Professor Elam

Vehicle Miles Traveled Tax

In  a never ending quest to get more of your money, the Transportation Secy has suggested taxing us on the miles we drive, in addition of course, to the gas taxes we already pay. This would require all cars and trucks be equipped with a gps, a transponder, a clock and other stuff. This would tally how much tax you dowed depending on your road use. As if cars did not cost enough already.

They are serious about this, Obama rejected the idea but I suspect this is just a trial balloon to see just how far they can go.

Now to the critical thinking part. Why is this a great idea in Washington DC?

Answer

Because they will not be paying this tax. Like the 55 mph speedlimit, another lousy idea, this is a tax on particularly the western states where distances are great.  It takes less time to drive 50 miles in West Texas than it does to drive 10 miles in Houston. And no one drives in Washington DC as there is public transportation via subways that of course you and I pay for but do not get to ride. And of course there is no where to park in DC anyway. A parking space there in a building costs thousands of dollars.  And so the tax is all paid but those of us with miles to go before we sleep so to speak. Oddly the dim bulb governor of Idaho was for this, good grief he is a Republican, no wonder they are losing elections. This sounds so Ralph Naderish.

Yes this articleis on page 5A of today's SA Express news.

GM Slims Down

Swedish automaker Saab filed for bankruptcy in Sweden.

Interestingly the Swedish government did not come to the automaker's aid.

Saturn is for sale and will not be supported by GM beyond 2011, which in itself may be wishful thinking.  GM is required to show some re organization efforts so here we are. I did see a suggestion that UAW leaders should join GM CEO Waggoneer in taking one dolar a year until things improve.

City to Lease Market Square

ON Feb 15   the plan to sell money losing Market Square was kaput. Now the site may be leased to the Cortez Group which is already a tenant. The Mahoy and a majority of the City Council opposed the sale because

I think the level of anger was becasued even if we have city facilities that are loss leadersit still could be in the public interest to retain opeartions. And people thought the complex was important enough to the city, even if it is not profitable.

Mayor Hardberger

I am having difficulty following the logic here, can someone help me.

Ahem

Weekly Column

One upon a time What was good for GM was good for America. At this moment, I suspect that is still true.  Columnist Cal Thomas suggests suggests that we slowly let GM and Chrysler go. Let’s apply some critical thinking to that suggestion.  The companies that Cal mentions going out of business, Studebaker, Packard, Hudson (merged into Nash into American Motors) were frankly mere specs on the horizon as they met their demise. I can recall Studebaker closing its doors in Houston. The big dealer in Houston saw it coming and switched to Ford without missing a beat.  That will not be the case for a demise of Chrysler or GM today.  Here are the differences.

Unlike an airline, GM, at least, has a reach into thousands of locations in the US.  If an airline goes bust, a few gates become available at the airport. Your neighbor, the local Chevy mechanic is not laid off.

As GM and Chrysler are literally out of money, there will not be a ‘slow  way out.’ One day without more government loans, the money is gone and then…

All the inventory on all lots decreases in value. 
Customers are reluctant to buy those cars with little resale potential and questionable after the sale service

Dealers on the hook for mortgages at those dealerships, not to mention the floor plans for the inventory, are broke as are the debt holders.

Suppliers will probably go broke as they will not get paid from GM.  Then how will they supply Toyota et al?

Lawyers will only clog and delay proceedings in a bankruptcy court. That is much more liable to be a Chapter 7, GM Chrysler are gone, than a Chapter 11, GM Chrysler are re organizing.

There is no one to take those dealerships and mechanics and parts folks in this slowdown.  By the way, GM Chrylser  sponsored programs at community colleges and high schools will also disappear.

The Democrat Party will certainly disappoint the UAW that has supported them win or lose through every modern election.

And while we are no the subject of bailouts, how much money have Southern States spent subsidizing foreign auto makers to move to their states. Indeed,   the overpass and service road re-do on Zarzamora and 410 in San Antonio are highway works of art, no telling what Alabama promised to get Hyundai to their state.

By the way, another government subsidized (and I am not talking a few billion here) operation boosted prices 4.7% next month. And it is not laying off any workers, though there are numerous private ventures in the same business doing just that. There are no hearings on this agency, which you know as the US Post Office.

And if we are going to throw money at CITI and AIG without even asking where it went, well.... 

If tens of thousands of GM and Chrysler  dealer employees are out of work, they will surely all demand unemployment and governments will surely be on the hook to help them.  It seems to me that we can pay to have them do what they are doing or face a real mess in which case we pay them to do nothing again, a sort of jobs bank gone awry. 

As Thomas points out, the government ordered US car makers into war production at the start of WW II. It is hard to imagine telling Toyota or Nissan or Suzuki to do that. 

We shall see. Losing Braniff and Eastern was not a big deal, losing GM and Chrysler all at once, well....

 

Dennis Elam teaches at Texas A & M San Antonio and can be reached at [email protected]. 

Creative Bankruptcy Chapter Ten?

New problems are fostering new approaches to bankrutptcy. Now a new 'chapter' has been proposed to keep the bills paid. 

The fear of a GM bankruptcy is that it would cascade across the supplier breaking them and taking down the entire industry. 

That's Entertainment, Well Let's Re Think that Business Model

What next, DVDs sales down over 6%.

In my lifetime the delivery of electronic entertainment has undergone several changes. 

In music we went from records and reel to reel tape to eight track to cassettes to CDs to iTune downloads.

In movies we went from movies at the theater to television (really commercially successful in the 1950s) to cable television to VCR and Beta to laser disc to DVD to pay for view and internet downloads. 

The value of intellectual property is there but fleeting.  Trying to gauge how much a movie will make just got more difficult if one cannot count on DVD sales.  So put that in your calculator. How does one compute cost of capital and present value when future sales can vary so much?

And by the way, do not assume that everyone can just throw up a video on You Tube and be a success.

Unintended Consequences

I am not sure who coined the phrase Unintended Consequences, but here are a few UCs.

Lowering interest rates will not rescue the economy if no one borrows, no lenders lend, and no one wants the risk of debt anyway. However

let's suppose you have one million dollars in the bank and want to retire. 

Three percent interest rates means you can make $30,000 a year. Swell!  the environmental crowd has wanted Americans to consume less, they are now getting that wish !

So it looks to me like many baby boomers are going to be working for a long long time.  

And, if one takes social security, and the threshold to get it keeps going up in age, then one is taxed on the social security benefits if one makes above a certain level of income.  government wants more money to help folks don't you know and so the tax revenue dog keeps chasing its tail. 

Now many businesses are laying off workers. Let's take a simple view of the economy. Unless I am wrong there must be more people in the private sector working to support government than there are in government living off the rest.  And no matter how you slice it, taxes support government. And that would be local schools, counties, airports, states, and the Fed govt. 

How many layoffs will occur before we have as many in govt as we have in business?  This is already happening in California, New York City, and cities like Philadelphia. 

The Post Office just raised the price of stamps about 4%. No one is being laid off at USPS. Yet the volume of first class mail has surely shrunk as we all use electronic mail now.  FED EX and UPS are laying off, why not the Post Office?  

THe municipal bond market is falling apart. This is debt owed by local governments.  As property tax revenue falls and no one is laid off, local governments start to look like Las Vegas casinos, most of which will probably end up in bankruptcy. By the way, Trump TRMP casinos went bankrupt. Local governments have, like the casinos, assumed that property tax revenues always go up, ditto for sales tax revenue. Now that is not happening, no wonder they want a Washington hand out.   but where are local governments cutting payroll by actually cutting salaries. Preventive defensive action would require that now, not trying to fix the problem later as the City of San Antonio is now doing. 

For a look at how this is playing out, read about the Bank of America restructuring plan. 

Student Protests, It's 1968 All Over Again

I have made the point in class that socionomics indicates a turn to a much darker mood. I have noted the popularity of Twilight and True Blood (vampires) The Dark Knight (the city has no hope, since then CA and NY are going broke) and other negative signs. 

The Chicago Seven really got student protests going at the Democrat Convention in 1968.  After Tet in Viet Nam, student protests spread quickly across America, and the world.  

Now guess what, students in Greenwich Village at NYU

are protesting, barricading themselves in an admin building.  They want of course, lower cost education and while they are at it, to run the school. While O Reilley labels them pinheads, he is missing the socionomic point, trends start among the young and the young are ANGRY. Expect more serious anger in the very near future. 

As the economy slows down attendance and sponsorship at sports events is doing likewise.  NASCAR is looking for sponsors.  NBC became its own best client at the Super Bowl commercial fest.   I suspect that UTSA's entry into football, if it comes in 2010, could not be at a worse time. Perhaps the market will be trending up by then but the mood is most likely to be somber at best. 

 

From the Saturday Feb 21 SA Express, First Friday Draws Complaints

 

Residents have noticed more graffiti, fighting, and vandalism at the Frist Friday art event south of downtown. Neighborhood Associations have urged police to do more. Some are signing petitions suggesting the event be ended.

 

 "It's just one night a month, we need to get control of it."  That statement sums up the stock market, the economy, the housing market, etc.

Pay Your Neighbor's Mortgage?

Rick Santelli reports form the floor of the Chicago Board of Trade every day on CNBC. 

Yesterday he asked the traders if they wanted to pay their neighbor's mortgage bill. 

Click here

for a clip that was shown again this morning on CNBC.  The government is suggesting a cram down on mortgages, bankruptcy judges could force mortgage balances down. But someone will have to make up the difference on the bank balance sheet, 

Retained Earnings    xx

        Mortgage Portfolio    xx

that is the entry the bankruptcy judge would force. Well what about the 91% that are paying their mortgages, should all of us be forced to pay for those that cannot pay?

Good question. 

Here is an excerpt of what Rick had to say, 

If you can't watch the video - and you really should -- here's a taste of what he had to say about Obama's home mortgage plan: "The new administration is big on computers and technology - how about this, President and new administration? Why don't you put up a Web site to have people vote on the Internet as a referendum to see if we really want to subsidize the losers' mortgages, or would we like to at least buy cars and buy houses in foreclosure and give them to people that might have a change to actually prosper down the road and reward people that could carry the water instead of drink the water."

Clearly the market agreed with those sentiments. The Dow Jones tumbled to a six-year low yesterday .. and as I write these notes for today's show the futures index shows another bad day for investors.

An article in The Economist

takes a look at the Cannot or Will Not pay issue. 

Meredith Whitney

Meredith Whitney  

speaks with Maria Bartiromo about the financial crisis in this CNBC clip.  Meredith correctly predicted that CITI would cut its dividend and that the banks would become embroiled in a crisis.  Now she is leaving Oppenheimer to start her own advisory firm.   Let's hope she can continue to be correct!  She is on record as predicting CITI is not profitable in any of its core businesses. Hence, CITI has no balance sheet value. Clearly Meredith understands accounting and how to deconstruct a financial statement. 

Security analysis is a lot like sports, success brings recognition!  Here at San Antonio A & M we have a preponderance of women studying accounting, I expect the trend of women in accounting and finance to continue.