OT: Automatic chapter 11/7 for major corporations?

Should there be an automatic administrative
bankruptcy/reorganization process for major corporations based on
their [lack of] IRS taxable earnings?
From the recent news about Ford, General Motors, Lucent, IBM,
Delphi, and too many others, it is depressingly clear their
corporate officers and executives are on a boat trip together
down d' river in Egypt [Denial] rather than objectively and
realistically facing the [critical] situation.
Ordinarily, bankruptcies/reorganizations are merely
"inconvenient" to other than those directly involved, however
these companies individually, and particularly in the aggregate,
are so large, and their stock so widely held in individual IRA
mutual funds and governmental pension funds, as to represent a
serious risk to the overall economy. Additionally, much of their
major debt is their pension obligations, a large share of which
are very likely to become the responsibility of the American
taxpayers through the PBGC, and the rest simply lost to their
current and future retirees.
A review of the media indicates these corporations have the
following things in common:
(1) The officers and directors are grossly overpaid, both
directly in money and "perks" such as "gross ups," stock options,
deferred compensation, extraordinary pension/retirement benefits
(generally set up as trust funds and thus shielded from the
normal bankruptcy process), personal use of corporate amenities
such as jets, and company paid memberships.
(2) They are losing several million dollars a day, some as high
as a billion dollars a quarter, of [cash] working capital, even
as their reported "operating" and EBIDTA earnings increase.
(3) "Paper earnings" generation, generally involving
manipulation of the pension fund assumptions.
(4) White and blue collar wages generally much higher than
comparable jobs in their community, particularly when benefits
such as medical insurance are considered.
(5) Dated, obsolescent and obsolete product lines.
(6) Over-reliance on governmental subsidies, tax
abatements/exemptions, special property valuations/assessments,
tax increment financing districts, and training programs.
Given the potential and likely damage bankruptcy that bankruptcy
of one or more of these organizations will cause [the domino
theory appears to apply in this case] I suggest that the courts
should be mandated to administratively reorganize any corporation
which does not report a taxable [IRS] income [not SEC operating
earnings] in any three of five consecutive years with
unemployment below 6.0 percent.
Among other actions the counts could be mandated to limit total
annual individual executive compensation to not more than that of
the President of the United States, freeze all corporate bank
accounts both domestic and overseas, order a forensic audit of
all financial transactions and contracts, and revoke all special
executive compensation trust funds on the grounds of fraud.
White and blue-collar wages/benefits should be reduced to those
prevailing in the community. Operations of the corporation could
continue under the supervision of a court appointed trustee,
while an evaluation was made of the long-term viability, which
should be concluded within 180 days. In this particular case, it
is doubtful that any of the organizations will be found viable in
the long term as presently constituted, therefore their
components will have to be spun-off or liquidated in an orderly
manner, with as much return to the legitimate creditors as
possible, with the pension plans at the top of the list.
The alternative is a series of Enrons, where the husks have been
drained of all assets, where the executives got the gold mine,
and the legitimate creditors/taxpayers get the shaft.
Uncle George
Reply to
F. George McDuffee
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| Should there be an automatic administrative | bankruptcy/reorganization process for major corporations based on | their [lack of] IRS taxable earnings?
Define "major corporation" please.
| From the recent news about Ford, General Motors, Lucent, IBM, | Delphi, and too many others, it is depressingly clear their | corporate officers and executives are on a boat trip together | down d' river in Egypt [Denial] rather than objectively and | realistically facing the [critical] situation. | | Ordinarily, bankruptcies/reorganizations are merely | "inconvenient" to other than those directly involved, however | these companies individually, and particularly in the aggregate, | are so large, and their stock so widely held in individual IRA | mutual funds and governmental pension funds, as to represent a | serious risk to the overall economy. Additionally, much of their | major debt is their pension obligations, a large share of which | are very likely to become the responsibility of the American | taxpayers through the PBGC, and the rest simply lost to their | current and future retirees. | | A review of the media indicates these corporations have the | following things in common: | | (1) The officers and directors are grossly overpaid, both | directly in money and "perks" such as "gross ups," stock options, | deferred compensation, extraordinary pension/retirement benefits | (generally set up as trust funds and thus shielded from the | normal bankruptcy process), personal use of corporate amenities | such as jets, and company paid memberships.
Define "grossly overpaid" please, using clear and succinct terminology that the IRS or SEC can come to terms with.
| (2) They are losing several million dollars a day, some as high | as a billion dollars a quarter, of [cash] working capital, even | as their reported "operating" and EBIDTA earnings increase.
How long can they lose this money before they go broke? Will this be written in law, and if so, what are the definitions of "cash" and other financial items that can be lost. What if the oil companies lose money for two straight years and make it all back up in one?
| (3) "Paper earnings" generation, generally involving | manipulation of the pension fund assumptions.
Definition again...
| (4) White and blue collar wages generally much higher than | comparable jobs in their community, particularly when benefits | such as medical insurance are considered.
Okay, who decides what is comparable, when companies are spread out throughout the world, so the definition of "community" becomes a little muddled, unless you can clarify this for me.
| (5) Dated, obsolescent and obsolete product lines.
I have a hammer whose design has changed little to none over the past hundred years or so. Dated? What about Harley Davidson? Do computers fit your definition of "obsolescence" as most of them are obsolete the day they hit the store? Define "obsolete" please.
| (6) Over-reliance on governmental subsidies, tax | abatements/exemptions, special property valuations/assessments, | tax increment financing districts, and training programs.
Sounds like Amtrack, your local transit authority, the IRS, and any number of government programs, local and state entities, and any organization created from them. I'll vouch for that.
| Given the potential and likely damage bankruptcy that bankruptcy | of one or more of these organizations will cause [the domino | theory appears to apply in this case] I suggest that the courts | should be mandated to administratively reorganize any corporation | which does not report a taxable [IRS] income [not SEC operating | earnings] in any three of five consecutive years with | unemployment below 6.0 percent.
Bankruptcy is normal business for business, and part of the way they start all over again. Continental Airlines took a couple tries to get it right. Five consecutive years with unemployment below 6%. Hmmm... What about a biotech company that spends ten years developing one or two critical medicines and won't see a profit until the FDA gets done with it another ten years later?
| Among other actions the counts could be mandated to limit total | annual individual executive compensation to not more than that of | the President of the United States, freeze all corporate bank | accounts both domestic and overseas, order a forensic audit of | all financial transactions and contracts, and revoke all special | executive compensation trust funds on the grounds of fraud. | White and blue-collar wages/benefits should be reduced to those | prevailing in the community. Operations of the corporation could | continue under the supervision of a court appointed trustee, | while an evaluation was made of the long-term viability, which | should be concluded within 180 days. In this particular case, it | is doubtful that any of the organizations will be found viable in | the long term as presently constituted, therefore their | components will have to be spun-off or liquidated in an orderly | manner, with as much return to the legitimate creditors as | possible, with the pension plans at the top of the list. | | The alternative is a series of Enrons, where the husks have been | drained of all assets, where the executives got the gold mine, | and the legitimate creditors/taxpayers get the shaft. | | Uncle George
Okay, I want the pilot in the front of the 747 I'm flying on to be paid as little as possible. Since I'm entrusting the lives of my family and myself in his care, I want someone who knows not a damn thing about the market finding the best pilots out there picking Cessna pilots for as cheap as they can get 'em. Not gonna happen.
I know you're not a socialist, and someone please correct me if it's fascism (don't recall which -ism, sorry) is it that mandates government control over all business. If you want the airlines run like the Post Office or the IRS, by all means find another country to live in. Russia seems be heading back to government takeovers of private business. They worked really hard on centralized command and control. Any relation to the reason that to get a Russian built passenger airplane into the US airspace it has to have a non-Russian engine? When was the last time your rode in a car built in the former USSR? They wouldn't make it off the boat without a breakdown, must less pass your safety standards. Oh, I guess the manufacturer and their engineers and managers would have all been jailed according to your plans rather than letting the fail the horrific death they deserve. Yup, put the government in control of that company, as if it would somehow get better.
What part of government has improved _anything_ they got their sticky fingers into?
Reply to
carl mciver
And a few billion in subsidies from the US taxpayer.
Excuse me but corporations exist at the behest of the american govenment.
Those charters are granted by the people via the government. They can be revoked you know.
Under cases of malfeasance and all.
Jim
Reply to
jim rozen
As a matter of fact, I have ridden a vehicle built in the former USSR. A WWII vintage Russian version of a "Jeep". Cute little animal. Motor is nearly identical to a Model A. Front axle is much more robust than Jeep. Uses Rzeppa joints. Rear end looks like it would be at home in a 1 ton dually. Serial number is painted!!!!,not stamped, on the frame behind the right rear wheel.
This particular vehicle was assigned to the fire department at Berea's (sp) dacha, and is in excellent condition, as it was essentially never used.
Reply to
alphonso
That's such a simplistic question about such a complicated situation.
The simple answer is "no."
There are many issues that affect the taxable earnings of a corporation, and lots of legal loopholes that let them avoid paying taxes. Are you suggesting that we punish the stockholders of corporations who are following the law to the letter?
Maybe tax reform would be a better solution.
F. George McDuffee wrote:
Reply to
Mike Berger
Yeah, talk to Robert Reich about this. He's been talking about the looming pension crisis for a couple of years in his monthly or so rants on the business show on NPR. It is VERY scary, and a lot of people are going to get hurt big time. As I see it, these people paid their own money into the pension system, it BELONGED to the employEES, not the employERS, and has been systematically stolen by the corporations. I don't know what the exact legal status of all this is, and whether the pensioners could actually win a lawsuit for theft of their property, but that would sure be a wakeup call if, say GM lost such a suit, and the former workers together took over control of the corporation after ousting management.
According to Reich (former secretary of labor) the shortfall in the pension accounts runs to the TRILLIONS of $. Since all of these companies have downsized, they will NEVER be able to make up the amount they have borrowed. The US government has a pension benefit guarantee corporation, but IT, TOO is massively underfunded. It may be funded at the level of 0.1% of the corporate underfunding they will need to cover!
This thing is going to blow big time in the next couple of years, and is going to make the savings and loan debacle of the late 80's look like a walk in the park.
All of the major industrial corporations have this problem, and have been hiding their heads in the sand, hoping some huge upswing in the economy would leth them upsize the company to 200% or so, and grow their way out of the "bomb". Well, obviously, with lots of work moving to China, India, etc. this will NEVER happen in the US. SO, the boms, i GOING to go off! It can't be stopped, and maybe can only be delayed a year or so. And, every time you lay off a worker, the clock speeds up!
Jon
Reply to
Jon Elson
Are you really sure? Looking in the paper lately, it seems to me the US government exists at the behest of US corporations (and now, China, which OWNS the US government. { do you know how much US Treasury securities the Chinese government holds?})
Jon
Reply to
Jon Elson
Umm, hello.
Has everyone just coveniently forgotten about the class action lawsuit that was recently decided against a large blue computer company, over pension issues? Yep, they lost.
It's been done once. I might be done again.
Jim
Reply to
jim rozen
On the Russell 2000 or Fortune 1000 list
Over 1 million $US per year in total compensation including "gross ups," and bennies.
Google . In too many cases this is a tax avoidance scam. The people/companies that do pay their taxes must make up the difference. In US tax law there is a provision called "carry forward tax loss." which means that even in a year when a corporation makes a profit, they still get a refund check. Go figure.
Mainly through a fictional anticipated rate of return on assets. Many corporations have been projecting 7.5% and higher even though market is 4.0% and lower. The projected "earnings" were then in excess of pension fund requirements and were "recaptured" to generate "operating earnings" sufficient to activate the executive bonus plan. Totally bogus. SEC/Congress is now putting a stop to such "book cooking" which appears to be why most corporations are terminating their plans. It appears that the pension plans, for which the corporation/officers are trustees, have been abused this way for at least a decade and likely a generation.
As the word is commonly understood/used, "fraud" is involved, and the courts may be able to "pierce the corporate veil" and recover some of the assets by recapturing some of the executives' "bonuses" and "performance pay."
As these are American corporations under US law, the logical assumption would be the USA.
What is it about "dated, obsolescent and obsolete" you don't understand?
Major problem is the "skewing" of reported financials. Smaller, generally locally owned businesses pay not only their fair share of the tax burden, but also the taxes of their competition. The smaller businesses generally can't get the same break on interest rates the big boys can through IDB bonds.
As Gayatri Chakravorty Spivak correctly noted "at some point the quantitative becomes the qualitative." These companies are so large they may be "too big to fail." The Federal Reserve determined that "Long Term Capital Management" [a slight oxymoron] had the potential to crash the system and arranged a bail-out. Several of the companies I named are larger than LTCM, with far greater liabilities. Does anyone know what derivative exposure Ford/GMC has? Generally, there is no "up side" cap on derivative liability....
Also note that the airline bankruptcy, starting immediately after deregulation [PanAm, Braniff], also put two of the three domestic producers of wide-body civil aircraft out of that business [MacDonald-Douglas and Lockheed] While the airfares are cheaper, when the hidden transferred costs such as the pensions via the PBGC are considered, it does not appear anyone is ahead [except AirBus]. Another disaster due to ideology. Agriculture reform should be a real crowd pleaser....
How many of these are Russell 2000 / Fortune 1000 companies? And if they are, why should the rest of the taxpayers subsidize their operations by paying their taxes?
Reread your post and note the reference to Continental Airlines. Also I said the prevailing rate [As in Davis-Bacon] not the cheapest possible.
This happens fairly frequently when a real person [individual] rather than a person-at-law [corporation] is involved. It occurs when a judge determines that a person represents a clear and imminent danger to themselves and/or the community, and has assets which may be dissipated. It is called civil commitment with conservatorship. In the last analysis, I am just proposing the same standards be applied to our major corporations, which appear to fully meet these requirements.
Any lawyers out there who would like to file a civil commitment action with receivership for GMC or FoMoCo? Appears to be a prima facia / slam-dunk case ....
Uncle George
Reply to
F. George McDuffee
On Wed, 25 Jan 2006 04:23:40 GMT, with neither quill nor qualm, "carl mciver" quickly quoth:
Since when does pay rate determine competency? Do you feel that you're getting your money's worth out of your $162k/yr (+ per diem which brings it up to well over $200k/yr) congresscritter? I sure as hell don't.
I understand that the captain of the Exxon Valdez made good money.
Bosses at Enron, etc. had extremely high salaries.
OTOH, most bus drivers make very low wages and do a really standup job.
Corruption. The bastids have really refined that into an art.
--- Annoy a politician: Be trustworthy, faithful, and honest! ---
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Reply to
Larry Jaques
Unfortunatly the stockholders are at the end of the line when asset distribution occurs in a bankruptcy case. In most bankruptcy cases there is not enough money to cover the obligations and the creditors must settle for cents on the dollar leaving nothing for the sharholders. When a company emerge from chapter 11 bankruptcy [reorganization] their stock is an all new issue and the old stock is worthless paper. Indeed, the new stock may be distributed to the creditors as part of meeting their claims. In many cases the "suits" that took the company into bankruptcy in the first place, also receive a portion of the new stock as reward for the good job they did. Thus the stockholders would be no worse off under this proposal and might even be better off in that reorganization may occur before all the stock holders equity is disipated, allowing them to recover at least a few cents on the dollar and/or a few shares of the "new" stock.
Uncle George
Reply to
F. George McDuffee
I don't see this as either/or but *both*. George is right; the so-called "business management" culture in the US is hurting the country's future and the people's right-this-minute. Part, but only part, of the problem is a corporate tax structure so nonsensically complicated that it invites manipulation. The main problem is their delusion that shuffling numbers around on a spreadsheet creates value and their lack of any ethics whatever.
Since the current control system for the people-contrived entities called corporations has demonstrated itself to be flawed, We the People have the obligation to fix it.
As Larry alluded to, the prospect that We face of implementing any kind of fix through our current, also ailing, governmental process is discouraging. It is, however, still our responsibility.
Reply to
Fred R
On Wed, 25 Jan 2006 12:40:36 -0600, with neither quill nor qualm, Rastus quickly quoth:
Don't China, Japan, and Great Britain -each- have about $3 trillion of our debt/bonds?
--- Annoy a politician: Be trustworthy, faithful, and honest! ---
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Reply to
Larry Jaques
=============== Thanks for the info, but I was wondering how much of the stockholders equity was in derivities or "Orange County Wonder Bonds"? If its some sort of "Wonder Bonds" the most the stockholders can lose is the face value. If its the typical derivative, there is no up-side loss limit. Sort of like selling a stock short v. buying it.
Uncle George
Reply to
F. George McDuffee
I was trying not to sound "alarmist" George. The fund managers have GM shorted to the tune of aproximately forty percent. I thought for sure they would all be out committing hari kari when Kerkorian bought in last summer but they somehow the covered. How would you like to have to come up with 15 percent of the market value of GM in 72 hours? LOL The cross component, or hedge for their trading positions is corporate bonds. They will all certainly be screwed royally if GM fails to tube.
Reply to
John R. Carroll

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