Comments on: Government Strongarm Tactics in the Chrysler Bankrupcy http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html Dispatches from a Small Business Sun, 12 Feb 2012 16:41:24 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Greg http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24908 Greg Fri, 30 Oct 2009 00:20:09 +0000 http://www.coyoteblog.com/?p=9448#comment-24908 Yes, it's a concentration of risk, but a political position like state treasurer is not all about diversifying risk. There's politics involved. Of course, buying distressed assets and losing on the bet is different than, say, investing in Chrysler over a period of twenty years. It seems the market priced the risk better than the Indiana treasurer. For a similar reason, you shouldn't expect a state insurance commissioner to necessarily act in the interest of following state law and reflecting actuarial principles when it comes to approving premium rates. That's particularly true if it's an elected position, or if the commissioner wants higher elected office. Yes, it’s a concentration of risk, but a political position like state treasurer is not all about diversifying risk. There’s politics involved. Of course, buying distressed assets and losing on the bet is different than, say, investing in Chrysler over a period of twenty years. It seems the market priced the risk better than the Indiana treasurer.

For a similar reason, you shouldn’t expect a state insurance commissioner to necessarily act in the interest of following state law and reflecting actuarial principles when it comes to approving premium rates. That’s particularly true if it’s an elected position, or if the commissioner wants higher elected office.

]]> By: gadfly http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24884 gadfly Thu, 29 Oct 2009 02:54:40 +0000 http://www.coyoteblog.com/?p=9448#comment-24884 The Indiana State Teachers Retirement Fund, the Indiana State Pension Trust and the Indiana Major Moves Construction Fund owned $42 million in old Chrysler bonds that they bought for 43 cents on the dollar or paying approximately $18 million. The bankruptcy court granted about $12 million repayment. My concern, as an Indiana resident, was why Mourdock and company would make such high risk investments from pension funds. I have always believed that he chased the $6 million loss into bankruptcy court to transfer blame to the federal government and protect his own ass from future fiduciary claims. The Indiana State Teachers Retirement Fund, the Indiana State Pension Trust and the Indiana Major Moves Construction Fund owned $42 million in old Chrysler bonds that they bought for 43 cents on the dollar or paying approximately $18 million. The bankruptcy court granted about $12 million repayment.

My concern, as an Indiana resident, was why Mourdock and company would make such high risk investments from pension funds. I have always believed that he chased the $6 million loss into bankruptcy court to transfer blame to the federal government and protect his own ass from future fiduciary claims.

]]> By: Tim http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24852 Tim Wed, 28 Oct 2009 17:05:40 +0000 http://www.coyoteblog.com/?p=9448#comment-24852 SB7, I agree that the economy exists to satisfy the consumer; but not to belabor the point, there's a huge value difference between software and the output of heavy manufacturing. Even look at retail software versus retail transportation. There's a two order of magnitude difference between the transaction costs. The point about failure modes was really to point out that there's other big differences between non-goods and goods manufacturing. Things like software or ad campaigns *don't* have these concerns. And like most skills; if they're not used, they'll atrophy. So, really, the point is that knowledge work, while it is work; isn't industrial. SB7, I agree that the economy exists to satisfy the consumer; but not to belabor the point, there’s a huge value difference between software and the output of heavy manufacturing. Even look at retail software versus retail transportation. There’s a two order of magnitude difference between the transaction costs.

The point about failure modes was really to point out that there’s other big differences between non-goods and goods manufacturing. Things like software or ad campaigns *don’t* have these concerns. And like most skills; if they’re not used, they’ll atrophy. So, really, the point is that knowledge work, while it is work; isn’t industrial.

]]> By: tomw http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24847 tomw Wed, 28 Oct 2009 14:38:27 +0000 http://www.coyoteblog.com/?p=9448#comment-24847 Was it noted what percent was in Chrysler bonds? There used to be an AC-Delco plant in Kokomo along with the Chryco transmission plant. Columbus has Cummins diesel. Indianapolis has a large [bzzt. BigPharma Co] Pfizer? Hoffman-LaRoche? pharmaceutical presence. So, even with just a few mentions, there is a variety of industries. If they have faith in their ability to run Indiana well, keep it from bankrupting its resident employers, why not invest strongly in those employers? If the Federal employees were constrained to obey black and white law, Indiana would have some portion of the Chrysler bonds in their account. To expect that the law would be ignored is to look for the red goose, white and black already having been sited... tom Was it noted what percent was in Chrysler bonds? There used to be an AC-Delco plant in Kokomo along with the Chryco transmission plant. Columbus has Cummins diesel. Indianapolis has a large [bzzt. BigPharma Co] Pfizer? Hoffman-LaRoche? pharmaceutical presence.
So, even with just a few mentions, there is a variety of industries. If they have faith in their ability to run Indiana well, keep it from bankrupting its resident employers, why not invest strongly in those employers?
If the Federal employees were constrained to obey black and white law, Indiana would have some portion of the Chrysler bonds in their account. To expect that the law would be ignored is to look for the red goose, white and black already having been sited…

tom

]]> By: Jim Collins http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24843 Jim Collins Wed, 28 Oct 2009 13:18:26 +0000 http://www.coyoteblog.com/?p=9448#comment-24843 Where would software be without the hardware that uses it? It's the hardware that requires the machine shops. Where would software be without the hardware that uses it? It’s the hardware that requires the machine shops.

]]> By: Brandybuck http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24829 Brandybuck Wed, 28 Oct 2009 04:11:21 +0000 http://www.coyoteblog.com/?p=9448#comment-24829 It's really easy to invest other people's money. I wish I had more opportunities to do it. It’s really easy to invest other people’s money. I wish I had more opportunities to do it.

]]> By: Mesa Econoguy http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24817 Mesa Econoguy Wed, 28 Oct 2009 00:39:14 +0000 http://www.coyoteblog.com/?p=9448#comment-24817 <i>Isn’t that terrible risk management policy, closely akin to Enron employees putting all of their savings in Enron stock?</i> Not really, because under non-bizarro world (i.e. actual bankruptcy law, and subsequent asset allocation rules) secured creditors, which State of IN was, had recourse. Stock is riskier than bonds, etc. Since Obamalini singlehandedly rewrote bankruptcy law to favor his political cronies and union thug allies, that left IN out in the cold (along with other secured creditors). It may have been excessive asset concentration in an unwise area, but under actual law (not Obamalini law), it wasn’t as risky as it actually turned out. Isn’t that terrible risk management policy, closely akin to Enron employees putting all of their savings in Enron stock?

Not really, because under non-bizarro world (i.e. actual bankruptcy law, and subsequent asset allocation rules) secured creditors, which State of IN was, had recourse. Stock is riskier than bonds, etc.

Since Obamalini singlehandedly rewrote bankruptcy law to favor his political cronies and union thug allies, that left IN out in the cold (along with other secured creditors).

It may have been excessive asset concentration in an unwise area, but under actual law (not Obamalini law), it wasn’t as risky as it actually turned out.

]]> By: SB7 http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24811 SB7 Tue, 27 Oct 2009 21:30:24 +0000 http://www.coyoteblog.com/?p=9448#comment-24811 Tim, I think it's a little spurious to ask how many machine shops you need to support software creation. Software often sits lower down on the food chain, as it were. While it may not cause as many people to be employed making inputs for a software company, it can cause many people to be employed using the output of a software company, or cause people downstream to increase their productivity. Besides, saying that something like heavy manufacturing is an economic engine because it requires more machine tools is just another way of saying that it requires more intensive capital investment. That means society is stuck devoting more resources to producing the same amount of value. If anything we should actually prefer to have industries with lower capital investment needs. The economy exists to satisfy the needs to the consumer, not of the producer. As to failure modes, I really don't see the point. Oil refining and consumer appliance manufacturing have really different failure modes as well, but we recognize them both as industrial. Tim, I think it’s a little spurious to ask how many machine shops you need to support software creation. Software often sits lower down on the food chain, as it were. While it may not cause as many people to be employed making inputs for a software company, it can cause many people to be employed using the output of a software company, or cause people downstream to increase their productivity.

Besides, saying that something like heavy manufacturing is an economic engine because it requires more machine tools is just another way of saying that it requires more intensive capital investment. That means society is stuck devoting more resources to producing the same amount of value. If anything we should actually prefer to have industries with lower capital investment needs. The economy exists to satisfy the needs to the consumer, not of the producer.

As to failure modes, I really don’t see the point. Oil refining and consumer appliance manufacturing have really different failure modes as well, but we recognize them both as industrial.

]]> By: ElamBend http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24810 ElamBend Tue, 27 Oct 2009 20:59:18 +0000 http://www.coyoteblog.com/?p=9448#comment-24810 He's wrong anyway on his point, the US is still a manufacturing behemoth and in terms of value, still number one. It's just that the things we make, like say huge GE tubines, are very expensive and complicated. That kind of technical expertise cannot be duplicated overnight or even through a decade. He’s wrong anyway on his point, the US is still a manufacturing behemoth and in terms of value, still number one. It’s just that the things we make, like say huge GE tubines, are very expensive and complicated. That kind of technical expertise cannot be duplicated overnight or even through a decade.

]]> By: Tim http://www.coyoteblog.com/coyote_blog/2009/10/government-strongarm-tactics-in-the-chrysler-bankrupcy.html/comment-page-1#comment-24809 Tim Tue, 27 Oct 2009 20:54:45 +0000 http://www.coyoteblog.com/?p=9448#comment-24809 Allen, yes; software is making something; but it isn't the same as physical manufacturing. For one thing, the failure modes, and their mitigation techniques, are completely different. Software doesn't have failures related to things like wearout, aging, and common cause variation. There's also a lot smaller value chain for non-physical manufacturing. For example, how many tool-and-die shops are needed to support software manufacturing, and how much does the software industry spend on tooling per year? It's this value add in the supply chain that makes industrial manufacturing an economic engine. I don't want the government to step in and pick winners and losers; like Michigan does.... er, is trying to do, but I think there's a real disservice to the discussion to conflate non-physical manufacturing (e.g. software) and durable goods manufacturing. They're both valuable; and the best government policy encourages both, mainly by getting out of the way. But, they're different. And, to answer Warren's question; government fund investment in local interests is pretty common. The two thoughts are that it props up the local industry; and I've also seen local industries use leverage to get the investment. It usually goes along the lines of: "Have the municipal retirement fund invest, or we'll move/shift jobs/shut down. And then you'll be sorry." It's the same kind of whipsawing that gets tax breaks for "job creation". Allen, yes; software is making something; but it isn’t the same as physical manufacturing. For one thing, the failure modes, and their mitigation techniques, are completely different. Software doesn’t have failures related to things like wearout, aging, and common cause variation. There’s also a lot smaller value chain for non-physical manufacturing. For example, how many tool-and-die shops are needed to support software manufacturing, and how much does the software industry spend on tooling per year? It’s this value add in the supply chain that makes industrial manufacturing an economic engine.

I don’t want the government to step in and pick winners and losers; like Michigan does…. er, is trying to do, but I think there’s a real disservice to the discussion to conflate non-physical manufacturing (e.g. software) and durable goods manufacturing. They’re both valuable; and the best government policy encourages both, mainly by getting out of the way. But, they’re different.

And, to answer Warren’s question; government fund investment in local interests is pretty common. The two thoughts are that it props up the local industry; and I’ve also seen local industries use leverage to get the investment. It usually goes along the lines of: “Have the municipal retirement fund invest, or we’ll move/shift jobs/shut down. And then you’ll be sorry.” It’s the same kind of whipsawing that gets tax breaks for “job creation”.

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