Only a man as steeped in Wall Street wisdom as Henry Paulson could have diagnosed our problems as one of nonavailability of credit and proceeded to set up a bailout plan that remedied this perceived problem.Even if this works,it is my belief that it will be a short term solution to a long term problem and the same problem will keep recurring on a regular schedule.
The fundamental problem in our economy is that somewhere in 1980,our economy was handed over on a silver platter to the financial manipulators sidelining the wealth creators in the real economy.
This is sadly seen in the episode of Robert Stempel,the engineer in charge of General Motors being swept aside by John (Jack) Smith in a palace coup.Since then GM has been on a downhill slide from which it does not appear to have a chance to recover.That is because the financial manipulators like Rick Wagoner,the current CEO, have no interest in producing a superior product that the market needs or wants.They only want an ever rising bottom line to appear miraculously every three months so that they can take home fat bonuses.
In the compensation end of the game, the manufacturing executives are now playing second fiddle to the financial executives.In another example,Richard Fuld, the greedy snake oil salesman at Lehman Brothers, after conning millions of investors for the past ten years with his worthless derivatives,took home nearly half a billion dollars worth of loot,all legal,of course.Compare that to the measly 15 million dollars a year that Rick Wagoner takes home.
The ascension of financial executives in the American corporate landscape and the disparity between the compensation of manufacturing and financial managers makes it inevitable that many “real” corporations will fail in the coming years.It is the death of the “real” economy that will cause another meltdown.That is a problem Hank Paulson,himself a financial executive,is incapable of diagnosing let alone cure.
Our economy has now been transformed from dealing in real goods and services such as a good reliable car giving plenty of gas mileage to one that deals in the metaphysical numbers cooked up by accountants who assure you that they know the value of a corporation and that your wealth is increasing.Until,the value collapses,of course,giving rise to another opportunity for the same criminals to get into your wallets for another looting.
As the man says: “What’s in your wallet?”
Thinking about it some more,the ascendancy of financial executives in the corporate totem poles has meant that all decisions regarding product design,quality and other matters come under these same executives to the detriment of engineering an quality managers.Saving nickels and dimes to preserve the bottom line takes precedence over producing a quality product that will meet with “customer delight” as another well known and well regarded executive,Larry Bossidy of Honeywell, has called it.
This is the same syndrome identified by Al Gore during his 2000 campaign where he railed against bean counters making decisions about the type of treatment patients receive from doctors.Such an importance assigned to bean cpounters has a pervasive effect throughout our economy.It has caused mass timidity at GM and Ford where eengineers are afraid to propose any new ideas for product improvement lest they be blackballed by the bean counters as spendthrifts.
It is the handing over of the reins of our corporations to people who should be in a supportive role rather than driving the corporation that resulted in the collapse of Apple Computer when a salesman of flavored water,John Sculley of Pepsico,took over from Steve Jobs and promptly ran that company to the ground.
We can cite many more instances of such misfits given the reins of comapnies for whose products and workers the bean counters do not have much regard.
Lynn Townsend, the Chrysler CEO immediately preceding Lee Iaccoca was a finance man all his career. Iaccoca had some engineering training but was primarily a salesman. At least he knew what would sell. Robert Macnamara , architect of the Vietnam war and creator of body counts as a strategic factor, and described by Iaccoca as “the ultimate bean counter” was the father of the ugly and despised Ford Falcon. Iaccoca, working with a designer, used over 90% of the same parts to create the Mustang.
If a manufacturing company’s CEO is a former engineer, or came up from manufacturing, or QA or even sales, good. Finance men know nothing but finance.
BTW, wasn’t that Roger Smith?
Two characteristics that define the modern day American CEOs with finance background are: Technology Aversion and Risk Aversion.Technology Aversion simply means that the Finance men are lost when anything close to a technical term is whispered in their ear,such as multivalve engines,overhead cams,fuel injection,compund vortex combustion, all significant improvements in engine performance.Risk aversion is closely related to Technology Aversion and involves the desire to have a sure bet everytime.That is what men like Rumsfeld and Cheney practice.In the corporations they headed, they transfer all the risks to the Government through their cost plus contracts and come out smelling like a rose no matter what.
The auto executives would like a deal similar to what the Rumsfelds and Cheneys of the world got away with and they pretty much had it when there was no competition from the foreign car companies.It is when they had to deal with real competition from the Japanese and the Germans they got lost.
Men like Lynn Townsend,Lee Iacocca (in his new incarnation as Chrysler Chief),Robert McNamara and a parade of Ford executives,not to mention the many forgettable GM CEOs, were incapable of investing in new technologies like the Prius hybrid because they wanted to avoid all risks and they detested new technologies.
So here we are.
Don’t think Iaccoca detested new technologies. I’ll buy the others,though.
I am old enough to know when Iacocca resisted the introduction of catalytic converters and seat belts.
Because he was a great salesman he could take a shit box like the Dodge Omni and Plymouth Horizon and make it look like he has reinvented the automobile.
His ultimate contribution to automotive technology might well be the Plymouth Duster, a car that corroded visibly in front of your eyes.No car before or since has been able to duplicate that feat.
Those were government mandated technologies that a significant part of the market vehemently didn’t want. Salesmen don’t push features that cost money and have zero or negative effect on sales. In the case of catalytic converters, they were a competitor(GM) developed technology. Chrysler pushed inexpensive engine modifications such as Lean burn. That technology failed, but was new technology. So, I don’t think he was anti-technology per se, but I will admit that he had a large streak of NIH (Not Invented Here) syndrome.
a great political CARtoon by john sherffius the other day, re: the proposed merger between GM and Chrylser:
click image to enlarge
can you say “doomed”.
without govt intervention, these guys, and quite possibly Ford, are finished. l’m afraid that they’re going to be the next black hole that gets 100’s of millions of taxpayer dollars, in spite of all the mismanagement. too big to fail…the 21st century
socialistcorporatist mantra.Regardless of the fate of the GM/Chrysler merger, the danger we face as a nation is to let finance men run our companies and snatch decision making in the real economy from the technically competent people.Finance men are not like any other discipline.When you hand over decision making powers to them, they lavish pay and perks on themselves and make the others with real skills critical to a company scramble for the scraps thrown at them.This is why the manufacturing men like Robert Stempel could never attain parity with the Rick Wagoners and Jack Smiths.
When an executive in an auto company sees a two bit punk like Richard Fuld of Lehman Brothers walk away with 500 million dollars after seven years of selling snake oil and putting the entire country’s economy at risk, he is certain to wonder “where did I go wrong?”
The tight regulation of the financial companies is a minimum necessary condition for the real economy to revive and become healthy again.
they may not have taken the mega-dollars that the hedge funders and wall street banksters got, but they’ve done damned well by any standard you may wish to impose.
in general, l agree with your premise, but where is this “tight regulation of the financial companies” going ot come from?
it’s certainly not being championed by anyone currently in power, or even in a position, to talk about such a change. l frankly don’t expect there to be any significant chage in the foreseeable future, given the reactions to the debacles of the recent past…ENRON comes to mind…what happened after that?
in a word: nothing.
both obama and mcstain have pledged to “bail out” the auto industry, with differing approaches and varying degrees of stipulations, but the bottom line is that it’s going to involve massive influx of taxpayer money, and incentives that give the advantage, once again, to the finance men. unless those incentives come with a controlling interest in the board of directors, vis-s-vis who’s in charge, nothings going to change. in fact, an economic
bail outrescue plan only reinforces the mba’s stranglehold on the outcome.that’s all that’s holding up the GM/Chrylser merger….what’s the juice from the govt?/ …and how much of a voice are they going to demand.
at the end of the day, there’s no one willing to demand the pound of flesh that it’s going to take to change this scenario. it’s too much to expect given the existing climate of complicity.
Back in January, when there was talk of GM buying Chrysler, the talking heads on CNBC said it was a good idea because GM would gain those large Dodge trucks and the famous Hemi engine. I shook my head then and shake it again now. Do they have a Deathwish? Would anyone sane in this market yearn for more large trucks and a high performance V-8?
GM can be rescued, but only if all those inbred nepotists are fired.