Monthly Archives: September 2009

Peterbilt Plant Closes

The Peterbilt truck plant in Madison, which has been there for 40 years, will close finally in December. The facility has been on lockout since June of last year due to a contract  dispute. It always seemed to me (and it may be just my impression) that there was always some sort of labor-related dispute going on there. The company is moving the work to a non-union plant in Texas. About 400 people will lose their jobs, if hey can be considered lost when nobody has worked there since June of last year. It’s hard for a union plant to survive when there are alternatives with fewer labor issues and lower costs. The advantage is with the company in those cases.

I don’t know if  the underlying issues were due to management or union, and it really doesn’t matter any more. Not being able to work together has finished off the problem. That’s really similar to what I see in government at the present.

So, How’s that Too Big to Fail Thing Doing?

The September-October issue of the Harvard magazine has a good article that goes into this and it’s an excellent read.

It looks first at thehistorical path the country took to get there. Before the Great Depression, about every 15 to 20 years there would be a financial panic or crisis. Once the depression hit hard, the government implemented a couple of pieces of legislation that began regulation of banking and finance and they worked. The Glass-Steagall Act, (and the Banking Act of 1935) for the most part stabilized our financial institutions. Until 1980, when bank deregulation oversight was relaxed, everything was reasonably stable. Between the late ’30s and 1980, there were no significant bank failures.

Like the savings and loan fiasco of the 1980s, the current financial crisis is the product of a mistaken regulatory philosophy—only this time the consequences have proved far more severe. In too many cases, regulators chose not to use tools they already had, or they neglected to request new tools to meet the challenges of an evolving financial system. The failure to regulate the sprawling market for credit default swaps (CDS) in the late 1990s and the Securities and Exchange Commission’s 2004 decision to allow voluntary regulation on the part of major investment firms are two particularly striking examples. …

Ironically, it is possible that the success of New Deal financial regulation actually contributed to its own undoing. After nearly 50 years of relative financial calm, academics and policymakers alike may have begun to take that stability for granted. Given this mindset, financial regulation looked like an unnecessary burden. It was as if, after sharply reducing deadly epidemics through public-health measures, policymakers concluded that these measures weren’t really necessary, since major epidemics were not much of a threat anymore.

The problem, as the article’s author sees it, is that regulators are compelled to wait until after a financial institution is in trouble (and so huge that it’s existence is tied to the safety of the economy itself) before they do anything. By that time, regulation has failed and you aren’t preventing anything, you’re desperately trying to stabilize things. The only way to deal with institutions that are too big to fail, is to literally deal with them. An ounce of prevention is worth billions of dollars worth of a cure after the fact.

The government (at least in my opinion) needs to continuously monitor financial institutions to determine which ones are big enough to threaten the stability of the economy regularly. Ones that are should face regulation designed to provent them from taking excessive risks (yeah, there are a lot of non-specific words involved – the regulation has to be flexible and, to a big degree, counter-cyclical) with limits on flaky liabilities, off-balance sheet transactions, and short-term debt. A side benefit of this regulation would be to make being that big less desirable. Don’t want to be regulated, don’t get too big to fail.

The other thing that needs to happen for businesses that are too big to fail is that we need to prevent their having to get billions in taxpayer dollars to bail them out if they start to go down. That sort of pay it in advance system has been around for over a century. It is based on mathematical models and analysis of how much need to be paid in to cover what might be paid out and it is called insurance. All the too big to fail institutions should have to pay insurance premiums that could only be used to save one of their members from failure. If they go under, treat them like the FDIC does for banks that go under. they go bankrupt. They go away. Failure is not a recoverable event.

Jeremiah Recommends

We went to get some wine to replenish our stocks (not that we drink a lot, but we did have company coming over) and one of the things I picked up was a zinfandel. We opened it Friday night when friends came over for supper and it was pretty good. It’s Four Vines zinfandel and I got it at Frugals. Unfortunately, they seem to have four zins and I don’t recall which one it was so I guess I’ll have to head back there and figure it out - or you could report back if you try any.

Oh, and while I’m whining about broadband

I’d like to take the opporunity to say that broadband providers in the United States lag substantially behind providers in other countries. And, it also seems that our broadband providers are trying to get the FCC to “define” broadband standards as being acceptable when they are 350 times slower than other countries. They’re trying to get stimulus funds but don’t, well, want to do anything with them to contribute to frivolous things like making service better or more widespread. According to Gizmodo and MSNBC,

US broadband is slower than many other countries, and our broadband providers want it to stay that way. They’re pushing for standards in the FCC’s definition of “broadband” that are over 350 times slower than Japan’s speeds.

Comcast, for example, argued for the definition of “basic” broadband to be a paltry 0.256 Mbps downstream and upstream. Verizon aimed for 0.768 Mbps downstream and 0.200 Mbps upstream. Japan’s rate? 92.8 Mbps. Korea has 80.8 Mbps and France offers 51 Mbps.

According to AT&T, those of us without broadband don’t need fast speeds for stuff like VoIP (telephone service over the Internet – services like Skype and Vonage and such). Why I’m sure if they gave it to us we’d do something silly like go buy Magic Jack and never use AT&T again. Besides, we couldn’t afford Internet service that fast even after we stopped giving AT&T $50 a month and paid Magic Jack less than $2 for the same service. And it would be disruptive to their plans, so it’s better if we rank 19th slowest.

If we’re not careful and we don’t do this slowly, it will be a repeat of what happened to blacksmiths and buggy manufacturers once cars started being produced. Why, there’s no telling where it would end. AT&T might have to even provide service, God forbid. They might not be a monopoly any more, but by God, they can still act like it.