The Rice Thresher (Houston, Tex.), Vol. 67, No. 20, Ed. 1 Thursday, January 17, 1980 Page: 4 of 20
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VOICES FROM THE TOWER/a faculty forum
by Rolf Asphaug
Tom Mc Caleb is a visiting
assistant professor in Rice's
economics department. A
specialist in public finance,
government expenditures, and
taxation, he teaches courses at
Rice on economics of the law and
public finance theory.
Thresher: Do you have any
general opinions about the
government's conditional
guarantee of a $1.5 billion loan to
Chrysler Corporation?
McCaleb: It's not perfectly clear
to me that it's just a loan
guarantee. My understanding is
that it's a guarantee, but it also
involves Chrysler matching some
funds.
7his is the biggest loan guarantee
in the history of the U.S. It far
surpasses the guarantees to
Lockheed. . .
The attempt to draw an analogy
to Lockheed is spurious. First of
all, there is very little evidence that
Chrysler Corporation is now or
ever will be in the future a going
concern, and there was every
reason to believe that Lockheed
was and would be a going concern.
Lockheed had, first of all, one
particular product for which there
was a great demand and in which
they clearly had the best product in
the area: the C-135 starlifter.
They also had reasonably good
prospects at the time of making a
good product in the commercial
market: the L-1011, which is in
McCaleb
-Wayne Derrick
fact a decent airplane.
A significant portion of
Lockheed's problem was in fact
due to the development of the C-5
and to disputes which it was having
with the defense department — in
other words, due to its
relationships with the government.
So the government itself — the
way the government operates its
procurement policies — was a
cause of Lockheed's immediate
problems, which were primarily
cash flow rather than viability
problems.
And with Chrysler it's a different
situation?
In the case of Chrysler we are
subsidizing an inefficient firm.
Chrysler cannot compete; it
cannot produce cars. They're a
badly mismanaged company; they
have been for years. They simply
missed the turns in the market.
The production of automobiles
is subject to very large economies
of scale, and Chrysler's share of the
market is too small for them to
operate in the efficient portion of
their average costs. This is not true
of General Motors, of course, and
of the Japanese firms.
Furthermore, in Chrysler's case,
they have made a pretty lousy
product. They have poorer service
records than the other firms.
They've tried to be a full-line
manufacturer as opposed, for
example, to AMC, which has.
carved a niche for itself with a
specialized product.
Chrysler has refused to do that.
They've attempted to be a full-line
manufacturer all along the way,
and in the process of doing so they
had too small a market share to
operate efficiently.
But one of the main things the
government is trying to do with
Chrysler is to assure that jobs
aren't lost.
That's a completely erroneous
position. First of all, bankruptcy
does not mean that Chrysler is
going to fold up and all of their
equipment is going to be sold for
scrap.
Bankruptcy essentially means
that the rate of return on the
existing assets is too low. So, the
value of any asset is determined by
THRESHING-IT-OUT
Archi lottery process
needs improvements to
reduce complaints
To the Editor:
Recently, an episode wreaked
havoc in the Graduate School of
Architecture leaving many
students surprised, disgruntled,
and disappointed. Studio
selection, or better yet, relegation,
has always been a difficult
experience for both students and
faculty. But this time the situation
was at its worst. It should have
been evident during the process
that more information was needed
in order to make judicious
decisions. It should have been
evident that a second balloting was
a logical solution to a problem
which, for many, will be a full
semester long. For those
unfortunate students who had real
surprises, I have much sympathy;
they will probably have to return
next fall to try the system again.
Liz Burkholder
Graduate Student, Architecture
More negative reactions
to proposed handgun
lessons at Rice
To the Editor:
In the first issue of the year the
Thresher carried an article on the
upcoming classes in handgun
safety and operation to be held by
the Rice rifle club. I commend the
good intentions of the club and I
agree that if one is to use a hand
gun one should know how to do it
safely. However, two aspects of the
classes make them undesirable.
its rate of return. . . So that if the
returns are lower than the market
returns on an asset, then the
current market value of the asset is
going to be low.
Well, the problem is that
Chrysler — and any company that
is about to go bankrupt — has a
bunch of assets that it uses for
production. It paid a certain price
for those assets based on the
profits it thought it could make in
the future. If it turns out it can't
make those profits, then they paid
too much for those assets, aqd the
assets' current market value is
lower than what they paid for.
But Chrysler is carrying those
Vnets on its accounting books at
the prices they paid for them, not
at their current market value.
Bankruptcy is a means by which
the firm can, in effect, write down
the value of those assets to reflect
the fact that the firm goofed.
When [bankruptcy] happens —
when we write down the value of
those assets — it may turn out that
the total market value of the firm's
assets is lower than its current
underlying motive, then, as to why
Congress would be persuaded to
underwrite the Chrysler loan?
Certainly there's a motive. If
Chrysler writes down the value of
its assets and then starts selling
them off in order to pay creditors,
and if the assets are less than its
liabilities, then some of those
people are not going to collect any
money. The people who are least
likely to collect money are the
stockholders.
But after all, that's what the
whole story of buying stock is
about. You expect a positive
return, but there's always a risk of
a negative return.
So in your opinion, Congress is
playing with the natural processes
of the market system.
The essence of the free enterprise
system is not the guarantee that
you'll always stay in business
whether you produce a product
that people want or not. The
essence of it is that you're free to
get into the business, and you're
also free to fail in business if you
can't compete with others in your
"We ore subsidizing an inefficient firm.
Chrysler cannot compete; it cannot produce
cars...they have made a pretty lousy
product."
First, all disclaimers aside, the
holding of these classes by a Rice
organization on the Rice campus
causes identification with the
University. They will result in the
assumption that the possession
and use of handguns is approved of
by the Rice community as a whole.
Secondly, the club claims not to
be trying to promote the use of
handguns. However, classes for
people who do not own guns can
do nothing but encourage their
purchase.
In short, Rice, or any other
university, is not the place to hold
classes which "will not shy away
from explaining how best to
instantly kill a person." The very
concept is abhorrent and no
activity should cause association
of it with this university.
C. Payson Todd
Baker '81
Stfehfn Mood
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liabilities, so that even if they sell
off all the assets at their current
market value, there is not enough
money there to pay eveybody to
whom the firm owes money.
That is the situation with
bankruptcy. That does not mean
that the equipment cannot be used
in the future to produce
automobiles. Indeed, what we
should anticipate happening if
Chrysler goes bankrupt is that it
would write down the value of the
assets, some of them would be sold
off. . . [and] some might very well
be sold to some other automobile
manufacturer.
The people who buy Chrysler's
automobiles are going to continue
to buy automobiles if Chrysler
goes out of business. They'll buy
more Fords and Chevrolets, which
means that GM and Ford are
going to have to hire more people.
You've got a trained work force
there, with experience in the
automobile industry. Somebody
else is going to pick up Chrysler's
production; in order to do so,
they're going to have to hire some
of those workers. . .
So it is not the case that 200,000
jobs are going to be lost.
Do you think there's any
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I might also say that the
stockholders are not the only ones
who are going to gain from [the
Congressional loan to Chrysler]. It
is true that the workers at Chrysler
will gain. Even though most of
them will1 find employment [if
Chrysler collapses], some of them
may find employment at lower
wages.
In addition, we may have a
significant number of people who
are unemployed for a number of
months, or even a year or two,
while the company is disposed of
and other firms come in and set up
production facilities... There's an
adjustment period during which
you have unemployment.
The key here is though, that if
you're really concerned about
Chrysler's workers, it would be
much less expensive to provide
special unemployment com-
pensation benefits for a period of
one, two, even three years, than it's
going to be to subsidize Chrysler
for the rest of our lives.
You see no evidence that
Chrysler Corporation is, as Lee
Iacocca declares, going to be able
to turn it around?
From what I read, I see no
evidence that Chrysler Cor-
poration is a viable concern as it is
currently structured.
See our fine selection
of Swedish clogs.
2370 RICE BLVD
HOUSTON, TEXAS 77005
522-1389
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Muller, Matthew. The Rice Thresher (Houston, Tex.), Vol. 67, No. 20, Ed. 1 Thursday, January 17, 1980, newspaper, January 17, 1980; Houston, Texas. (https://texashistory.unt.edu/ark:/67531/metapth245426/m1/4/: accessed July 18, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu.; crediting Rice University Woodson Research Center.