Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Intel Corporation (INTC) -- Ignore unavailable to you. Want to Upgrade?

To: fingolfen who wrote (143872)	9/21/2001 12:48:35 AM
From: ratan lal	Read Replies (1) \| Respond to of 186894

re: airlines have you heard of Southwest Airline? They have been doing fine and contiue to do well. I am sure they are subject to teh same regulations.

To: fingolfen who wrote (143872)	9/24/2001 10:57:57 AM
From: GVTucker	Read Replies (4) \| Respond to of 186894

fingolfen, RE: What sort of fundamental changes do you see as needed to get the economy going again? Clearly airlines, travel, and insurance are going to get the short end of the stick in the short term. It looks like the IT capital equipment makers may be short-term beneficiaries (Dell and Compaq have recently received large orders). Will the insurance and legal settlements from this disaster have a net positive or negative effect on the economy? Some are estimating a $70 billion insurance payout... and that doesn't include all of the legal payouts American and United may face Where will this money come from and where will it go (which could get us into a velocity of money debate, and I'm not sure we want to go there!)? What's it going to take to turn the corner at this point??? Tell you what, I won't get into a debate on the velocity of money if you don't ask me about putting an organic molecule into the chair orientation. Next, I really think that the government should err on the side of getting out of the way rather than intervening. There tends to be a panic about how our system works that results in poor management of financial issues. Note the panic of the Nixon administration when inflation crept above 3% in the early 70's. The wage and price controls that resulted were much more guilty for causing the inflation of the 70's than was the Arab oil embargo. It took several years for the resulting imbalances to get flushed out of our economy's system. I think about the major government bailouts of the past several years--Lockheed (at least I think it was Lockheed, my mind is going), Chrysler, Continental Illinois, and Long Term Capital Management. Lockheed I'll actually buy--defense is one of the business that only the most hard core libertarian wouldn't grant to the government, and I think that the defense argument can apply there. Chrysler, though, is a telling argument for the current status of the airline industry. The auto industry then was in desperate need of a complete reorganization. By bailing out Chrysler, the government helped our highly inefficient companies reinforce their structure. As a result, our economy might have avoided a rather harsh short term loss of jobs, and also a probably Chapter 11 filing by Chrysler. The cost, though, is a domestic auto industry that STILL doesn't make money, and a slow but steady erosion of jobs out of our domestic auto industry. GM has spent 20 years losing money on each auto they sell, they started another company--Saturn--that also loses money on each auto they sell. The only reason that GM is even in business is because they've been a halfway decent investment fund, particularly in the case of Hughes Electronics. Today, gutting our domestic auto industry and starting over would be far more costly than it would have been two decades ago. But it is hard for me to think of an alternative that would make Ford and GM competitive with Toyota. My fear of the airline industry post-bailout is that it becomes the auto industry. Continental Illinois and LTCM were both the result of poor risk management. I am particularly still steamed about the LTCM bailout, because there was a viable private market alternative--Warren Buffett. LTCM management and limited partners wouldn't get much in the Buffett deal, though, and they turned to the Fed. In the end, the LTCM deal was a transfer of wealth from the US government--the people of the US--to the partners and management of LTCM, quite possibly the most absurd transfer of wealth that I can think of. The benefit that airline bondholders are now getting isn't quite that bad, but it is still a government assisted transfer from relatively poorer people to relatively richer people. But how to solve the problem? Well, no one has a definitive answer. But my answer is predicated on my belief that the main cause of our current economic problem is an extreme capital investment imbalance of the previous economic boom. This caused, among other things, a huge capacity issue in technology. We are only in the nascent stages of working through this capital imbalance. There's not a whole heck of a lot that anyone can do about this but let it work itself out. If the government tries to force us through this issue, I think that the odds are strong that it will screw things up a lot more than help. What the government can do is facilitate investment so that once the cycle has worked its way through, people will be willing to take risks, particularly long term risks. The best way to do this is through capital gains tax cuts. And within this universe, I would think that the best solution is elimination of the capital gains tax for long lived assets, such as those that are held for more than five years or so. I'd also like to see the whole issue of interest rate uncertainty addressed. Right now the whole focus on 'what's the Fed doing' seems to me to be an unnecessary waste of energy and time. While I am not one of those people that thinks that Greenspan's interest rate machinations are the cause of any current problems, I do think that Greenspan's job is for the most part unnecessary. Replace the Fed with a computer program and publish that program's decision-making model for anyone to see. That would remove a huge uncertainty in the interest rate market and would lower long term rates. In all probability short term rates wouldn't change all that much. Sorry for the extended ramble. I just wanted to get back to you with some possible solutions; if I am going to complain about things, I ought to offer alternatives.