Friday, May 15, 2009

Is there anyone left that hasn't applied for bailout cash?

We brought this upon ourselves by bailing out the banks, then the investment houses, then the commercial insurers, then the automakers and now the life insurers.

I guess we should have expected other random businesses to line up for their piece of the pie. Today YRC (better known as Yellow Trucking) one of the largest truckers in the US asked for bailout cash.

"YRC Worldwide Inc., one of the nation's largest trucking companies, will seek $1 billion in federal bailout money to help relieve pension obligations, the chief executive said Thursday.

The move comes as the trucking giant struggles to shore up its finances. The company's ability to weather the recession will have significant implications for the trucking industry and large customers across the country.

Chief Executive William Zollars said the company will seek the money to help cover the cost of its estimated $2 billion pension obligation over the next four years. Under a complicated system that Mr. Zollars labeled unfair, roughly half of YRC's contributions to a multi-employer union pension fund cover the costs of retirees who never worked for the Overland Park, Kan., company."

Okay, I understand that the firm probably had a bad investment experience in the past 18 mths and their pension is probably hurting right now, but that doesn't justify a bailout. Because investments don't go up in a straight line we have to bailout out your pension plan? We haven't turned anyone down yet, hopefully this is where we finally draw the line.

Also, note that we quietly leaked another $22 billion out to Prudential, Lincoln National, Hartford, etc. because of they asked for it. This is particularly disturbing because these companies demonstrated an inability to perform their core business and because they failed to manage risk (that's the only job of a life insurer) they get bailed out? This would be like Microsoft building a crappy version of Windows 7 and then saying "Ooopsie, looks like we need some Tarp money to build Windows 8".

There needs to be more outrage about our practice of bailing out firms that can't effectively manage their own business. In the old days firms like this went out of business. Today, we prop them up. This house of cards is getting pretty top heavy.

Finally, this is purely anecdotal, but does any remember the last good crisis? Maybe it was 1990 in real estate or 1982 or even in the late 70's, but there always seemed to be an opportunity for savvy people with cash to make some real deals in a downturn. This just doesn't seem to be the case this time. I heard from someone relocating to NJ that they put in a bid on a house 7% below asking and the seller countered at 1% below asking. A nice parcel of land just came on the market near me at the bargain price of about $180,000 per acre. Not a bad price in downtown Tokyo, but that's about $170,000 per acre too high for this area. It just feels as if there are no real "deals" out there in the market (real estate, stocks, businesses, etc) and until deals start emerging I don't think we can start a healthy rebound in the economy.

No comments: