11th Hour Brilliance

CNN is reporting that Larry Flynt, publisher of Hustler magazine, and Joe Francis, CEO of Girls Gone Wild, will approach Congress for a $5 billion bailout of the adult entertainment industry.  I wish I could say that I was making this up.  The two claim that sales in the porn industry have suffered due to the economic crisis.

“People are too depressed to be sexually active,” says Flynt.

OK, so let’s recap.  In October, Congress approved a $700 billion bailout for the financial industry.  In return we saw several firms, such as AIG, squander away millions on lavish retreats and executive bonuses.  Congress seemed to have learned *some* lessons and applied more terms on the automaker bailout that totaled $17.4 billion.  Limits on executive pay, ban on corporate jets, as well as the requirement to reduce debt by two-thirds and restore profitability (most likely at the cost of the workers, themselves), are part of the automaker bailout plan.

Stephen Gandel, from Time magazine, says, “In the past 16 weeks, the government has pledged, loaned or invested some $10 trillion to fix ailing banks, jump-start financial markets and keep automakers from bankruptcy.”

Rumors are that the airline industry isn’t far behind.  Why wouldn’t the adult entertainment industry come running with hands out? 

Are these bailout programs actually solving anything?  They are probably buying us more time, but there has been no change to the system.  No change to the leadership.  No indictments.  And, now the American people are asking for their bailout through stimulus packages and tax cuts.

And I agree - give the money to the American people rather than to the businesses.  The economy is cyclical – businesses start-up, businesses close.  The American people will invest in the businesses that they feel are valuable.  Once you take that fundamental piece of a capitalist society out of the control of the people, aren’t you diminishing the value of the American brand?  And, not just products that are made in America, but you’re hurting America itself.  We seem to be turning ourselves into a commodity – marketing on price rather than value.  And, any business person worth their weight will tell you that is an almost impossible position to recover from.

So, much to the dismay of many taxpayers, the auto industry is close to receiving a government bailout of $15 billion.  The administration will appoint a Car Czar to oversee the distribution of funds and enforcement of policies associated with the bailout.  Among these conditions are limits on executive compensation, a restriction on paying shareholder dividends and requirements that the government share in future profits so that taxpayers are repaid before any investors.  According to the AP on Yahoo!, the bailout also requires that automakers get rid of their corporate jets.

The Car Czar will oversee a “restructuring” of the auto industry.  I think that the Czar should start with the auto industry go-to-market.  I’m not going to get into the import vs. domestic car issue and the fact that our US automakers were so sure of their power in the 70’s and 80’s that they hired fractions of the engineers that the overseas automakers did.  What I’m talking about is the overall buying experience for automobiles. 

There are books, blogs and magazine articles written to help you negotiate the best deal on a car.  There are financing deals, employee pricing, trade-in allowances, blue book pricing, MSRP equations, dealer pricing, “no haggle” deals, red tag sales…the list goes on.  In fact, in Dallas, there is a law firm advertising that they will review your dealer’s contract before you sign.  Really?!  Is all of this needed?  Of course it is!  When the US automakers claim to lose money on each car sold, then of course they need to confuse the buyers in hopes to recover some profit. 

As recent as September, GM’s COO, Fritz Henderson said that GM expects to lose money on the new Chevy Volt for years.  “We won’t make a dime on this car for years, and the board is OK with that,” Vice Chairman, Bob Lutz, said in March. Uh…is that OK now that we are giving you the money to survive?

I think this is the turning point for the auto industry.  Is it necessary to have thousands of dealers across the country with lots full of cars?  Throughout Europe you see showrooms where cars can be ordered.  Are Americans so obsessed with immediate satisfaction that we have to drive the car off the lot the day we make that decision?  It seems to me that the auto manufacturers tend to flood the market with product that effectively “sits on the shelf” for months.  Why can’t we have regional distribution points to deliver cars as needed? 

So, the automakers that keep producing  when sales are declining.  Supply outweighs demand and then the fire sales begin.  Not to mention, the loss-leaders that dealers sell in order to get manufacturers incentives.

If I’m ordering the car - the exact make, model, color and features I want - and there is a set price for that – no haggling, bargaining or negotiating – wouldn’t I tend to pay more for that experience?  Isn’t it time to rethink the way we purchase our cars?

As you may have realized from my previous posts (here and here), I am not happy about the financial bailout.  In my opinion, poorly run companies should be punished – in a capitalist market that often happens by them going out of business.  It’s the cycle of business (the circle of life, Simba).  Businesses open.  Businesses close.

So, imagine my reaction when I received notification today from the FDIC that the bank who owns my mortgage is going out of business – and I have 60 days to find a new lender.  Let me be clear, fellow Joe Six-Packs, this is not the company who we signed the mortgage with in the first place.  This is the bank who PURCHASED my mortgage shortly after we moved into the house in May.  Let me also clarify that both of us on the loan have credit scores in the 790-815 range. 

I did not realize that some of these financial institutions were going out of business without selling off their debt.  How can they – remember, they voluntarily purchased my loan this summer without my knowledge - back out of a contract agreement?  I don’t think the bank would be very forgiving if I were to say, “Mr. Bank, I’ve mismanaged my funds, and therefore I don’t want to pay my mortgage.” 

So, let me get this straight.  My tax dollars just went into a $700 billion bailout package for the finanical industry.  My tax dollars.  I’ve never been late on a payment, and in fact, we’ve paid early or more than the balance due on several occasions.  And, now it is my responsibility to find a new lender and pay closing costs to refinance?  I am being punished, yet again, for the poor choices of these banks?  Where is my million dollar bonus?  Where is my half-million dollar vacation to St. Regis?

Our lender, Rodney Anderson, just called.  Rodney is absolutely the best in the business.  If you live in Dallas / Ft. Worth, I highly recommend him.  (Remember, this isn’t his fault.  Fault lies with the bank that purchased our loan after closing.)  Rodney said that the FDIC must sell our loan along with the other assets.  The FDIC letter is worded so that people think they need to refinance – it reduces the work that they have to do in selling the debt.  Interesting scare tactics.

I’ll keep everyone posted.  Has anyone else run into this issue?

Dear Average American,

I’m tired of your whining.  All I ever hear from you is how stressed you are with your low-paying jobs and your over-medicated kids.  I’ve had enough!

You want to know the real meaning of stress?  Try taking a 89-year old business, the 18th-largest company in the world, and making it financially defunct.  That, my friends, is a full-time job!

Yes, you complain about your measly retirement funds and the pressure of paying your bills on time.  Oblige me for one moment, and imagine living the life of an AIG executive, who was “forced” last month to accept $85 billion from the US government in order to save their company. 

You talk about the “pain at the pump,” when gas rises a few cents.  Put your efforts into something memorable, like taking a stock worth $70.13, at its 52-week high, to $1.25.  Take one of the most admired insurance companies in the world, with operations in 130 countries and 92,000 employees, and run it into the ground.  Yes, my friends, only then can you really know the meaning of doing something impactful on a global scale.

So, no, it came as no surprise when the executives at AIG decided they needed a little R&R.  Days after being approved for a $85 billion loan to save their company, stressed AIG executives headed to the ultra-posh St. Regis resort for a retreat, worth $440,000.

Amid Tomato Basil Nourishing Wraps and Dermal Quenches, these brave leaders forgot about the hours they spent avoiding internal and external auditors.  Between golfing on the bay and dining at Stonehill Tavern, they washed away the guilt of hiding risky financial decisions and the pain of carpal tunnel brought upon by feverishly shredding documents.

How dare you judge them!?  I, for one, agree with Eric Dinallo, superintendent of New York State Insurance Department, who said he “could see the value of such a retreat under the circumstances.”  Mr. Dinallo sees the retreat as a retention effort to hold onto such upstanding leaders.  Mr. Dinallo went on to say, “the concept of bringing all the major exmployees together…would not have been a crazy corporate decision.” Crazy! Who dare say such a thing! 

So, Mr. and Mrs. Joe Sixpack, I urge you to put your problems aside and look at the broader picture.  Sure, your house may be reposessed and your job in jeopardy, but these are our nation’s corporate leaders that are just looking for your sympathy and a hand up in life.

Sorry…a brief departure from the normal post on this blog.  I must admit that my blood pressure rose today when reading that Richard Fuld, disgraced leader of the now defunct Lehman Brothers, questioned the US government about why they did not bail him out. 

Reuters, via Yahoo! Finance, reports that Fuld takes full responsibility for his actions but “said US regulators knew exatly what the firm’s liquidity was and how it was pricing its distressed assets.”  The article goes on to state that Fuld lost patience several times during his testimony before Congress, when members tried to “pin him down on precise answers.” 

“Fuld said he did not know why the US government chose to help other financial companies, but not Lehman.”

Call me crazy, but did he just say, “yeah, I did something horrible…but where’s my money?” 

I’m sure that Bernie Ebbers and Jeffrey Skilling are throwing temper tantrums in their prison cells right now.  It’s great the bail-out passed, now where are the indictments?  Bernie Ebbers caused investors only $11 billion when he filed false financial reports for his company WorldCom.  He was sentenced to 25 years in prison.  Jeffrey Skilling and Kenneth Lay, ex-CEO and chairman of Enron, were indicted on charges of conspiracy, securities fraud, false statements, and insider trading.  Skillman was sentenced to 24 years and fined $45 million; Lay would have been sentenced to 20-30 years had he not passed away shortly before his sentencing.

Is this situation really any different?  These CEOs created a financial crisis that has no boundaries – CNNMoney.com reports that Latin America (yes, an entire region!) could be devistated by this market collapse.

For years these finanical institutions were able to charge higher interest rates and make money on sub-prime loans.  Adjustable rate mortgages, zero-down financing, reverse mortgages, interest-only mortgages.  “If the borrowers defaulted, they could simply seize the house and put it back on the market.  On top of that, they were able to pass the risk off to mortgage insurers or package these mortgages as mortgage-backed securities,” says Pinyo, of Moolanomy.

My lender Rodney Anderson (plug: he’s great! and he really knows his stuff!) has a local radio show on Saturday mornings in Dallas.  One caller a month ago says that his lender (not Rodney) told him to adjust his 2007 tax return in order to qualify for a lower interest rate on his home loan.  Since the caller is self-employed, he needed to show a higher 2007 income.  Sounds easy.  Great!  The caller says he refiled with the IRS and was approved for a loan which saved him about $15,000.  Bad news: Soon after, the IRS hit him for back-taxes of approximately $30,000.  (And, although he didn’t say it on the phone, I’m sure he’ll be on the IRS watch list for the rest of his life…hello, audits.)

We have a government that spent months investigating steroids in baseball (big, SO WHAT?!).  When are they going to hold someone accountable for this fraud and greed?