“I BET WHEN YOU BUY THIS CAR YOU GET FREE MAINTENANCE…LOOKS GOOD ON YOU, THOUGH”

6/7/13

GM will now offer two years or 24,000 miles of free maintenance on its Chevys, Buicks, and GMCs.  Caddy already offers four years or (I think) 50,000 miles of free maintenance.

This sounds like a great offer until one thinks about it for more than a few seconds.  How much maintenance does a car require in its first two years?   A few oil changes and tire rotations, at a total cost of at the very most a couple hundred bucks at retail.   And it’s amazing how much less maintenance a car requires when the company is paying for it than it does when the customer is paying for it.

GM suffers from a mediocre product line.  Other than Cadillac, which has some terrific products and is selling cars like crazy of late (in May, Caddy sales were up 40% from May, 2012), albeit with some pretty heavy incentives on its top selling CTS, the whole GM product line is something of a yawner.   Consequently, overall sales are stagnating and GM has to do something.   Maybe free maintenance will help sell some cars, as it has at Toyota, which has a similar bland product line but has the type of consumer loyalty on which GM cannot count.   Further, unlike throwing money on the hood, free maintenance might induce consumers to better maintain their cars, though, as I indicated in the last paragraph, “required” maintenance seems to fall off when such maintenance is on the company.

But even if the free maintenance gimmick does help sell cars, it is very much a gimmick.  that reflects a rather cynical view of the savvy of the U.S. car shopper.  And one thing that Americans still do better than anybody else is shop.

“GOVERNOR BILL DALEY…SENATOR BILL DALEY. THERE JUST WASN’T THE TIME…”

6/6/13

In the last few days, both Chicago Tribune columnist John Kass and Chicago Sun-Times columnist Michael Sneed have indicated that Bill Daley will run for governor of Illinois in 2014.   Ms. Sneed indicated that her information came from “sources;” Mr. Kass actually talked to Bill Daley on the phone, who said

“After what happened in Springfield last week (See my several posts on this issue, most recently yesterday’s PAT QUINN, PENSIONS, AND THE UPCOMING ILLINOIS GUBERNATORIAL PRIMARY:  WHAT WOULD JIMMY STEWART DO? and the posts to which it will direct you.), I am considering (a gubernatorial run) even more strongly than before.  The inaction down there, the chaos, they’re thinking politics, but they’re not thinking about the state or the taxpayers.”

I have no sources on Mr. Daley’s aspirations, and Mr. Daley certainly doesn’t talk to me.   But I do have some thoughts on the recent talk about Bill Daley eschewing his Hamlet impersonation and getting off the proverbial pot.

Bill Daley, despite a long and distinguished political career (inter alia Commerce Secretary, Presidential chief of staff,) has never run for public office, having decided against races for both governor and U.S. senator in the past despite expectations that he would run due and entreaties to do so from people with real power.  

Yours truly has ascribed this tendency of Mr. Daley to tease potential supporters with talk of running only to leave them frustrated to a proud Daley family tradition, to wit, Daleys don’t like to run in elections that are not mere technicalities.   With a relatively, to the number of races they Daleys have run, few exceptions (Dick Daley’s failed run for sheriff in 1946 (Had he won that race, we might not remember his name today, but that is another story.), Dick Daley’s tough but successful first run in the Democratic primary for mayor in 1955, Rich Daley’s successful but difficult run for state’s attorney in 1980, and Rich Daley’s ill-fated first run for Mayor in 1983.), Daleys have only run for office when the outcome is a foregone conclusion.   So Bill Daley’s having come so close to running on several occasions but never pulling the trigger was merely following suit.

So why would Bill Daley run now when not only is the outcome not certain but when he is, indeed, a very long shot?   The last poll I saw, and admittedly it was a long time ago, showed him trailing far behind Governor Quinn (no relation) who in turn was far behind Attorney General Lisa Madigan.  Aside from polls, it’s difficult to see how Daley could possibly win against the only woman in the race or against the incumbent, especially given what is fast becoming perceived as the stench of his brother’s last term or so as Mayor. 

Could it be, as Mr. Kass indicated yesterday, that Mr. Daley has somehow determined that Lisa Madigan has decided not to run?   While it’s plausible that Ms. Madigan will not run, it would surprise the heck out of me after all the money she’s raised and all the noise that has been made about her looming candidacy.  She, too, has declined runs for both governor and U.S. senator before; if she opts out now after coming so close, she’ll look like, well, Bill “Hamlet” Daley.  And the Danish vote is not a big one in this state.  Stranger things have happened in this state, though.

The narrative that Mr. Daley seems to be advancing is that he doesn’t care if Ms. Madigan is runs and/or that he is tired of waiting for her to make what many of us have considered only a formal declaration of her intent to run.  He is so concerned about the fiscal state of our state, and so convinced that he is capable of addressing our money problems, that he is going ahead with a race.  He doesn’t care that many of us think that such a campaign, while perhaps not quixotic, looks nearly impossible with Ms. Madigan in it and far from easy even without her; Mr. Quinn is, after all, the incumbent, and again see yesterday’s post on his strategy.

Yours truly finds it hard to believe that Mr. Daley is so concerned about our state that he would throw political considerations out the window and charge ahead despite the long odds against him defeating both Mr. Quinn and Ms. Madigan in the Democratic primary.  That’s why I still think he will only run if he somehow knows Lisa Madigan will stay out of the race, which I can’t see happening.  

If I’m wrong, though, and Mr. Daley runs despite the near impossibility of winning in a three way race, I would give him more credit than I already do.  Though we’ve always had our differences (politically and ideologically, not personally; I don’t know Mr. Daley and have never met Mr. Daley, which is unfortunate for both of us, but I digress), I’ve always respected Bill Daley.  He is smart, hardworking, imbued by his parents with some great values, and knows the art of politics which is, after all, bringing people together to get things done.   He’s consequently been quite effective in whatever he has attempted.  He is the kind of guy we should want in public office. 

One more thing.  As I prepared this post, and as write it, a crazy thought occurred to me:   Could Bill Daley, realizing that his chances are nearly nil in a primary involving Pat Quinn and Lisa Madigan, and not having gotten wind of some Lisa Madigan plan to eschew a run for governor, be planning an independent run for governor?   Yes, a Daley running as an independent is a long shot….  But don’t dismiss it yet. Technically, Rich Daley ran as an independent for mayor in 1999, 2003, and 2007, admittedly only because, starting in 1999. the law dictated that the mayoral race be non-partisan.  Further, other Democratic stalwarts have abandoned the party to run for mayor as independents (Tom Hynes in 1987 (See my 5/17/13 piece, DEPAUL AND THE McARENA:  WHERE’S THE RETURN ON DEPAUL’S INVESTMENT IN CLOUT?)) and even Republicans (e.g., Ed Vrdolyak in 1989).   If memory serves yours truly correctly, Mr. Vrdolyak even served briefly as Cook County Republican Chairman. 

Admittedly, the names “Hynes” and “Vrdolyak” are not as synonymous with “Democrat” as is “Daley.”  But wouldn’t running as an independent make sense for a guy, like Bill Daley, who is claiming to run because he is disgusted by the way the Democrats have run the state?    And, yes, I had the same thought you might be having now…might such a rationale for running lead Bill Daley to run as a Republican?   Let’s not get crazy, or any crazier, here!

There is no doubt, though, that things will continue to be interesting in Illinois politics, all the more reason to see my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics. 

THE SEC AND MONEY FUNDS: “WHY NOT USE YOUR MENTALITY—STEP UP, WAKE UP TO REALITY?”

6/6/13

Once upon a time, yours truly was the head of the fixed income department of a money management arm of a large money center bank.   As head of fixed income, I had responsibility for all fixed income (bond, in common, but not precise, parlance) assets with maturities greater than one year, so my area of responsibility did not include money market funds.  However, back in the early ‘90s, the money market funds encountered some, er, difficulty, as did several larger money market funds at the time.   When the funds “broke the buck,” i.e., their net asset values (“NAV”s) fell below the perceptually guaranteed $1.00 per share, and the bank holding company had to bail out the money funds, the guy who oversaw the money fund operation was summarily fired and was replaced by the logical guy, yours truly.   Having only had limited experience with money funds, but being a decent manager, I left the technical details of ironing out our problems to a very good operational money fund guy who had had no part in the funds’ demise.  I oversaw his work, but left it in his very competent hands.   We worked through the problems and it was far tougher on the operations guy than it was on yours truly, largely because he had been around when the problems arose and the problems were far deeper, though, again, did not involve him, than those encountered by other money funds that were breaking the buck at the time.  The ending was happy; the funds were restored to health, the bank holding company came out even, the business was restored, and yours truly got a lot more credit than he deserved.   But the guy whom I effectively put, or left, in charge of unwinding these things also did quite well as a consequence, though not as well as he should have.

I tell that story, as vaguely as I can, because it establishes both my interest in and bona fides for discussing the Security and Exchange Commission’s (“SEC”’s) latest machinations in the money fund industry.

The SEC yesterday approved a proposal requiring prime money market funds, which are money funds that cater primarily to institutional investors and that don’t restrict their purchases to government paper, to float their share prices, i.e., to not stick to a fixed $1.00 share price.  The new rule is the latest, though probably not the final, product of the machinations of the SEC, at the prodding of Congress, the Fed, and the Administration, to address the systemic risk that lurks like a time bomb in the $2.6 trillion money fund industry.   When the financial system encountered its problems in 2008-’09, money funds were one of the centers of the difficulty; when the Primary Reserve Fund, a prime money market fund, broke the buck, the fear was that the entire industry would face a run almost straight out of “It’s a Wonderful Life.”  The federal government ultimately guaranteed money fund assets, as it does bank deposits, until the danger passed…temporarily.  The SEC was charged with addressing the underlying issue of the safety of the money fund industry and to institute measures that would prevent, or at least avoid, money fund runs.

Three major approaches were proposed:

• Requiring money fund share prices float rather than be held at $1.00.
• Requiring money funds to hold capital, like banks, that would provide a buffer for shareholders.
• Imposing redemption restrictions on money fund shareholders, either temporarily in times of difficulty or all the time.

The mutual fund industry didn’t like any of these proposals for obvious reasons, screamed and yelled, kicked and screamed, and put their considerable lobbying power to work.  The industry succeeded in delaying any of the proposed restrictions, until yesterday.   But the pressure remains for further safeguards in the industry.  The SEC, kindred agencies, the Congress, and the Fed remain very interested in this issue, so work will continue on something that will be trumpeted as an ultimate solution until either another problem, or another solution in search of a problem, arises.

The ideal solution to those of us who feel that markets work would be to make clear to money fund shareholders and potential shareholders that money market funds are not bank accounts but are, as their name indicates, mutual funds and that, as such, their values are subject to fluctuation.  And if they get in trouble, it looks like YOU, Mr. Shareholder, not the taxpayers, have a problem.  The government will not rescue errant money funds.  So caveat emptor.   If you want absolute safety, put your money in a bank and be mindful of the FDIC insurance limits. 

The above market based solution will not be implemented, however, because there is no way the government will not bail out the industry, and the shareholders, if trouble arises again; $2.6 trillion perched at vital intersections of the financial system will not be allowed to fail.  Thus the above three alternatives.

Which of the above “solutions” would be best?   Being a believer in markets, and a man who tries to look reality squarely in the face rather than pretend it isn’t in the room, I like the idea of extending to all money market funds the floating share price that the SEC mandated for prime funds.   The underlying share prices do indeed fluctuate, usually only by small fractions of a penny, but they do fluctuate and sometimes by more than half a penny, which would round to an NAV above or below a dollar.  So what?   Again, these are mutual funds, not bank accounts.  While the industry has gotten quite fat on the notion that money funds are the equivalent of bank accounts, that notion is wrong, though never discouraged, certainly not by the mutual fund industry.  Better to face reality and let the share price float. 

The result of a more general float will be either or a combination of

·        The better, safer funds will tighten things up and indeed keep their NAVs at $1.00, probably at the expense of some yield.

·        The more adventurous, or less well run, funds will allow their NAVs to float slightly and will either go out of business or attract investors who are willing to accept some share price fluctuation in exchange for more yield.

What would be so bad about that?

Barring an NAV float, the next best alternative would be to impose redemption restrictions on fund shareholders.   For example, fund holder would be able to redeem X% of their shares immediately, Y% of their funds with 7 days notice, and Z% of their funds with 30 days notice.   This would give fund managers the ability to manager the funds’ liquidity and meet redemptions without causing market turbulence.  It would also reinforce the notion that money funds are mutual funds rather than bank accounts.

The SEC is indeed proposing redemption restrictions for prime funds, but the SEC, in addition to limiting these restrictions to prime funds, would like to impose the restrictions temporarily and only during times of trouble.   This would be counterproductive, not avoiding runs but expediting runs as shareholders attempt to redeem shares before such restrictions are implemented.  Permanent restrictions would allow for orderly meeting of redemption demands while keeping things calm, or as calm as possible. 

Capital requirements are probably a non-starter, especially while we are still in the throes of Ben Bernanke’s War on the Elderly in which there is no yield to be had in short term investments in any case.   Fund families are waiving fees and losing money on money funds; requiring them to hold capital would exacerbate the situation, doubtless forcing people out of business in bad times and making yields uncompetitive in good times, defined in this case as times of high yields in short term instruments.   While some might justifiably argue “So what if the market winnows out weak performers, or a weak product, that can’t compete on level playing field with banks that must hold capital?”, the comparison to banks is not apples and oranges here and, in any case, the industry would never go along with such a rule.

The key point here is not that yours truly, who knows something about money funds, likes floating NAVs or redemption restrictions for such funds, certainly more than I like capital requirements.  The point is that ANYTHING the SEC or other powers that be does about money market funds MUST reinforce the distinction between such funds and bank depository accounts.  The reality is that money market funds, contrary to popular opinion, are not bank accounts and are not insured by the federal government, at least not when the defecatory product stays away from the wind motivation device.  Potential investors who think they are savers have to be made aware of that reality.  Withdrawal restrictions or a floating NAV would accomplish that goal.

PAT QUINN, PENSIONS, AND THE UPCOMING ILLINOIS GUBERNATORIAL PRIMARY: WHAT WOULD JIMMY STEWART DO?

6/5/13

In my post of two days ago (THE PENSION DEBACLE IN ILLINOIS:  MR. MADGIAN AS MACHIAVELLI, MR. EMANUEL LOSES A ROUND, OR MR. QUINN GOES TO SPRINGFIELD?, 6/3/13), I stated of Governor Pat Quinn (no relation)

He can, and probably will, conduct a sort of Mr. Quinn Goes to Springfield type of campaign in 2014, in which Mr. Quinn, a lifelong politician who has played “get along, go along” for the last 40 years, will be cast as a sort of St. George who battles the dragons of Mike Madigan and his minions.   The voters of Illinois might go for it; they have certainly gone for much more preposterous notions; see, as only the most salient example, the governorship of the man whom Mr. Quinn served as Lieutenant Governor, Rod Blagojevich.

Mr. Quinn seems to be doing just what I suspected he would do.  Already, he has called a meeting among him, House Speaker Mike Madigan, and Senate President John Cullerton to try to reach a solution to the pension problem.   Mr. Quinn called the meeting even though, according to Madigan spokesman Steve Brown, the Governor knew Speaker Madigan was not available.  If Mr. Brown is correct, what could be the purpose of such a meeting if not to highlight the inability, or the unwillingness, of the legislative leadership to solve the pension problem?

Mr. Quinn also said yesterday  

“I think it’s important for the speaker of the House to come to the realization that working with his counterpart in the Senate is the way to go to get comprehensive pension reform in this state.  We can do this.  The key is for the Legislature to do its job.  I’m ready to do my job and that’s to sign the bill into law.”

Mr. Quinn said this despite knowing full well that Mr. Madigan has never considered Mr. Cullerton a “counterpart” if the word “counterpart” implies anything like equality.  Mr. Madigan has always considered Mr. Cullerton at best a very junior partner and more likely, as I have said in the past, a sort of mini-me to Mr. Madigan, and perhaps deservedly so.  While Mr. Cullerton is obviously an accomplished pol himself, he doesn’t play in the same league as Mike Madigan.  No one does.

Mr. Quinn’s efforts to blame the legislature for the failure to enact pension reform and to set up the fast approaching 2014 primary as a Jimmy Stewartesque battle between the forces of sweetness and light vs. the dark side may be working.   Yesterday, House Minority Leader Tom Cross opined that Mr. Quinn does not wear the jacket for the legislature’s failure; the blame, according to Mr. Cross, lies squarely with Mr. Madigan.  Of course, in Illinois no one cares what the Republicans think, but one can be quite sure that Mr. Cross’s thinking reflects that of his suburban constituency, the type of voters Mr. Quinn, or his likely opponent Attorney General Lisa Madigan, will need to win in order to remain, or become, governor.

Mr. Quinn may need to tread lightly here.  As long as there is a chance that meaningful pension reform can be enacted into law between now and the primary season, he cannot afford to antagonize Mr. Madigan or Mr. Cullerton.   Solving, or even seriously mitigating, our pension problems while he is in office would give a huge boost to Mr. Quinn’s efforts to keep his job, so he doesn’t want to throw away an opportunity to do so.

But Mr. Quinn, despite all too frequent evidence to the contrary, is a clever fellow and a good politician.  He can probably attack the “do-nothing” legislature while not naming Mr. Madigan, or Mr. Cullerton, specifically and make it look to Mr. Madigan as if he is attacking Mr. Cullerton and to Mr. Cullerton as if he is attacking Mr. Madigan.   Though the above quote from Mr. Quinn, specifically

“…it’s important for the speaker of the House to come to the realization that working with his counterpart in the Senate is the way to go to get comprehensive pension reform in this state.”

seems to be a direct assault on Mr. Madigan, it is more subtle in its criticism of the Speaker than it appears at first glance and leaves plenty of room to place plenty of blame on Mr. Cullerton and on the nebulous “legislature.”   Such tactics might ultimately somehow shame the Speaker and the Senate President into actually doing something about the problem that is bankrupting our once great state.   Notice I used the term “might.”

On the other hand, Governor Quinn may have already come to the conclusion, rightly or wrongly, that Mr. Madigan has decided to sabotage any hope at pension reform in the interest of denying Mr. Quinn the type of crowning achievement that could keep Mr. Quinn in, and Mr. Madigan’s daughter out of, the Governor’s mansion.   If Mr. Quinn has come to this conclusion, he will see no need for subtlety in his attacks on Messrs. Madigan, Cullerton, and anyone else he can demonize, and deservedly so, in his struggle for re-election.

Whether Mr. Quinn attacks subtlety or engages in a full frontal assault, he will be going after the legislature and “politics as usual” in his upcoming campaign for re-election.  It’s his only chance, and it’s a better chance than most people think.  

And however Mr. Quinn conducts his imagined or otherwise crusade of the virtuous against the cesspool that is the politics of this state, it will be interesting, as are all things in Chicago/Illinois politics,; see my books The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in our peculiar politics. 

MODERN FINANCIAL SOPHISTICATION: I OWE, I OWE, SO OFF TO BORROW I GO!

6/5/13

While cutting the lawn this morning, I heard a radio ad for either a law firm or a credit counseling service; the ad was vague regarding the nature of the services provided. The spot featured a couple whose home was underwater, figuratively; that clarification has been rendered necessary by the bouts of flooding we have been experiencing in this part of the world, but I digress. 

The couple was discussing their underwater home that had become (paraphrasing due to my lack of a photographic memory)

a bad investment that is ruining our lives.

The couple was concerned that any of the options available for solving their underwater home problem would have a negative impact on their credit.  The solution, of course, was to call the firm running the ad because the couple would never know what the impact would be on their credit until they explored the situation further.

Think about it….

Here is a couple, fictional but representative, that is in trouble because they borrowed too much money.   What is their primary concern?   Not stiffing their creditors.   Not working their way out of debt.  No, their big worry is their access to credit so that they can borrow more money.  And the ad emphasized that this couple was smart, sophisticated, successful, and savvy.

We are doomed.

THE DODGE AVENGER: CHEAP AND WORTH EVERY PENNY

6/4/13

The big news on the May car sales front is that the cheap, and questionable, credit driven wave on which the car sales bubble has been riding (See my 5/23/13 piece THE CAR SALES BUBBLE:  “JUST TELL ME WHAT YOU WANT AND THEN SIGN THAT LINE AND I’LL HAVE IT BROUGHT DOWN TO YOU IN A HOUR’S TIME”) seems to be losing steam.  While sales were up slightly, and still are running at a 15mm plus unit annual pace, the manufacturers have had to resort to price cuts, stair-step incentives for dealers, and even cheaper and looser credit to keep the customers coming through the doors.  What happened to all that pent-up demand?  As I said in my 4/25/13 piece, IMPORTED FROM DETROIT:   MARCHIONNE BETTER BE AS FAST AS A CHRYSLER 300 SRT8

All this talk of pent-up demand and the age of the fleet has some surface validity, but you can be sure that if money were not so cheap and readily available for vehicle financing, and payments thus so low, people would be able to satisfactorily, and perhaps happily, drive their old cars for many more miles, given how well cars are built nowadays.  In other words, if financing cars were not so cheap and readily available, so called pent-up demand would stay pent-up.

and that may be precisely what we are seeing. 

I was also taken by the details of the sales numbers.  Chrysler was one of the best performers of the month, with sales up 11% from last year to 166,596 units.  Especially strong was the Dodge brand, up 23%,  and, specifically, the Dodge Avenger, along with the Dodge Challenger, set a sales record in May.

The Dodge Challenger is another story, a niche car that aficionados seem to love but impresses yours truly as a fun example of what once made Detroit iron great but is probably way too large for a modern muscle car.   That’s what makes a market, however.

But the Dodge Avenger?  A sales record?

 As I’ve said on numerous occasions in the past, we can speak of cars nowadays as being lousy only in relative terms; there are no bad cars out there any more, at least not in this country.   But there are cars out there that are not nearly as good as their competitors, and the Dodge Avenger is certainly one of them.   The standard four cylinder engine is about as close to a piece of garbage as one can find out there…it is buzzy, loud, weak, and thirsty.  The optional new Chrysler Pentastar V-6 is better…it is quieter, more powerful, and gets just about the same gas mileage as the 4.  While the 4 cylinder is years behind its competition, the Pentastar is nearly competitive.  Aside from the engine, the Avenger’s yawn inducing handling is not at all counterbalanced by its only decent ride.  Despite a few upgrades this year, the car still feels cheap.   Reliability is, by today’s standards, bordering on abysmal.   Given the Avenger’s omnipresence in rental car fleets, is resale value is horrid.  The car is at the bottom of its category in Consumer Reports ratings.   Motor Trend, in its new car issue, follows the blurb on each new car with a pithy sentence or phrase that sums up its opinion.  For the Avenger, that sentence was a question:  “Avenging what, exactly?”

To sum it up, the Avenger is about as close as one can get to a bad car nowadays.  To its credit, Chrysler knows it has duds in the Avenger and in its corporate cousin, the Chrysler 200, which at least has a slightly nicer interior, marginally better ride and handling, and is a decent looking car.   Both will be replaced (or the Avenger will be dumped altogether and the new 200 will fill the mid-sized duties at Chrysler) by a Fiat or Alfa based midsizer soon, perhaps within a year.  If the Dodge Dart is any indication, the new car, or cars, will be a vast improvement, though not at the top of its class.  See my 1/31/13 piece, CHRYSLER’S PROBLEM:  IT’S (MOST OF) THE PRODUCT, STUPID!  

So why has the Avenger sold so well?  Is the American car buyer stupid?   No; perhaps the American car shopper is, indeed, merely careful with his or her money, because the Avenger is very inexpensive…outright cheap, really, and not only in the look of its interior.  Forget sticker price, by which the Avenger only looks a little less expensive than the competition.  Look the sale papers; Avengers can easily be bought new in the mid teens.  This is a midsized car, with decent equipment, in the mid teens, a price for which one has a difficult time buying better compacts from the Japanese marques or from Ford or GM.   If one is just looking for transportation that will not give one too many problems, and one insists on a new car, the Avenger is not a bad buy.   That is why the Avenger is selling so well; it doesn’t cost much money and it’s worth every penny.

On the other hand, the Chrysler 300, Chrysler’s best car (though one might get some arguments from Dodge Challenger aficionados) that is fully competitive with anything in its class and with many cars a class or two higher, is not selling well, despite its also being something of a bargain.  (See my 5/1/13 piece, CHRYSLER’S QUARTER:   HOW DO YOU SAY “POOR MOUTH” IN ITALIAN?) Go figure.

THE PENSION DEBACLE IN ILLINOIS: MR. MADGIAN AS MACHIAVELLI, MR. EMANUEL LOSES A ROUND, OR MR. QUINN GOES TO SPRINGFIELD?

6/3/13

Some comments on the close of Illinois’ legislative session  and the resultant hastening of the state’s now nearly certain journey to financial oblivion are in order.

First, one supposes it would be too much to argue that the Illinois state legislature did nothing in the session that ended Friday night.  The legislature did

• Pass a budget for the upcoming fiscal year.
• Pass a concealed carry law, finally bringing the state of Illinois into compliance with the Constitution and into the modern age by joining its 49 brethren in allowing its citizens to  carry their guns into areas in which they would be most useful as tools of self-defense.
• Add 340,000 low income residents to the Medicaid rolls as part of the Affordable Care Act (Obamacare).
• Authorize Mayor Rahm Emanuel’s plan to build a basketball arena for DePaul, or to have DePaul subsidize Chicago’s latest manifestation of Mr. Emanuel’s bread and circuses approach to government, depending on how one approaches this latest boondoggle.  (See my 5/17/13 post DEPAUL AND THE McARENA:  WHERE’S THE RETURN ON DEPAUL’S INVESTMENT IN CLOUT? and my 5/16/13 post AN ARENA FOR DEPAUL AND ELEVATING CHICAGO:  “FRAU BLUCHER, ELEVATE ME!”) for more on this latest Emanuel Knows Best project.

So whether one agrees with any of these actions, it wouldn’t be fair to say the legislature did NOTHING this session. 

However, despite Democratic supermajorities in both houses of the legislature, the session failed to take action on gay marriage, casino gambling (See my 5/30/13 piece CASINO EXPANSION IN ILLNIOIS:   WHAT’S THE POINT? and the posts to which it will direct you.) and, most importantly, Illinois’ $98 billion pension liability.  (See my 5/8/13 piece THE CULLERTON PENSION PLAN:  “THE (PUBLIC EMPLOYEE UNIONS) FAMILY DON’T EVEN HAVE THAT KIND OF MUSCLE ANY MORE”??? and the posts to which it will direct you.)

The legislature does not convene again until November.   Governor Pat Quinn (no relation) says he will consult with legislative leaders to try to work out something on all three of the major “failed” issues, but especially on pensions.  Progress, however, is doubtful and, even if the Governor, House Speaker Mike Madigan, and Senate President John Cullerton can work out something, any plan will have to muster a 3/5 majority in both houses since the legislative session has ended.  

Second, some fans of conspiracy theories think that Mr. Madigan sabotaged progress on casinos, gay marriage, and especially on pensions, the latter by espousing a plan he knew the Senate wouldn’t pass.  His motivation, according to such theories, could be a desire to please the public employee unions by doing nothing to disturb their pension Valhalla or, more likely, to make Governor Quinn look impotent and thus enhance the case for the candidacy of his daughter, Attorney General Lisa Madigan, for governor in the 2014 Democratic Party.

Yours truly enjoys a conspiracy theory nearly as much as the next guy, unless the next guy is Alex Jones.   And, as anyone who reads my musings knows, while I somewhat grudgingly admire Mr. Madigan as perhaps the most skilled practitioner of his craft certainly in this state and probably anywhere in this country, I am no fan of his approach to government.  Further, no sort of Machiavellian machination from Mr. Madigan would surprise me.  

However…

At the risk of sounding naïve, Mr. Madigan can’t be that callous, that uncaring about the future of this state, as to drive us to and perhaps over the precipice of financial ruin just to elect his daughter or to curry the favor of the public employee unions…can he?   Besides, it doesn’t look like the public employee unions have the juice they once did (Again, see that 5/8/13 piece.) in Illinois politics, so, even if we assume that Mr. Madigan cares about absolutely nothing but power and wealth, engaging in such a game of financial chicken would make almost no political sense.  And even if Mr. Madigan doesn’t give a rat’s hindquarters about the financial viability of the state, he (almost) never makes a dumb political move.

--Another of the measures that failed, a measure that didn’t completely escape notice, but nearly did, was Mayor Rahm Emanuel’s plan to have the Chicago Public Schools (“CPS”) extend for two more years the pension payment “holiday” that began in 2010.   If passed, the measure would have allowed the CPS to skip its otherwise required payments into the teachers’ pension system.   Mr. Emanuel said he needed this measure because of the CPS looming $1 billion deficit.  Since the measure failed, CPS will now have to (Horrors!) meet its obligations like all private sector, and most public sector, entities.

At the risk of sounding obvious, such pension holidays are a big part of what got Illinois into the pension quicksand in which it is currently sinking.  Promising pensions that it couldn’t possibly pay, thus nearly forcing such holidays, is the major reason for our wallowing in this quagmire, but I digress.  And even our somewhat dense legislators realize this; note the comments of Republican Representative Dave McSweeney of Barrington Hills, who, commenting on Mr. Emanuel’s bill, stated “This bill is a joke.  Stop the madness.  Vote no.”  Amazingly, enough of Mr. McSweeney’s colleagues agreed and gave Mr. Emanuel an unaccustomed slap on the hand, albeit a minor one.

So why did Mr. Emanuel propose a plan for a pension holiday in the very session in which the state was supposed to deal with the debilitating consequences of prior pension holidays?   Simple…the rules don’t apply to superior beings like Mr. Emanuel.   Super Rahm transcends the basic rules of finance, economics, or, one supposes, physics.  If one is to believe the Chicago, and national, media, he is the reincarnation of Zeus…or perhaps merely (but don’t tell Mr. Emanuel) Zeus’s gift to the benighted people of Chicago.  

--Governor Quinn (no relation) is looking pretty good right now, certainly relative to the legislature.  Even yours truly, who agrees with Mr. Quinn on nearly nothing beyond the virtues of the Catholic League and the utter beauty and seriousness of our common last name, is getting to kind of like and respect the guy.  Nearly all, even those of us who think Mr. Quinn suffers from never really having had to breathe private sector air and consequently lives in a fantasy world in which all that is required for nirvana is wise manipulation of the levers of government, agree he is something of an earnest fellow who despises the normal workings of Illinois government…except during those period in which they are working in his favor. 

Mr. Quinn is a pretty decent politician and a smart guy.   He can, and probably will, conduct a sort of Mr. Quinn Goes to Springfield type of campaign in 2014, in which Mr. Quinn, a lifelong politician who has played “get along, go along” for the last 40 years, will be cast as a sort of St. George who battles the dragons of Mike Madigan and his minions.   The voters of Illinois might go for it; they have certainly gone for much more preposterous notions; see, as only the most salient example, the governorship of the man whom Mr. Quinn served as Lieutenant Governor, Rod Blagojevich.

So if this whole legislative debacle was an effort by Mr. Madigan to enhance the chances of his daughter in her near certain efforts to topple Mr. Quinn (Again, I’m not willing to entirely concede this point.), the Speaker may have been too clever by more than half.  

 See my two books, The Chairman, A Novel of Big City Politics and The Chairman’s Challenge, A Continuing Novel of Big City Politics, for further illumination on how things work in Chicago and Illinois politics.