September 15, 2005

The New York Times-Washington Post Headline-Sharing Conspiracy Vindicates Their Longtime Critics

Are you still a “conspiracy nut” when the conspiracy is acknowledged?

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What Industry Dominates the Working Mother Top 100 List?

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 8:55 am

Working Mother Magazine has published its annual Top 100 list of the best companies for working mothers to work for. See if you can detect an industry pattern in their Top 10:

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Positivity: Bob Ford Revisited

Filed under: Positivity — Tom @ 6:00 am

The first Positivity entry last week focused on Bob Ford’s involvement in putting on the wedding of New Orleans evacuees Joseph Kirsh and Tenisha Williams. It turns out that the wedding story only scratches the surface of what Mr. Ford has done:

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The Airline Bankruptcies Preview the Upcoming Disparities in the New Bankruptcy Law

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 1:05 am

September 13 14, 2005 will probably be remembered at the day the legacy airline business died:

Delta Air Lines Inc. (DAL) and Northwest Airlines Corp. (NWAC), hobbled by soaring fuel costs and heavy debt and pension obligations, filed for bankruptcy protection Wednesday, becoming the third and fourth major carriers to enter Chapter 11 since the 2001 terrorist attacks.

The dual filings in U.S. Bankruptcy Court in New York bring into focus the magnitude of the plight of the nation’s big airlines, which have lost more than $30 billion in four years even as they slashed thousands of jobs and raised questions about the viability of their employee pension plans.

A spike in fuel prices after Hurricane Katrina was the final blow for both. By joining the parents of United Airlines and US Airways in bankruptcy, the four major carriers represent more than 40 percent of all available seat miles in the U.S., according to analysts. “We are reading the first page in a thriller that will end either in resurrection or the death and burial of an entire industry as we know it today,” said William Rochelle, an airline bankruptcy lawyer in New York.

With one exception (American), every existing major carrier at the time the Airline Deregulation Act was passed in October 1978 has either merged, gone bankrupt at least once, or disappeared.

So this is as good a time as any to revisit the Carter-era legislation and its long-term benefits:

Deregulation of the airline industry has been…. “a nearly unqualified success, despite the industry’s unusual vulnerability to recessions, acts of terrorism and war.” The benefits to consumers have been estimated at in excess of $20 billion a year, mainly in the form of lower fares and huge increases in the availability of fast one-stop services between hundreds of cities. Consumers do complain that standards of service have fallen. So they have–because passengers are unwilling to pay for them. Through competition, the market has discovered that consumers prefer cheap tickets to frills. Such discoveries are the whole point.

Also, a 1996 GAO report (noted at the same Wiki link as above) documented that fares had decreased 30% in real terms during the 17 years at the time of the report since deregulation kicked in. The legacy airlines did not adequately address the problems with their cost structures soon enough, or aggressively enough.

I felt the filings Delta and Northwest filings were inevitable because of the impending bankruptcy law changes that will take effect on October 17:

By filing for Chapter 11 now, Northwest and Delta beat an Oct. 17 deadline, when the bankruptcy laws become more restrictive and makes it harder for companies to cancel their debts.

The new bankruptcy laws also will make it harder to pay bonuses to managers to keep them at the company, and will generally force companies to either exit bankruptcy or liquidate faster.

I have previously limited my blogposts (collection of previous posts is here) to the law’s effects on individuals and families, but as the excerpt notes, corporate bankruptcies will also become more difficult when the law kicks in. Companies will especially find it tough to operate in bankruptcy for an extended period of time, as United has for roughly two years. It will also be a bigger challenge for a company trying to emerge from bankruptcy without being forced into Chapter 7 (immediate liquidation) by its creditors.

Here’s the irony of the bankruptcy law as it affects companies and consumers:

  • In a probably-valid argument in the name of economic efficiency, the news law will cause more companies to liquidate and go away, and fewer companies to enter or remain for long in the partial-settlement regime of Chapter 11.
  • At the same time, in the dubious name of economic morality (dubious considering both the turbulent economy and the lax creditor standards that lead less-than-informed people to get in over their heads), the new law will make it very difficult for consumers with above-median incomes to avoid the partial-payments regimen of Chapter 13.

More liquidations of companies, fewer “liquidations” (Chapter 7s) for above-median-income individuals and families. I see a glaring inconsistency: Why isn’t the “economic efficiency” argument just as valid for consumers?

Because of the problems with how the new law unrealistically and/or erroneously defines “income” and various “expenses” in its “Means Test,” more Chapter 13 consumer filers will endure a living hell for 3-5 years so their creditors, who in many cases have really recouped most if not all of their money through fees and hideous finance charges, will be able to squeeze every supposedly available dollar out of their hides. How effective will these people be at their jobs?

By contrast, consumers, mostly those with below-median incomes, will still able to get the “fresh start” of Chapter 7 bankruptcy that will enable them to “walk away” from their unsecured debts. While this is repugnant on some level and is sometimes unfortunately abused, you cannot ignore the fact that unstressed Chapter 7 filers will be better and more effective workers, parents, and people during the 3-5 years that their Chapter 13 counterparts will be lying awake at night praying that the car doesn’t break down, the roof doesn’t leak, or their kid doesn’t take an interest in music lessons. If any of those things happen to Chapter 13 filers, the money simply will not be there.

Chapter 7 filers will also be able to move into self-employment and grow new businesses, while those enduring Chapter 13, many of whom are among the best and brightest (otherwise they wouldn’t have above-median earnings) will have that option closed off during the partial-payment period. There are many examples of people who filed for Chapter 7 bankruptcy going on to build big companies, and exponentially more of those who, before creditor abuse of delinquent borrowers became the rule of the day, were on the brink, pulled through, and became household names.

I would argue that though no one will really be able to prove what we’re missing, the new law will be a drag on innovation and new business formation to the long-term detriment of the economy.
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UPDATE: Little-noticed nationally, Comair also filed.