Auto Industry Bailout Plan, Financial Markets and Geopolitics

November 20, 2008

The Honorable Charles B. Rangel
Chairman of the Ways & Means Committee
United States House of Representatives

Subject: Auto Industry Bailout Plan, Financial Markets and Geopolitics

Dear Mr. Chairman:

The effectiveness of President Elect Obama’s administration will be hindered if Congress approves bridge loan facilities or any direct government investment in General Motors, Ford, or Chrysler. Such an action will adversely affect not only the financial markets, but global geopolitics will be altered in proportion not seen since Smooth-Hawley was signed into law. General motors and Chrysler attempting to leverage Congress by holding out merger talks is nothing short of extortion.  On the other hand, if the markets are allowed to prevail, a quick analysis of SEC filings shows that Ford can survive and thrive in an industry wide shakedown.

The elasticity of the new economic paradigm has its limits. The $25 billion dollars approved in September by Congress for the development of fuel-efficient vehicles was appropriate. However, its use for any other purposes would be a grave mistake. The request for an additional $50 billion dollars by the auto industry to fund current cash flow and Defined Benefit Pension Plans will ultimately impact the funding of other industries critical to national security. It will favor United Auto Workers versus other citizens depending on their Social Security and Defined Contribution Pension Plans.  Therefore, the auto industry bailout must be defeated and Chapter 11 reorganization encouraged!   Members and retirees of UAW must share the burden of years of greed and mismanagement.

At this juncture unemployment is going to reach levels not experienced since the 1970s. This is simply unavoidable. The only remaining question is when. It is a rare occasion when the interplay of politics and economics is in sync. This is one of those historic moments. Let’s just ask two rhetorical questions. Do we want our life savings halved or worthless? Do we want unemployment to bottom out in the early or the later years of the new presidency? Sir, I leave the answers to these questions to you and Congress who would subsequently take the blame for the current administration’s debacles and economic failures!

The banking system has been recapitalized. That is very good news and it is in line with my previous recommendations to you. Now, it is time that we allow the markets to function. There is no doubt in my mind that GM defaulting on its debts will precipitate big losses for investors and insurance companies holding stakes in Credit Default Swaps related to GM bonds.

Unemployment will be accelerating along with the cleansing of antiquities from the American industrial base. This is the price “We the People” now must bear; main street will only benefit from belt-tightening if, everyone has to tighten their belts. Mom & Pop Nunez lost their 50-year grocery store and it was vital to their community; however there was no bailout for them.  No industry is so important that its significance supersedes that of any other industry. 

The Auto Industry did not concentrate on just the car business they also played the financial markets. They played against the house and in gambling the house always wins.  Now, they must pay the piper!  To rescue this particular industry today for the reasons set forth by their request for additional government funding is without merit.  It would set us on the course of transferring the means of production to the government that I personally opposed as a 1956 Hungarian Freedom fighter and was proven correct 33 years later when Communism collapsed in 1989.

America must begin a new cycle of reindustrialization. This can only be accomplished through allowing speculators to fail and bondholders collect the remaining scraps. Mark-to-market accounting rules must be suspended whenever and wherever principal and interest obligations are met. The up-tick rule for short sellers must be reasserted and naked short selling prohibited. Once again, redemption of Collateralized Debt Obligations (CDOs) by the US Treasury must remain off the table particularly when it comes to foreign investment banks and hedge funds.

The ever-expanding US service economies destroyed domestic tangible assets in search of “cost of goods” reductions offshore. The intrinsic value of our industrial base continues to diminish and not even our superior Armed Services will be able to pull us out of this tailspin.  Rebuilding our transportation and energy infrastructure will help keep people employed, but the US manufacturing base must be revitalized. Detroit is the place to start!

It is my understanding that Mrs. Julie McCrey and Mr. Cedric Grant are working on a face-to-face meeting between us next week in Washington or New York. I would like to discuss the impact of excessive consumption fueled by easy credit over the last decade and present several diplomatic options that could help our relations with the former Eastern European Bloc and Russia. My personal influence, friendships and business dealings in this region are quite profound and I have been working with leadership in these nations to bring about significant change which is directly in-line with the needs and the aspirations of the new administration. 

Sir, you are quite revered in Eastern Europe. Your history is well known and your influence is considerable. As Chairman of the Ways and Means Committee, you understand that the economics of America is the economics of the world.

In your hands and with your guidance, the new Obama Administration has a unique and unparallel opportunity to effectively turn around the world economy by adopting a “bottom-up” economic strategy. This can only be achieved with help from our friends in Eastern Europe and Russia.  Your keen insight into the basic economics of the future is what President-Elect Obama needs in order to ensure Congressional support for a serious and comprehensive rescue plan for our economy.

The American public is prepared to support long-term goals that call for measured personal sacrifices necessary to reconstruct the economy for the immediate, near-term, and distant future.  Without the mandate obtained on November 4, 2008, the nation and the world would be on the brink of total collapse. Thank you for reading this letter and continuously inviting my input and accepting my thoughts so generously.

I look forward to our meeting and remain,

Very Truly Yours,

 Robert J.S. Haris

Senior Vice President
Strategic Marketing and Planning
RTD Embedded Technologies, Inc.