The federal Air Transportation Stabilization Board announced today that it was not going to change its its June 17 decision to deny United Airlines government backing for a government credit enhancement that was the central component of United’s reorganization plan in its pending chapter 11 case. United will now be forced to retool its reorganization plan based upon the higher financing costs that it will incur in the private market.
Hurt by a slowing economy and the Sept. 11, 2001 terrorist attacks on New York and Washington, United initially applied for $1.8 billion in loan guarantees in June 2002, just before the deadline for airline applications. The company’s request was the largest of the 16 carriers that applied to the panel that was created after the September 11 attacks to help airlines lower the cost of new capital.
The loan board initially denied United in December 2002, which resulted in United filing its chapter 11 case. United has reduced costs and shrunk its operations in chapter 11, but the company’s operations still are not particularly competitive with the emerging low-cost airlines that have expanded their market share dramatically over the past two years.
As noted here earlier, the ATSB’s decision is the correct one. The creditors and employees with stakes in United’s survival should share the full economic risk of reorganizing the company. The risk of loss and threat of failure are much better and more powerful inducements to reorganizing a big company correctly than government largesse that often covers up and delays changes that need to be made.

Howard Blake is the pen name of a small businessman from the Midwest, who has written this AEI Online article that is brilliant in its simplicity. By Democratic Party standards, Mr. Blake and his wife are wealthy and should be taxed more. However, Mr. Blakes points out that appearances can be deceiving, particularly in economic matters:

From that $71,000 of actual cash flow, subtract our federal tax payments of $24,539 and our state income taxes of around $4,000, and you find that our cash available for living expenses is actually around $43,000. Sufficient for our needs. But clearly a good deal short of true wealth.
I suppose my wife and I do what we do because we like to. We must, because if you divide our $43,000 of spendable income last year by the 6,000 hours of labor, much of it manual, that the two of us put into our business (we kept track), our time works out to be compensated at around $7.50 an hour. Just the same, incentives do matter. And it is a concrete fact that cash alone fuels our growth. With more cash, our business will grow faster; we’re a small player in a big industry, and the market is there for additional growth. We’re constrained only by the availability of investment capital, and that has to be generated by our business.
My wife and I have a passion for our little enterprise. It’s been our life for 20 years, demanding whatever creative abilities we have, consuming most of our waking moments, focusing our energies on producing the best products we can, and beckoning us to work seven days a week to ensure good service for our customers.
Then every four years the Democratic nominee for President informs us we don’t pay enough taxes. We are called greedy and self-serving special interests. We’re told that we are “rich,” and that we have wealth only because we are lucky.
I have described my financial situation in some detail in the hope that this snapshot will help people understand who most of the top 5 percent of taxpayers really are, and how taxes affect the folks who make America work. I know I’m fortunate, but I certainly don’t feel rich. I have fond hopes of some day becoming wealthy (a goal I share with most of my fellow citizens), and a tax policy that encourages my efforts toward that end would not only benefit me, but the rest of society as well. But the reality is that my wife and I have to work extremely hard every day just to hold our current position.
We’ve been managing our finances with care, investing in our business with the kind of concentration that comes from spending our own money, and providing jobs for dozens of our neighbors. I dare say that the country benefits from our stewardship–and that of hundreds of thousands of other “rich” people just like us–more than it would from any of John Kerry’s plans for our money.

In representing business people over the past 25 years, I have learned that non-business people often grossly underestimate how hard it is to run a business profitably and well. Also overlooked or underappreciated is the great benefit that communities derive from the employment that is generated through small businesspeople’s willingness to undertake the risk of their enterprise. Mr. Blake’s article explains a big part of the reason why running a business is such a formidable task, made even more so in this current climate in which many normal business practices are being criminalized. Hat tip to Newmark’s Door for the link to Mr. Blake’s piece.

In the first of a three part series, this Washington Post article by Steve Fainaru examines the tactics that Major League Baseball Commissioner Bud Selig is using in auctioning the Montreal Expos off to the highest bidder among several investor groups and American cities. The article provides an excellent background on how Selig and Major League Baseball owners have used baseball’s anti-trust exemption and public financing of stadiums to increase the value immensely of MLB franchises, an approach that several expert commentators — particularly Professor Sauer over at the Sports Economist — have criticized on economic and political grounds.
The entire article is well worth reading, and includes nuggets of information such as the following about Jeffrey Loria, the former majority owner of the Expos who ended up owning the Florida Marlins after Selig engineered a swap of franchises when MLB bought the Expos several years ago. Loria’s handling of the Expos is the subject of litigation brought by Loria’s limited partners, who were pursuing that litigation even as New Yorker Loria’s new team was playing in last season’s World Series. You certainly did not hear about the following on the MLB broadcast as the World Series Trophy was being handed to Loria and the Marlins:

On their way out of Montreal, Loria and Samson stripped the franchise. With them went computers containing scouting reports on every Expos player, dozens of signed home run balls, even life-size cutouts of the team’s former superstar right fielder, Vladimir Guerrero. The Expos’ limited partners, meantime, became unwitting owners of 6 percent of the Marlins. In July 2002, they filed a racketeering suit in U.S. District Court in Miami. It charged Loria, Samson, Selig, DuPuy and the Office of the Commissioner of Baseball of illegally conspiring in what the suit called an “Expos Elimination Enterprise.”
The ongoing suit could complicate baseball’s plans for the Expos. The limited partners have 90 days to seek an injunction if baseball tries to move the team.
Last October, Loria’s Marlins miraculously found themselves in the World Series against the New York Yankees. “Can you imagine?” anguished one of the limited partners. “I’m sitting here. I’m an owner of the Florida Marlins. I’m rooting for the Yankees!”
And then, of course, the Marlins won.
This spring, nearly all the limited partners received World Series rings, even as they continued to sue Loria and Major League Baseball for racketeering in U.S. District Court.

Read the entire article.