In reading about the proposed bailout of the auto industry, I’d been bothered by
the figure that union workers are making $70/hour. It left me feeling very
unsympathetic to UAW and the auto workers but more sympathetic to GM, Ford, and
Chrysler management. After all, how could anyone compete when your labor wages
are so much higher?
Well, it turns out to be a dishonest calculation:
[Assembly Line](http://www.tnr.com/politics/story.html?id=1026e955-541c-4aa6-bcf2-56dfc3323682)

Let’s start with the fact that it’s not $70 per hour in wages. According to
Kristin Dziczek of the Center for Automative Research–who was my primary source
for the figures you are about to read–average wages for workers at Chrysler,
Ford, and General Motors were just $28 per hour as of 2007.

That $28 gets raised to $70 by taking benefits being payed out to retirees and
dividing by the number of active workers. Which is $42/hour.

Of course, the cost of benefits for those retirees–you may have heard
people refer to them as “legacy costs”–do represent an extra cost
burden that only the Big Three shoulder. And, yes, it makes it
difficult for the Big Three to compete with foreign-owned automakers
that don’t have to pay the same costs. But don’t forget why those costs
are so high. While the transplants don’t offer the same kind of
benefits that the Big Three do, the main reason for their present cost
advantage is that they just don’t have many retirees.

Of course, the contracts were renegotiated last year to reduce benefits, take
the auto industry off the hook for retirement benefits, and reduce wages:

It was a radical change that promised to make Detroit far more competitive. If
carried out as planned, by 2010–the final year of this existing contract–total
compensation for the average UAW worker would actually be less than total
compensation for the average non-unionized worker at a transplant factory. The
only problem is that it will be several years before these gains show up on the
bottom line–years the industry probably won’t have if it doesn’t get financial
assistance from the government.

So maybe the unions aren’t as responsible for the auto industries woes as commonly presented.

So the SEC in 2004 gave 5 firms an alternative rule to operate under, basically
loosening the standards. Guess what happened? Ah, the joys of a Republican
administration.
[Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers](http://www.nysun.com/business/ex-sec-official-blames-agency-for-blow-up/86130/)

The SEC allowed five firms the three that have collapsed plus
Goldman Sachs and Morgan Stanley to more than double the leverage they were
allowed to keep on their balance sheets and remove discounts that had been
applied to the assets they had been required to keep to protect them from
defaults.

…
The net capital rule also requires that broker dealers limit their
debt-to-net capital ratio to 12-to-1, although they must issue an early
warning if they begin approaching this limit, and are forced to stop
trading if they exceed it

…
the SEC, under its new Consolidated Supervised Entities program,
allowed the broker dealers to increase their debt-to-net-capital
ratios, sometimes, as in the case of Merrill Lynch, to as high as
40-to-1.

Some lessons can only be learned in hindsight. One of the claims that the
anthrax letters came from Iraq was because of the presence of silicon to make it
more easily air borne. So it turns out that the person that made this claim is
an expert but in a different area. Of course, since what he said is what people
wanted to hear his views were widely publicized and believed
Lesson 1: People’s area of expertise matters, not just that they are an expert
in something close. For example, football knowledge may help but doesn’t carry
over to hockey:
Scientist concedes ‘honest mistake’ about weaponized anthrax – Los Angeles Times

“I believe I made an honest mistake,” Jahrling said in
response to questions e-mailed to him for this article, adding that he had been
“overly impressed” by what he thought he saw under the microscope.
I should never have ventured into this area,” said Jahrling, who is a
virologist, referring to his analysis of the anthrax, which is a
bacterium. Jahrling’s initial analysis — and his briefing of officials at the
White House — was first detailed in a 2002 book by bestselling author Richard
Preston.

Of course, it’s horribly convenient for the FBI. One of
the arguments against Dr. Ivins being the person that sent the anthrax was that
he lacked the skilll to add the silicon. Now the person that made that claim
said he was wrong.

I swear I’m not a pessimist but this economy really has me worried. The fundamentals really do point to disaster! My next fear is that inflation is going to be seized on as the solution to our current crisis.
Housing prices haven’t hit bottom yet

“I don’t think we get strengthening in the housing market until late 2011 or
2012,” said Mark Vitner, senior economist for Wachovia, the nation’s fourth
largest bank and one that this month hired the number-two man from the Treasury
Department as its new chief executive officer to shore up its own growing
exposure to mortgage debt.
Before bottoming out, prices nationwide should fall 22 percent to 29 percent on
average from their peak, according to a report that Wachovia released last
Monday.