Obama Ousts Wagoner from GM

President Barack Obama has reportedly requested and received GM CEO Rick Wagoner's immediate exit from the company he's headed for nine years (and where he's been employed for three decades).



The move comes one day before Monday's announcement by the White House of its plans for the auto industry, which has received billions of dollars in aid from taxpayers but has not yet satisfied the Obama administration's criteria for submitting a workable recovery plan. Chrysler and GM have between them taken $17.4 billion in government money, and they're seeking more than $21 billion more.

When Wagoner made a high-profile speech to The Commonwealth Club less than a year ago, on May 1, 2008, the executive touted the company's efforts at adopting green technology and responded to audience questions about GM's commitment to delivering on those promises. (See video, above.) At the time, the big question was the price of oil, which had spiked at more than $140 a barrel; that would, of course, fall, but only as the economy went into a tailspin. (Read a PDF of Club President and CEO Dr. Gloria Duffy's column about her ill-fated GM electric car, the EV-1, a column that Wagoner referenced in his address to The Club.)

By the time many of you have read this blog posting, the Obama recovery plan for the carmakers will have been announced. Will it help drag Chrysler and GM out of the murk and back into profitability? Will it be a money-pit for taxpayers? What would you suggest the government do? Leave a comment and join the discussion.

Tough Times in the Citi

When Wells Fargo & Co. Chairman Dick Kovacevich spoke at The Club October 21, he gave a detailed history of the drive to deregulate banking in the United States and open up new lines of business for banks. (See video above of Kovacevich's speech, or listen to audio.) Kovacevich's history drew heavily on his many years of work as an executive at Citibank, as it grew to global giant status and led the way in the deregulation fight.

Now, is that fight over? News this week is that Citi is dividing itself up, sequestering its "bad bank" businesses from its "good bank" businesses so that the bad doesn't drag down the entire business. And the Congressional financial overlords are talking of tightening regulation of banks -- something that will be easier, now that many banks are taking taxpayer money in one form or another. (There's no free lunch, even for the pinstripes.)

We should get at least a glimpse of the answer on Tuesday, when Barack Obama gives his inaugural speech in Washington, D.C.

Using the Union to Break the Fall of Detroit

REPUBLICANS BLAME U.A.W. FOR NO BAILOUT DEAL

If the Chrysler bailout of 1979 is our guide for the tumultuous times in Detroit today, then Federal assistance for the Big Three is not much more than a short-term solution.

Popular culture fawned over Chrysler Chairman Lee Iacocca after "saving" the company. He had a best-selling book, graced magazine covers and hawked cars on television commercials. Iacocca was the man, except, in hindsight, he barely stopped the bleeding of the company and the slow slide of the American automobile industry.

A Hertitage Foundation essay from 1983 did well to take some of the shine off Chrysler's resurgence, calling the bailout "quasi-bankruptcy" in which the company failed to recapitalize or make significant changes to its leadership. The report points out that Chrysler missed out on becoming a leaner and more innovative company and its laggard ways also spread to General Motors and Ford.

Barry Ritholtz at The Big Picture blog details this point in a posting last month:

The Chrysler bailout of 1980 was not quite a pre-packaged bankruptcy reorganization. It left the company with the same management team, the same union contracts, the same pension obligations, and the same health-care coverage; all the bailout did was buy the company a few more years. Indeed, the pre-bailout industry looked almost identical to the post-bailout industry. None of the Detroit automakers, Chrysler included, received any long-term benefits from the bailout.

The major difference between 1979 and today is the hovering dark shadow of economic collapse, and many people believe that whether The Big Three fail is almost irrelevent just as long as it does not happen now, when just a smidge of panic on Wall Street will trigger further bloodletting.

What is interesting about our current financial atmosphere is a willingness by Republicans in Congress to stick to their ideological guns during this period by laying blame on the United Auto Workers. Embattled Louisiana Senator David Vitter simply says, “It sounds like the U.A.W. blew it up,”

Possibly the leading opponent to the bailout Sen. Richard Shelby of Alabama, who has four foreign automakers in his state, told the Wall Street Journal that he has always been against government assistance of private industry, noting that he voted against the 1979 Chrysler bailout and the recent $700 billion financial bailout. The story also describes the South's hospitality toward non-union workers and low wages.

Blaming the union for scuttling the proposed $15 billion bailout is not fair, according to The Nation's John Nichols, who notes that the UAW has already made huge concessions to The Big Three, while attempting to further weaken them will hamper the labor movement in the U.S.

Anyone who thinks that breaking the UAW will only weaken the circumstances of autoworkers is missing the point of the royalist enterprise, which is to weaken the ability of all American workers to demand fair pay and benefits.

Failure to aid Detroit could lead to unimaginable economic decline (just in time for Barack Obama's inauguration!). If politics is the ulterior motive of House Republicans – where one of labor's strongest unions is obliterated and the president-elect is saddled with an agenda solely of economic matters – then some people will wonder who's interests are being served.

Look for more thoughts on the auto bailout at The Commonwealth Club's Bank of America-Walter E. Hoadley Annual Economic Forecast, coming January 14. Former U.S. Labor Secretary Robert Reich will share his reactions.

Kinsley On Journalism, Not The Economy

COLUMNIST HAS HARSH WORDS FOR OWNER OF CHICAGO TRIBUNE

You really could not expect two journalism lions like Michael Kinsley and Phil Bronstein to not talk about the state of newspapers, could you?

Kinsley, the purveyor of nearly every medium of journalism, spoke to The Commonwealth Club Tuesday about the demise of newspapers while finding optimism in journalism's future online, in a conversation moderated by the editor-at-large of the San Francisco Chronicle.

With fresh news that Kinsley's old boss during his stint on the editorial pages at the Los Angeles Times filed for bankruptcy, the topic was on the minds of both.

Kinsley's contentious stay at the L.A. Times occurred among infighting with the new owner, the Tribune Company, and a radical and unsuccessful idea to allow readers to make additions to editorials using technology made famous by Wikipedia. In his conversation with Bronstein, Kinsley did not mask his anger towards Zell, who purchased the Tribune media empire two years after Kinsley left the Los Angeles Times.

“I was prepared until today to think that Sam Zell wasn't totally evil,” said Kinsley before adding, “I think Zell should be taken out and shot.”

Kinsley criticized the Tribune's decision to put ownership of the company under employee stock holders, while noting many of the former employees offered buyouts are now unsecured creditors since the bankruptcy.

Some of the more thought-provoking moments of the hour-long program were Kinsley's view of the future of his craft. He does not believe that newspaper companies will die, but newspapers will, and he thinks the key to the future may be discovered by a no-name.

“It will probably be a company that nobody has heard of. Somebody is going to crack this nut,” said Kinsley. He believes whichever successful model that arises will ultimately be replicated or bought by a larger company like the New York Times.

It might be wise to heed Kinsley's advice when it comes to imagining the future of journalism and the internet; Kinsley is about the closest person to a sage of cyberspace. In 1996, he founded Slate, the web's first online news magazine. He did note that some of his ideas were a bit conventional in hindsight.

Initially, he conceived the site's content to be printed weekly similar to a magazine, even including page numbers.

“The conventions of print have been in place for centuries and to the point that you don't even think about,” said Kinsley, “The internet is starting to develop some conventions like that, so that you don't have to be Gutenberg to start a publication.”

At one point, in reference to a recent Time column where he wondered whether there were too many blogs, one audience member jokingly asked whether he was also against the printing press. He said he was not and said the piece was a bad attempt at humor and reiterated his belief in the future of blogging.

“Something like that is where this whole thing is going to end up,” said Kinsley, “It's probably going to evolve in some ways to the whole blogging world where amateurs sitting in their boxer shorts opining. It might not be so terrible.”

When the discussion turned to economic matters, of which Kinsley was expected to speak, he said “I don't think anything that has happened certainly so far really threatens capitalism. Capitalism is here to stay.”

With Congress immersed in talk of bailing out the automotive industry, Kinsley wondered why until the bankruptcy of the Tribune Company no one has called for assistance of the newspaper industry, and he ridiculed cable news talking heads (of which he was one once, as the liberal side of CNN's Crossfire) who are clueless on the financial crisis.

I think it is very funny to watch all these shows during our current financial crisis and you'll find some funny stuff there,” said Kinsley, “They don't have any idea and I don't either, and to hear them, you would think, they were masters of derivatives and how the auto industry works.”

Presidential Transitions

As President-Elect Barack Obama moves with unusual speed to select and present the cabinet for his incoming administration, a great deal of attention is being focused on his possible and actual choices.

Today, Obama presented his economic team to the country. In coming days, we expect to hear about his foreign and domestic policy teams. Clues about the team and its goals can be found at the transition team's web site.

To provide some perspective on transitions past and present, we present Commonwealth Club President and CEO Dr. Gloria C. Duffy's most recent "InSight" column from The Commonwealth magazine. The column, called "Transitions," explains why a slow transition can present a danger to the nation. For a full-sized image of the column, click on the picture to the right of this posting.

Wells Fargo's Kovacevich: Recovery Sooner than You Think?

Despite the stream of bad economic and investment news these days, there are still some optimists in the financial world.

At his sold-out speech to The Commonwealth Club on October 221, 2008, Wells Fargo & Co. Chairman Dick Kovacevich had some good news for people who are trying to figure out how long the expected (worldwide) economic downturn will last. The recover "will get done and sooner than most people think," Kovacevich told The Commonwealth Club audience, according to an article in the Sacramento Business Journal.

Kovacevich said he believes governments around the world will "do whatever it takes to stabilize the financial system."

We'll post full video here of the program as soon as it's available.

Financial Lessons from 1929?

So what comes next? If the various national and global financial rescue initiatives have, as some argue, staved off collapse, what sort of economy are we looking at for the next year or two?

As noted in our previous blog posting on the financial crisis, even optimistic projections about what's coming up are not, well, optimistic. The Financial Times newspaper reports today that the current thinking of economists is that collapse of the system has been averted and we're not headed for another depression; nonetheless, says the FT, we could be in for the worst recession since 1982.

We won't try to predict what will happen here; that's for others to do. But we did take a look into the archives of The Commonwealth magazine and found one of the earliest Commonwealth Club speeches reacting to the stock market crash of 1929. Titled "The Panic of 1929," the December 6, 1929, speech by William C. Van Antwerp of E.F. Hutton, offered some initial reaction to the market panic and included some surprisingly thought-provoking ruminations on the human spirit.

Here are some excerpts from Mr. Van Antwerp's speech:

A panic is a state of mind in which fear supplants reason. It cannot be stopped by statute law or arrested by the police. The best that can be said of such a phenomenon is that it doesn't occur very often.

In the panic of 1907, there were fundamental conditions that were not sound -- in 1929, we merely suffered a case of nerves following a debauch. It is not to be expected that sound and conservative industry will be shaken this time.

This present panic had its roots back in 1917, when our masses found that they could invest money in bits of paper called Liberty Bonds. From investing to speculating was an easy step.

Whether it be public excess, saxaphones or modern art, the American public always goes too far. If we emerge from our excesses somewhat sadly, we are also somewhat wiser.

The stock market was running wide open and good judgment was forgotten. Most of the post-mortem warnings we now hear about were never given until after the panic occurred.

The recent rise had to stop in one way if it did not in another. Even a billion dollar pool would not have averted the panic.

We have for some time been "rotten rich" -- now for a short time we are to be merely "affluent."

President Hoover will bring into action the confidence reserves which everybody knows we possess. When we start forward again as we surely shall, trade and prosperity will go forward to heights not now imagined.

What do you think about Mr. Van Antwerp's ideas? How applicable are they to today? Leave a comment and let us know.

Financial Crisis: The Who, What, When, Where and Why

As of this writing, the Dow Jones is down 306 points, just two days after European governments super-charged the world's markets by laying out aggressive programs to deal with the frozen credit markets. The United States also announced a program to deal with the crisis, but markets have been weak-to-faltering even as the newspaper headlines start to sound optimistic for the first time in weeks.

What is happening? What will happen next?

Much of the problem stems from the easy credit and large amounts of money lenders were pushing into the housing market for many years. And though some critics have put blame on the people who bought subprime loans and other insufficiently securitized financing, "the people who should have know what they were doing was people who had experience lending money," said former Secretary of Labor Robert Reich in a Commonwealth Club speech October 1, 2008 (see the embedded video above for his complete speech). "I think they did know what they were doing."

Perhaps they didn't. In the same speech, Reich said that he spoke with Wall Street financiers about the various financial instruments they were using to repackage bulk loans and sell them to investors. "Two years ago I asked a hedge fund manager, 'Please explain to me what's in your hedge fund,'" said Reich. He said the fund manager laughed and replied, "I have no idea."

"Thanks to high technology, you could slice and dice these [financial] packages into your appetite of risks," Steve Forbes told The Commonwealth Club on August 7, 2008. "You could have packages of sub-prime mortgages; you could own a piece of it that may be worth today 80, 90 cents on the dollar. you could own another piece that is zero cents on the dollar. Lots of institutions didn't even really realize how much of this junk they had until the crisis hit."

That, say experts, has led to the frozen credit markets, where banks are unwilling to lend to other banks because they literally don't know if the other bank's liabilities in bad loans are frighteningly awful or just frightening. Therefore, we've seen governments stepping in to provide liquidity for banks and trying to provide the confidence banks need to make the loans.

Where this will all lead is not clear, though even the optimistic predictions of many economists is that the United States is in for a serious recession lasting one or two years. That has people and businesses battening down the hatches and preparing for a tough time.

"The consensus among mainstream economists is if – if – we can avoid a meltdown, this is likely to be an extended but comparatively shallow recession," said Peter Gosselin, a financial journalist who spoke on a Commonwealth Club Inforum panel on "Surviving the Great Recession." He added that even a "shallow" recession can be very serious. That panel discussion was in July, but even then Gosselin said the country was likely to hit a crisis soon. Events would soon prove him correct.

ADDENDUM: The Dow Jones closed down about 733 points.

Paul Krugman Wins Nobel

Princeton economist and New York Times op-ed columnist Paul Krugman has won the Nobel Prize in economics.

The Royal Swedish Academy of Sciences gave him the $1.4 million award in recognition for his work on a new theory regarding free trade. His work "thereby integrated the previously disparate research fields of international trade and economic geography," the Academy said, according to the Associated Press.

Krugman's whose most-recent Commonwealth Club speech was on October 30, 2007, as the first speaker in the A-Ha Speaker Series, presented by The Club and Orrick. In that speech, he spoke about the future of the middle class in the changing economic world, a topic that could be even more relevant today in light of recent stock market meltdowns. See the above video for the Fora recording of that speech. Or you can listen to streaming audio of that speech.

And if you want to go back in time nearly five years, you can listen to streaming audio of his January 6, 2004, speech to The Commonwealth Club, entitled "From Heroes to Scandals: The Collapse of Fiscal Responsibility."

Meg Whitman: Could She Save the Finance System?

Reacting to the ongoing struggle between Wall Street, Main Street, and the federal government, Republican presidential candidate John McCain recently mentioned that he would consider appointing investor extraordinaire Warren Buffett and former eBay president Meg Whitman to senior financial posts in his administration, if he is elected.

Whitman spoke to The Commonwealth Club on September 23, 2008, and in the video above you can get a sense of what her priorities and approaches might be if she were to be appointed Treasury secretary or some other economic post.

A side note, to all voters who watched last night's vice presidential debate in St. Louis between Republican Gov. Sarah Palin and Democratic Sen. Joe Biden: Meg Whitman was on McCain's short list for vice presidential candidates. How would she have performed in the debate if she had been chosen? Only she knows, but you can get an idea from her speech in the above video.

Whitman's speech was part of Orrick's A-ha Speaker Series at The Commonwealth Club, generously underwritten by Orrick.