Boeing – Sleazy Deal Confirms Downfall By Walrus.

Walrus6

I have been a lifelong fan of Boeing commercial aircraft. I’ve done business with them, watched them build aircraft, benefitted from their wonderful product support and generally enjoyed working with a great bunch of guys.

I was less than thrilled when they bought/merged with McDonnell Douglas, sad when I heard about the headquarters move, sadder when the dreamliner program had hiccups and downright horrified by the B737MAX debacle, especially after the management role in the matter was revealed. 

Just when I thought that the B737 mess couldn’t get much worse Boeing has now allegedly made an offer to the victims of the two African tragedies as follows according to zerohedge: – $50 million to the victims and $50 million to the two governments concerned for “community development and education”.

Folks, I’ve had shitty deals like that put to me. The $50 million to government is a straight out bribe. It’s designed to make them shut up and also pressure the victim families to take the deal. Naturally, most, if not all, of the government share will be siphoned off by corrupt officials. Boeing must know that.

I now relegate Boeing to the list of sleaze merchants. They have now demonstrated a completely cynical approach to aircraft production which is utterly opposed to the pursuit of real aviation safety – something Boeing used to be famous for. Not any more.

https://www.zerohedge.com/news/2019-07-17/boeing-thinks-human-life-worth-just-150000

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70 Responses to Boeing – Sleazy Deal Confirms Downfall By Walrus.

  1. Avatar Eric Newhill says:

    According to Reuters, Boeing is saying none of this a settlement to the families of the victims of the two crashes. Additionally, Reuters states that the money is to go to charities and government programs that help in the communities most effected.
    Some of the families are angry not about the amount or target of the $100 million payout, but because Boeing announced the $100 million payment and now people are calling them (the families) thinking it is a settlement and asking if the money has been received yet. This is, according to the Ethiopians, a dangerous state of affairs because kidnapping for ransom and theft are so prevalent in the country.
    Actually, even if it was the payout to families, it’s not too far off the mark. We have 346 victims. According to the reports you quote, $50 million goes to the surviving family members. So that’s $144,500 per victim – or $4.19 million Ethiopian Birr. That translates to 11X the average annual income in Ethiopia. 11X the avg American annual income would be about $535,000; which is typical of a settlement for this kind of tragedy in 2019 dollars. So the Ethiopians would be getting the American equivalent of the settlement (I didn’t bother to breakout to Indonesian currency/salary equivalent, etc).
    But Reuters says that Boeing says the $100 million is not the settlement on the lawsuits.
    A couple of other points;
    1. The settlement money – whatever it turns out to be – isn’t going to bring the lost loved ones back
    2. If Boeing really did willfully and wantonly disregard known critical safety issues that caused the crashes, then, IMO, some kind of criminal proceedings are in order as well as massive punitive damages to a level that really hurts – of course we will never see criminal action taken even if it should be and the punitive damages are even questionable; they’d take a good long fight.

  2. Avatar Harry says:

    I saw this piece which I think explained what happened at Boeing.
    For what little my opinion is worth, many of the problems in the West have originated in our business schools. They are a curse. Its not too late to shut them all down, and redistribute the curricula to other departments.
    https://www.seattletimes.com/opinion/what-will-it-be-boeing-great-airplanes-that-generate-cash-flow-or-great-cash-flow-period/

  3. Avatar semiconscious says:

    great article. a quote:
    “According to Boeing’s annual reports, in the last five years Boeing diverted 92% of operating cash flow to dividends and share buybacks to benefit investors. Since 1998, share buybacks have consumed $70 billion, adjusted for inflation. That could have financed several entire new airplane models, with money left over for handsome executive bonuses…”

  4. Avatar VietnamVet says:

    Walrus,
    My Dad and Brother-in-Law worked at Boeing. I am not disinterested. My Brother-in-law who is also Vietnam Veteran and retired told me that the 737 Max catastrophes are directly due to the takeover of Boeing by McDonnell Douglas executives in 1997. Boeing, just like Intel, U.S. Steel or Toys R Us, was seized by financiers who could care less about the business and milked it of all its value. Money that should have been used designed a new single aisle passenger airliner instead was used to pay executive bonuses and increase shareholder value by stock buybacks. Due to this de-industrialization policy the USA is now an empty shell of the nation that I grew up in. The only thing rising is the number of billionaires up to 680 led by Jeff Bezos.
    If Congress had not deregulated aviation and let Boeing employees certify the safety of the aircraft, FAA inspectors, who once were paid by taxpayers, more likely than not would have pointed out that the 737 Max flight control system which could nose dive the airplane into the ground by regulation requires three or more sensors not one.
    Boeing in order to survive as North America’s aircraft manufacturer must be able to sell single aisle passenger aircraft in East Asia. Dennis Muilenburg should know this. Clearly the Trump Administration doesn’t. Boeing’s future depends on getting the 737 Max re-certified by the Civil Aviation Administration of China. This will take time and could cost billions of dollars. If not, the US aviation industry will wither away. The new Cold War, unless ended, will force the formation of two global economic blocks, once again, except this time China will have all the manufacturing expertise and industry.

  5. Avatar Chiron says:

    Boeing buying Embraer regional airliner division and merging with its commercial airliner sector recently looked like as a desperate move, Embraer is world leader in the regional airliner market and is famous for being efficient, Boeing is hoping of being saved by Brazilian engineers.

  6. Avatar Lars says:

    Thanks for your very informative post. I am not all that surprised that Boeing is in their deserved trouble. Most big US companies have a senior management well removed from reality. Many years ago, when I was in the trucking business, we suddenly got a lot of trips hauling refrigerators back to various GE factories, due to a faulty compressor they had installed. The repair guys in the field soon found them to be faulty. It took one and a half years for that information to reach senior management, resulting in a lot of units made with a problem. Since airplanes are a lot more complicated, what happened should be expected.
    It will take more than $100M to remedy this.

  7. Avatar adrian pols says:

    The 737MAX will probably never fly passengers again. It’s Kludge and they knew it. So does the rest of the aviation world. Maybe the earlier 737s will live on, but this Turducken has been thoroughly exposed and other aircraft will fill the niche Boeing tried wedging this into.

  8. Avatar James O'Neill says:

    In many ways Boeing is a metaphor for modern America. Started out with such promise, reached a peak, and since then steadily downhill while others (competitors) thrive. Part of the tragedy is that the majority fail to see the reality and will continue down the same destructive path.

  9. Avatar Mathias Alexander says:

    Is it true that executives are legaly required to act in this way because it is in the interests of its shreholders?

  10. Avatar John A says:

    No, that myth was started by Milton Friedman.

  11. Avatar John Minehan says:

    Graduate Business Schools have emphasized ethics since at least the S&L Scandals in the 1980s.
    It is at least arguable if the effort has produced any results.

  12. Avatar John Minehan says:

    to be a devil’s advocate, would doing that have made business sense? Would demand have supported the new models? Was there a technological reason to bring in new models that would create their own demand?

  13. Avatar John Minehan says:

    Actually, it is a bit more complex than that.
    Yes, executives have a duty of loyalty to the company (and, by extension, to its owners, the shareholders).
    More to the point, Boards have a fiduciary duty to the shareholders of a company, which much predates Milton Friedman’s 1970 article in the New York Times Magazine. Corporate law is, by and large, state law in the state of incorporation, now mostly Delaware and New York for publicly traded corporations.
    Precedents from Michigan from about 100 years ago began to establish that a Board’s fiduciary duty involves maximizing corporate profits. Based on this, it became part of the broader legal theory of the corporation that this was a key duty of boards in the 1920s and 1930s. By the 1940s and early 1950s, beginning with closely-held corporations and later OTC traded corporations, lawyers like Joseph Flom and Martin Lipton contended mightily over shareholder derivative suits in the New York courts.
    One of the things that came out of these suits is the business judgement rule that presumes that HOW the board maximizes shareholder value is left to the business judgement of the board, who are (ideally) chosen for business acumen and savvy.
    With a publicly traded corporation, a shareholder can fairly freely sell their shares if the return is insufficient (portfolio theory). However, most people do not monitor a corporation in which they own stock like they owned the business (even though, legally, they do, or at least a small part of it). Boards have a fiduciary duty to shareholder to protect their interests (largely, but not exclusively, by maximizing return), which makes sense especially because stocks are often held by the endowments of charities, pension funds and other vulnerable parties.
    Put in extreme terms, a Board, which concentrates on corporate grand strategy, could put a lot of money into R&D to reap future profits by disrupting the market at cost of current returns. But that COULD be challenged. The more common approach today would be to acquire new technology to disrupt the market by acquiring a smaller company with promising tech but not risking current returns by doing expensive in-house R&D which might not show any return.

  14. Avatar Bill H says:

    Yes, there was. The 737MAX should have been a new model, rather than bandaids placed on an existing model which is what it was.

  15. Avatar Bill H says:

    FAA inspectors would have required a different airplane, one in which flight stability was inherent in the airframe and not faked by means of software.

  16. Avatar John Minehan says:

    I think modern approaches to corporate governance are an improvement on what went before. I also think a less intrusive regulatory structure abets growth and innovations.
    However, laws (and things like the business judgement rule) have tended to restrict things like shareholder derivative suits, which I think limits a more effective check on the system.
    If anything, it might make sense to take things that boards tend to get wrong (e.g., capitalization decisions by boards of financial institutions, as with the Great Recession and the S&L Crisis) out of the ambit of the business judgement rule and put the burden on the board to prove there decisions were reasonable. It does not tell the Board what decision to make, but pointedly tells them that they bear the liability if they did not consider it carefully.

  17. Avatar ex-PFC Chuck says:

    The root cause of all this is the out-of-control financial sectors of the western industrialized societies, and most especially that of the USA. The go-to source for understanding this is the life work of economist and economic historian Michael Hudson who, in his 80th year, is still very much at the top of his game. Hudson has studied economic history from ancient Mesopotamia 5,000 years ago to the present, and he asserts that in societies that use money the financial sectors that emerge to do basic, necessary functions such as processing transactions and lending money for short term needs inevitability become ever more parasitic, thus weakening societies from within, unless they develop active measures for preventing this. Many Mesopotamian societies of the 3rd and 2nd millennia BCE accomplished this for extended periods with periodic debt relief programs. This is the topic of Hudson’s most recent book . . and forgive them their debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year.
    Two of Hudson’s many books are crucial to understanding how this has played out since early in the 20th century. The first is Super Imperialism: The Origin and Fundamentals of U.S. World Dominance, 2003 Edition, which describes the financial aspects of US foreign policy which since the First World War enabled the US to supplant the overt colonialism of the Western European with a more stealthy financial colonialism centered on the USA. The book was originally published in 1972 and substantially updated in 2003. One thing that becomes apparent from this history even though it’s not directly brought out by Hudson, is that the refugees who have been so effectively used by Trump to distract his base from the fact he, like all 20th century presidents except Franklin Roosevelt, shy away from confronting the titans and minions of Wall Street. And even FDR limited the scope of his New Deal programs to those that affected the financial sector’s domestic predation; he was fully on board with what it did abroad.
    The other book at the top of the Hudson must-read list is Killing the Host: How Financial Parasites and Debt Destroy the Global Economy, published in 2015. In it he discusses how many of the causal factors cited in other comments that have hollowed out Boeing and many other companies can be traced back to the malign imperatives of the financial sectors of the western industrialized countries.
    For a convenient introduction to Hudson’s thought, below are links to transcripts of two recent interviews of him by Bonnie Faulkner of the Guns And Butter podcast which provide a pretty good overview of his body of work.
    https://www.nakedcapitalism.com/2019/07/michael-hudson-discusses-the-imf-and-world-bank-partners-in-backwardness.html
    https://www.nakedcapitalism.com/2019/07/michael-hudson-de-dollarizing-the-american-financial-empire.html
    Super Imperialism: https://amzn.to/2XX9cHr
    Killing the Host: http://amzn.to/2wuiYEP

  18. Avatar blue peacock says:

    “Boeing, just like Intel, U.S. Steel or Toys R Us, was seized by financiers who could care less about the business and milked it of all its value. Money that should have been used designed a new single aisle passenger airliner instead was used to pay executive bonuses and increase shareholder value by stock buybacks. Due to this de-industrialization policy the USA is now an empty shell of the nation that I grew up in.”
    VV,
    Yes, this financialization of our economy over the past 40 years under both Republican and Democratic administrations and Congresses has hollowed out our economy and financed the technology transfer to China strengthening the totalitarian CCP.
    With the focus on financial asset inflation that primarily benefits the top 1% we now have the worst wealth inequality in a century. Even worse the degree of systemic debt and unfunded liabilities are gargantuan. The middle classes and working classes will be further shredded as the debt load continues to depress productivity growth and monetary & fiscal policies become even more extreme. If we thought the political conflict we have seen so far is bad, we ain’t seen nothing yet!
    Ray Dalio, the Chief Investment Officer of Bridgewater, one of the largest hedge funds recently penned a note on “paradigm shifts”, which is well worth a read.

    “There’s a saying in the markets that “he who lives by the crystal ball is destined to eat ground glass.” While I’m not sure exactly when or how the paradigm shift will occur, I will share my thoughts about it. I think that it is highly likely that sometime in the next few years, 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won’t be able to be funded with assets. Said differently, I think that the paradigm that we are in will most likely end when a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better and b) simultaneously, the large need for money to fund liabilities will contribute to the “big squeeze.” At that point, there won’t be enough money to meet the needs for it, so there will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots.

    The opioid crisis, Trumpism are all symptoms of the deleterious effects of financialization. Demagogues from both the left & right are in our political future as large segments of our population experience significant stress as their standard of living comes under increasing pressure. Note that the bottom 50% only have 1% of the financial assets.
    https://www.linkedin.com/pulse/paradigm-shifts-ray-dalio/

  19. Avatar blue peacock says:

    Executives act in their self-interest. Their compensation packages are tied to stock price which is how they make the real big bucks. Not salary. Hence, why financial engineering is what they do. GE is the poster child and Jack Welch the epitome of the “great” CEO. It doesn’t matter if the business survives and if long-term shareholders (the pension funds, 401K plans and mutual funds) lose value. After all it is OPM.

  20. It goes far beyond the schools. It’s the overarching Western business philosophy. I had to take one business course for ROTC. The central message from day one was that the business of business is to make money. A lot of us found this sleazy and disconcerting, but we never harbored dreams of being massively rich. This is in line with what semiconscious said below about Boeing maximizing dividends and share buybacks. They may talk about building fantastic aircraft, but that’s just talk. They’ll build the cheapest product they can in order to maximize profits. It wasn’t always this way. The idea of offering a quality product for a fair price was once far more than a marketing slogan. It was a time when craftsmen, manufacturers and service providers stood behind their work as a matter of honor and pride. It is a philosophy of “being a man for others” for the business world.

  21. Avatar turcopolier says:

    TTG
    A few things I learned in my ten years in international business. 1. The business of business is making money, not the products. They are just the means for making money.. 2. Resources are not free as they are in government. Someone has to pay for them. 3. Transactions are where you make money if you do. Infrastructure; factories, people, company towns or country clubs, etc. should be taken down as soon as the transactions that they support are no longer making money. 4. There are profit centers and there are cost centers. Remember that. I hated business just like the banker Claude Devereux hated it in my books but like him I was good at it. TTG, you should have been a priest or a crusader warrior monk.

  22. Avatar JJackson says:

    “There is one rule for the industrialist and that is: make the best quality goods possible at the lowest cost possible, paying the highest wages possible.” Henry Ford.
    “There is one rule for the industrialist and that is: make goods at the lowest cost possible, paying the lowest wages possible.” Ver. 2.0 (current)

  23. Avatar Eric Newhill says:

    TGG,
    Then how come cars have been getting increasingly safe (accident survivability), more fuel efficient, better handling, etc?

  24. Avatar Eric Newhill says:

    JJackson,
    That’s just one side of the equation.It’s labor’s role to negotiate for the highest salary possible.
    Consumers make decisions on a matrix of considerations that includes price (lowest possible), but also highest quality.
    All of these tensions between and within the different players result in the right mix of quantity, quality, price, etc.
    Or we could have AOC deciding what we’re going to get and at what price.
    Life is messy.

  25. Avatar Harry says:

    Probably. Boeing’s engineering standards were once extremely high. It was the foundation of their long running success. For the last 20 years the management have been extracting value by under-investing. Not building a new aircraft and going with the software solution for the 737 Max saved a huge amount of money, or at least would have if the process hadn’t been mismanaged/misconceived. However, making the the product subservient to the business is not a path to longterm success. Its a path to increasingly bad planes.
    In many industries, CEOs can can make +USD100mn. When these kinds of sums are involved we shouldnt be surprised if decisions are made which prioritizes the short term over the long term.

  26. Avatar John Minehan says:

    Welch is an interesting case.
    Peter Drucker, the management gaon, used to say that Reg Jones was the greatest CEO he worked with in his long career because Jones could pick someone very different from himself as CEO who better fit the times.
    However, those traits were apparently conspicuously absent in Welch, who picked a successor not obviously suited to the times while Welch himself hung on too long even as the world changed around him (he didn’t notice, for example, that GE Capital, a major source of GE’s profits in the 1980s and 1990s, became a potential liability by the early 2000s).
    Not everyone has the self-awareness that Jones had. Not everyone can read the tea leaves well enough to know, ” now it’s time for something completely different.”
    Welch was tough, unsentimental and perfectly suited to the demanding business environment of the 1980s and 1990s. He made the changes that had to be made early and voluntarily and GE did far better than other companies like IBM and GM that didn’t.
    But it seems that Welch didn’t realize that being right for one period isn’t enough.

  27. Avatar John Minehan says:

    Which is Friedman’s point.
    If executives can spend shareholder’s money of furnishings and charitable contributions, rather than maximizing shareholder’s returns, they will. Keep them from doing so.
    The big question is: “How?”
    As lord Keynes said, “In the long term, we are all dead.” The US, with its short term orientation has generally out performed Japan with its long term orientation. It is possible, but not yet determined, that the same is true of the PRC.

  28. Avatar John Minehan says:

    “periodic debt relief programs”
    “Comes the Jubilee?”
    Well, given its Halachic roots hardly a radical or socialist solution, but does it undermine people’s willingness to loan money to strangers (which was not the case in Ancient Israel, Ancient Mesopotamia or modern Islamic nations with a Hawiya/Islamic lending system)?

  29. Avatar John Minehan says:

    COL (R) Lang, well said. As my Corporate Finance Prof put it: “(1) Cash is good; (2) the balance sheet is crap: and (3) their ain’t no such thing as a free lunch.”
    As for your item (4), never forget you can always sell the PPE and mitigate losses to meet new (and, often, reduced) needs, Mitt Romney mastered this in East Coast M&A.

  30. Avatar John Minehan says:

    Your 4 points are true and concise enough, I’d like to share them with some people, with or without attribution, as you prefer.

  31. For over six years I felt I had a calling to become a Maryknoll missionary priest. I even went to a future priest summer camp at Stockbridge, MA run by the Marionists. Then the hormones kicked in. I became a Special Forces officer instead.

  32. Avatar LA Sox Fan says:

    Actually, under Delaware corporate law, directors are required to “maximize shareholder value.” That doesn’t mean increase profits. It gives directors a lot of discretion under the business judgment rule.
    That being said, directors are elected by the shareholders. Shareholders will vote for the directors who will raise the stock price so that those who already own stock will profit. Thus, we have corporations taking out billion dollar loans to purchase stock, which increases the current stock price for current shareholders, but puts future shareholders in debt. In sum, the drive to increase shareholder value leads to the cannibalization of the corporation.

  33. Avatar Lars says:

    Ray Dalio is also looking at some aspects of MMT and if it works, that is wonderful. If it does not, it can make things even worse. Where many agree with Mr. Dalio, is that the current financial system is working less and less. Boeing and others are a symptom of that.
    My wife was not sure why I insisted over the last decade that we use paper profits from Wall Street to buy diamonds, gold, silver and such. She does like wearing it now and then.

  34. Avatar johnf says:

    Talking of warrior priests, here is a story of unofficial action taken by priests and Catholics in The Philippines to stop the ruinous drug wars between Dutarte and the drug barons:
    https://www.theguardian.com/world/2019/jul/18/philippines-rodrigo-duterte-war-on-drugs-catholic-church

  35. Avatar ex-PFC Chuck says:

    I neglected to mention that the full text of the 2003 edition of Super Imperialism is available as a PDF download from Hudson’s personal website. Here’s the link:
    https://michael-hudson.com/wp-content/uploads/2010/03/superimperialism.pdf

  36. Avatar turcopolier says:

    TTG
    I considered being a priest for a about a week when I was ten. Sadly, my long search for universal meaning in the Church came to the end when I realized that the senior clergy that I had long dealt with as an invested member of a papal order of chivalry had always been lying to me about their state of grace with regard to sex.

  37. Avatar ex-PFC Chuck says:

    Most of what Hudson writes about in and forgive them their debts – the late 4th through the mid 2nd millennia – predates the coalescence of the Jewish identity and religion. He is said to be working on a sequel to that book that will address attitudes toward periodic debt relief from the late 2nd millennium up through Greek, Roman & early Christian times.
    Not all types of debt were relieved in ancient Mesopotamia, only those which if unforgiven posed a threat to the establishment, which in that era was usually the political and religious authority combined in the person of the monarch/high priest. These were typically debts owed by free holders who were available to be called upon to put aside their plows when necessary to defend the city or state. Often the debts were owed directly to the temple/government and were forgiven every 25 or 50 years, or upon the ascent of a new occupant of the throne.

  38. I was lucky to Father James F. O’Dea as the pastor of our Church for as long as I lived there. He grew up in nearby Waterbury and was a Navy chaplain in the Pacific during the war. He was of that rare breed of men of high honor, morals, courage and compassion. We had an abnormally high concentration of that breed in my hometown. Father O’Dea told us the story of how some young seminarians asked him how they could stifle normal sexual urges. Father O’Dea told them he had no idea and that he would love to know if they ever found out how to do so. I didn’t become jaded until I saw what caliber of men infest most of the world. Oh well. FIDO.

  39. Avatar LA Sox Fan says:

    GE became a finance company that had a manufacturing side business under Welsh. He also moved that manufacturing to China and forced GE’s subcontractors to move manufacturing there too. That financial business that Welsh created has ruined GE and it currently is close to bankruptcy.

  40. Avatar Jack says:

    Lars
    We’ve been living MMT for the past decade. Just look at the scale of monetization in Europe, Japan, Switzerland and the US in that period. Now in the “greatest economy in history” with the stock market at all time highs, see how the yield curve looks with the Fed readying rate cuts and $13 trillion of sovereign debt with negative yields and swap spreads negative. Isn’t it incredulous that Italian 10yrs yield less than 10yr Treasuries and Argentina can issue 100yr bonds?
    If MMT works, why after trillions in monetization does semiconductor and auto sales on a YoY basis decline and why does Singapore print negative economy and German industrial production decline?

  41. Avatar akaPatience says:

    We own Boeing stock. Even though the price hasn’t dipped as much as I expected in the wake of the 2 crashes, I’ve soured on the company and have wanted to sell to cut our losses. But while I’m a worrier, my eternally-optimistic husband wants to hold on especially now that Boeing has announced a $5 billion earnings hit, thereby finally putting a number to its [presumed] liability and thus ending some degree of fear and speculation. He may be right. We shall see.
    Besides this, one of his brothers was a Navy pilot and blames poor training for the crashes. He thinks African and Asian pilots (except for Singapore) generally aren’t as well trained as American pilots.

  42. Eric, government safety and fuel efficiency regulations have something to do with that but that’s clearly not the only reason. These companies are improving engineering, designing and manufacturing all the time. Getting the reputation of producing nothing but cheap crap is not good for the bottom line. However, this isn’t always for the best. VW made a decision about a decade ago to “cheap out” on its cars in the US market. The difference was noticeable, but it was a marketing success. Most US buyers preferred the cheaper price over better features and materials.

  43. Avatar begob says:

    Labour might fill its role better if it wasn’t hemmed in by pesky regulations that hinder its right of association.

  44. Avatar turcopolier says:

    TTG
    You are making excuses for men who have broken their vow of chastity.

  45. Avatar turcopolier says:

    JM
    Feel free to do so.

  46. Avatar turcopolier says:

    JM
    That is true of you want to sell or liquidate the business. I suppose you know that you can sell the business entity with its book, etc. Or, you can sell the assets.

  47. Colonel Lang, to the absolute best of my knowledge, Father O’Dea never broke his vow of chastity. He acknowledged he had normal male desires which he kept fully controlled through his faith and self-discipline. Without those desires, a vow of chastity has no real meaning. I make no excuses for those who lack that faith and self-discipline.

  48. Avatar Walrus says:

    Trained? One word Colgan. Read the pilots voice recording transcript. The FAA raised required experience levels as a result without even a murmur from the industry.
    As for these accidents being due to poor training, I think that is wishful thinking. I’ve read the reports so far, and even if they diagnosed the problem correctly, there was no time to perform the “roller coaster “ method of getting the aircraft back into trim.

  49. Avatar Jack says:

    Yup. Welch destroyed the company through financial engineering. Making sure that during his tenure he beat eps expectation by a penny every quarter for years. No one questioned in the financial media how an industrial company could achieve such precision and consistency in its earnings. Now GE is liquidating as it tries to pare down its massive debt load which trades a couple notches above junk.
    Another great American icon IBM who used to have a pristine balance sheet is now all levered up buying back stock and buying and selling assets to engineer it’s financial statements each quarter while it’s top line declines.
    Sad how we have destroyed our industrial base and our ability to engineer and manufacture great products all in my lifetime. Blue Peacock in an earlier thread linked to an article that showed how vulnerable our military has become to the same financial engineering as the defense industrial space has also consolidated into a few behemoths.

  50. Avatar Fred says:

    LA,
    “taking out billion dollar loans to purchase stock, which increases the current stock price for current shareholders, but puts future shareholders in debt. ”
    Please name a couple that took loans for the purpose of buying back stock rather than using cash from business operations to do that. Which brokerage firms had analysts covering those transactions and what did the SEC do in that regards over the past few years?

  51. Avatar Lars says:

    I agree with you that we have been living with some aspects of MMT for quite some time. But now some would like to turbo charge it and I am not so sure that it will work. It may even break the system and then we have a real problem. There is some historical data that shows the fed always cutting rates at the peak of economic performance and now they have very little room to operate, since rates are rather depressed. I don’t think negative rates will go over well politically in the US. As you point out, the world economy is slowing down and there is little the Fed or the government can do about it.

  52. Avatar sailor1031 says:

    hard to see the ethics in knowingly selling an aircraft with inherent unstability. Trying to compensate with poorly designed software just compounds the problem. And how ethical is it to blame the pilots, as Boeing did knowing that the problem was their dangerous aircraft?

  53. Avatar turcopolier says:

    TTG
    I wasn’t referring to him personally.

  54. Avatar JJackson says:

    Walrus I thought there was a training issue, in that 737 to 737Max conversion course did not fully explain the operation of the faulty unit or what, if anything, the pilot could do should it behave as it seems to have done.

  55. Avatar LA Sox Fan says:

    Here’s a Forbes article laying it all out for you. If you have any questions after reading it, please let me know. https://www.forbes.com/sites/jessecolombo/2018/08/29/the-u-s-is-experiencing-a-dangerous-corporate-debt-bubble/#171afde1600e

  56. Avatar John Minehan says:

    Selling the PP&E is the final escape hatch, but it mitigates losses . . . .

  57. Avatar John Minehan says:

    Thank you, it’s good and it’s says a lot in a few words.

  58. Avatar John Minehan says:

    Sorry, meant your point 3 (“Transactions are where you make money if you do. Infrastructure; factories, people, company towns or country clubs, etc. should be taken down as soon as the transactions that they support are no longer making money.”)

  59. Avatar turcopolier says:

    JM
    when I was in the clandestine ops course, we went to the Bethlehem Steel Plant at Sparrow’s Point. The amount of PPE was staggering.

  60. Avatar Eric Newhill says:

    TTG,
    Right. No company wants the reputation for producing cheap junk that is priced maximally. And I agree that sometimes there is a need for govt to step in and impose some regulations on the market, especially where safety is concerned. I’m just saying that while business goes after maximum profits, the market/consumers force them to develop quality and safety too. Checks and balances. Consumers shop for quality.

  61. Avatar Jack says:

    MMT is all sophistry and defies common sense. There’s no instance in history where sustained prosperity was achieved through untrameled bureaucratic expenditure financed through monetary emission. Not that it hasn’t been tried over the centuries. From John Law to Rudolf Havenstein they’ve all proclaimed grand theories and proceeded to inflate the monetary unit at gargantuan scale. Once the initial high wears off, the scale needs to be continually amped up as the law of diminishing returns kicks in until the currency system implodes. This has been the fate of all fiat currency in history including our own continental dollar.
    No doubt we’re doing it again, with similar results. The scale of monetization keeps getting bigger just as the junkie needs higher & higher doses. We know how this movie ends. That’s why the saying – history repeats itself.

  62. Avatar walrus says:

    They didn’t explain it to American pilots either. The roller coaster technique of both pilots pulling like mad then releasing pressure and winding the trim wheel like crazy isn’t taught either.

  63. Avatar Fred says:

    LA,
    So Mr. Colombo, the ‘investment advisor’ and author of the piece, says the Federal Reserve is to blame for causing “When conducting its quantitative easing programs, the Fed created brand new money out of thin-air (in digital form) and used it to buy Treasury bonds and mortgage-backed securities (MBS). ”
    The federal reserve does not operate under Deleware law. These actions by the FED were started in 2008, after the collapse of mortgage backed securities. Neither he nor you name an actually company that used loans for the purpose of buying back their shares.

  64. Avatar John Minehan says:

    “A few things I learned in my ten years in international business. 1. The business of business is making money, not the products. They are just the means for making money.. 2. Resources are not free as they are in government. Someone has to pay for them. 3. Transactions are where you make money if you do. Infrastructure; factories, people, company towns or country clubs, etc. should be taken down as soon as the transactions that they support are no longer making money. 4. There are profit centers and there are cost centers. Remember that.”
    And now for something completely different: https://www.vox.com/policy-and-politics/2019/7/19/20700654/elizabeth-warren-private-equity-wall-street-looting-act. What Sen. Warren seems to miss is that these are last-ditch attempts to turn around dying companies.
    For a valid analogy, if you look at the outcomes of a world class cardiac surgeon, they are not too good on the surface (a lot of the patient either die or get sicker). But, if you do something called “case mix adjustment,” you see that the patients in the census were a lot sicker than most and almost all would have died absent the intervention.
    You might not like how, say, Bain Capital sells off the PP&E to mitigate the loses on companies that are too far gone to be turned around. You might not like the management fees charged to companies by Blackstone, but that is the price you pay to keep something with potential as a going concern. When it works, Bain Capital and Footlocker comes to mind, some business gets a renewed lease on life . . . and when it doesn’t resources tied up in the failed venture get put to productive use.
    As both Milton Friedman and Bob Heinlein used to say, “There ain’t no such thing as a free lunch.

  65. Avatar blue peacock says:

    JM
    This is the view that Mitt Romney & Henry Kravis would like to sell you.
    The reality is quite different. They don’y buy sick companies and turn them around. That’s too much work! They buy companies with free cash flow that can take on massive debt to pay them the “special dividend” on the front-end of the deal. The PPE sale and labor retrenchment comes later when the cash flow no longer supports the debt service and as the company gets “restructured”. If the restructuring works out and they can sell the parts of the company or do another IPO then they get a double-hit.
    Mike Milken got the ball rolling in the 80s with his insight on junk bond delinquencies. This has all been part & parcel of the hollowing out of the US industrial base.

  66. Avatar John Minehan says:

    People have been teaching ethics courses with great seriousness in B-Schools for more than 30 years, probably since the time of “Boesky Day.”
    It is tough to see that it has had a lot of effect.
    Unlike Legal or Medical Ethics, business ethics do not have their own code and means of enforcement. Instead, it seems to be based more on civil and criminal law.
    It seems more like things that should have been learned as a child for the criminal matters and listening to the lawyers for the civil issues.

  67. Avatar John Minehan says:

    The business of business **IS** to make money; there is no other, better reason to do anything. HOWEVER, doing it through illegal or unethical approaches creates a real risk of losing money and market share.
    This is why Milton Friedman said: “That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom.”
    This last part has often been lost in the 49 years since these words were written. However, Chief Judge Cardozo complained about the same things in meinhard v. Salmon decided in 1928: “Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the “disintegrating erosion” of particular exceptions (Wendt v. Fischer, 243 N. Y. 439, 444). Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court.”

  68. Avatar John Minehan says:

    Nassim Nicholas Taleb has some interesting ideas on this as a retired Derivitives Trader, a semi-professional student of risk management (a “flâneur’) and as someone who grew up in Lebanon where Islamic restrictions on debt (as opposed to equity) financing are a strong influence on business.

  69. Avatar John Minehan says:

    It seemed to work better for Bain than it did for Milken (or Drexal Burnham Lambert in general).
    From everything I have seen of the issue, Michael Milken had genius for figuring out which Junk Bonds would finish “in the money” (pay out before or instead of default). He could do this with new companies and with “Fallen Angels.”
    However, after Drexel Burnham Lambert tried to “merge with Mike” (who was the source of most of that mid-sized bank’s revenue) by trying to make him a “merchant banker,” Milken discovered being able to find good deals and sell the debt was a different skill set than **CREATING** good deals.
    Bain has been able to d that on at least some occasions (“Footlocker, Office Depot) but not on others. Selling off the PP&E is an effective way to manage the losses and occasionally turn a small profit. It also puts these resources to productive use

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