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Old 08-17-2010, 09:10 AM   #161
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A couple of points here just to clarify:

WRT the Heritage Foundation numbers. What they are really saying is:

UAW worker @ 40 hours + overtime + fully funded benefit costs of current workers + unfunded benefit costs of previous workers > avg wage of all private sector workers.

duh.

Another more subtle but meaningful difference is one number includes medical benefits paid by the employer while the other may - and probably does - include medical benefits paid by Medicare. IOW, there is a benefit cost that is incurred and paid but not included in the number as presented.

Any number generated by any organization with an ideological mission needs to be used with care.
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Old 08-17-2010, 09:22 AM   #162
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When I was younger I also believed that SS was in danger and likely to be changed in ways that would make it unlikely to pay me anything meaningful. I was a pretty frugal saver as a result. Then....
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Then the stock market wiped out several years of contributions and growth. The timeline for retirement gets extended to make the funds last longer. In the meantime, I'm getting older and at some point it's difficult if not impossible to change jobs/careers and start all over so you try to deal, and hope your health holds out.
As I near retirement, I had to change my plans and now I am very much counting on Social Security. As a younger worker, I had less "invested" in the system so could easily consider dumping it and doing something different. Now that I have sunk costs in years of contributions, I am much less willing to walk away from that. Plus with recent events (both market and personal) I am much less able to walk away from it.
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Old 08-17-2010, 09:28 AM   #163
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When I was younger I also believed that SS was in danger and likely to be changed in ways that would make it unlikely to pay me anything meaningful. I was a pretty frugal saver as a result. Then....
As I near retirement, I had to change my plans and now I am very much counting on Social Security. As a younger worker, I had less "invested" in the system so could easily consider dumping it and doing something different. Now that I have sunk costs in years of contributions, I am much less willing to walk away from that. Plus with recent events (both market and personal) I am much less able to walk away from it.
This is true. Whether one thinks it's a "Ponzi scheme" or not, the simple truth is that the crash of many 401Ks over the 2000-09 period has made SS a more important component for many planning retirement, and I would suggest even some who supported its abolition a decade ago (assuming they'd have more than enough in their 401Ks) may be singing a different tune because their crippled 401Ks don't look like enough any more.

In this day and age when some many people lament having a 401K instead of a DB pension, is eliminating the last widespread pension-like retirement income in place for "more 401K" really going to be a popular sell today? I think not.
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Old 08-17-2010, 11:24 AM   #164
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I'm not defending the UAW per se here but I think there's too much angry emphasis placed on what they *are* continuing to get and not enough on what the rest of us are *not* getting even as some companies report record profits and haven't given out raises in several years. And frankly I'm increasingly seeing this as a corporatist divide-and-conquer strategy so we'll turn on each other instead of recognizing that we need to be looking at the corporatism infecting all our institutions, including government.
I'm sure that plays into it, but I think it ignores two things. One, it would drive the price of everything up, and every industry would need bailouts, until it all collapses. If raising wages was all it took to strengthen the economy, a minimum wage of $50/hr with full benefits should be made law. Two, you leave out the important third element - competition from outside the US. That is one thing that is flattening US wages now. We can't ignore it.

When a company starts making increased profits, they don't just decide to start paying higher-than-market rates for anything, be it steel, electricity, office supplies or wages. That would be silly. You pay what the market will bear. And that foreign competition is affecting what we can demand for wages, like it or not (and I'm sure the hungry people overseas like it).


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At this point, what this has to do with ER or Social Security is anyone's guess.
Heck if I know, and I'm not going back to the OP to try to figure it out. But one more comment like that out of you young man, and you'll need to start shutting down the 'Bacon' and 'I love furry things with four legs' threads!

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Old 08-17-2010, 11:56 AM   #165
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Two, you leave out the important third element - competition from outside the US. That is one thing that is flattening US wages now. We can't ignore it.
I'm definitely not ignoring this. But I am saying there could be factors that complicate matters in the other direction. It's probably true that public sector wages and benefits are not sustainable relative to the current private sector middle class realities. I do think there is some "equilibrium" between the divergence between the public sector/union deal and the private sector non-union deal. And the former may have to adjust with reality, but that doesn't mean we should just sit around and take it while supposedly American corporations increase profits by exporting good jobs. I'm not a strong protectionist, but I do think we are getting creamed by allowing relatively free trade with nations with 1/10 our labor costs and very little in the way of environmental protections or workplace safety laws in place. Exporting jobs should not be a free ride for U.S. business.

I suspect there's a sustainable sweet spot in there somewhere if the will was there to find it. Global trade is not a zero sum game, but neither is it always win-win, and strong emerging market labor gains is likely to mean U.S. labor losses. And while I'd like to see the entire world's prosperity increase, I don't think it's a good idea to let it increase so quickly that we allow our own throats to be slit in the process.

Frankly I think using the "global economy" as a justification for the destruction of the U.S. middle class isn't acceptable, and while we can't be too isolationist and protectionist, neither should we give up the farm.
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Old 08-17-2010, 12:48 PM   #166
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I'm not a strong protectionist, but I do think we are getting creamed by allowing relatively free trade with nations with 1/10 our labor costs and very little in the way of environmental protections or workplace safety laws in place. Exporting jobs should not be a free ride for U.S. business.
I agree that it isn't 'fair' if they are not required to have some reasonable level of safety and environmental protections in place. I think things are improving in that regard, but are mostly still far short of where they should be.


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And while I'd like to see the entire world's prosperity increase, I don't think it's a good idea to let it increase so quickly that we allow our own throats to be slit in the process.

Frankly I think using the "global economy" as a justification for the destruction of the U.S. middle class isn't acceptable, and while we can't be too isolationist and protectionist, neither should we give up the farm.
I didn't mean it as justification, just an explanation. Though it is probably both - the 'justification' being the poor people who benefit from the flatter world.

I understand how you feel, but for me personally, I have a hard time trying to justify that my personal (relatively high) standard of living deserves any protection against someone with a much lower standard who is willing to work hard to improve it. If some of it comes at my expense, I think I should just be thankful for enjoying the fruits of the 'birth lottery' for as long as I have.

I guess what I'm saying is - how can we fight this, and should we? Outside of simply working to be more productive, and working to ensure comparable safety & environmental standards, I'm stuck.

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Old 08-17-2010, 01:18 PM   #167
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I guess what I'm saying is - how can we fight this, and should we? Outside of simply working to be more productive, and working to ensure comparable safety & environmental standards, I'm stuck.
-ERD50
You would deserve the Nobel Prize in Economics, if you could figure that one out. I haven't read about anyone that is trying to figure it out. I get the feeling people just want to get past this current economic downturn and not thinking about anything past that.
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Old 08-17-2010, 03:11 PM   #168
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Frankly I think using the "global economy" as a justification for the destruction of the U.S. middle class isn't acceptable, and while we can't be too isolationist and protectionist, neither should we give up the farm.
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I guess what I'm saying is - how can we fight this, and should we? Outside of simply working to be more productive, and working to ensure comparable safety & environmental standards, I'm stuck.
Things that would help:

Technical programs and schools that help individuals develop skills needed for higher value-add industry. Could include a separate high school track for industry skills instead of college prep.

All compensation, be it cash, stock or whatever, pays full payroll and progressive income taxes at Y2K scales.

Tort reform to lessen the enrichment factor that favors uninjured individuals and attorneys.

Health care reform to eliminate the need for business to employ “HR healthcare specialists”.

Intensive, immediate energy policy.

The US has an excellent culture of innovation and industry. We need to make it less hostile to small business, the last three would help that.

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Bad schools produced bad teachers which produced worse students - repeat the cycle.
Clearly, until this changes the US will continue to generate individuals not qualified to produce the added value needed to raise the level of prosperity.
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Old 08-17-2010, 05:31 PM   #169
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Thus, the "free market" approach you use to justify UAW's wage doesn't follow. That doesn't necessarily mean that it wasn't fair, just that your free market approach does not support it.
I made no effort to "justify UAW's wage". I merely pointed out that you are an extremely arrogant young fellow if you presume to judge what the "proper" wage is for a UAW worker. Your uninformed judgment is, fortunately, not the standard of valuation for someone else's work.
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Old 08-17-2010, 06:09 PM   #170
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I made no effort to "justify UAW's wage". I merely pointed out that you are an extremely arrogant young fellow if you presume to judge what the "proper" wage is for a UAW worker. Your uninformed judgment is, fortunately, not the standard of valuation for someone else's work.
I said it was the "proper wage" because I understood it to be competitive with the wage paid by GM's non-unionized competitors, not because I feel that UAW workers should get less or more.


To be clear, I don't personally care how much UAW workers, or anyone else for that matter, get paid. They could be compensated with livestock.

However, I do have a serious problem (as a tax payer) when the government shells out my tax dollars in such a callous fashion. When I see special interest groups, like the UAW, gaming the system, it angers me. My perception (be it wrong or right), is that the UAW successfully lobbied for the auto-bailout.

Regardless, UAW workers benefited from the bailout (i.e. they faired better than they otherwise would have under bankruptcy). Furthermore, their salaries were clearly not competitive with their non-unionized counterparts (regardless of whether they were paid $70/hour, or $24/hour). Consequently, the tax payers picked up a portion of the excess.


I believe that to be a reasonably objective statement of the facts (as well as my position). If you disagree, then so be it.
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Old 08-17-2010, 06:29 PM   #171
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However, I do have a serious problem (as a tax payer) when the government shells out my tax dollars in such a callous fashion. When I see special interest groups, like the UAW, gaming the system, it angers me. My perception (be it wrong or right), is that the UAW successfully lobbied for the auto-bailout.
Do you think you, as a taxpayer, would have been better off by allowing GM to go broke? If so, in what way?

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Regardless, UAW workers benefited from the bailout (i.e. they faired better than they otherwise would have under bankruptcy). Furthermore, their salaries were clearly not competitive with their non-unionized counterparts (regardless of whether they were paid $70/hour, or $24/hour). Consequently, the tax payers picked up a portion of the excess.
This is not clear. What part of the UAW are or have been paid by tax money and how much of UAW comp is excess?
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Old 08-17-2010, 07:15 PM   #172
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Do you think you, as a taxpayer, would have been better off by allowing GM to go broke? If so, in what way?

I think that, as a taxpayer, I would be better served by a fiscally responsible government. I also think that each and every time a private entity is bailed out, it sets a precedent for the next one. It seems as though one bailout begets another (Bailout List: Banks, Car Companies, and More | Eye on the Bailout | ProPublica).

At what point does the cumulative cost outweigh the collective benefit? I can't answer that.

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This is not clear. What part of the UAW are or have been paid by tax money and how much of UAW comp is excess?
Obviously, there is no precise mathematical formula. I (like gumby) am an attorney, not an accountant. As such, you are likely better suited to make such a projection than I am.

However, I will give it a shot (based on the available objective evidence, which is clearly insufficient).

The only objective evidence I have is the comparative labor costs, namely $70/hour (labor cost for GM) v. $40/hour (labor cost of non-unionized competitors).

If the comparative data is an accurate representation (which it probably isn't), then $.75 out of every $1.75 in compensation was excess.

Subtract compensation that was rendered immediately upon performance (i.e. salary, SS, medicare, health insurance, etc.)..... how much is left that is not excess?

But wait, how much was actually paid out before hand? Did some employees get a greater percentage of their excess benefits prior to bankruptcy than others?

Obviously we don't have adequate data to precisely answer "how much excess" was paid by the tax payer. But there appears to be a high likelihood, that at least some tax dollars went to excess compensation.

If you where a gambling man, how would you wager?
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Old 08-17-2010, 07:27 PM   #173
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Do you think you, as a taxpayer, would have been better off by allowing GM to go broke? If so, in what way?

This is not clear. What part of the UAW are or have been paid by tax money and how much of UAW comp is excess?
Even better, one could argue that pensions and other deferred benefits are "conditional" compensation dependent upon Employer solvency.

Under that analysis, any monies received under the bailout, that would not have otherwise been received under bankruptcy, was excess.
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Old 08-17-2010, 07:38 PM   #174
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I made no effort to "justify UAW's wage". I merely pointed out that you are an extremely arrogant young fellow if you presume to judge what the "proper" wage is for a UAW worker. Your uninformed judgment is, fortunately, not the standard of valuation for someone else's work.
IMHO your value in the market place is determined by how quickly, and at what cost you can be replaced. In my experience, union employees that fall into the "easily replaced" camp must resort to other tactics to remain gainfully employed.
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Old 08-17-2010, 08:03 PM   #175
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Landonew: Your perception is wrong. Let me tell you how it played out and you might come to a different conclusion. (this is all from memory, so others with more specific information are free to chime in).

1. Far and away the largest problem on GM's balance sheet (until 2007) was OPEB (non-pension retiree benefits, mostly health insurance) based on GM's overly generous (in hindsight) past retiree health promises. In 2007, the UAW and GM negotiated the creation of a VEBA trust. The VEBA trust assumed the liability for retiree health benefits, which removed it from GM's balance sheet. In return, GM executed a convertible note covering contributions for a specified number of years into the future (I forget how many). This was widely viewed as a good thing for GM, its bondholders and its shareholders, because, inter alia, it put the risk of underestimated future benefits on the VEBA trust.

2. Unfortunately, gas prices rose precipitously in 2008 and the economy dropped like a stone. Demand for GM cars dried up. By late 2008, GM recognized they would soon run out of money and went to the federal government, hat in hand. After some initial foot dragging, they and Chrysler received some TARP funds. I believe the loan was secured with a senior lien.

3. In early 2009, the government started pressuring GM to work out a debt for equity swap. The debt at that time primarily consisted of unsecured bondholders and the VEBA trust (also unsecured). The government wanted both groups to take GM equity for half of their debt position. The UAW agreed to the deal. The unsecured bondholders rejected it.

4. After further negotiations between GM, the creditors and the government, GM filed a prearranged bankruptcy in June 2009. The federal government provided the DIP (Debtor in Possession) financing, which is money used to operate the company while it is in Chapter 11.

5. At that time, the creditors were as follows: The US government, to the extent of the DIP financing and the TARP loan -- secured by a superpriority lien because it was the DIP lender; a relatively small number of secured creditors; the unsecured bondholders; the VEBA trust unsecured note; trade creditors and, at the end of the line, existing equity.

6. Pursuant to 11 U.S.C. Sec. 363, and by agreement between the creditor groups and GM, the company's operating assets were sold to a new company. Equity in the new company was distributed 60% to the federal government, 12% to the Canadian government, 17.5% to the VEBA trust and 10% to the GM unsecured bondholders. Secured claims were paid in full and most trade creditors were paid in full (so they would keep supplying).

7. The default order of priority in bankruptcy is: 1) secured claims, starting with the DIP lender; 2) costs of administering the estate (i.e. the lawyers and bankers); 3) unsecured claims; 3) stockholders. And the general rule, absent other agreement, is that parties of equal rank should get treated equally.

8. Any bankruptcy is a multiparty negotiation carried out under the threat of litigation. Essentially, the parties jockey for legal position and then almost always make a deal. Looming over everything is the possibility that the company will cease operations and liquidate. Therefore, parties negotiate with an eye toward the maximum that could get if they litigate and what they could lose if the company liquidates. Companies are almost always worth more as a going concern than in liquidation.

9. The reason I mention this dynamic is that the parties can, and often do, agree to distribution that does not follow the strict rules of priority that would govern if the case were litigated to the bitter end. Also note that negotiation is done by creditors as a group and majority rules. If your class votes to accept certain treatment, you are usually stuck with it.

10. In GM, the secured creditors were paid in full. The unsecured trade creditors were also, for the most part, paid in full in the ordinary course. Old GM shareholders were wiped out. That leaves the two major unsecured creditors -- bondholders and VEBA. Note that the bondholders were equal in rank to the VEBA, not senior. Accordingly, absent agreement, they were entitled to be treated the same.

11. It is undisputed that the VEBA received a higher percentage recovery than the unsecured bondholders (I can't recall the specific recovery percentages). But, crucially, it was done by agreement. In my view, there are three factors that explain why the bondholders would agree to this outcome. First, the majority of the bonds were held by distressed hedge funds who purchased them for 20 cents on the dollar. They had a lot of room to give and still make a sizable profit. Second, the UAW does not lose the right to strike in a bankruptcy. They could have shut GM down and made certain that everyone walked away a loser (yes, it would have been a Pyrrhic victory). Third, there is case law under the Bankruptcy Code that permits a secured creditor to direct a portion of his recovery under a plan of reorganization to a lower class of creditor and bypass intermediate classes. Thus, in this case, the government could preferentially share some of its recovery with the VEBA trust if it wanted. No, this was not done here, but the threat existed and may have shaped the negotiation.

12. If I recall correctly, some individual bondholders objected but lost, because the court concluded that they would have received less in liquidation (which is the test). Although I could be thinking of Chrysler.

13. As I see it, for its efforts, the government got 60% of a new and improved GM, with a scrubbed balance sheet, no OPEB overhang and a brighter future. I am hopeful that we will profit from our investment

14. I do not see an argument that the taxpayers are paying the wages of the UAW members. If anything, one could argue that the bondholders were held up to pay for the OPEB expense, but as I noted above, they agreed to it because the alternatives were substantially worse. I believe that current wages at GM are quite competitive with the Japanese automakers (but I would dispute that their wages should be the standard. Maybe Honda workers should make more ? -- it all depends on how many cars Honda can sell and for what price).
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Old 08-17-2010, 08:10 PM   #176
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Gumby, thanks for the detailed explanation. I was never interested enough to follow the story with GM.

Do you know how the GM retirees currently fare with their VEBA trust? What have their benefits been cut to, relative to their original entitlements? You pique my curiosity now.
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Old 08-17-2010, 09:15 PM   #177
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Chris Barnes, a company spokesman, said Dr Pepper Snapple was seeking a $1.50-an-hour wage cut, a pension freeze and other concessions to bring the plant’s costs in line with “local and industry standards.”
The company, which has 50 brands including 7Up and Hawaiian Punch, reported net income of $555 million in 2009, compared with a loss of $312 million the previous year. Its 2009 sales were $5.5 billion, down 3 percent.



http://www.nytimes.com/2010/08/18/bu...nted=1&_r=1&hp

The profit margin for the profitable year is 10% and 2.2% over the two years. I'd guess the normal profit margin is between the two.

I think the above story plays into what is being discussed.
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Old 08-18-2010, 08:05 AM   #178
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Landonew: Your perception is wrong. Let me tell you how it played out and you might come to a different conclusion. (this is all from memory, so others with more specific information are free to chime in).
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Firstly, thank you for taking the time to provide such a detailed account. Secondly, I do think that much of what you said (if it is true, and I assume that it is), is pertinent to the discussion.

However, the US taxpayers only avoid paying for UAW benefits (whether they be health insurance, DB plans, or whatever) IF the investment is profitable. You remain hopeful.... I am not so optimistic.

Isn't this the second time we bailed out Chrysler?

Aside from that, I do not think this is an "arms-length" transaction. Two very important things stick out.

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Thus, in this case, the government could preferentially share some of its recovery with the VEBA trust if it wanted.


Why would a senior shareholder do this? If the government was looking out for the people's interest (instead of the UAW's), then they would not.

Except, of course for UAW's ace-in-the-hole:

Quote:
They could have shut GM down and made certain that everyone walked away a loser (yes, it would have been a Pyrrhic victory).
Now, an otherwise disinterested senior creditor may be willing to appease a junior lien-holder to prevent a strike. However, without the National Labor Relations Act (and other similar state/federal statutes) the UAW would not have its foot on the throat of GM.

Your points are well taken, and my perspective on the issue is certainly more enlightened than before. But I think we will just have to agree to disagree on the overall benefits of unionized labor.

I also think we will have to disagree on whether or not UAW's negotiated wage constituted a fair "market-price" for their labor (i.e. before the bailout).

Lastly, I think that Toyota's non-unionized wage is a reasonably fair approximation of what GM should pay their workers. After-all, these people are performing similar tasks and I would assume that, by and large, they would indeed be reasonably interchangeable (i.e. GM and toyota could swap workers). Maybe some training would need to take place to orientate them to a slightly different production procedure, but it is not like we are talking about completely different skill sets here. For instance, like training an accountant to be a surgeon.
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Old 08-18-2010, 08:41 AM   #179
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The only objective evidence I have is the comparative labor costs, namely $70/hour (labor cost for GM) v. $40/hour (labor cost of non-unionized competitors).
The $70 is bogus. The comparison is faulty. If you want to make a point based on GM worker compensation, first produce a real number.

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I think that, as a taxpayer, I would be better served by a fiscally responsible government. I also think that each and every time a private entity is bailed out, it sets a precedent for the next one. It seems as though one bailout begets another (Bailout List: Banks, Car Companies, and More | Eye on the Bailout | ProPublica).

At what point does the cumulative cost outweigh the collective benefit? I can't answer that.
You have answered. After AIG, all the banks, Freddy Mac and Sallie Mae, GM, you choose the UAW to dump on.

The bailouts are horrendous. We (my household) lived prudently, with no debt and none of the excesses that have brought the US to this poor state. We receive no direct benefit from any bailout, and we pay more than our share of its cost. Yet I would rather this than sit by and watch our economy (and my well-being) go down the drain.


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Obviously we don't have adequate data to precisely answer "how much excess" was paid by the tax payer. But there appears to be a high likelihood, that at least some tax dollars went to excess compensation.
This part is clear. No tax dollars have gone to pay UAW salaries or benefits, excess or not.
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Old 08-18-2010, 08:43 AM   #180
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Posts: 24,445
Quote:
Originally Posted by dex View Post
Chris Barnes, a company spokesman, said Dr Pepper Snapple was seeking a $1.50-an-hour wage cut, a pension freeze and other concessions to bring the plant’s costs in line with “local and industry standards.”
The company, which has 50 brands including 7Up and Hawaiian Punch, reported net income of $555 million in 2009, compared with a loss of $312 million the previous year. Its 2009 sales were $5.5 billion, down 3 percent.



http://www.nytimes.com/2010/08/18/bu...nted=1&_r=1&hp

The profit margin for the profitable year is 10% and 2.2% over the two years. I'd guess the normal profit margin is between the two.

I think the above story plays into what is being discussed.
Exactly. I saw the article and had the same thought.

A quick look at the 03/2010 proxy statement, seen here http://files.shareholder.com/downloads/DPSG/991753964x0xS950123-10-29748/1418135/filing.pdf shows the executive team receiving increasing salary, bonus and stock even as the business results faltered. Seems they have a different view of their own compensation. BTW, BoD members are also getting $300k each. A nice gig if you can get it.
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