What to do About the Auto Industry?

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For several years, I worked as a loan processor, verifying information on applicants for automobile loans through a company owned by Citigroup.

Over and over, I processed loans that I found troubling. My job required me to verify information on loan applicants. I confirmed their employment, insurance coverage, physical addresses and landline phone numbers. Also, whenever I was required to do so (and I wasn't required to do so on every loan), I calculated applicants' incomes.

I saw many loans that went across my desk that I felt were questionable. I saw applicants buying vehicles that they clearly could not afford. I saw applicants buying gas-guzzling vehicles with no apparent concern for escalating oil prices.

Many of these loans did not meet the minimum standards that had been established by the company. Whenever that happened, it was my job to submit the loan to someone higher up — more often than not, the person in authority found a way to get around the standards and allow these loans to proceed.

I admit that I never have been an expert on the ins and outs of personal loan financing. But even I could see that many of the loans that were being approved could never be repaid. I vividly recall processing such a loan once, in which the applicant was earning about $20,000 a year and was making a monthly mortgage payment in the vicinity of $900 a month. This applicant was buying a brand-new SUV, nearly fully loaded, and the monthly payment on the vehicle was going to be in the neighborhood of $550.

I turned to one of my co-workers, explained the details of this customer's loan and asked, "What's he going to eat for the next six years? Crackers?"

In spite of what I thought were numerous red flags on this deal, one of the higher-ups found a loophole and the deal went through.

When I began working for the company, it wasn't owned by Citigroup, and the emphasis of the business, I felt, was noble. The stated objective — over and over — was to give a "second chance" to people who had had credit problems in the past, and I was glad to be a part of it because I know many people who have experienced credit problems for a variety of reasons. I was pleased to be able to help people who had weathered serious health problems or the end of a difficult marriage and, as a consequence, found it difficult to get auto loans.

But after Citigroup purchased the company, the emphasis seemed to shift dramatically. The emphasis was no longer on being a place where the customer who had encountered problems with credit could get a fresh start. It was on the almighty dollar and meeting sales quotas — and, if a customer got a loan he/she couldn't repay, that was his/her problem for failing to plan accordingly.

Over the years, enough of those problem loans piled up, and now it isn't just the problem of the individual customers. It's everybody's problem. My understanding is that the company for which I used to work has been downsized considerably — and, at this point, it may have been shut down completely. That wouldn't surprise me. The parent company, Citigroup, certainly has had its share of financial problems lately.

Having worked in auto loans for several years, though, I read with interest an article on CNNMoney.com about General Motors and Chrysler (which is the company with whom my former employer had a partnership) saying they would need nearly $22 billion in additional federal loans because the demand for their cars and trucks has declined so much.

These loans, obviously, will be expensive for America's taxpayers — but the companies contend that it will be even more costly if they are allowed to go bankrupt. That, it seems, is the ongoing debate. It was the topic of the hour just a couple of months ago when the major American automakers came to Congress seeking bailout money — help us, they said, or we will have to go out of business.

Now they're saying it again. American taxpayers do not want to see any company go belly up — but can they be blamed for being skeptical when companies keep coming back with their hands out?

CNNMoney.com reports that, in documents the companies submitted to the Treasury Department on Tuesday, GM and Chrysler said they plan to cut 50,000 jobs worldwide this year — and that even more money may be needed if sales don't improve.

If sales of American-made vehicles have plunged because more Americans have recognized the need for fuel efficiency, should the government be required to come up with ways to help automakers' sales improve?

I presume that even more jobs will be in jeopardy if sales don't improve — whether or not the government ponies up the additional billions. But how long should taxpayers be asked to subsidize a failing industry, merely to prevent the loss of more jobs?

To secure additional government funding, it seems to me that GM and Chrysler (as well as any other American automaker that feels compelled to return to the federal trough) need to make more than merely a verbal commitment to making significant changes in their business practices — and that would include the administration of auto loans.

American automakers need to devote more of their resources to research and development that will lead to the production of more fuel efficient vehicles. It won't mean immediate profits, but it's an investment in the future. The era of making money off gas-guzzling vehicles like SUVs and huge trucks has to end — if it hasn't already.

That's something the federal government should encourage through additional funding for the automakers — but those funds need to be accompanied by a commitment from the government to keep more than a casual eye on how the automakers spend taxpayers' money.

It all reminds me of a message that President Carter repeatedly tried to get across to Americans in the late 1970s. He was ridiculed by his opponents for making his so-called "malaise" speech in 1979 (although he never used that word in the address), but his speech about a crisis in confidence came after a couple of years of trying to persuade the American public to take steps to avoid a catastrophe later.

Americans didn't listen to Carter then — mainly because he was telling them things they didn't want to hear. They preferred to listen to Ronald Reagan the next year, when Reagan told them that government was the problem, not the solution, and that there were easy answers to complex questions.

But now, in the midst of a severe recession with another president preaching the need to develop different energy sources to what may be more receptive ears, it might be a good idea to revisit President Carter's early appeals to the nation.

A clip from one of his 1977 speeches to America is above. Watch it and ask yourself how much better off we might be today if we had listened to him nearly 32 years ago.

It's a Bird ... No, It's a Plane Outrage

I guess this sort of ties in with what I wrote earlier today in this blog.

Although, actually, I guess it really ties in better with what I wrote on Saturday.

I heard about this a little while ago. And I'm so angry about it that I'm literally shaking.

The New York Post — and probably others, although that's the only report I've read so far — is reporting that Citigroup — which, I regret to say, is a company for whom I worked for several years (through one of its subsidiary companies) — is using $50 million of its bailout money to buy a new jet.

The Post's Jennifer Gould Keil and Chuck Bennett summarize it this way in their lead paragraph: "Beleaguered Citigroup is upgrading its mile-high club with a brand-new $50 million corporate jet — only this time, it's the taxpayers who are getting screwed."

I guess, if there's anything good to say about this, it's that some talented wags are getting the chance to show off their linguistic skills with some clever wordplay.

To be fair, the order for the jet was probably submitted a couple of years ago — before the recession. But in the current environment, the best thing to do would be to back out of the contract and swallow any losses that result.

I don't know if there's much I can add to what the Post said about it.

There is, however, one thought that's been going through my mind. Next Tuesday will be the 50th anniversary of the plane crash that killed Buddy Holly, Ritchie Valens and the "Big Bopper" in an event that was dubbed "the day the music died" by Don McLean (as I mentioned in this blog on Saturday).

Just to briefly recap a little known part of the story ... Waylon Jennings, who went on to a legendary career in country music before his death in 2002, was one of Holly's musicians. He gave his seat on the plane to the "Big Bopper" because the "Bopper" was developing a case of the flu and didn't want to ride in the bus that was carrying the rest of Holly's entourage.

When Holly found out that Jennings would not be riding on the plane, he said to him, in jest, "Well, I hope your ol' bus freezes up." Jennings replied, "Well, I hope your ol' plane crashes."

Jennings admitted that he was haunted by that exchange for many years after the tragedy.

But I'll say this. If there is any poetic justice in the world, the bigshots at Citigroup will be flying in their plane in the vicinity of Clear Lake, Iowa, on that anniversary.

At night.

In an ice storm.

With a pilot who has trouble flying at night.

Preferably while the bigshots are dining on filet mignon and lobster tail — on the taxpayers' tab.

If that happens, I might, like Jennings, feel a little guilty. But, if I have to endure a few sleepless nights because of it, that's a price I'll pay — if I have to.

And my advice to the air traffic control people is this: If the Citigroup plane is overdue, don't bother sending out a search and rescue party until daylight.

No sense in risking innocent lives.

A Blue Bailout?

It might be laughable — but, in today's economy, who's laughing?

After seeing other sectors of the economy receive bailouts from the federal government, representatives of the adult entertainment industry — specifically, the infamous Larry Flynt and "Girls Gone Wild" video series producer Joe Francis — say they're asking the feds for a $5 billion bailout.

That figure, Francis says, reflects the drop in revenue from the level of three years ago.

"The government's handing out money to the auto industry," Francis told the Los Angeles Daily News. "Why shouldn't it hand some to an industry the nation could not live without?"

Well, technically, I suppose, that's a valid sentiment. But it isn't the same thing.

The nation could live without pornography. But, unless they happen to live within walking distance of their jobs (for those who still have jobs), most Americans need transportation. Whatever one thinks of how the domestic auto industry has handled its business, people need transportation.

People need lots of things to survive — food, clothing, shelter, transportation, heat in the winter. They need jobs to pay for these necessities.

They can live without pornography.

Spinning McCain's Gamble

John McCain has the soul of a riverboat gambler.

Before the start of the Republican convention, McCain was believed to have a problem with true-believer conservatives, and the perception of political observers was that Barack Obama's campaign had not adequately appealed to disgruntled Hillary Clinton supporters, even after both Bill and Hillary Clinton were given prominent roles to play at the Democratic convention.

McCain, conventional wisdom held, needed a running mate who would reassure social conservatives, and it wouldn't hurt if his running mate could help the Republicans attract some of the disappointed female activists who had more in common with Obama philosophically but remained wary of him, nevertheless.

To address both needs, McCain rolled the dice and named Alaska Gov. Sarah Palin to be his running mate.

For awhile, the Palin gambit appeared to pay off, but now it seems to be wearing off.

Time to roll the dice again.

Last week, as the dimensions of the financial crisis were becoming painfully clear, McCain was all over the place, suggesting that the presidential candidates suspend their campaign until the situation was resolved and saying that he would remain in Washington to work on the bailout plan instead of joining Obama for the first presidential debate.

McCain went ahead with the debate, and it does not appear that he has suspended his campaign indefinitely.

But the real gamble was on the bailout plan itself. That was a gamble McCain lost. The bailout plan was rejected by the House, 228-205, today.

It's not hard to imagine the outcome McCain was hoping for — the bailout package passes and the market rallies. McCain is the hero and the recipient of tons of positive press coverage, all without spending a dime of his own campaign funds.

But that's the fantasy. The reality is something different.

McCain can point out that only about four House Republicans supported the measure when he returned to Washington last week to make his bid to be the hero — and it's true that about one-third of the Republicans in the House ended up voting for it, which means that McCain at least helped persuade about 60 of his fellow Republicans to support it.

That speaks well for McCain's ability to persuade, and that's the spin McCain needs to use. But I'm doubtful that it will work.

Politics is a bottom-line game. And the bottom line in this matter — thus far — is that no bailout plan has been approved.

McCain gambled that he could demonstrate leadership qualities to the American public on the most critical issue facing the voters. He invested his time and his effort and was not successful.

If the bailout plan had been approved — and if the stock market hadn't plunged nearly 800 points today — it would have been the kind of longshot payoff that a gambler like McCain needs to level the playing field.

But the gamble didn't pay off. And, as a result, McCain may find himself having to make up even more ground in less time — and in increasingly hostile territory.