End of a bad year

H.M. Queen Elizabeth II summed up 1992 with the words: "Annus horribilis." Those two words are sufficent to describe 2008.

Since Americans are optimists by nature, let us look forward to better times in 2009.

Israel and Hamas

The end of the [more or less] ceasefire between Israel and Hamas in the Gaza Strip brings to mind something said, in 2004, by Bertie Ahern the former Taoiseach (Prime Minister) of the Republic of Eire:

"As long as we have a position - I won't move until you move - and won't do this until you do that - you'll never get anywhere."

He was referring to the situation in Northern Ireland but there doesn't seem to be a better, or more succinct, way of summing up the progress, or lack thereof, of the Middle East peace process since the 1979 Israeli-Egyptian peace treaty.

A new ice age (2)

Earth's orbit is far enough away from the sun that, without help, the planet would be too cold for liquid water and there would be no life as we know it.

Without carbon dioxide and other greenhouse gases in our atmosphere, we would have difficulty surviving. Mars has almost no atmosphere and therefore little ability to retain heat. As a result it is far colder than its distance from the sun would suggest. The temperature on Venus - at some 900 degrees Fahrenheit - is far hotter than its distance from the Sun would suggest: a runaway greenhouse effect is the cause.

Earth's atmosphere, historically, has acted as a thermostat and, for billions of years, has generally kept the planet at a temperature which permits carbon and water based life to exist.

The Vostok Project, completed in 1999, involved drilling into the Antarctic ice. Scientists recovered cores (going back 400,000 years through four complete glacial cycles) and were able to match atmospheric CO2 levels to temperature. The CO2 levels in the record were as low as 180 parts per million in the cold periods (i.e during ice ages) and reached 280 in the warm periods but never higher. Current CO2 levels are now in excess of 380 ppm so we can expect a very warm period in the near future.

By emitting so many greenhouse gases, we are conducting a massive experiment on our planet. Although there are many who doubt that the increasing levels of greenhouse gases put our way of life at risk, the burden of proof must be theirs. The risks of continuing along our present path are existential.

On the other hand, should we totally abruptly abandon the use of fossil fuels, it would not take all that many years, at least in terms of geological time, for atmospheric CO2 levels to drop precipitously. Global cooling and a new ice age would soon be the climate problem at hand.

Caution is necessary but inaction may be fatal.

A new ice age (1)

The environmental panic of the 1970s was the coming Ice Age. It was based on apparent evidence of just two decades of worldwide cooling together with a 1971 article in Science that suggested that an increase in atmospheric aerosols – such as sulfur dioxide and particulate matter emitted by diesel engines and coal fired power plants – would provide enough cooling to trigger a new ice age.

The two decades of global cooling was overestimated, and the trend was soon reversed, while the science was just plain wrong. At that time, no one understood the extent that other atmospheric constituents, such as methane, contribute as much to planetary warming as does carbon dioxide. Meanwhile the industrialized West has successfully cleaned up much of the sulphur and particulate emissions so their cooling effect is largely lost.

The Earth appears to be in a cycle of ice ages followed by warm periods. It is also true that, all other things being equal, we could expect another ice age sometime in the near – at least by geological standards – future. It is true, as well, that Earth's orbit lies outside the "habitable zone" around the sun where, absent other influences, liquid water can exist.

But all other things are not equal and human impact on our planet has certainly postponed the onset of the next ice age - perhaps for ever.

First, the invention of agriculture led to more and better food. The result was an increase in population followed by deforestation to provide additional arable land. As a result, more CO2 was released. Then, the domestication and spread of cattle, sheep, and goats for labor, milk, and meat increased the amount of methane released into the atmosphere. Finally, in the three hundred years since the beginning of the Industrial Revolution, the ever increasing consumption of fossil fuels – coal, oil, natural gas – has increased the load of heat retaining gases in the atmosphere to levels not found in the last 650,000 years.

Studies of Antarctic ice cores show a remarkable correlation between temperature and atmospheric CO2 levels so, unless we do something - but not too much, it looks like we are in for a hot one!

More tomorrow.

Banks and losses

Last year John G. Stumpf, CEO of Wells Fargo and Company which is one of the few relatively healthy large banks in the country, was quoted as saying:

"It is interesting that the industry has invented new ways to lose money when the old ways seemed to work just fine."

Perhaps, in 2009, banks will return to their proper line of work: making payments, collecting deposits, and lending money to those who are reasonably likely to repay it. I am not holding my breath.

The credit crunch will last until commercial bankers stop being terrified. Once that happens, they will start lending again. But when they do, we must hope that they remember how it works: assets provide something of a safety net - but no more - against default, actual repayment can only be made out of cash flow.

And it isn't going to be different next time!

Closed for the Holiday

Have a very Merry Christmas.

Customer service

It should not come as a surprise when one experiences good customer service but it does. Unfortunately, regardless of the economic situation, few companies seem to understand that the best way to keep a customer is to provide exceptional treatment.

Six weeks ago, the battery in my laptop died and the best that the manufacturer's website (name withheld to protect the guilty) offered was 'usually ships in four weeks'. So I went to www.batteries.com who shipped me a replacement battery almost immediately. Unfortunately, it did not work but, after a short telephone call, Batteries.com sent a return mailing label by e-mail and a new battery duly arrived in about a week.

So far so good. Regrettably the replacement battery was also defective. When I called, the customer service department asked, without having to be prompted, whether I wanted a second replacement or a refund. I opted for the refund and the return label, once more, arrived by e-mail in less than 15 minutes. No arguments, no fuss, no need for me to ask or have to fight for decent service.

While the company did not get my business for the laptop battery (I am now waiting patiently for the manufacturer to send one), I am still a customer for future battery orders and will recommend then to anyone who asks. It cost the company in the short term but, in the long term, they have kept a customer.

Would that more companies could learn this simple trick. The recession will end one day and customers will be back. Reputation and service will be critical in determining the number of currently dormant customers that return.

Living for ever

There seems to be a cultural imperative that demands that we live forever. Unfortunately, any attempt to do so risks making ourselves bored and boring - if not miserable - while we try.

In reality, I am of the persuasion that being rolled into the funeral home, totally worn out - but happy after an exciting ride - is the way to go. If I can manage to run out of money the day before I die, then I have succeeded at another level.

This joke, circulating around the Internet challenges the pretensions of the 'live forever at any cost' crowd:

I recently chose a new primary care physician. After two visits and exhaustive lab tests, he said I was doing 'fairly well' for my age. A little concerned about that comment, I couldn't resist asking him: "do you think I'll live to be 80?"

He asked, 'Do you smoke tobacco or drink alcoholic beverages?'' "No," I replied: "and I don't do drugs, either."

Then he asked: "Do you eat rib-eye steaks and barbecued ribs?" I said: "No, my other doctor said that all red meat is unhealthy!''

"Do you spend a lot of time in the sun, like playing golf, boating, fishing or relaxing on the beach?'' "No, I don't." I said.

He asked, 'Do you gamble, drive fast cars, or have a lot of sex?'' "No," I said. "I don't do any of those things."

Then he l looked at me and asked: "Then why do you care about living to 80?"

Enjoy your holidays because life is for today!

Statistics

As year end approaches, we will be bombarded by stories which attempt to sum up the year that is about to pass. There will also be many stories that purport to predict what will happen next year.

Most of these stories will be packed with statistics - many incomplete, others simply misleading and some that are almost impossible to interpret. Since few of the authors, and even fewer of the readers, have ever studied Statistics, we are well advised to be cautious in our interpretation and use of the information provided.

Aaron Levenstein summed up the situation particularly well with this thought: "statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital."

Fixing things

The world is full of people who are severely mechanically challenged. For these people, fixing things can best be categorized by the statement: "this is a problem that can be solved by the application of cash."

Then there are those who claim that anything can be fixed by hitting it with a hammer. While sometimes (often?) true, knowing where to hit, and how hard, takes great skill and training.

For the rest of us, with limited mechanical ability, there are only two tools: duct tape http://tinyurl.com/5g6ayp and WD40 www.wd40.com If it moves, and it’s not supposed to, use the duct tape. If it doesn’t move, and it should, use the WD40.

Bailing out the economy

Here is an analysis - only partly tongue in cheek - of the government's economic bailout program http://tinyurl.com/4vuhwd offered by former Senator Fred Thompson. In this short video, he suggests that we got into the present mess as a result of too much spending and borrowing and that the government's solution is to do much more of the same.

If political incorrectness is the act of challenging conventional wisdom, then Senator Thompson is one of the masters of that valuable art.

Strategy and achievement

The late Professor John W. Tukey, when he was Chair of the Department of Statistics at Princeton University, summed up the strategic issues facing most organizations this way:

"People, researchers, companies and various other institutions usually make one of three kinds of error:

1. Cannot define the problem they need to solve in order to move forward.

2. Define the right problem but solve it too late.

3. Define and solve the wrong problem."

While this describes President Bush's administration all too well, it is not clear whether the Administration or Congress is more at fault. Unfortunately, even if President-elect Obama's administration turns out to be competent, it will be able to achieve little - at least in the long term - unless Congress can manage to prove Professor Tukey wrong.

Too good to be true - again

It is possible to have some – but only a little – sympathy for the victims of the Ponzi scheme operated by Bernard Madoff. His pitch was that he offered really good, although not spectacular, returns regardless of market conditions. There was at least some level of plausibility since hedge funds – big losers this year – used to make the same claims.

On the other hand, there is much evidence to show that consistently beating the market for any extended period of time is rare. Those who doubt this last statement should ask Bill Miller, an honest and skillful mutual fund manager, from Legg Mason www.leggmason.com who, amazingly, beat the market for some fifteen years but whose formerly stellar reputation is now much diminished..

The real lesson, endlessly repeated and endlessly ignored, is that when something looks too good to be true, it probably is. Even if it is true, for a while, there is often a painful ending.

The delicious irony in this case is that Mr. Madoff’s name is pronounced “Made Off” as in ‘he made off with their money’.

Nothing wrong in Illinois?

Illinois Governor Rod Blagojevich claims that he has done nothing wrong and, therefore, has no reason to resign. What he really means is that he has been arrested, charged and released on [fairly modest] bail, but has not yet been convicted of any crime. Given the presumption of innocence in American criminal law, that is true but falls far short of being the whole truth: the evidence of wrongdoing, so far, appears overwhelming.

There are many things that are, or were, perfectly legal but, nonetheless, wrong. Slavery, racial segregation, denial of women's right to vote are major examples from the past. A modern legal, but wrong, curiosity is the denial of voting representation in the United States Senate and House of Representatives to some four hundred and fifty thousand citizens who reside in the District of Columbia. It is not hard, either, to think of things that were illegal but right: the Boston Tea Party, America's unilateral Declaration of Independence and, not least, Rosa Parks's famous refusal to give up her seat on a bus.

Those who remember President Clinton's most memorable phrase, "it depends what the definition of 'is' is", will continue to be appalled to learn of yet another gross pollution of our language by those who possess law degrees.

It is no surprise, at least to this writer, that [soon to be former?] Governor Blagojevich is an attorney. He is, also, a member in good standing of the ignominious company of Senators Ted Stevens and Larry Craig who both, notwithstanding their convictions - one by a jury and the other as a result of a guilty plea, still maintain that they did nothing wrong. They, too, declined to do the right thing by resigning from the United States Senate.

Banks aren't lending

Politicians are agonizing over the fact that banks are not using taxpayer funds (bailout money) to increase lending. If they don't understand what is going on, then they are showing greater than usual stupidity. If they do know what is going on and are posturing - again - it only shows that hypocrisy is a critical part of the foundation of a political career.

Here is what is really happening. Banks indulged themselves with years of promiscuous lending to people, and businesses, whose cash flow, and therefore ability to repay, was doubtful. They could manage this magic because they could package the loans into strange and complex securities that were sold to investors whose greed greatly exceed prudence. Having done so, they could declare profits.

Unfortunately, these banks then took the next steps to disaster. They loaned money to these investors and, even worse, bought many of the toxic securities based on worthless loans. The result was, and continues to be, vast losses.

Now investors are missing, as they contemplate their losses, and bank loans can no longer be unloaded. Since banks have to keep these loans, they are the ones who will suffer if the borrowers default. Not surprisingly, they are taking much more care about their lending decisions.

If politicians are surprised by the actions - or rather non-actions - of banks, they should contemplate this question. Would you lend your own money to someone who is unlikely to repay you?

Ice storms in New England

On Friday a severe ice storm struck northern New England and at least 1.5 million households lost power. Some will not have electricity back until the end of this week.

Since ice storms are not exactly rare in that part of the world, it might have been a good idea to have buried the power lines. That [sensible] course of action, however, increases capital costs which are borne by the utilities and their customers. Perhaps the economics work better when a public company does it the cheap way - at least in the short term - with overhead wires and then gets Federal Disaster Aid when the inevitable happens.

This sounds like the Wall Street bailout again: just another case of privatizing profits and socializing losses.

Infrastructure and economic stimulus

Part of the reason that we are so rich is our investment in infrastructure: roads, bridges, railways, dams, water and sewer plants, pipelines, airports and the electrical grid to name a few. For the past thirty or more years, however, we have been addicted to consumption. As a result, not only have we not completed - let alone started - much in the way of new infrastructure projects, we have grossly neglected the proper maintenance of our existing infrastructure.

President-elect Obama plans to stimulate the economy by spending vast sums to improve and restore our infrastructure. At first sight, this looks good and there is little opposition to maintenance projects. The problem is that so-called shovel ready, deferred maintenance, projects account for, perhaps, $120 - $150 billion in spending. Since Senator Obama is suggesting that $600 - $750 billion (perhaps more) of economic stimulus is needed, it is not clear what projects will actually be funded.

The first issue is that major infrastructure projects take a lot of time to plan, for bids to be requested, and for contracts to be awarded. The second, and probably greatest problem is NIMBY - or Not In My Back Yard. People just don't want electrical transmission lines, power stations, new roads and rail, not to mention sewage treatment plants or trash incinerators anywhere near where they live.

Worse, there is an influential subset of extremists, highly skilled at using the legal system to impose major delays on infrastructure projects, who want us to return to a rural ideal that never actually existed. Their philosophy can be summed up with the word BANANA - or Build Absolutely Nothing Anywhere Near Anything. Between NIMBY and BANANA, it will be a great surprise if anything much gets done in a timely manner.

All of which brings to mind the old, and cynical, definition of an environmentalist as someone who already has his cottage by the lake and who is resolutely opposed to any future building.

Malicious thoughts of the day

Tom Donlan, Editorial Page Editor for Barrons Magazine http://www.barrons.com/ is responsible for today's malicious thoughts.

Mr. Donlan is a student of capitalism and the author of a couple of very worthwhile books http://tinyurl.com/donlan . He strongly opposes a bailout of the automobile industry but, being a realist, he recognizes that three large and grossly mismanaged companies will soon be the recipients of cash that, if not just created out of nothing, is extracted, under duress, from the long suffering taxpayer.

Mr. Donlan also accepts that, having thrown cash at the Detroit Three, the Administration and Congress will create a so-called Car Czar to supervise the waste of our hard earned money. Mr. Donlan - and here is where the malicious thoughts are found - offers some names to fill this post. He starts with former Vice President Al Gore on the grounds that Mr. Gore might come to understand, at first hand, that Detroit doesn't build fuel efficient cars because the average citizen is not yet interested in paying through the nose for undersized and underpowered mini-boxes.

As an aside, the [Hybrid] Toyota Prius is ugly. It is bought mostly by the trendy 'see how green I am' crowd. Evidence for the nature of the Prius's owners is found in the fact that the Honda Civic Hybrid is just about as fuel efficient, a little larger, no more expensive compared to its gasoline engined cousin than is the Prius, and is much better looking. Sales, however, are nothing special because the Civic fails to do a decent job of advertising the green credentials of its owner. In this case, being ugly appears to be one of the Prius's critical design features.

Having offered up Mr. Gore as the sacrificial lamb, Mr. Donlan then provides the names of some very competent executives (Jack Welch, Lee Iacocca and Ross Perot) before suggesting a person for whom 'paybacks are hell' is an appropriate description. Mr. Donlan's reasoning is that, since the United Auto Workers Union is at least fifty percent responsible for the automobile industry's current mess, it would be only fair that UAW President Ron Gettelfinger be given the fruitless task of trying to sort out the industry.

If new loans would help the Detroit Three get their acts together, why won't the private sector provide the money? Even though the U.S. economy is suffering from a serious credit drought, the answer to that question should be obvious.

How hard is it to understand that new loans to the Detroit Three fall into the category of 'throwing good money after bad'? Since it doesn't really matter who is appointed to supervise the delayed death of three once proud companies, we might as well allow ourselves some small entertainment as yet more of our cash goes up in flames.

Political correctness

Political correctness is an ever present pollution of public discourse. Resistance to such an abomination, however, should never cease because, in a manner that George Orwell would have well understood, political correctness greatly increases the sloppiness, and dishonesty, of our discussions. The result is that decisions and actions are deeply flawed.

I have been unable to find a source for this definition of political correctness but it sums up the situation well:

'Political Correctness' is a doctrine fostered by a delusional minority, and the mainstream media, which holds forth the proposition that it is entirely possible to pick up a large lump of manure by the clean end.

Enough said.

Investing

Some companies, but not many, make a great deal of money during a gold rush: most make little or nothing. The same applies to whichever investment strategy is all the rage - whether it be real estate, dot coms, emerging markets, alternative energy or something else that has caught the eye of the mob.

The people who make solid - just not spectacular - profits in a gold rush are those who supply picks, shovels, beans, transport and, most particularly, saloons. When the next gold rush starts - and there will be one someday - keep in mind that investing in the supporting infrastructure is certainly safer, and may well be much more profitable, than trying to pick winners.

Arrogance and its consequences

The best, and fastest, way to get into real trouble is to start believing your own press releases. A little modesty, a lot of humility, and an aversion to the spotlight, except when strictly necessary, will do much to prevent self-inflicted wounds.

A simple enough program, but given human nature, not all that easy to execute.

Getting an early start on scandal

One down. How many more?

Since there is no evidence that he is involved, it is not quite fair to blame President-elect Obama. However, a major scandal - with some indirect links to him - has erupted even before he has taken office.

Democratic Governor Rod Blagojevich of Illinois was arrested today. He is accused of trying to collect cash, and other financial benefits, in exchange for making the appointment to the Senate seat being vacated by Mr. Obama.

Mark Twain famously said: "It could probably be shown by facts and figures that there is no distinctly American criminal class except Congress." On the other hand, the number of corrupt State, City, and Municipal politicians, who have been arrested since Mark Twain's time, is legion. Twain should, perhaps, have deleted the word 'Congress' and substituted 'Politicians'.

For all our fulminations about corruption in third world hell holes, we sometimes look just like them - only richer.

UAW might take an equity stake in General Motors

A report today on the Wall Street Journal website http://www.wsj.com/ suggests that the United Auto Workers Union is considering taking an equity stake in GM in exchange for "concessions". The proposed concessions are a deferral of the required payments into the VEBA Health Care Trust and suspension - but not abolition - of the Jobs Bank where laid off employees are paid nearly their full wages to sit around, play cards, and "be available" for work if needed.

These concessions are totally inadequate. What is needed is a complete abrogation of the productivity destroying work rules contained in the current UAW contract. That layoffs will be the result is inevitable and unfortunate. That work rule reform is vital to the long term existence of the company is the 800 lb gorilla in the room that few are willing to discuss.

If work rules are flexible, pay rates for blue collar workers can be really quite high. If work rules are inflexible - turning every management decision into a negotiation - minimum wage may be more than the business can afford. The problem is not the amount of money that the workers get for working: it's the amount that they get for not working.

The last major buyout of a large and financially desperate company took place in 1994. Then, the Air Line Pilots Association (ALPA) and the International Association of Machinists (IAM) took a 55% equity stake in United Airlines on behalf of their members. They also gained three seats on the twelve member Board and right of veto over the appointment of the Chairman and CEO.

Sometime employee ownership works, but often it is a disaster for all concerned. In the case of the United deal, the unions found themselves with a conflict of interest between their duty to represent their members and their fiduciary duty to all of the shareholders - including the Employee Stock Ownership Plan (ESOP) through which the employee shares were held.

Needless to say, ALPA and the IAM resolved the conflicts, over both wages and work rules, in favor of the short term wishes of their members. Management incompetence, union intransigence, and the dysfunctional economics of the airline business drove the once proud airline to the edge of bankruptcy. The aftermath of the attacks on September 11, 2001, which strained even relatively healthy airlines, just pushed United over the edge. A Chapter 11 filing took place in 2002.

The UAW's officers are elected by its members - and these officers are very well paid. That being so, the UAW will resolve its conflict of interest in favor of the short term interests of its members rather than the company's financial health. The result will be that the inevitable is deferred, but only for a short while, and taxpayers suffer much for little gain.

GM must be restructured: Chapter 11, with a tough Bankruptcy Judge to knock heads together, is the place do it. Sooner, rather than later, is better.

On being connected to popular culture

I am quite proud of my ability to say that my connection to popular culture is a bit tenuous. In spite of being highly curious about many things, I am also short of time. As a result, I do not seek it out. When it finds me, however, I find much of it to be jaw-dropping, and often entertaining, but still low on my priority list.

In spite all that, I am glad to be able to say that I do not meet this, perhaps slightly dated, test of an intellectual snob as proposed by former CBS News Anchor Dan Rather:

"An intellectual snob is someone who can listen to the William Tell Overture and not think of the Lone Ranger."

The law that really governs the Universe

Physicists are working hard to develop a so-called Theory of Everything which will explain how (although not necessarily why) the universe exists and works. Their major problem is that two really useful theories that work very well, in their own areas, are incomplete and incompatible.

(For the curious, the first of these theories is General Relativity, proposed by Albert Einstein, which deals with time, space and gravity from atomic to galactic scales. The other is Quantum Mechanics, developed by Neils Bohr, Werner Heisenberg, P.A.M. Dirac, and Richard Feynman, to name just a few, which is equally useful when dealing with sub-atomic particles and their actions.)

In reality, they are all wasting their time. The single law that governs the Universe has already been discovered and is known as the Law of Unintended Consequences. One formulation reads as below:

"The more actions that a organization (usually a government) takes, the more likely that really unpleasant and unpredictable things will happen to innocent bystanders while the totally undeserving raid taxpayers' wallets with total impunity.

Let us hope that Congress, the Federal Reserve Bank, President Bush, President-elect Obama and the rest of the world's political leaders (and central bankers) keep this in mind as they desperately search for a way to end a nasty - but necessary - recession.

Political Dynasties

Republican Senator Mel Martinez of Florida has announced that he will not run for re-election in 2010. The only curiosity is that he plans to leave - after only single term - when Senators normally stay well past their 'best used by' dates. That a politician, absent some great scandal, should decide on early retirement is refreshing and we should all resolve to encourage more of this behavior.

Unfortunately, former Governor Jeb Bush has stated that he is considering a run for the soon to be open seat. After Senator Prescott, followed by Congressman and President George H.W. who was followed by Governor and President George W., the idea that another member of the Bush family wants to occupy high public office is offensive.

We don't need any more Kennedys, Udalls, Gores, Daleys or Clintons either.

There were discussions in the Continental Congress about offering the job of King to George Washington. Wisely, and greatly to our benefit, he refused - in quite strong terms. His attitude is expressed well in a 1786 letter to John Jay (Secretary of Foreign Affairs):

What astonishing changes a few years are capable of producing. I am told that even respectable characters speak of a monarchial form of Government without horror.

From thinking proceeds speaking, thence to acting is often but a single step. But how irrevocable and tremendous! What a triumph for our enemies to verify their predictions! What a triumph for the advocates of despotism to find that we are incapable of governing ourselves, and that systems founded on the basis of equal liberty are merely ideal and fallacious!

Would to God that wise measures may be taken in time to avert the consequences we have but too much reason to apprehend.

The intent of the following clause, found in Article 1, Section 9 of the U.S. Constitution, also clearly demonstrates that the founders intended to avoid a hereditary aristocracy:

No title of nobility shall be granted by the United States:

While members of the above mentioned political dynasties have not actually been granted titles of nobility, they seem to believe that they are entitled to rule us. Regardless of their party affiliation, or proposed policies, they may all count on my determined opposition to their political ambitions.

Stupid PR stunts

Stupid PR stunts are generally the province of crazed rock station DJs.

Now the CEOs of the Detroit Three automobile companies have joined this not very distinguished group. Responding to - arguably justified - criticism about their use of executive jets on their begging mission to Washington two weeks ago, all have chosen to drive, using hybrid cars made by their companies, to Washington for their Congressionally mandated do over.

The things that turn this into a stupid PR stunt - and reduce their credibility - are these:

1. Detroit is approximately 520 miles from Washington DC. Unless you have a family, when the cost of airfares increases by the number of persons, and really need a car at the other end, driving doesn't make economic sense.

2. Hybrid vehicles don't really get much better mileage than regular cars at highway speeds. The real savings are found in stop and go city driving. If they had wanted to save fuel, they should have driven in modern diesel powered cars.

Unfortunately, none of the Detroit Three make modern diesel powered cars.

3. Driving at the speed limit - mostly 65 and 70 mph on this trip - and allowing for reasonable stops for food, fuel, and bathroom breaks, this is a ten to eleven hour trip. Again, unless the objective is to save a lot of money, flying from Detroit to Washington DC only takes about four and one half hours - even allowing for check in hassles and air traffic delays.

These CEOs should have better things to do than driving for ten hours. Or did they employ drivers at substantial additional cost?

The American people are not so stupid as to be taken in by this publicity stunt. Nor are they so vindictive that they would consider forcing these executives to buy coach class air tickets instead of travelling first class.

The CEOs might, however, have been wise to have experienced, at first hand, the hassles and discomfort that most of the rest of us must endure at the hands of the airline industry. Had they done so, they would have held the moral high ground over publicity seeking Senators and Representatives who have long forgotten what airline [no] service really means.

Beggars on the Hill

The Detroit Three came back to Congress yesterday with their alleged business plans.

General Motors and Chrysler did little more than hold out their tin cups demanding large sums of taxpayer money before Christmas, and more in January, to avert a collapse. If this is the case, why did senior management not disclose it when they testified before Congress last month? If they did not know, what does that say about their competence?

This just looks like an attempt to panic the Congress into throwing money. As a first step, Chrysler and General Motors CEOs Robert Nardelli and Richard Wagoner should resign - without any severance pay.

As a second step, Cerberus Capital, a very large private equity fund that owns 80% of Chrysler, should immediately institute a capital call for at least $4 billion while simultaneously converting its existing loans to Chrysler into equity. Why should the long suffering taxpayer put up cash if the managers of Cerberus are unwilling to ask its investors to contribute more capital?

There is probably no solution for the problems of General Motors other than Chapter 11. It has few exciting products among an excess of brands. The scare stories about the impact of a Chapter 11 filing are undoubtedly overblown.

Only Ford seems to have a plan and the products, in the form of high quality small and medium sized automobiles designed and made in Europe, to succeed. The company is asking for a $9 billion backup line of credit that - just possibly - might not be required. Provided that such a line is accompanied by a substantial issue of warrants - and therefore the possibility of a decent return to taxpayers - the risk of backing Ford appears to be reasonable.

There has been enough promiscuous scattering of taxpayer cash. Let us hope that Congress - even though the Democratic Party can often be described as a wholly owned subsidiary of the AFL-CIO - will look at these requests with the objective of ensuring value for our money.

But I am not holding my breath.

Secretary of State

President-elect Obama has announced that he will nominate Senator Clinton to serve as Secretary of State.

A charitable analysis reaches the conclusion that Senator Obama, who has expressed much admiration for President Lincoln, is following a similar 'Team of Rivals' strategy. That is, he is willing to assemble a cabinet of 'all the talents' and is confident that he can lead them effectively. If so, this is a refreshing change from the current administration whose selection criteria emphasized loyalty and ideology with little concern for competence.

For the more cynical, Senator Clinton's appointment proves an old political adage: "keep your friends close and your enemies closer." Referring to FBI Director J. Edgar Hoover, President Lyndon Baines Johnson's version of this was, characteristically, much more basic: "better to have him inside the tent, pissing out, than outside the tent pissing in."

Whatever Senator Obama's motivation, he has effectively removed the threat of a 2012 primary challenge by Senator Clinton and, quite possibly, ended her political career. Whether she has the skills to be an effective Secretary of State remains an open question.

Responding to hard times

The United States economy is either in recession or heading there very rapidly.

Companies, responding to the ultra-short termism of Wall Street - and knowing that a dollar saved is a dollar added to profit, are doing their best to cut costs. A corporate myth is that there are some easy places to cut quickly without apparent immediate harm: advertising and marketing, as well as research and development are among them. As a bonus, there is often a quick rise in the company's share price.

At least the claim is that there is no harm.

Except that hard times end and good times return. When they do, potential customers have forgotten those who cut back on their advertising and marketing efforts. They flock to buy from those who have maintained or grown their share of mind.

Much the same applies to those companies that slash research and development costs. When customers regain the urge to buy, these companies have few new and interesting products or services to sell.

Companies need to distinguish between waste - and there is waste in almost every department - and expenditures that are really investments. The campaign against waste and duplication should be part of a continuous improvement program (as invented by Toyota) rather than a panicked response to hard times.

Who is to blame, other than senior management, when the announcement is made that, for example, two thousand white collar jobs will be eliminated at a major company? Why did that same senior management permit these two thousand surplus, and presumably unproductive, people to be hired in the first place?

Unfortunately accountability, at least above a certain level of management, is lacking. It is refreshing, although rare, to see bonuses cut or eliminated. Golden parachutes (an Orwellian term describing rich rewards for failure) remain a curse upon business, however, and seem unlikely to vanish anytime soon.