Mike Shedlock

There is plenty of blame to go around, including untenable wages and benefits, leveraged debt, untenable management salaries etc.

However, the enabling factor behind the debt is loose monetary policy by the Fed coupled with fractional reserve lending. Factor in unions and corrupt management and there is no way the company could make it without huge concessions from the union.

Still, it is difficult to have much sympathy for those who vote to have no job in these trying times.

The union will likely see pension benefits slashed by 50% or more when handed over to the Pension Benefit Guarantee Corporation (PBGC). The PBGC is of course US taxpayers who should not have to pick up any of this tab at all (but they will).

The person who accused me of being an extreme right-winger heard me on Coast-to-Coast where I mentioned "vulture capitalists" and leveraged debt.

So yes, I am aware of leverage. I am also aware of huge raises and other poor management decisions.

The facts remain as follows

  1. The Fed's loose monetary policy and fractional reserve lending enable leveraged buyouts
  2. The unions made a piss poor choice

Past is Irrelevant

There was an offer on the table that would have saved 15,000 jobs. The union said no. Are those 15,000 people better off with no job than a job?

That is all that matters. Management salaries and leveraged debt are in effect sunken costs. If the majority of those people can go out and find a better deal, then they made the correct choice. If not, they didn't.

Given that accrued pension benefits went up in smoke in addition to all those jobs, I strongly suggest the union made a very poor choice.

I freely admit that if a majority of those workers can find better jobs with better benefits, then I am mistaken. However, that begs the question: If those workers could do better elsewhere, than why were they working for Hostess in the first place?

Like it or not, nothing else matters. Cutting off your nose (or your job) to spite management is not a smart thing to do.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.