

Meanwhile, former US Federal Reserve Chair, Paul Volker, has said the downturn was happening uniformly globally and more quickly than during the Great Depression. Volker says the American banking system should operate more like Canada's.

Things must be very bad indeed if senior American policy makers admit Canada does anything right.

US Bailout: Kucinich makes a case against

It has long been my view that an informed, educated, thinking America would and should have a president like Dennis Kucinich. He's a man who not be out of place at the heart of politics in countries like Canada, Australia or New Zealand. But in the United States, where reality doesn't get much attention these days, Kucinich has been largely marginalised......much like reality itself, hence the crash "no one saw coming".

Kucinich makes his case against the US$700 bailout of the people who caused the crash in the first place.