Scrap the Scrapping Bonus!

Unfortunately, the most successful means in the German economic stimulus package is going to have the worst consequences: the Abwrackprämie or scrapping bonus. Pretty much everybody knows it but this does not prevent the nonsense.

I already mentioned it in another post: Owners of cars that are older than 9 years can scrap their car, buy a new one (or a Jahreswagen: usually former company cars, less than 1 year old) and get a refund of €2,500. By today, only 2 months after announcing the program more than 585,000 applications (German, March 31, 2009) have been made. Originally the program was limited to €1,5 billions or 600,000 applications, so it has pretty much been used up. Now German government wants to extend the program until the end of the year - and waste even more money!

First point of criticism is that it hardly helps German car industry: only 36.7% of the new cars are from manufacturers producing in Germany - a rather short-sighted protective thought. In a globalized economy Germany would not only profit from car sales but also for example from machines used to build cars. Germany is still the world's biggest exporter (soon to be passed by China though). With Europe the connections are even closer, so it's really in Germany's interest to help other economies a well.

Second point is the official name Umweltprämie or environmental bonus. The only problem: There is NO environmental incentive to it, nothing about consumption, nothing about emissions and nothing about the size of the cars. Only hope is reduced consumption of newer cars. Neither in media nor by politicians it's called Umweltprämie anymore.

Third and most important point is the economical nonsense. In times of the worst crisis since WWII small car sales are at record levels. Opel - the nearly bankrupt subsidiary of GM - sold 60% more cars (German) in the first 3 quarters than in the same term of last year. Not only common sense but also historical examples show that the great success is only early demand, yet another bubble - cars that are bought now will obviously not be bought in 9 months. The sharper the plunge will be by then. The car industry needs to reduce its overcapacity (German) nevertheless.

But that's not the only distortion in the market: Now there is obviously an oversupply of scrap metal (German) while the market of cheap used cars is wiped out to a large extent. People having bought a car can't spend the money on other things anymore, let's say furniture, so other industries are compromised as well.

Remaining question is why the absurd show has to go on. I have only one explanation, the upcoming elections in September:

Chancellor Merkel is likely to renew the indirect subsidy program -- which is as popular as it is imperfect -- out of fears of a voter revolt.

Just to be exact it's not Merkel, but the whole government with both major parties CDU/CSU and SPD in the Grand coalition.

There must be at least 2 major changes to the program: Scrap the scrapping part and pay the bonus only as tax reduction for environmentally friendly cars with a CO2 output of 140mg/km or even lower. Then it would at least deserve its name Umweltprämie. This could simply have been done as part of the vehicle tax reform.

Fast Money

What's the media's role in the economy crisis? It's hard to tell and Jon Stewart probably didn't want to provide an in-depth analysis, eventually he is still running a comedy show. It was following rant by Rick Santelli:

How about this, President new administration, why don't you put up a web site to have people vote on the internet as a referendum to see if we really wanna subsidize the loser's mortgages. [..] This is America. How many of you people wanna pay for your neighbor's mortgage that has an extra bathroom and can't pay their bills? Raise the hand! President Obama, are you listening?

that indicted Jon Stewart to have a closer look on poor judgment - not of the homeowners but of the financial experts of CNBC (March 4, 2009):



Less than a week later there was a follow-up (March 9, 2009):



Since the last one particularly picked on Jim Cramer the media made a War of Words between Jon Stewart and Jim Cramer out of it - yet another example on how media works. Remember, Stewart's primary intention was to expose CNBC's financial expert's judgment compared to the losers with their mortgages...

Eventually, Cramer gave in and came to the show 3 days later - and he was pretty much torn limb from limb. This is the unedited interview of March 12, 2009, part I:



Unedited interview of March 12, 2009, part II:



Unedited interview of March 12, 2009, part III:



Yeah, the interview wasn't quite fair, Stewart wanted to smash Cramer, he made him look like a fool and Cramer had hardly any chance to defend. I think it's a great piece of not only entertainment though, Stewart has many points. He is not really blaming media (or CNBC in particular) as reason for the financial crisis but as another piece of the puzzle. And it was only Santelli's blatant remark that increased the height of fall and made it actually interesting for Stewart.

Cui Bono

Just as in the UK (BBC) or in the US (PBS) Germany also has public broadcasting services. (Commercial broadcasting only exists since 25 years in Germany.) The idea is to provide objective quality news and information, as far as possible free from particular political and economical interests.

There are 2 ways of funding: commercials/sponsoring and fees. While separating the public interest in independent news and information from commercial interests of publishers works pretty well for newspapers the approach has been questioned repeatedly for TV stations in the last years, especially in form of Schleichwerbung or product placement.

The fees are collected by an independent authority called GEZ ("Gebühreneinzugszentrale der öffentlich-rechtlichen Rundfunkanstalten in der Bundesrepublik Deutschland", “fee collection centre of public-law broadcasting institutions in the Federal Republic of Germany") from every owner of a TV, a radio or (since 2007) even a PC with internet access. The major problem with GEZ is its huge data collection: Whenever somebody moves and registers in the new town the GEZ gets the new address. Furthermore, the GEZ relies on address providers which ends in absurd examples of bureaucracy, when pets get billed or dead people like the famous mathematician Adam Ries whose 450th anniversary of obit is tomorrow.

The model has the advantage of no political influence though. It's only that the commercial influence should also be reduced by not allowing any commercials or sponsoring. This would mean an increase of the fee of less than 10 percent which is more than worth it.

Another massive influence raised my attention lately: Conservative politicians try to prevent that the contract of the chief editor of the Second German TV Channel (ZDF) Nikolaus Brender is renewed. The conservatives have the majority in the governing board of the channel. This raises the first question: Why has any politician influence on the program?

Second question is why they want to prevent Nikolaus Brender. Hesse prime minister Roland Koch started to justify his objection with the reduced numbers of viewers of ZDF news programs - which only applies to all news programs in German TV. In my opinion viewer numbers must not be a primary measurement for quality news - or we end up with yellow press news. That's why public broadcasting should not have a commercial interest with viewer numbers determining the earnings from commercials.

With the argument rebutted Koch switched to criticize Brender's personnel management - obviously this is hard to judge from outside. The ZDF director Markus Schächter wants to keep him though and a lot of prominent journalists of ZDF are supporting him in an open letter objecting the political influence.

Commentators rather think that Brender is simply too independent for the conservative understanding. Vacancies are filled based on qualifications and no longer based on the political camp which raises journalistic excellence. Besides, Brender just won the Hanns-Joachim Friedrichs Price for TV Journalism this week (which of course might just have been a choice to support him as well). Hanns-Joachim Friedrichs most famous quote is:

Einen guten Journalisten erkennt man daran, dass er sich nicht gemein macht mit einer Sache, auch nicht mit einer guten.
-- A good journalist doesn't allow himself to be taken in by any cause, not even a good one.

A news channel can not be measured by its audience and so the points of criticism by the conservatives are invalid. From pretty much every side Brender is supported for his quality journalism which should be the main motive of a chief editor in public broadcasting. Eventually Roland Koch is doing more damage by pursuing political influence to the ZDF than any editor could ever do - or as CEO of Axel Springer newspaper group puts it in the context of the government bailing out news organizations:

To put it in exaggerated terms, even a bankrupt media company is better than one that is funded and controlled by the government. The ZDF is a prime example of what happens when politicians try to appoint editors-in-chief.

This is not yet the end: Brender is not allowed to defend himself in front of the governing board. And to top that, former Bavarian prime minister Edmund Stoiber, also member of the governing board, claims the director of ZDF should take disciplinary actions against all journalists who supported Brender signing the open letter!

Pork-Barrel Politics

Recently I wrote about the problems of European dairy farmers. Today I had to read about an approach of German Agriculture Minister Ilse Aigner (with support from Austria, Hungary, Slovakia and Slovenia) trying to stop the necessary market shakeout by postponing the lift of the EU milk quotas. Aigner is from Bavaria - and dairy farming is a key sector in Bavaria and especially its small farms will be hit hard. Luckily the approach was turned down. From the EU stimulus package €90 millions will be spent in Germany for rural development though. Aigner wants to give the money to the farmers. I hope the money is not simply thrown out the window...

In another example the president of the association of German automobile industry (VDA) claims to take back (German) the raise in truck toll on German autobahn from beginning of this year. This is supposed to help German transport agencies with foreign competitors. I just wonder how since it would affect all trucks on German streets. Also the idea was to bring transportation from streets to rails, i.e. it was a means of environmental policy. Why should this be stopped now? Because of a market shakeout? That's a desired effect! So far government says no (German) but the automobile industry is one of the strongest lobbying groups in Germany so I'm not sure how long this still stands.

Have in mind the government is currently already wasting €1.5 billions as part of the stimulus program for car sales in form of a scrapping scheme: For scrapping a 9-year old car and buying a new one you get €2,500 from the government. In times of the worst crisis car registrations in February were at a 10-year high! Imagine the plunge when the money for the scrapping scheme is running out:

Critics of scrapping schemes point out that they are like administering a shot of adrenaline to a sick patient — first there's a rally, then there's a collapse. [..] Christian Streiff, boss of France's PSA Peugeot Citroën, warned such incentive schemes have an "inverse effect" — they essentially guarantee an implosion in the market once the subsidies stop.

And also just of today another example: Last year there were major data-protection scandals in Germany, not to talk about illegal surveillance of employees in a bunch of companies like Deutsche Bahn, Deutsche Telekom, Lufthansa or Lidl. All of a sudden all politicians wanted to protected customer's and worker's privacy. That's long gone. The most important point, an explicit opt-in on transfer of customer data to other companies, is now discussed again. Since it might cost jobs I don't think this rule will make it into law.

The Incomprehensible

One of my first thoughts on the latest school killing in Germany was slightly cynical: How long will it take that "Killerspiele" (First person shooters are condemned sweepingly (German) as "killer games" in Germany.) are indicated - once again - as a reason for the killing? It took only one day.

Hardly anybody will actually say these games are a reason but simply the fact that only one day after the shooting the police discloses (German) they found Counter-Strike on the killer's computer and the repeated claim for bans of those games reveal the reasoning. Why is that?

Putting the numbers in context: In the U.S. in 2005 it had 16,692 homicides, 11,346 by guns. That means statistically 46 people were murdered every day, 31 by guns. The deadliest school shooting (Virginia Tech massacre) took the life of 33 people. And how many people die in "family tragedies" (German euphemism (German) for homicides within the family, usually with suicide of the perpetrator) every year as just recently (both German)?

But nothing causes as much sensation - and claim for actions - as the school killings. Is it the sheer number of victims? I think it is rather the impossibility to comprehend the incomprehensible, the idea of somebody causing as much damage as possible before committing suicide, the question how nobody could have noticed the gunman's psychological strain. A murder with robbery happens out of greed, a family killing out of jealousy or despair, they are "explainable" - a school killing, in both its extent and randomization of victims, can not be explained with a single reason though, if at all.

But then why do people look for simple solutions? Is it the only thing to hold on to? Some examples:

• The ban on (German) "killer games" is a classic. First person shooters are usually approved for people of age 16 in Germany if they are diluted (e.g. no showing of blood). Otherwise they must be only sold to adults. Minister of Family Affairs proposed test purchases to control shops stick to the law. One chain completely stopped selling of games with 18-plus ratings.


• Controls in rifle clubs are rather new. It's only that 1.5 million people are organized in the parent organization Deutscher Schützenbund. Should everyone provide a psychological assessment?


• Chancellor Angela Merkel even thought out loud about unannounced controls for weapon owners. Without any concrete reasons how is that consistent with the Grundgesetz (German constitution, basic law), not talking about sheer practicability?


• A more reasonable idea is the separate storage of weapons and ammunition (the quote from Handelsblatt), others propose a limit on the number of weapons (German), even more unlikely is the total prohibition of keeping weapons at home (Where should they be kept?).

One of the saddest proposals is the one for swipe cards, metal detectors and security guards (see the quote from Die Welt) at schools. This will turn schools into prisons:

[Schools] shouldn't be turned into bunkers, and they can't be turned into fortresses without their ability to teach suffering. After the murders in Winnenden, it's understandable that people would start discussing things like swipecards and metal detectors. But there is no such thing as absolute security, and every added bit of preventative technology brings with it the danger of making people feel even more vulnerable. If you go into one of the schools in the United States that has been outfitted to become a high-security facility, you feel anything but safe and secure. Instead, you feel completely lost at sea.

All the proposals have some things in common: The effectiveness is at least questionable. Germany has already one of the tightest weapons law in Europe if not the world. Similar the regulations on video games or films. And then there is always the black market to get either video games or weapons and ammunition.

And second all the proposals only address symptoms, not the causes. No video game (World Of Bullshit, German) has ever caused a school shooting. The membership in rifle clubs might actually provide acceptance though I would argue if anybody needs to learn how to shoot except for security services as police or military.

But what about the perpetrator, not Tim K. in particular but in general. What about personal responsibility of people associated with such killers? What about parents allowing their children to play the games (or not knowing it)? In analogy to the proposals above why does nobody think about testing parents whether they qualify for raising children? What about teachers, classmates, coaches, friends? What about the selective German school system? Will psychological counselors help to find precarious "candidates"?

These questions shall illustrate the complexity of the problem where easy solutions just don't work - and question the mentioned proposals even stronger. The bottom line is: We are living in a free society. There is and will never be 100 percent security. As hard as it might be to accept, especially because of their senselessness: School shootings are rare. Giving up freedoms for questionable means can't be the solution. Neither can just going on - but that's exactly what simple solutions tend to. It's in everybody's responsibility to take care. Sounds naive? Maybe it is but the government simply can't help and is not supposed to help. If society does not change on its own accord we just have to live - with the incomprehensible.

Let Market Fix It!

Last week I saw the documentary Let's Make Money in cinema. Despite some awkward conspiracy theory tendencies it shows some really interesting examples of globalization gone wrong. One of it is cotton production in Burkina Faso, one of the poorest countries in the world. Not long ago I also posted about an approach to help German farmers called "Ein Herz für Erzeuger" or in English "A Heart for Producers" which I consider totally wrong.

Now how are the two stories linked with each other? It's as easy as that: Due to globalized markets paying huge subsidies to European and American farmers does not only distort the local markets but has effects on the markets in the whole world. And just as with the milk seas the cotton subsidies lead to over-production and an extremely low price for cotton. According to the film's website the US spend $3 to 4 billions on cotton subsidies (German) per year. This costs Burkina Faso around $150 millions per year while they get only a fourth of it as development aid - from the US, EU and Japan together! (The EU isn't better of course: Cotton in Spain is subsidized with $1 billion per year as well.)

This means the most severe problems in the developing countries (or emerging markets as they are called now as one episode in the film shows) could be fixed just by opening markets in the EU and the US - without any additional payments in form of development aid. Surprisingly, this is capitalism in pure form, simply following the maxim of market fixing itself. I understand this doesn't make it easier to pursue in the EU but what about the US!? Next time somebody complains about Big Government (in both the EU or the US) I suggest to get rid off agricultural subsidies. But wait, it might just be the same people complaining about Big Government and getting elected by farmers...

PS: Some amounts I converted from Euro to US Dollar at current rate of 1 Euro = 1.30 US Dollar.

PPS: The film also has an episode on Cross Border Leasings (German) I wrote about recently as well.

Good News for People Who Love Bad News

If you haven't lived hermetically the last year you couldn't have missed it: There is a crisis going on. Hardly anybody doubts it is worse than anything else since WWII. I was impressed though that the same experts that hadn't seen the crisis coming wanted to tell us how bad it's going to be. Starting in October, when the crisis was still a financial crisis, not yet an economical one in Germany (Germany's unemployment rate was the lowest in 16 years) following predictions have been made for the economical growth/ downturn in Germany:

15.10.2008, German government: 0.2 percent.
03.11.2008, EU commission: 0.0 percent.
06.11.2008, IWF: -0.8 percent.
25.11.2008, OECD: -0.9 percent.
05.12.2008, German federal bank: -0.8 percent.
05.12.2008, Deutsche Bank: -4 percent.
10.12.2008, RWI: -2 percent.
11.12.2008, IFO: -2.2 percent.
22.12.2008, IfW: - 2.7 percent.
19.01.2009, EU commission: -2.3 percent.
21.01.2009, German government: -2.25 percent.
28.01.2009, IWF: -2.5 percent.
23.02.2009, Deutsche Bank: -5 percent.

It is like a competition on who makes the worst prediction. I seriously wonder whom are all the bad news supposed to help. Or to say it with German comedian Dieter Nuhr:

Wenn man keine Ahnung hat, einfach mal Fresse halten.

(More polite translation: If you don't have a clue, shut up!)

But there have actually been some good news like unexpected increases in certain indexes based on people's expectations for the future. It's just that the economic institutes don't seem to trust their own surveys. And a report about Germany's export growth in 2008 reads: Export growth is lowest in 5 years! That's how a good news (growth!) is turned into a bad news. And I've always been thinking economy is so much about psychological effects. So shouldn't we interpret every ray of hope as a positive sign rather than turning it down!? I would really like to know if this is a special German mentality issue or if there is the same phenomenon in other parts of the world as well.

Business Opportunity

Today I want to tell you a short story. Imagine I have a car. It doesn't matter if it is an old one, a fast or a cool one. I have a car. Now there is another person taking a look at my car. Following dialogue gets started:
He: "You have a nice car! Can I lease it from you?"
Me: "But then I don't have a car anymore."
He: "That's not a problem. I will lease it out to you immediately."
Ring! Ring! Ring! Alarm! Sounds suspicious.
Me: "What's the point of it!?"
He: "Wait, it's even better. I will you pay you money for this business!"
Ring! Ring! Ring! (Was that an alarm ring or the money sign in my eyes?)
He: "Yes! We are investors, the leasing rates are our investment and so they are tax deductible. We will just give you part of the tax reduction in advance."

Now replace me with German municipalities, the other person with American investors and the car with municipal facilities and services like incineration or sewage plants and you get so-called Cross Border Leasings (German). The article says around 150 contracts have been concluded over 30 to 80 billion Euros.

On the second ring I (smart-ass me, not the supposed me from above) would have asked pathetically if this isn't fraud - if not legally (obviously there was a loophole) then morally. A court in Cleveland, Ohio ruled in one case (Case No. 1:07-CV-857) last year that the tax saving has to be paid back by the investor - at least.

But now the German municipalities are left behind with these financial constructs and the problems they cause. They were backed by the now infamous Collateralized Debt Obligations which are nothing worth anymore (if they were ever) - and the German municipalities have to take all the risks and pay for possible losses.

This is economical growth simply based on the flow of money. Even better, the money wasn't actually flowing except for the initial payment. The investors borrowed the money from the same bank the German municipality had to pay the leasing rate to. And the investors did not have access to the money but it was used to pay their leasing rates. So it was simply moving money from one account to another, fictitious transactions which I consider fraud at the expense of American and German taxpayers.

One final point to add: The article only points finger at the German politicians for taking such high risks rather than questioning the approach because of the moral issues. Since moral obviously doesn't pay off and you can't charge somebody for irresponsibility politicians should finally be liable for their actions in office. They would think more than twice about such high-risk transactions.

Disclaimer: If I have oversimplified the case and there is economical sense in such a transaction I would really like to hear it. Feel free to contact me!

A Heart for Producers

Last week I had to try hard to keep from laughing. I was shopping for grocery and saw a new campaign: Ein Herz für Erzeuger (A Heart for Producers). The idea: Rather than spending 49 cents on a liter of milk you pay 59 cents and the additional 10 cents go completely to the farmer. This is ridiculous in many ways!

In Germany there is both a charity campaign Ein Herz für Kinder (A Heart for Children) for needy children and a magazine Ein Herz für Tiere (A Heart for Animals respectively Pets). And now needy farmers? So first it's simply a ridiculous name from a marketing perspective - or am I the only one who thinks first of a donation account when hearing this campaign name?

Second, why should I pay more for the same product? For my good nature or my conscience? I'm sorry, but this is the same milk from the same intensive livestock farming where cattle is fed with the same antibiotics! Isn't it understandable I don't feel sympathy for this kind of farming? If I want to have a better product for which I'm willing to pay more I'll get organic milk.

Third, I'm not denying that many farmers, especially small businesses, have major problems with the low milk price and their costs. But the problem is far more complex (German) - and needs painful consequences. For years the market for milk was totally regulated (just like every other agricultural product in the EU) by setting quota how much a farm can produce. This led to the infamous so-called milk seas or butter hills - products produced beyond the market's needs, bought with huge subsidies by the EU and destroyed or fed to livestock.

Now the quota system is going to be removed - and the market will fix the distortions caused by the regulations: The price will likely drop due to the oversupply. Some farms might switch to the production of organic food which gives them higher income per unit (a liter of organic milk costs 89 cents). But there will definitely be individual fates, especially small farms, that will have to shut due to reduced income. But it is not possible to work against the market or it will cost an enormous amount of money. It makes more sense economically to spent the money otherwise despite the costs for social benefits or other support for the victims of this change. Only one thing is sure: The 10 cents can't prevent that change. If at all it will extend the agony.

Top 10 Albums 2008

2008, the year of Chinese Democracy is over. Unfortunately, neither the one nor the other worked out. I don't even want to append as expected because I can hardly imagine anybody was actually expecting anything. And all the hope for 2008 was already used up.

Anyways, in 2008 I bought again around 40 CDs, most of them within the last days of my trip to Philadelphia because CDs are so much cheaper in the US than in Germany - and that's not only due to the Euro exchange rate. So I only influenced the US Amazon 2008 charts, but not the German one. Maybe that's why not even one of my personal Top 10 made it into the latter :-)

And what does it tell you about the year 2008 in music (or the people buying music) if the first 3 places are taken by albums from 2006 and 2007? I found some great CDs though and here it is, my personal Top 10:

1. The Walkmen - You & Me


2. Gus Black - Today Is Not The Day...


3. Rainald Grebe - 1968


4. MGMT - Oracular Spectacular


5. Kings Of Leon - Only By The Night


6. Fleet Foxes - Fleet Foxes


7. Sun Kil Moon - April


8. Vampire Weekend - Vampire Weekend


9. The Mountain Goats - Heretic Pride


10. Randy Newman - Harps And Angels

Most surprisingly there is a German album on the list. I can't remember when the last one was even close to that. But '1968' by Rainald Grebe is so amazingly sarcastic - I'm still laughing whenever I listen to it. As a sample his performance in German satirical TV show Neues aus der Anstalt: Der Präsident.

Most of the other 12 songs are even better, but this one fits Germany's Presidential elections this year. Since the president doesn't have actual power in Germany (that's also what the song is about) the parliamentary elections at the end of September are more interesting. Though German democracy isn't actually endangered let's see what uses up our hopes this year :-)