Monday, December 22, 2008

Is China an Emerging Superpower? What is a "Superpower"?

People have been predicting China’s emergence as a superpower since the days of Napoleon.  He appreciated China’s potential as a world power and cautioned against waking the sleeping dragon. China’s subordination into the Western international system in the 1839-1842 Opium War and its decline as the “sick man” of East Asia for the rest of the nineteenth and for the first half of the twentieth centuries dulled, but never extinguished, the expectation that, sooner or later, China would again dominate the world.

The term “superpower” is often used loosely in popular discourse to describe anything that achieves unmatched dominance from the status achieved in international affairs by the United States since World War II.  The discussion here will be better served by a somewhat more precise definition: a “superpower” is a country that has the capacity to project dominating power and influence anywhere in the world, and sometimes, in more than one region of the globe at a time, and so may plausibly attain the status of global hegemon.  The basic components of superpower stature may be measured along four axes of power: military, economic, political, and cultural (or what political scientist Joseph Nye has termed “soft”).

China is not now a superpower, nor is it likely to emerge as one soon. It is establishing itself as a great power, on par with Great Britain, Russia, Japan, and, perhaps, India. China is today a serious player in the regional politics of Asia, but also is just one of several. At a broader level, in global affairs, its stature and power are growing, but in most respects it remains a regional power, complementing the cast of other great powers under the overarching dominance, however momentary, of the United States. [1]

Will dumping the dollar make a difference?  Not likely!

Thursday, December 18, 2008

Bailouts / Ponzi Scheme

As the U.S. government is looking for something or someone to blame for the housing and banking debacle,  finally it seems that they have chosen Bernard Madoff as one of the many scape goat's in a supposed Ponzi like scheme.  

Today's schemes are often considerably more sophisticated than Ponzi's, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit investor naïveté. 

Back in May, four months before it collapsed, American International Group Inc. increased its dividend at the same time it unveiled plans to raise $12.5 billion in capital. Later, when its cash ran out, AIG got a government bailout, the size of which has expanded to about $150 billion.
It might not have been such a bad thing for those shareholders that invested in the last round of $12.5 billion in capital.  It has been shown that entering a Ponzi scheme can be rational even at the last round of the scheme if a government will likely bail out those participating in the Ponzi scheme.  

Fannie Mae, Freddie Mac and Citigroup are just a few firms that have required taxpayer bailouts to the tune of hundreds of billions of dollars.  They were not running a traditional Ponzi scheme but their scheme collapsed under its own weight, as investment slows and the promoters start having problems paying out the promised returns. 

It seems that many companies have a business model that resembled  a Ponzi scheme.  Ponzi hired a publicity agent, James McMasters.  The so called legit companies did too. However, Ponzi's publicity agent quickly became suspicious of Ponzi's endless talk of postal reply coupons, as well as the ongoing investigation against him. He went to the Post, calling Ponzi a "financial idiot." The paper offered him five thousand dollars for his story, and ran a headline on August 2 declaring Ponzi hopelessly insolvent.  We have all heard the world insolvent recently in the news.

When a Ponzi like scheme is exposed, legal authorities begin examining accounting records of the so-called enterprise and they find that many of the "assets" that should exist do not. 

In Michigan a company and A.J. Obie, two firms with the same managers, Sixteen hundred investors lost approximately $50 million.  In what was described as the largest reported 'Ponzi' scheme in the history of the state.  The scheme led to the passage in 1987 of the MBLSA (Mortgage Brokers, Lenders, and Servicers Act)."

Another Ponzi like scheme, Lou Pearlman's scam involved bilking investors out of their savings with a fraudulent savings and loans program claiming it to be FDIC insured though it was not. 

Fast forward today Ponzi’s schemes are very much alive.  Wall Street and its bankers, mortgage lenders, and soon to be automakers were all caught running Ponzi like schemes.  

Friday, December 12, 2008

GM out of options

The UAW's refusal to agree to wage concessions by a specific date in 2009 killed the senate version of H.R. 7321. [1] According to GM's annual report, it paid the UAW workers $73.26 per hour in wages and benefits. [2]  The Senate Majority leader Harry Reid of Nevada spoke shortly after Republicans left a closed-door meeting.  He said that Republicans balked at giving the automakers federal aid unless their powerful union agreed to slash wages next year to bring them into line with those of Japanese carmakers. [3]   

GM has sought to reduce production costs to about $48 per hour, about the average hourly cost incurred by Toyota, Honda and Nissan Motor Co., company officials have said.[4] If wages were reduced the vehicle assembly cost would have saved GM about $1,000 per vehicle.  General Motors had offered buyouts to all of its 74,000 U.S. hourly employees. [5]  Those workers could have elected to take a lump-sum payment of $45,000 or $62,500, depending on their job description, and retire with full benefits. [6]

Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the UAW was willing to make the cuts - but not until 2011.  GM built 9,286,000 vehicles last year [7] , if it could have brought wages down to that which the Japanese auto makers pay their hourly workers it would have saved GM $9,286,000,000 last year.  In stead GM's share holders lost $68,450,000 last year.

For now my question on my post, “Who killed GM? Will it rise again?”, looks like it was true when I stated that if anything has killed GM it is its managements lack of vision and the UAW's not looking out for the best interest of its members.