How Miami has lessons for the GM Rescue

Here in Florida it's difficult to feel the emotions, fears and depth of the implosion of General Motors and Chrysler and the firing of General Motors' Rick Wagoner.

Can you imagine? Can you imagine receiving a call at your business and having the president of the United States tell you that you are fired as chairman and chief executive officer of your company?

Longtime GM watchers say Wagoner's removal was long overdue.

Even so, his fate is what happens when you deal with the devil — the state. This is what happens when you beg for a handout from the state and take it. You are its slave, beholden to its rules.

It's the old business saying: The one with the money calls the shots.

Let GM go under
Don't feel sorry for Wagoner or anyone else at General Motors (or Chrysler). Everyone associated with GM — from the boardroom to the stockholders, all the way down to the factory maintenance worker — made choices. No one was forced to invest in it. No one was forced to work there and watch it disintegrate.

It's immutable: Bad choices lead to bad results.

The results are going to get worse, too. All of us, for instance, can predict what's going to happen next. The Obama administration already has announced it will intervene deeper and deeper — pledging taxpayer money to guarantee warranties; providing tax subsidies for people to buy new GM cars; speeding up the government's purchase of fleet cars. And he already has pledged GM will be mandated to make more green cars (another boondoggle to come).

All of this will be done with the good intention of trying to avoid inflicting pain on the GM “victims” — factory and union workers and their suppliers.

The Obama administration should not spend another dime of taxpayer money on GM. Let it go under. Flush it out. Break it up. Jettison the junk.

This sounds heartless. For the sake of the American people, it's not.

First, talk about fiascos. Imagine this: GM under the management and supervision of 1) a community organizer who has never met a payroll or run a business; and 2) the U.S. House of Representatives and Senate, whose members are the architects and endorsers of a soon-to-be $1.2 trillion annual deficit and an $11 trillion national debt.

Right, they know how to manage a business.

But here's a convincing case for letting GM die: Eastern Airlines and Pan Am.

Longtime Floridians should remember this well. For much of the 1970s and 1980s, those two airlines — with Eastern based in Miami and Pan Am operating a huge hub there — were Dade County's largest private employers. Not only did they directly employ thousands of people who lived in Dade and Broward counties, but they each had vendors and other ancillary providers (rental car companies, engine repair shops, food service providers, hotels, uniform makers and on and on) that generated thousands more jobs in South Florida.

Like General Motors, Eastern and Pan Am also suffered from carrying the high overhead costs that came from intransigent unions. Strapped with $2.5 billion in debt and a hostile union, Eastern CEO Frank Borman, the famed astronaut, tried desperately to save it. He gave up, relinquishing to the tough union buster, Frank Lorenzo.

Lorenzo couldn't make it work, either. Eastern filed for bankruptcy in 1991, owing $3.2 billion.

Pan Am, which started in Key West, followed the same path as Eastern. High cost structure, big union costs, inability to remain competitive, burdened with debt. It, too, filed for bankruptcy in December 1991.

There was no taxpayer bailout.

Successive bombs in Miami
For Miami, the collapse of these two companies was just one of several extraordinary economic missiles that exploded in succession. For one, Eastern and Pan Am were to Miami what GM is the United States when it came to jobs. But on top these two airline failures, Miami also was in the midst of absorbing the after-shocks of the banking and savings-and-loan crisis. Miami was home to two of the biggest bank failures in the nation — CenTrust Bank, the poster child of reckless excess and corporate looting, and Southeast Bank, once considered the premier bank of the entire Southeast.

All of this occurred, mind you, in the midst of a recession. By September 1992, unemployment in Dade County peaked at 10.6%. If you lived in Miami at the time, you had to wonder whether the Gateway to the America's would close.

Dejà vu, anyone?
Indeed, there are lessons from Miami that apply today.

Miami survived, all right. It bounced back and flourished. Miami International Airport thrived and grew in spite of the losses of Eastern and Pan Am. Other airlines filled the void. Today, MIA is Florida's busiest airport and the third-busiest airport in the United States in terms of serving as a gateway to the United States for international passengers.

Down but not out, Miami's economy from 1992 to 2001 — before the 9-11 recession — generated 138,568 new jobs, an increase of 15% and more than any other region in Florida. Even Tampa Bay, whose population is nearly twice the size of Miami-Dade County, did not create as many jobs in that period.

Free enteprise saved Miami
You see where this is heading: The marketplace flushed out its excesses and failing enterprises and adjusted to the disruption — all on its own.

Our economy has a process for this — consumers and the courts. And this process works. Eastern Airlines, Pan Am and countless other companies have reorganized and liquidated in an orderly process, albeit painful, of course, to those directly involved.

This should happen with GM, Chrysler and our banking system. If you cut through all of the Obama interventionism and rhetoric, this is what the real story is: GM and Chrysler are making cars that consumers don't want to buy at the price that GM and Chrysler are charging. Bankers have sold too much money (made loans) at prices that were too low for the banks to profit.

Who in his right mind would believe that Barack Obama, Timothy Geithner and Congress will ever be as good with auto makers and banks as the free-enterprise system was in Miami?

But what about all of those GM workers? Unfortunately, they must do what all of those Eastern Airlines, Pan Am, Southeast Bank and CenTrust Bank employees did when their companies failed — absorb the disruption as best they can and adjust.

That's what every consumer does every day of his life. This is how the free-enterprise system works. It is so much smarter and more efficient than any other way. Miami is irrefutable proof.

BIG TIME KUDOS!

Congratulations to President Michael L. McMullan and his fellow directors at Naples-based Bank of Florida Corp., which last week announced it is withdrawing its application for TARP money.

In his announcement, McMullan noted how the federal government has changed the rules from when it originally announced the Targeted Asset Relief Program. Said McMullan:
”TARP has evolved and changed significantly since we submitted our application in late 2008. At that time, we understood the program to be targeted at healthy institutions that were in a position to help lead the economic recovery in their respective markets, instead of what is now perceived to be a government bailout of weaker financial institutions.”

Kudos to the BoF board for smelling a rat. — MW