Tuesday, February 21, 2006
DUBAI PORTS WORLD AND ALL THAT
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Breakfast with Bwana
February 21, 2006
GENERAL MOTORS, DEFICITS, CHINA, DUBAI PORTS WORLD, HOMELAND SECURITY – WHICH OF THESE IS GOOD FOR AMERICA? ANY CONNECTIONS HERE?:
It was many moons ago, in 2003, when I wrote about GM’s placement of a bond offering of $17+ billion (an increase from an earlier target of $16 billion or so) and expressed my astonishment that people would buy those bonds. My concerns then were twofold: (i) GM was immediately going to put $14.4 billion into its pension plan, thus putting that money out of reach of the very creditors who had made the loan (by buying the bonds) and (ii) GM’s market capitalization at that time was about $21 billion, based on a stock price in the low 40s. It seemed bizarre to me that people would think lending more than 80% of the value of a company and then seeing more than 80% of the proceeds immediately disappear was a sensible idea. Yet, that is what happened.
I commented then that GM could well end up in bankruptcy. In the more than two years since, GM’s market capitalization has plummeted to $12.6 billion and there are unanswered questions about its pension liability. Bankruptcy is now openly discussed in the financial world. In a November 10, 2005 piece at CFO.com, Stephen Taub wrote: “GM maintains that its domestic pension plans were fully funded at the end of last year, according to the Journal, but the PBGC believes the plans are currently underfunded by roughly $31 billion. Why the discrepancy? The PBGC estimates liabilities based on the cost of paying retirement benefits if the plans were terminated today, explains the newspaper, while GM uses generally accepted standards for valuing assets and liabilities that can make its plan look stronger.”
What has this got to do with China, control of ports, Homeland Security and so on?
Let’s take a look at some numbers. Last year, the trade deficit was about $726 billion. With China it was $202 billion. This means that the rest of the world has accumulated $762 billion in US cash and China has $202 billion of that in just one year. For fiscal 2007, President Bush requested $42.7 billion for the Department of Homeland Security budget.
Dubai Ports World is buying the British company P&O that managed six US ports, for $6.8 billion.
For our Department of Homeland Security budgets which have already run into hundreds of billions of dollars, we have had one Secretary, Tom Ridge, whose only two major contributions were (i) to take a traffic signal and add two more colors to it, and (ii) to tell the nation’s homeowners to buy duct tape. The present Secretary has been sharply criticized for his department’s incompetence in the response to Hurricane Katrina and other matters. We still have no secure means of tracking millions of containers coming into the US through our ports. Our airport security consists of a laughable system of x-ray inspection that the DHS considers not reliable enough that they have to specially screen selected passengers, selected either because of their names, their profiles, or some random criteria that results in grandmothers and four-year olds being picked out. I will write more about my experiences in this regard in another column. Our DHS designated people have confiscated millions of pocket knives, scissors, nail clippers, lighters, and assorted items used by Americans in their daily lives on some theory that this enhances our security. They waste their time scanning iPods and laptop computers with testers designed to detect explosives, but only for selected victims of screening. Meanwhile, hundreds of thousands of iPods and laptop computers go through with just the x-ray screening. If that screening is effective, why do we need more? If it is not effective, why are we doing it? More importantly, why are we relying on it?
The replacement of the confiscated items probably does more good for China’s economy than ours since most of them are manufactured there.
I did not see China rush in, with the hundreds of billions of trade surplus dollars it has accumulated, to buy GM. It could have had GM for a mere $21 billion two years ago and around $11-13 billion in recent months depending on timing. China didn’t buy GM because it does not make money.
Dubai Ports World wants to buy P&O because it can make money. Also DP World has the money or, at least the credit rating to borrow the money. And it won’t put borrowed funds into a pension plan. Part of our trade deficit also comes from high-priced oil.
But, there is a downside. And it is one we should have recognized when six US ports were operated by P&O, also a foreign company albeit British. What we should have recognized and now need to recognize is that a foreign company (P&O) has had and a foreign company (DP World) will have knowledge of every container shipment from those ports into and out of America, all shipping schedules, all manifests, all contents, all shippers, all recipients.
Do we have any mechanism in place to ensure that this database of information will remain secure?
Why don’t we have the common sense to take $6.8 billion out of the Homeland Security budget currently spent on the idiotic alert level system and idiotic airport scanning of iPods and laptops, and have the US Government buy P&O? Why not make sure that one of the areas of our greatest vulnerability is made more secure than it ever has been?
We have here stark examples of what happens when US companies are mismanaged, or produce inferior goods, and what happens when we make our assets vulnerable to loss of control. And we will see more companies, including critical technologies companies, being bought by those holding large amounts of US dollars. You can darn sure bet they won’t be buying companies with unfunded pension liabilities running into the billions.
We spend billions of dollars on fluff and have none to solve a problem with a solution staring us in the face.
Given our commitment to free trade and public markets, all the noise in Washington is not likely to get much done. But if we can put our ports under the control of a Government managed company (even if contracted out to private management with supervision, but PLEASE, not Halliburton) we might start making sense of the security issues confronting us.
Cheerz...Bwana
www.breakfastwithbwana.blogspot.com
_______________________________________________________________________________
Breakfast with Bwana
February 21, 2006
GENERAL MOTORS, DEFICITS, CHINA, DUBAI PORTS WORLD, HOMELAND SECURITY – WHICH OF THESE IS GOOD FOR AMERICA? ANY CONNECTIONS HERE?:
It was many moons ago, in 2003, when I wrote about GM’s placement of a bond offering of $17+ billion (an increase from an earlier target of $16 billion or so) and expressed my astonishment that people would buy those bonds. My concerns then were twofold: (i) GM was immediately going to put $14.4 billion into its pension plan, thus putting that money out of reach of the very creditors who had made the loan (by buying the bonds) and (ii) GM’s market capitalization at that time was about $21 billion, based on a stock price in the low 40s. It seemed bizarre to me that people would think lending more than 80% of the value of a company and then seeing more than 80% of the proceeds immediately disappear was a sensible idea. Yet, that is what happened.
I commented then that GM could well end up in bankruptcy. In the more than two years since, GM’s market capitalization has plummeted to $12.6 billion and there are unanswered questions about its pension liability. Bankruptcy is now openly discussed in the financial world. In a November 10, 2005 piece at CFO.com, Stephen Taub wrote: “GM maintains that its domestic pension plans were fully funded at the end of last year, according to the Journal, but the PBGC believes the plans are currently underfunded by roughly $31 billion. Why the discrepancy? The PBGC estimates liabilities based on the cost of paying retirement benefits if the plans were terminated today, explains the newspaper, while GM uses generally accepted standards for valuing assets and liabilities that can make its plan look stronger.”
What has this got to do with China, control of ports, Homeland Security and so on?
Let’s take a look at some numbers. Last year, the trade deficit was about $726 billion. With China it was $202 billion. This means that the rest of the world has accumulated $762 billion in US cash and China has $202 billion of that in just one year. For fiscal 2007, President Bush requested $42.7 billion for the Department of Homeland Security budget.
Dubai Ports World is buying the British company P&O that managed six US ports, for $6.8 billion.
For our Department of Homeland Security budgets which have already run into hundreds of billions of dollars, we have had one Secretary, Tom Ridge, whose only two major contributions were (i) to take a traffic signal and add two more colors to it, and (ii) to tell the nation’s homeowners to buy duct tape. The present Secretary has been sharply criticized for his department’s incompetence in the response to Hurricane Katrina and other matters. We still have no secure means of tracking millions of containers coming into the US through our ports. Our airport security consists of a laughable system of x-ray inspection that the DHS considers not reliable enough that they have to specially screen selected passengers, selected either because of their names, their profiles, or some random criteria that results in grandmothers and four-year olds being picked out. I will write more about my experiences in this regard in another column. Our DHS designated people have confiscated millions of pocket knives, scissors, nail clippers, lighters, and assorted items used by Americans in their daily lives on some theory that this enhances our security. They waste their time scanning iPods and laptop computers with testers designed to detect explosives, but only for selected victims of screening. Meanwhile, hundreds of thousands of iPods and laptop computers go through with just the x-ray screening. If that screening is effective, why do we need more? If it is not effective, why are we doing it? More importantly, why are we relying on it?
The replacement of the confiscated items probably does more good for China’s economy than ours since most of them are manufactured there.
I did not see China rush in, with the hundreds of billions of trade surplus dollars it has accumulated, to buy GM. It could have had GM for a mere $21 billion two years ago and around $11-13 billion in recent months depending on timing. China didn’t buy GM because it does not make money.
Dubai Ports World wants to buy P&O because it can make money. Also DP World has the money or, at least the credit rating to borrow the money. And it won’t put borrowed funds into a pension plan. Part of our trade deficit also comes from high-priced oil.
But, there is a downside. And it is one we should have recognized when six US ports were operated by P&O, also a foreign company albeit British. What we should have recognized and now need to recognize is that a foreign company (P&O) has had and a foreign company (DP World) will have knowledge of every container shipment from those ports into and out of America, all shipping schedules, all manifests, all contents, all shippers, all recipients.
Do we have any mechanism in place to ensure that this database of information will remain secure?
Why don’t we have the common sense to take $6.8 billion out of the Homeland Security budget currently spent on the idiotic alert level system and idiotic airport scanning of iPods and laptops, and have the US Government buy P&O? Why not make sure that one of the areas of our greatest vulnerability is made more secure than it ever has been?
We have here stark examples of what happens when US companies are mismanaged, or produce inferior goods, and what happens when we make our assets vulnerable to loss of control. And we will see more companies, including critical technologies companies, being bought by those holding large amounts of US dollars. You can darn sure bet they won’t be buying companies with unfunded pension liabilities running into the billions.
We spend billions of dollars on fluff and have none to solve a problem with a solution staring us in the face.
Given our commitment to free trade and public markets, all the noise in Washington is not likely to get much done. But if we can put our ports under the control of a Government managed company (even if contracted out to private management with supervision, but PLEASE, not Halliburton) we might start making sense of the security issues confronting us.
Cheerz...Bwana
www.breakfastwithbwana.blogspot.com
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