Author Archives: sdiamond

Will the real Che Guevara please stand up?

mv5bmti2mzi3mzu2ml5bml5banbnxkftztcwntc2ndkxmg_v1_sx94_sy140_1In light of the new movie about Che Guevara, I am reposting something I originally blogged on in 2004 when Motorcycle Diaries came out:

The hundreds of thousands of people who will see the film version of Che Guevara’s Motorcycle Diaries can be forgiven for thinking that “Che” was the embodiment of compassion for the downtrodden of Latin America.

The movie is without a doubt a strikingly beautiful film and tells a moving story. And if you compare the young Che with his contemporaries in the United States – Jack Kerouac and Neal Cassidy in On the Road, for example – he certainly comes out ahead. But the Diaries have little to do with the real Che Guevara, at least not with Che as an adult.

That movie has yet to be made.

While we wait, it might help to consider Che’s published views of the labor movement. In my Ph.D. dissertation on Nicararagua’s Sandinista revolution, I wrote a chapter which I link here that considered the ideas of Che about the role of workers and trade unions in a revolution and beyond and the influence those ideas had on Nicaragua’s fledgling Sandinista regime.

With the return of Che as an icon and the apparent staying power of the Sandinistas themselves (they recently won a huge victory in local elections in Nicaragua) this is not simply an historical or nostalgic exercise. (Note that the text was written in the early 90s which explains some of the grammar and references.)

Although I have not seen the new del Toro version of Che yet,  from all accounts it is no closer to the real Che than Motorcycle Diaries was.

Will The Real Che Guevara Please Stand Up?

What are these bankers thinking?

It appears that former Goldman Sachs executive John Thain forgot the lessons of teamwork and humility that were a part of the Goldman culture when he moved to Merrill Lynch. With the allegations that he spent $1.2 million on re-furbishing his personal office, he looks more like the felon Dennis Kozlowski of Tyco fame who once spent thousands of shareholders money on a dog-shaped umbrella stand!

With taxpayers spending hundreds of billions to rescue the banking system, outrage is surely justified.

But outrage is not policy….and it is policy that this crisis needs. It is becoming increasingly clear that we need to nationalize the banks to insure that the necessary reforms take place under the scrutiny of the public. In fact, that may be the only way to avoid the collapse of the system: if we try to buy the bad bank assets then it could cause a re-pricing downward of remaining assets. It also means the government gets the lemons while the banks keep the profitable assets.

Nationalization is only the first step – the second has to be a new system of governance including public trustees placed on the boards of our key banks so that we can insure that savings are allocated safely to those areas of the economy that need the money and can invest it wisely to create jobs and develop new useful technologies.

While discussion of nationalization has now surfaced in the pages of the Financial Times and today in the New York Times, one fears that the Geithner/Volker/Summers team will move too slowly to discard failed models.

Globalization in reverse? The China Price Hits Bottom

Brad Setser, partner to the better known Nouriel Roubini, notes that the hot money flow into China, to take advantage of an appreciating renminbi, is now moving into a sharp reversal.

This suggests a slow down in China. And it squares with my own pet hypothesis – that the current global financial meltdown is due to the fact that a bottom was reached in the “China Price” as Chinese workers started over the past few years to push back.
More on this later but here is a useful snippet from Setser:
Hot money is now flowing out of China. Here is one way of thinking of it: 

The trade surplus should have produced a $115 billion increase in China’s foreign assets. FDI inflows and interest income should combine to produce another $30-40 billion. The fall in the reserve requirement should have added another $50-55 billion (if not more) to China’s reserves. Sum it up and China’s reserves would have increased by about $200 billion in the absence of hot money flows. Instead they went up by about $50 billion. That implies that money is now flowing out of China as fast as it flowed in during the first part of 2008.

If this trend continues it will not only undermine the claims for the permanency of financial globalization, but will radically alter labor politics in the US where protectionism is on the rise and, of course, could have a politically cataclysmic effect on Chinese politics.

Brad Setser: Follow the Money

Fed induces crisis of legitimacy?

Stanford economist and former Fed member John Taylor nails the central dilemma presented by the Fed’s aggressive intervention into the financial crisis: legitimation. 
The viability of capitalism, which generates volatility and inequality as a matter of course, depends heavily on the notion of “consent by the governed.” Absent that revolution or chaos fill the vacuum. Taylor notes that the massive buy-in by the Fed has meant, whether intentional or not (certainly not), that the federal government is now making industrial policy choices. 
This is really no different than the “pick the winner” policies that are at the heart of the east Asian model. Thus, the Fed begs the question, who does the picking? 
Presumably the governed…but where are they in the process?

Fed has abandoned monetary policy, critic says
| Reuters

GM in bankruptcy

This overview of the impact of a GM bankruptcy gives some insight into the complexity that all parties will face.
Left unclear is where the UAW negotiated VEBA debt stands. The VEBA was supposed to be bankruptcy remote but instead it is becoming an ATM for GM to help increase its leverage against creditors.
Of course, the UAW and GM failed to provide UAW workers any disclosure of the risk that bankruptcy entailed for the VEBA when GM workers needed that information – during the contract ratification vote.

GM in bankruptcy (The Deal Newsweekly)

Forget Madoff, SEC Ignored GM/UAW Bailout Risk


Earlier this year, I filed a complaint with the Securities and Exchange Commission on behalf of autoworkers pointing out that GM and the UAW had failed utterly to warn GM employees of the risk of bankruptcy and its impact on the proposed VEBA health care plan.

The VEBA was supposed to be “bankruptcy remote” – secure against bankruptcy risk but it turns out that it is being used to help GM survive bankruptcy.

The SEC complaint was based on my research note, Proposed GM/UAW VEBA: House of Cards.

Sure enough GM is now, in essence, in bankruptcy.
And GM workers and retirees still do not know what will happen to their jobs, their pensions or their health insurance.
That is what the SEC exists for – to protect investors and GM sold the UAW a $4.5 billion convertible note without disclosing the risk of bankruptcy. If the UAW had understood what I laid out in the research note, they likely would have taken a different approach to bargaining last year.
Senator Corker, from Nissan, is proposing now that the cash flows into the VEBA be turned into even more worthless paper, GM stock. Of course, no evidence exists that existing GM bondholders will agree to this. In any case, the auto workers have ALREADY taken a huge hit – the convertible bond is now worth far less than its original face value.
Bankruptcy, whether prepackaged or not, whether or not with a bridge loan from the U.S. Government, is not the way to go. As I proposed in A Way Out for the Auto Industry the way forward is creation a new Public Trust Company that could issue long term low interest bonds to purchase the assets of the Big Three and manage them in the public interest.

Asian Auto Companies Lead Race to Bottom

The Senate Republicans favorite Auto companies are leading the race to the bottom – not in their Asian sweatshops but right here in the United States.  See this important article in the Detroit Free Press.
I warned about the impact of the takeover of GM’s Fremont plant by Toyota back in 1985 in a letter that appeared in the New York Times:
A Dark Day for U.S. Workers Is Dawning at Toyota-G.M. Plant 

To the Editor:

A. H. Raskin heralds the opening of a new era in labor-management relations in the start-up of production at the Fremont, Calif., auto plant jointly managed by Toyota and General Motors (”An Industrial Breakthrough,” Op-Ed, July 23).

But those familiar with both Toyota and G.M. as trade unionists have a different view. Is the price of cooperation the permanent loss of jobs to speedup and automation? Of the original 6,000 workers employed at the plant, the new company, New United Motor Manufacturing Inc., will hire only 2,500. And those only after careful screening of attendance records, disciplinary incidents and attitudes toward labor-management relations. Nummi has pledged only that a majority plus one of these 2,500 will come from the old union shop.

A company rule book promises dismissal of any worker guilty of poor housekeeping, immoral conduct or indecency. Defining those concepts is to be left up to management.

The new arrangement is, in large part, the result of the United Auto Workers international going hat in hand to Toyota and General Motors. The union was willing to dissolve the original Fremont local with its long tradition of democratic activity. Old union activists must run a gantlet to return to their old jobs, and they have given up much of their former input in the new contract. The local no longer has the right to strike over work standards, there is no guarantee of time off for shop stewards for plant-floor representation, and everyone must participate in a work-group structure imported by Toyota from Japan.

If the labor record of Toyota in Japan is any indication, management will be able to take every advantage of the new labor structure. Despite persistent rumors on this side of the Pacific, job security is the privilege of a few who work at final assembly plants. Those who work for the thousands of subcontractors that provide up to 70 percent of an assembly line’s inventory are subject to brutal working conditions, irregular work and no effective union representation. Even the lifetime jobs have forced overtime, a pace that results in high illness and injury rates, and company housing compounds reminiscent of those in South Africa.

The teamwork system serves not to widen the skills of auto workers but to absorb from them as much information and loyalty as possible. The result for management is valuable: a constant hold over the work force 8 to 10 hours a day.

It was once thought by many of those who proudly defended the traditions of the trade-union movement that an independent and democratic organization was the single guarantee that workers’ interests would be protected. It was this principle that influenced the original Wagner Act and has motivated the American trade-union movement for a century or more. Now we are to toss blithely aside this tradition of democratic dissent, for cooperation, consensus and joint participation. These ideas seem more like Stalinist emulation campaigns than the principles of Eugene V. Debs and Samuel Gompers.

Archives: Toyota sweats U.S. labor costs | Freep.com | Detroit Free Press

D.C. to Detroit: "Drop Dead"

For Wall Street, $7 trillion, no questions asked. For Main Street, bupkus. 
Believe it or not this suggests to me that private capital still pins its hopes on globalization: the major source of opposition to the rescue came from southern Republicans like Bob Corker of Tennessee. 
These are politicians with foreign transplants in their home districts who stand to benefit from more problems in Detroit.
But in an odd way the Big Three win, too. Now they have all the excuse they need to shut down high wage good benefits jobs in Detroit and shift production to China and Mexico where police goons keep the unions at bay.
The world is flat, indeed.

Rescue Bid for Detroit Collapses in Senate – WSJ.com

The Death of the Auto Industry?

Snake oil salesman, um, I mean Nobel Prize economist Paul Krugman is once again doing what economists seem incapable of not doing: making a prediction.
This time he says the US auto industry is doomed. Presumably he means the Big Three, not the transplants from Asia and Europe. Though, if the Big Three are gone, at least from the US, then presumably the political pressure on Toyota or Daimler to locate plants here is reduced and they can all retreat to their slave labor camps in Mexico and China.
Of course, that is what Krugman really means. GM has long been trying to shed its dead capital invested here in the US. They know their capital is no longer worth a penny relative to what they can put in place in greenfield plants like those they are opening in Poland, China and Mexico. Of course, that same plant and equipment could be used to produce all sorts of useful products but such a transition would require some thoughtful planning, which is not the job of today’s socially irresponsible corporations.
Combine those new plants overseas with friendly police willing to kill union activists and the financial metrics are pretty darn attractive. 
So, listen to Krugman and you too can buy cars with blood on them.  Maybe Leonardo DiCaprio can make a movie about the new global auto industry.

Krugman: US Auto Industry Will Likely Disappear