Jonathan Swift (1667-1745), the famed and multi-talented English writer, had a strong opinion about the way the world works, to wit:

“Promises and Pye-Crusts, are made to be broken.”

And, so it is today with contracts in the world of modern enterprise. Contracts are promises. The longer the time horizon, the greater the likelihood that its promise will be broken, in part if not in whole. For some time, America has been watching the unraveling of its formerly largest and strongest companies. In the news this week, it’s the auto companies which are breaking their promises to their workers. Imagine devoting your entire working life to a job based on a promise. Imagine then, when your working life has ended and cannot be repeated, you would be told that the promises couldn’t be kept.

In this context, broken promise is more than broken pie crust. It results in broken lives. Remember, it’s not just Chrysler and GM, the auto companies. It’s not just about organized labor. It has occurred time and time and time again throughout history. All too often the worker winds up with nothing at all; the auto workers are in fact lucky to wind up with anything at all.

Enough should be enough for every fair-minded American. No more promises of money and benefits. Every payday, let’s just take the money and run. That would mean removing the control of all benefits and promises from the hands of the employers. Cash for work. We can all have a system that then divvies up your pay into wages, health insurance, pensions, and every other benefit.

Harold Geneen, former Chairman of International Telephone and Telegraph, seems to agree with Jonathan Swift. Geneen said:

“It is an immutable law in business that words are words, explanations are explanations, promises are promises — but only performance is reality.”

Click here to contact your representatives in Washington, D.C.:
Our Elected Officials. Tell them you prefer to take the money and run.

– Byron

General Motors and the UAW have lots of serious problems. Just one is a sort of children’s fantasy from the first time they signed a contract. For decades, the contracts included a promise of future payments to retired GM auto workers. The key word is “promise”; the time horizon was far in the future. Nobody can predict the future, but the parties seemed to believe in a crystal ball. But both management and labor acted as if they did. Do you remember that Peter Pan said, “I don’t want to grow up.” And, we know that little children believe in Santa Claus. Did labor and management believe they could get something for nothing?

Fast forward to now. The auto companies’ UAW contracts to pay retirees are a tremendous liability. The analysts say that it requires total payouts of $73 for each hour of work done today. Of course, today’s active workers don’t make that much. That’s what you get when you throw the retiree payments on top of the wages.

It looks like the UAW has always gotten the best of management. Or, is it simply that both labor and management leaders could kick the can down the road? Union leaders could boast how good life would be tomorrow? And, management didn’t have to shell out any extra money right away. So, why are these unrealistic contracts allowed to exist at all? Other unions require that their employers contribute cash to their retirement funds every payday. For example, an active, working employee would get $20 per hour on payday. That would include both the wage and a contribution to that employee’s “pension fund.” At that point, the employer has no future obligation.

So here’s the obvious solution: Require that any new/future labor contract in the entire country be paid for with “cash today.” The Congress can pass such a law. The Congress can step in as the “grown-up” to keep the children’s fantasies from doing great harm. In fact, why shouldn’t everybody, union and non-union, have a mandatory pension plan which is funded with “cash today?”

References:

A workable solution for everybody is “The Lifetime Plan.”

Citigroup is again taking billions of your money. This week’s new bailout
of Citigroup is $20 billion. The company had already received $25 billion. That’s now $45 BILLION to “help” Citigroup.

Citigroup’s website says: “Citi is today’s pre-eminent financial services
company, with some 200 million customer accounts in more than 100
countries.” Think about it. Citigroup owns banks and operations in 100
foreign countries. If Citigroup needs money, let Citigroup start selling one company in each of those 100 countries. That’s the first way that a global giant can raise money.

Second, a year ago the annual report said Citigroup raised $30 billion in
short order as long-term investors provided new financing. At some price, capital is available to Citigroup even today. Stocks and bond sales could raise the money.

So what’s going on? Why is the U.S. Congress spending YOUR money to rush to “save” this bank? Why wouldn’t Secretary Paulson simply tell Citigroup that there is no bailout until Citigroup takes one of the two steps above. To repeat: 1) Sell valuable assets, and/or 2) issue stocks and bonds at the market price.

You might object that “it’s more complicated” or that “there’s an emergency.” However, every time a share of Citigroup is sold on the
Exchange, that means there is a buyer. That is true. You just can’t
have a seller without a buyer, right?

James Surowiecki in the New Yorker discusses the current stock price
of Citigroup. He just wrote, “In other words, at the moment, you could buy all of Citigroup for only a little more than what it clears in free cash
every year. . . . And if I’m able to buy the whole company for two times
free cash, does it really matter if I have to write down the value of some of its assets, since I’m essentially getting them for free.” I say
that the situation is such that Treasury Secretary Paulson just might
want to buy all of Citigroup rather than handing out corporate welfare.

That’s how nutty this bailout has become. Absolutely NO discussion
is occurring that says the capital marketplace of capitalism can function.
Like Citigroup selling its companies, GM can sell Chevrolet. Ford can
sell Mercury. And that’s the way capitalism works.

References:

The New Yorker, November 21, 2008:

The Citigroup Perplex by James Surowiecki.