The Sad and Tragic End of General Motors

Tomorrow, June 1, it is expected that we will witness the tragic end to a remarkable story – the 100+ year run of iconic General Motors as a private company. The story of storied entrepreneurs William C. Durant, Pierre S. du Pont, Walter P. Chrysler, Louis Chevrolet, among others, and, most notably, Alfred P. Sloan, who, along with legendary engineer Charles F. Kettering, made GM what it once was -- the leading industrial company in the world.

Years of incompetent management and many more years of destructive union hegemony spelled the end. General Motors has long needed a restructuring bankruptcy, but one conducted under the rule of law that would have shrunk, streamlined, and legally rejuvenated the company to allow it to survive and prosper. But we’re not going to get that. A powerful Obama who, using the pretense of a national financial crisis to bend people to his will and disdainful of the legal rights of holders of capital, has something different in store.

Tomorrow General Motors is expected to file for restructuring bankruptcy. In the “pre-packaged” restructuring plan, Democrat Obama is laundering even more taxpayer money to unions, and has extorted from bondholders (e.g., retirees’ pension plans, mutual fund investors) and from emasculated TARP-ensnared creditor banks a much larger piece of what’s left of the company for the automakers’ union than the Democrat union would otherwise get in a bankruptcy proceeding that followed the rule of law and far, far more than it deserves. Democrat union members up, while taxpayers and creditor banks and pension plans down.

Of course, the taxpayer is the biggest loser, other than the rule of law, which seemingly now is of concern only to some behind-the-times Republicans. The federal government (that is to say, Democrat politicians) will own over 70% of the rump GM, and the Democrat union a big chunk of what’s left after that. Larry Kudlow, on his CNBC show Friday May 29, said that the “taxpayers are by far the biggest losers in this deal,” which he said is “an assault on free market capitalism.” Obama has now parlayed the financial crisis and the public panic into taking control over our largest insurer, some of our largest banks, and now our largest automaker, all the while saying, to fool the foolable, that he has no interest in doing any of this.

When I first began working for a big company years ago, I endeavored to read some books about business. I was not interested in books on the latest fads in management theory but rather books that told the stories of successful companies. And one the very first that I read, and the best I ever did read, was “My Years With General Motors” by its legendary long-time head Alfred P. Sloan, a staunch believer in free markets for free men. The dust jacket blurb of my Doubleday paperback edition exclaims “Even today, Bill Gates praises ‘My Years With General Motors’ as the best book to read on business, and Business Week has named it the number one choice for its ‘bookshelf of indispensable reading.' Draft your own blueprint for organizational success by using the tools found in this book. Learn the valuable lessons only Sloan could teach.” Lessons never learned or even appreciated by later management feckless and irresponsible, a union solipsistic and corrosive, and Obama Democrats dissembling and lawless.

JM Greco

"Spirit Of American Youth"

"Spirit Of American Youth"

By Donald De Lue

At the First Infantry Division Museum at Cantigny Park
Wheaton, Illinois, Outside Chicago

Replica of the Original That Stands In the Normandy Beachhead in France,
Honoring Young Americans Who Gave Their Lives For Their Country

Bonnie & Clyde -- Killed 75 Years Ago Today and Reborn as Movie Anti-Heroes

Depression-era bank robbers and killers Bonnie Parker and Clyde Barrow were themselves killed 75 years ago today in a controversial police shoot out in rural Louisiana. The couple were romanticized at the time by some in a seemingly ambivalent public, perhaps reflecting widespread anger with the perceived failures of the banking system in particular and the capitalist system in general. This theme was picked up by Arthur Penn when he made the very successful 1967 movie Bonnie and Clyde (link), which made stars of Warren Beatty and Faye Dunaway.

Reflecting on all this for a few moments today, to my memory it seems that this movie was one of the first somewhat revisionist American movies to celebrate the homicidal criminal as a somewhat sympathetic figure. To be sure, there were previous films about Depression-era gangsters (Public Enemy; Little Caesar), but none that seem to humanize and soften, in part with comedy, criminals that murdered policemen and civilians. Other such movies followed, most notably the Godfather trilogy.

It seems at least one Hollywood producer thinks the American gangster as romantic anti-hero theme still has legs -- to wit, the soon-to-be-released movie about John Dillinger, who eventually met his own demise, two months after that of Bonnie and Clyde, outside Chicago’s Biograph Theater at the hands of lawmen tipped off by the Lady in Red.

R. Balsamo

Remembering Sherlock Holmes and Arthur Conan Doyle

Today is the 150th anniversary of the birth of Arthur Conan Doyle, author of the Sherlock Holmes series of detective stories. Conan Doyle was born in Scotland to parents of Irish descent and became a physician as well as an accomplished athlete and author. He eventually set up medical practice in southern England but work was slow, and so, with time on his hands, as the story famously goes, he turned to his writing avocation. Eventually writing became his sole focus, and although he was a prolific author particularly proud of his historical novels, his most endearing and lasting works have been the 60 short stories and novellas, the canon, featuring private consulting detective Sherlock Holmes and his particular friend and colleague Dr John Watson. After many rejections from publishers, the first Holmes story, A Study in Scarlet, made it to print in 1887.

Holmes is a solitary, brusque, eccentric, and enigmatic figure of eclectic intellectual interests who uses his tremendous skills of observation and deduction to solve mysteries. He lives with his physician friend Watson in London, famously at No. 221B Baker Street. Through the great descriptive powers of Conan Doyle, the stories evoke both the genteel civility and the sinister edges of a bustling, fog-bound, cacophonous late Victorian London at the height of Empire. And who can forget the Persian slipper, jack-knifed correspondence, Watson’s wound from a jezail bullet, the useful coal scuttle, the fitful violin playing, and the 7% solution.

Particular favorite stories of mine include Silver Blaze, with the curious incident of the dog in the night-time; A Study in Scarlet, wherein Holmes first meets Watson and remarks “You have been to Afghanistan, I perceive”; The Blue Carbuncle, featuring Holmes’s deductive discourse on a lost hat; and The Abbey Grange, wherein Holmes impanels Watson as a one-man English jury and exclaims “Vox Populi, Vox Dei.”

Holmes and Watson have been brought countless times to radio, movies, television, and even theater. Until recently, the Basil Rathbone / Nigel Bruce series of radio and film adaptations have been the best known, although grating to any lovers of the original stories. For some reason, adaptations commonly but inaccurately portray Watson as a bumbling fool, presumably to better showcase Holmes’s logical mind, but this device does disservice to the original stories and makes both characters almost comic-book like.

But Holmes aficionados have been rescued forever from such debased adaptations. Twenty five years ago almost to this very day, the definitive treatment of Holmes and Watson and the Conan Doyle stories appeared on the scene from Britain’s Granada TV (link), with Jeremy Brett as Holmes and David Burke and later Edward Hardwicke as Dr Watson. Burke described the films as “faithful to the original in spirit and in detail,” and one reviewer wrote that Brett’s performance “has wiped the memory clean of all previous portrayals.” Granada filmed 41 painstakingly detailed Holmes stories until Brett's untimely death in 1995. This series is a triumph.

I think for those who come back to these stories time and again the lure is the portrayal of two devoted and loyal friends, different yet complementary, and their lives, adventures, and travels in a well-drawn atmosphere of late Victorian Imperial Britain. I was captured by these stories as a boy and remain hooked, and I can still remember reading them years ago late into Chicago summer evenings with my imagination off in some fog-shrouded London street.

Richard Balsamo

New Republican-Proposed Patients’ Choice Act Offers Smart Alternative To Obamacare

Some Congressional Republicans proposed today a new health care reform plan that promises substantial improvement over what we have but, by placing control in the hands of consumers, avoids the federal government-centric features favored by most Democrats that many fear are surreptitiously designed to eventually usher in universal single-payer health care, premised as it is elsewhere on significant rationing of care, limited adoption of new technologies, and substantial wage and price controls for providers.

Called the Patients’ Choice Act, the heart of the plan seems to be reform of the tax code and using that money to give everyone an amount of money with which to purchase a health care policy, either as a refundable tax credit for tax payers or as a direct subsidy for the poor. Consumers with employer-based policies can keep them if they desire or shop for a different policy along with everyone else in the open market or on a state-government-sponsored exchange with competing policies that all meet some minimum standard.

What’s in this plan:
· Portability – workers can take their employer-sponsored policy with them if they want when they change jobs
· Health Savings Account option with its incentives for cost-conscious consumption of services
· No exclusions for pre-existing conditions when consumers sign up for new policies, accomplished through a state-controlled risk-adjustment process across insurers
· State subsidized coverage for the uninsurable through a state risk-pool
· Creation of a bonus incentive for providers to form “Accountable Health Organizations” that deliver higher quality care at less cost
· Creation of an online personal preventive care plan designer
· Lawsuit reform at the state level through creation of expert review panels and specialized health courts
· A Health Services Commission to report on price and quality data and trends
· Strengthening the Medicare Advantage program

What’s not in:
· Individual or employer mandates to have/offer health insurance
· Federal comparative effectiveness board to make and mandate coverage determinations – who can get what care when.
· Federal Medicare-type plan as an option for everyone (the “public plan” option)

The best and most detailed overview I’ve seen so far is by Peter Ferrara at The American Spectator online (link). Ferrara concludes:

The bill would assure essential health coverage and health care to every U.S. citizen, without increased federal spending and taxes, and without the federal government taking over your health care. For precisely those reasons, today's left wing Democrats will not support it…. This bill demonstrates that there is no reason for a government takeover of health care other than the lust for political power that drives the liberal/left political machine.

Philip Klein, also at The American Spectator, has some well-reasoned areas of concern, but is overall very positive (link):

Politically, I think this was a masterful move by this group of Republicans. Keep in mind that [this] alternative never has any chance of being passed [by Democrat-controlled Congress], but it's a statement by the minority party about their approach to an issue. Agree or disagree with the components of the plan, these Republicans have released an undeniably serious health care proposal, and they have done so months before the Democrats have come up with theirs…. This offers a way to oppose the Democratic approach to health care while pushing back against charges that the GOP is "the party of no."

Grace-Marie Turner and Joseph R. Antos have a briefer treatment (link) of this new proposal in the Wall Street Journal. They write:

Republican congressional leaders are finally offering a clear alternative to the health-reform plans being developed by the White House and Democrats in Congress. The goals and the rhetoric of both sides are remarkably similar: cover the uninsured, allow people to keep the coverage they have, provide more choices of affordable health insurance, and rein in health costs. But their policy prescriptions are remarkably different…. Who will control the system? Doctors and patients, or politicians and regulators? That's the crux of this year's health-care debate. The Republican proposal makes the choice clear.

Related posts:
Prospects Uncertain for “Public Plan” Option in Health Care Reform
Health Care Reform – Major Players Pledge to Reduce Costs, While the “Game Changing” Public Option Lurks

John M Greco

Prospects Uncertain for “Public Plan” Option in Health Care Reform

The so-called “public plan" option proposal remains the most contentious of all on the table in the health care reform debate. The idea is that the federal government would offer a government subsidized benefit plan, akin to Medicare, for not only all of the current uninsured but also for anyone who wanted it. As such, it would compete with private insurance plans whereby it might, as feared by many, through its pricing power eventually wipe out private plans and be the only plan left standing, thus successfully effecting a Trojan horse tactic to establish single-payer government run health care.

Two related issues are thorny as well. First -- how to pay for it if enacted. Not much alternative but higher taxes. Second -- how can continually rising medical care spending be better restrained to make all health care more affordable? Here, some endorse free market solutions such as cost sharing to make patients behave more like discerning consumers, while some endorse a federal health care board that would mandate cost-effectiveness-driven coverage decisions as to who gets what care and when (Obama’s new Institute of Comparative Effectiveness, authorized in the stimulus bill).

As of today, the prospects for such a public plan option are unclear. A few days ago Matthew Murray reported (link) in Roll Call that “[t]he fiscally conservative [Democrat] House Blue Dog Coalition … announced its health care blueprint, a plan that likely will have fellow Democrats grousing for its lack of a government-run component.” Also last week, Philip Klein wrote (link) at The American Spectator that “Republican Sen. Mike Enzi (the ranking member of the Health, Education, Labor, and Pensions Committee (which is chaired by Ted Kennedy), and also a member of the Finance and Budget Committees) … insisted that regardless of their public statements in support of such an approach [for a public plan option], privately, Democrats are ‘backing away’ from the idea, ‘or holding it out there as something to trade in the future.’ ”

Finally, in response to my post last week (link) on the public plan option, a physician friend with a wealth of experience in clinical practice and managed care/health insurance comments:

The public option plan is so vague at this point, it seems hard to say what the implications will be. Clearly if you extrapolate it out, it could be the end of direct insurance role for the privates. But they would still run the back office---so less profitable, but still a going concern.

Nevertheless, I think your depiction of it as a "trojan horse" is apt. But, if it were available only to individuals, self-employed, and maybe small business, it could make a real difference without being so dominant. Maybe.

The amounts of money being currently charged for self-employed, small business or the individually insured are hurting business widely. (And remember that in aggregate this is a huge group--- with the self-employed and small business making up possibly the largest group of working people in the country) This is often the rag-tag group which brings new ideas --- really where "innovation" comes from. And the non-innovative private sector insurers are stifling their ability to have reasonable margins in their work with policies which often seem to have little to do with fair underwriting, but mostly to do with income optimization for themselves. If they, the private insurers, could provide more reasonable, less costly alternatives to these groups (which I think means lower profit margin and more accurate underwriting principles) then I would say go for it. I do know how tantalizing it is, though, to have large profit business go along undisturbed, especially in times when other LOBs are declining in margin. They have not budged on this for 20+ years. Maybe the scare of a possible "public option" is just what they need to start them thinking about their business model anew.

The economics are a bit murky. AHIP says it can accept no pre-existing conditions if there is an insurance mandate. But the public option people have been more or less silent on that, since it is politically dangerous. Assuming that did get in place, then AHIP is saying they couldn't compete with the public option due to pricing power imbalances. As far as I can recall, pricing has been shadowing Medicare for years in the private sector (at least payment for hospital days, various appliances, etc.). So have programs and policies, etc. So, while it seems logical that a public option would put competitive pressure in place, I don't understand why it would be a situation where the privates could not compete at all. I do hear that said, though.

John M Greco

Health Care Reform – Major Players Pledge to Reduce Costs, While the “Game Changing” Public Option Lurks

Today the Wall Street Journal reported (link) that “groups representing hospitals, health-insurance companies, doctors, drug makers, medical-device makers and labor” planned to pledge today in a letter to President Obama “that they will work to reduce cost increases in the nation's health-care system by $2 trillion over the next decade,” or, in other words, “to help reduce the growth of national health-care spending by 1.5 percentage points in each of the next 10 years.” The methods employed to achieve this result would include “simplifying administrative costs, making hospitals more efficient, reducing hospitalizations, managing chronic illnesses more effectively and improving health-care information technology.”

I think this is a fine attempt on the part of these stakeholders to demonstrate commitment to be part of the solution. However, insurers and providers have been trying all these approaches for years to control medical costs, with some success. This announcement seems to amount to a pledge to try harder. After all, there is no magic that will stop the steady increase in medical care spending. The main drivers are an aging population and continual, costly dramatic improvements in valuable medical diagnostic and therapeutic technologies, with a modicum of fraud, waste, the liability-driven excessive testing that is “defensive” medicine, and high malpractice premiums thrown in. The "solution" is multi-focal and incremental.

Grace-Marie Turner, president of the health policy-focused Galen Institute (link), wrote today (link) at National Review Online’s The Corner in a post titled Where’s the Beef?:

[T]he tools they said they would be using aren’t new, and the Congressional Budget Office has said they will save little if any money: administrative simplification, coordinated care, evidence-based medicine, and use of health-information technology, etc. So, where’s the beef? No one at the White House event or in a subsequent briefing with reporters by [HHS] Sec. Kathleen Sebelius was able to offer details.

Meanwhile, a Wall Street Journal editorial today (link) addressed the “public plan” option, which would be the real “game changer” in any reform of our health care system.

This new [proposed] entitlement -- like Medicare but open to all ages and all incomes -- would quickly crowd out private insurance as people gravitated to heavily subsidized policies, eventually leading to a single-payer system…. The truth is Democrats know that any policy guardrails built this year can be dismantled once the basic public option architecture is in place. The White House strategy is to dilute it just enough to win over credulous Republicans. That is what has always happened with government health programs….

I can’t think of a better example of a political “Trojan Horse” tactic than this Democrat effort to create a so-called “public option” health care benefit plan that would compete with private carriers. Democrats know that effecting full national health care is a bridge too far right now, so their tactic is to introduce now a seemingly salutary plan that in time will accomplish the same thing.

This Democrat plan illustrates their attraction toward achieving the shared miseries of socialism rather than improving upon the somewhat unequal sharing of health care prosperity that we now have with smart and well-designed reforms.


John M Greco

Illinois Blogger Conference -- May 8

This Friday, May 8th in Downers Grove (west suburban Chicago), Illinois.

Register here.

Obama, the Car Companies, and the Rule of Law

The latest developments in the GM and Chrysler sagas are just more of the same in the unfolding Obama tragedy. Although the situations differ, Obama has basically proposed giving controlling interest in each company to the unions and the federal government.

Larry Kudlow wrote at National Review's blog The Corner last week (link):

What is going on in this country? The government is about to take over GM in a plan that completely screws private bondholders and favors the unions. Get this: The GM bondholders own $27 billion and they’re getting 10 percent of the common stock in an expected exchange. And the UAW owns $10 billion of the bonds and they’re getting 40 percent of the stock. Huh?

It should be shocking, though unfortunately by now it isn’t, that Obama is trying to strong arm creditors – those to whom the car companies owe money – into accepting less than what they are owed under the law. Consistent with his socialist world view, Obama exalts the unionized “worker” and denigrates those who lend their savings – “capital” -- to companies. These lenders of money, including millions of common people like me who have some savings invested in bond mutual funds, are to Obama nefarious “speculators.”

The Wall Street Journal’s editorial board commented on the Obama GM proposal (link):

The biggest losers here are GM's bondholders…. mutual funds, pension funds, hedge funds and retail investors who bought them [bonds] directly through their brokers. Under [Obama’s] offer, they would exchange their … bonds for … less than five cents on the dollar. The Treasury … would receive … as much as 87 cents on the dollar. The union's retiree health-care benefit trust would receive half of the $20 billion it is owed in stock, giving it 40% ownership of GM, plus another $10 billion in cash over time. That's worth about 76 cents on the dollar, according to some estimates.

In a genuine Chapter 11 bankruptcy, these three groups of creditors [bondholders, the federal government, and the unions] would all be similarly situated -- because all three are, for the most part, unsecured creditors of GM. And yet according to the formula presented Monday, those with the largest claim -- the bondholders -- get the smallest piece of the restructured company by a huge margin.

…. President Obama has decided in essence to have the feds run GM and Chrysler. This inevitably means running them for the benefit of the UAW that is so closely tied to the Democratic Party.

Obama’s proposal for Chrysler is similar – an unfair gift for the unions at the expense of creditors like me. In an article in Barron’s dated today, Andrew Bary states (link):

In the bizarre pecking order offered by the administration, the unions, which are at the bottom of Chrysler's capital structure, would get nearly full recovery value for their $10.6 billion retiree health-care claims, while the secured creditors at the top of the hierarchy would receive about 30 cents on the dollar. Credit that to politics and a likely desire by Obama to reward the powerful UAW.

Don Luskin said on the CNBC Kudlow show Friday, May 1, that “When it comes to trying to resolve the interests of different stakeholders, there are well established rules under bankruptcy law for figuring out who goes first. We cannot have the president substitute the rule of law for the rule of whim, where he decides that one class of stakeholders is honorable – the unions – and another is dishonorable -- the word he chose was ‘speculators.’ How about ‘money changers?’”

Here’s the really frightening part for me -- to witness how quickly seemingly sober and intelligent people will surrender principle to the charismatic leader Obama. On the Kudlow show, in defense of the Obama proposals, Noam Sheiber of the liberal New Republic magazine said that “You’ve got to throw out traditional notions of seniority” in addressing solutions for the two car companies. “Traditional notions of seniority” are what are embodied in our law. Schreiber obviously thinks that the rule of law should be suspended by fiat when President Obama thinks it should be. Economics writer Irwin Stelzer, writing (link) in today’s NY Post, detects this liberal surrender to the will of Obama and so leads off his commentary with an apt parallel: “I'm saying that when the president does it that means it's not illegal,” shouts Frank Langella's Richard Nixon at Michael Sheen's David Frost in "Frost/ Nixon." We see that for some liberals, the morality of an action is determined not so much by the action itself but by who the actor is.

John M Greco