Welcome To The Depression...

[Gary Ruben]

Re: Welcome To The Depression...

These bailout packages are a huge scam. Keeping zombie companies "alive" with taxpayer money is criminal. Any politician who thinks this is a good idea should lose their job pronto. Why should my tax dollars go to subsidizing other people's jobs and lifestyle choices? No one said you are guaranteed a four-bedroom, two-and-a-half bathroom house with a two-car garage and all the crap you can fit into it (and your own storage unit besides).

I'm with you until the final sentence. The guys who I know (or knew) who worked for GM didn't live that kind of lifestyle. I notice they cut 20 bucks an hour from the wages recently without impacting the pay packages. From this I take it that was things like benefits which aren't really part of the disposable weekly income a worker gets.

Some of the jobs at GM aren't very nice. When I did service work there (for a utility), they had the battery plant. I think they wanted women who were not of child bearing age to work there.

You should have seen some of the S*ithole places I had to go to over the years. I don't care how much the workers made. It wasn't enough.

My prediction:

As the recession is ending, oil prices will skyrocket again. Economy will hum along for a while. Continuously high oil prices will cause another recession. This will happen over and over, with ever-increasingly higher prices for oil, followed by recession after recession. People will complain, some will change their behaviours, but mostly people will rail against conglomerates like BP and ExxonMobil yet still drive to the corner store in their SUVs and wonder "gee why isn't anyone out there looking for more oil to consume?"

People shouldn't be worrying about tourism. That's destined to be a thing of the past. We are presently living in the golden age of travel. In 20 years' time I expect the price of air travel to be so expensive almost no one will be able to afford it. My recommendation: if there is somewhere you always wanted to go by air, and you have the money, GO SOON.

That could happen. There could also be a realization globalization has failed. We could move back to an economy where we use what is manufactured right here in Canada. Right now so much is imported. We are looking for a new set of pots and pans to replace ours which are some 30 or 40 years old. Made in Canada. Can't find them. All we've seen are imported. The government is allowing things like steel mills and mines to be bought by foreigners. When things get bad they shut down productiion in Canada to increase commodity prices for their product from other countries. It costs you money because the workers collect EI and don't contribute as much to the tax base.

With GM, the U.S. government will end up with an equity interest in the new company. Our government will not. Sharp bargaining! We slap billions into that company and the U.S. government calls the shots. It's like our government is waiting for the Yanks to toss them a few peanuts.

As long as the politicians look at these individual happenings in isolation, I expect that we are going to see more deficit spending. I personally worry about the day that countries like China decide that they don't want to prop up the high-consumption lifestyles of the typical North American and pull the plug.

As for the ramblings of political party X or Y, it is all pretty meaningless. I wish some politician would stand up and say:

"People of Canada: we are screwed. We acted like teenagers partying on the weekend while the parents were away. That time is over. Time to get serious."

I don't expect the deficit spending to end soon. If you look at the last conservative government, Mulroney's, in 9 short years they pretty much doubled our national debt. I think they call it fiscal conservatism.

What's awesome is the way our government didn't see this coming. Not that I think Liberals have a solution.

Have a look at the liberals here in Ontario. Every time they win a majority they raise our taxes. First it was the health tax. Now it's the harmonised GST and PST.

People must love it. They just keep winning election after election.

[Tom O'Donnell]

Re: Welcome To The Depression...

A few points:

1) Cutting $20/hr in benefits isn't bringing a tear to my eye. I work for myself. I get no dental, retirement or any other benefit. I suspect most people are in pretty much the same boat. My lack of sympathy for these autoworkers is total.

2) I expect pensions, other than those for civil servants, to be a thing of the past. Especially defined benefit plans. These sorts of benefits just bankrupt companies.

3) The price of oil will continue to rise (though not without downward bumps), and that rise will generally accelerate. This will cause the price of literally everything to continue to rise and accelerate. Not just obvious things like air travel and automobiles, but also things like food and clothing.

4) I expect that at the end of this recession, inflation will become a huge problem. Inflation is a thief that steals from the saver.

5) Buying all this consumer crap will become extremely expensive. Since many, many people are employed in the making of crap, many of these people are likely to lose their jobs.

6) One solution to the rising unemployment problem: shorter workweeks. Another: less petropower and more manpower in industries like farming.

Finally, this obsession of governments with stuff like the GDP is alarming. Could it be that the reason people are spending less is because they have all the crap that they need and then some? Perhaps they are saving their money and realize that it is in government's interest to have people consume more and more while earning more and more, with the government's hand in their pocket every step of the way? Maybe people realize that what's good for the government is not necessarily good for themselves? Nah, probably not.

[Ed Seedhouse]

Re: Welcome To The Depression...

1) Cutting $20/hr in benefits isn't bringing a tear to my eye. I work for myself. I get no dental, retirement or any other benefit. I suspect most people are in pretty much the same boat. My lack of sympathy for these autoworkers is total.

None of these workers were involved in the decisions that brought the disaster upon their company, yet they are the ones who will pay most for those decisions. The upper management folks who made them, on the other hand, will take their nice fat bonuses and retire, or maybe go and run another company into the ground. The losers will be those who did that actual work making the cars and the folks who invested their money into GM stock.

It's rather as if you beat me in a chess game but I get the point! Hardly fair.

[Tom O'Donnell]

Re: Welcome To The Depression...

People are not obligated to work for GM, or indeed forced to work for anyone. They could create their own small business and be their own boss.

People are not obligated to buy GM stock, or indeed the stock of any company. They could invest in a variety of alternatives under which they have more control (e.g. buy investment properties and become landlords). Alternatively, the workers could have pooled their money and bought stock in GM and tried to gain some sort of controlling share, I suppose. After all, we are talking about hundreds of thousands of workers making good wages at a company that has been around for a century. Surely that gave them ample opportunity to buy up a good portion of it.

Unfortunately, taxpayers ARE forced to pony up to keep these zombie companies in business. I personally have never owned a car, GM or otherwise, and do not see the auto sector as essential, sorry.

If I went to the government and asked for a bailout for my chess teaching business I would be laughed at, and rightfully so. I supposed I would be told that I should save my money for those rainy days, which is what I do. This is despite the fact that I make a fraction of what the average autoworker makes, even now.

[Gary Ruben]

Re: Welcome To The Depression...

None of these workers were involved in the decisions that brought the disaster upon their company, yet they are the ones who will pay most for those decisions. The upper management folks who made them, on the other hand, will take their nice fat bonuses and retire, or maybe go and run another company into the ground. The losers will be those who did that actual work making the cars and the folks who invested their money into GM stock.

It's rather as if you beat me in a chess game but I get the point! Hardly fair.

The workers did OK over the years from what I can see. The union used to get as much from one of the companies as it could. Otherwise there would be a strike. I doubt any of the three big companies could afford to allow the competition to build product while they were closed down for 6 months. Once a model year is lost there is no getting it back.

In the good years they got decent contracts at one of the companies and it was the pattern for the other two.

They all shared the good times and now it's the bad times.

I've bought 2 new GM autos over the years. The first time was in 1967. The car was hard on oil within 500 miles. They told me it would likely seal up. The car kept going through oil like feed through a goose. At 5,000 miles they rebuild the engine. That didn't make me really happy but the car worked fine after that until I got rid of it. In 1974 I bought another new GM. The trunk leaked. I used to take it into the dealership and show them. They would keep the car until it stopped raining and called for sunny weather. As soon as the rain started the trunk would leak again. They never did fix the problem. I got rid of the car after a few years and never bought another GM.

The Ford and Chrysler products I bought have worked OK with just regular kind of repairs needed.

Regarding investing in a car company, you have to invest in the right ones. I bought shares in 2 auto companies in the last number of months. Roughly doubled on one and tripled on the other. I have sold both of them. I would imagine there are a lot of people who bought them both at much higher levels and are waiting for them to go back up.

I've made plenty of mistakes over the years. Right sector, wrong company kind of thing. Sometimes bad timing.

[Ed Seedhouse]

Re: Welcome To The Depression...

People are not obligated to work for GM, or indeed forced to work for anyone. They could create their own small business and be their own boss.

Well, if you want to make a living in our world you have to work for someone. Even those who run their own businesses work for their customers, after all.

But the practical fact is that most people have to work for an employer. I can see no attainable scenario where everybody works for themselves, and certainly not in the near future (by which I mean the next few hundred years).

People are not obligated to buy GM stock, or indeed the stock of any company.

While that's true, of course, it's beside the point. How many investors in GM were aware that the management team was going to make these disastrous short term decisions?

But if the "free" market is to punish bad decisions then surely it should punish the people actually responsible for those decisions. That would include bad decisions when negotiating with workers as well as misunderstanding the market.

The people responsible for driving GM into the ground are not the labourers nor the investors. It is the managers and directors, who are going to get off pretty well scot free and with nice fat bonuses while others take the pain.

If you do a lousy job of being a chess coach then you won't get any more jobs and will pay the heaviest price for your failure. The people who destroyed GM and Chrysler on the other hand won't pay for the mistakes, while the people who trusted them will.

[Ed Seedhouse]

Re: Welcome To The Depression...

[QUOTE=Gary Ruben;9835]. They all shared the good times and now it's the bad times. [quote]

But the people who ran the company into bankruptcy won't be sharing in the bad times. If the "free" market is to work it should punish the people who make the bad decisions most heavily. Instead it is the opposite.

[Gary Ruben]

Re: Welcome To The Depression...

But the people who ran the company into bankruptcy won't be sharing in the bad times. If the "free" market is to work it should punish the people who make the bad decisions most heavily. Instead it is the opposite.

Who made the bad decisions? The executives who ran the companies? The unions which took all they could get while they could get it? The government which allows foreign companies to dump vehicles here without giving us access to their markets? The shareholders and bondholders who put their faith in the company? The government which is dumping so much taxpayer money into the company? Does it really matter which foreign country owns and makes the autos we buy? It's not like there is a major Canadian auto company.

A proper model, the way I see it, is that a vehicle company would build one vehicle here for every one they sell in this country. If a company doesn't build vehicles here they shouldn't be able to sell them here.

[Tom O'Donnell]

Re: Welcome To The Depression...

Well, if you want to make a living in our world you have to work for someone. Even those who run their own businesses work for their customers, after all.

But the practical fact is that most people have to work for an employer. I can see no attainable scenario where everybody works for themselves, and certainly not in the near future (by which I mean the next few hundred years).

Agreed. If you don't like your terms of employment, you can either try to change them (e.g. negotiate for better conditions) or go find other employment. If you think you are being taken advantage of, there is no reason to remain in an unpalatable situation. I guess the workers at GM thought that conditions were good and the situation was palatable.

While that's true, of course, it's beside the point. How many investors in GM were aware that the management team was going to make these disastrous short term decisions?

I was aware that the Big Three automakers were on a losing course almost a decade ago. I was, and am, amazed that anyone would ever invest in these losers. Same with airlines. Some business models are just so risky and bad, I cannot believe anyone would invest in them. Especially businesses that require large capital outlay and are dependent on oil supplies and prices.

But if the "free" market is to punish bad decisions then surely it should punish the people actually responsible for those decisions. That would include bad decisions when negotiating with workers as well as misunderstanding the market.

The people responsible for driving GM into the ground are not the labourers nor the investors. It is the managers and directors, who are going to get off pretty well scot free and with nice fat bonuses while others take the pain.

The labourers are partially responsible for demanding too much. The management is partially responsible for agreeing to their ludicrous demands as well as not understanding that the price of oil was bound to go up and demand for SUVs, for example, was bound to go down. And investors are partially responsible for throwing their money at these losers. No one is blameless. Except the taxpayer, whose only fault is becoming an unwilling participant in the ownership of these dogs.

If you do a lousy job of being a chess coach then you won't get any more jobs and will pay the heaviest price for your failure. The people who destroyed GM and Chrysler on the other hand won't pay for the mistakes, while the people who trusted them will.

The labourers could have spent more time in school and become management. They could have used some of their wealth and become part owners of the company, gotten some sort of controlling interest, and made management decisions. They could have found other work. They could have moved. They could have saved their money while working and retired early without needing a pension. They could have returned some of their money to the company in good times with the agreement that the company would keep them around in bad times. They are not blameless.

As for management, I agree with one thing: many are incompetent and/or crooks. Many should never get a job in management again. If you or I are big shareholders in a company, perhaps we can keep them out, if it makes you feel any better. ;-)

One personal example about long-term negotiating. I do a number of chess camps for Chess n Math here in Ottawa. I could probably negotiate a significantly higher salary for those weeks (let's say 1.6x what I am being paid now) that I work. However, I run the risk that CMA will find someone who is just as good, or almost as good, and replace me. Also I run the risk that if numbers go down suddenly CMA is going to be forced to find someone cheaper. Perhaps in the short-term asking for a big raise is good business. But I play business the way I play chess: I care about the long-term.

[Gary Ruben]

Re: Welcome To The Depression...

A few points:

2) I expect pensions, other than those for civil servants, to be a thing of the past. Especially defined benefit plans. These sorts of benefits just bankrupt companies.

If defined pensions are so bad they will bankrupt companies, why won't they bankrupt governments?

I can't see why a properly funded and operated fund should do what you are suggesting.

If the idea is to retire 48 year olds on a 30 years and out basis then that's something else.

The way most work (or worked) is an employee earns 2% per year worked, to a maximum of 70% with a minimum retirement age of 60. Usually they pay a lot of money into them and the company also funds. The pension plan is kept separate and should be fully funded.

When a person retires they get 70% of their best 5 or 10 years. They get a choice if they are single. One amount if it's not guaranteed or smaller amounts for 5 or 10 year guaranteed. That means if death comes before those periods the pension for the remainder of that time is paid to the estate.

For a married person it is different. They have to pick if their spouse gets 60%, 75 or 100 percent on their death. I think for the 60% option in Ontario, the spouse has to sign she's agreeable. The spouse designee is not changeable as far as I know. Depending on which option a person chooses the 70% pension can be as low as 60% because it's a survivor pension. It depends on the age of the spouse as well as the employee. They use the amortization tables for the spouse as well as the employee.

If an employee and his spouse both pass away within a couple of years there are no further payments from the fund. The money goes to fund those who live much longer.

I'm editing here to include that most of the plans I know of are a combination of the company, CPP and OAS to make up that percentage. Some are what are considered stacked. They get the percentage plus the CPP and OAS but have to pay a larger percentage of their salary for this. So you can see, while the percentage can be as high as 70% the company plan is paying a percentage and the government plans are also paying a percentage. I forgot to mention this part.

I'm not a fan of the defined contribution plans. If this last year hasn't been a wakeup call for how poorly governments and people misjudge the economy, I don't know what will be. The defined contribution plans generally expect an employee to be sophisticated enough to conserve his capital and earn a reasonable return on it as well. This in such a low interest rate world. I don't think many are qualified to do this.

Just my opinion, of course.

[Tom O'Donnell]

Re: Welcome To The Depression...

If defined pensions are so bad they will bankrupt companies, why won't they bankrupt governments?

For civil servant pensions the government has its own printing press, and can "fix" that problem if they have to.

OAS and CPP are a different story. I think that in 20 years there will be some serious means testing for CPP and OAS. I am 44. I doubt I will ever collect a penny of either and will need to plan accordingly. There's a glut of Boomers, the tip of whom are just hitting retirement age, who are going to pretty much bankrupt the system both here and in the US.

[Gary Ruben]

Re: Welcome To The Depression...

For civil servant pensions the government has its own printing press, and can "fix" that problem if they have to.

OAS and CPP are a different story. I think that in 20 years there will be some serious means testing for CPP and OAS. I am 44. I doubt I will ever collect a penny of either and will need to plan accordingly. There's a glut of Boomers, the tip of whom are just hitting retirement age, who are going to pretty much bankrupt the system both here and in the US.

What's the problem with the civil servants pensions? Are they not deducting enough from the employees or is it improperly amortized?

The CPP is something people pay into. They are buying their own pension. In a way there is now, in effect, a means test for OAS if I recall correctly. I seem to recall they claw back if a retiree's income is over a certain amount.

With the kind of loses to the CPP last year, it doesn't look too promising to me either. Frightening loses. Last week they showed the four people who got 7 million in bonuses for the funds performance last year.

Have a look. Boggles the imagination.

http://www.thestar.com/article/642330

[Craig Sadler]

Re: Welcome To The Depression...

With the kind of loses to the CPP last year, it doesn't look too promising to me either. Frightening loses. Last week they showed the four people who got 7 million in bonuses for the funds performance last year.

Have a look. Boggles the imagination.

http://www.thestar.com/article/642330

What's the alternative though? they lost less than the market...isn't that worth something? if you penny pinch on people taking care of billion dollar pensions and only reward them for hitting home runs, don't be surprised when they start swinging for the fences...

[Ed Seedhouse]

Re: Welcome To The Depression...

The way most work (or worked) is an employee earns 2% per year worked, to a maximum of 70% with a minimum retirement age of 60. Usually they pay a lot of money into them and the company also funds. The pension plan is kept separate and should be fully funded.

This and the description that follows fits accurately with my own Municipal pension which I just started taking in March. You didn't mention that in the case of early retirement the benefits are adjusted so that total income remains the same when one turns 65 and CPP/OAP kicks in, but that's minor.

Municipal governments, of course, can't "print money" and can't run deficicits (at least here in BC). Yet the plan remains completely funded because the Minicipal governments also have to pay their premiums each pay period. The fact that the Unions have representatives on the pension board also helps.

The GM plan would be well funded too, had various governments not allowed the company to "defer" their premium payments. That wasn't a decision made by the workers and they objected to it in fact, but they get to pay for those decisions they had no say over.

I think the governments that allowed this chicanery should be required to come up with the funding myself, but it probably won't happen.

[Gary Ruben]

Re: Welcome To The Depression...

This and the description that follows fits accurately with my own Municipal pension which I just started taking in March. You didn't mention that in the case of early retirement the benefits are adjusted so that total income remains the same when one turns 65 and CPP/OAP kicks in, but that's minor.

Thanks for the clarification. I didn't know if the early retirement CPP/OAS top up is general or specific to certain plans.