Opinion

The Great Debate

One rule for banks, another for autos

April 1, 2009

jimsaftcolumn6– James Saft is a Reuters columnist. The opinions expressed are his own –

There is one law, it appears, for failing U.S. automakers but sadly quite another for similarly failing banks.

The Obama administration has decided to play hardball with auto firms; rejecting recovery plans from General Motors and Chrysler LLC (GM.N) and warning they could be thrown into bankruptcy. Chrysler, which is controlled by Cerberus Capital Management CBS.UL, has 30 days to complete an alliance with Italy’s Fiat SpA (FIA.MI) or face losing its government funding. GM chief executive Rick Wagoner is out at government request, as will be most of his board of directors in coming months.

This is painful and risky but probably for the best; the auto industry has far too much capacity and both firms have blundered repeatedly, avoiding making hard decisions to improve their competitiveness and products. In short, this is what is supposed to happen in capitalism when you fail.

It is also a huge contrast to what is being done for U.S. banks, where management has generally remained entrenched and where Treasury Secretary Geithner and his predecessor have thrown cheap money and other subsidies at doubtful banks in ever more complicated forms. Most recently, going as far as cutting hedge funds and other investors into the deal under the public private partnership in order to create the illusion of a return to market forces.

If the U.S. administration thinks the auto tough love will make them look like they are taking a hard line with highly compensated executives, they could not be more wrong. If anything it will increase the perception of the divide between how Main Street and Wall Street are treated when they come begging at the public trough.

To be fair, the case against the automakers is pretty airtight. Even given a recovery, which is by no means a sure thing, they may not be viable. The best counterargument, that bankruptcy causes rolling failures among suppliers and that consumers will shun automakers which are in bankruptcy. Those possibilities are hard to measure, and even if true, probably not enough to justify keeping the two on life support for what could be an indefinite period.

IT’S DIFFERENT FOR BIG BANKS IN TROUBLE

So what accounts for the difference in treatment, given that many banks, large and small, are both insolvent and dependent upon government support for their continued existence?

There are some legitimate reasons but they quickly bleed into special pleading and moral hazard. The entire economy is dependent in substantial part on the health of the financial system which intermediates capital, theoretically allocating it (insert ironical remark here) where it will make the best return.

That makes it harder for policy makers to simply allow banks to fail and for the industry to find its right size, the damage in the meantime would be too great. That gives large overleveraged banks a strong negotiating position with government, even in their weakness. That’s unacceptable and needs to be dealt with now, by treating them on their merits, rather than later through regulation to control the size and leverage of institutions.

There is a real risk that we get the worst of all worlds; the banks are kept alive and make it through with management in place and are able to use their obvious influence and might to deflect legislation. We then have a system with moral hazard at its heart and another larger crisis heading our way after the next bubble.

It is striking that the guy leading the enquiry into the viability of the automakers is former media investment banker, financier and private equity investor Steven Rattner rather than an auto person. Quite right too, someone who has lived and breathed this stuff is conflicted and won’t have the proper perspective.

But what a contrast with the number of once and future investment bankers (former Goldman Sachsite’s Neel Kashkari being exhibit A) involved in the government side of the banking bailout. After all, who else could understand this stuff? Don’t Trouble Your Pretty Little Head about that, as they used to say down south.

There is an alternative, after all. Rather than constructing a bank bailout which is essentially the Resolution Trust Corporation but missing out all that messy stuff about banks failing and executives getting canned, why not simply impose tough capital limits, fail the banks and executives that fail and come up with a reasonable timetable for selling on what you are left holding?

It has two great advantages; it has worked, both in the U.S. and around the world, and it is fair and easy to understand as fair.

Rescuing the economy and the banking system, as opposed to the banks, is going to require more government money. The favorable treatment of banking executives and shareholders may make that money very difficult politically for the administration to get.

– At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund –

Comments
44 comments so far | RSS Comments RSS

The fox has raided the hen house and what does the government do? Asks the fox how to fix the hen house so it can’t be raided again. Its time to fire the people how created this mess and put honest people in charge of our financial institutions. I don’t buy the argument that the people who created this mess are the only ones who understand it enough to fix it. They are incompetent by definition. We are not a nation of dummies. There are people in this country who are smart enough to take over the mess and unwind it. Until we get rid of the people who flushed our entire enconomy down the toilet, the problem will not be solved.

Posted by Jim Guastavino | Report as abusive
 

Double standards for sure, but the reasons behind such duplicity are perhaps rather more simple than alluded to here. The Federal Reserve system is a parastatal structure largely controlled by 12 regional privately owned Federal Reserve Banks all of which are located in major cities throughout the US, acting as fiscal agents. Given that each successive head of the Fed comes from a long line of bankers, not car manufacturers, then adopting an economic or monetary policy that helps banks first, whilst important, also stinks of self service. I am sure most reasonable people would agree that any mistakes made by the auto industry, including their overly patronistic relations with the oil industry, whilst bad for the environment are no worse than mistakes made by bankers in creating products that had increasingly little relation to asset value or the wider economy. Thus, and this is hugely important, when people talk about the Fed they misconstrue that the Fed represents the US nation state, rather than private banking interests, and this is where the problem really starts. Bankers are not nationalists by nature and in this increasingly complex global sphere that we all live in, the nation state is simply not the currency of transaction that it once was. Interest groups are now more powerful than many nations states, yet the same oversight mechanisms that force accountability at the state level have not yet been developed to stop such malpractice and double handedness from occurring. The fact that 2.5 million people in the US, and their families, rely on the auto industry for employment apparently does not constitute a big enough interest group to guarantee survival. Lets be clear, if the Fed happened to be controlled by the auto industry not by bankers, then it would be Wall Street and not Car Street that would now be begging for survival.

 

Is it not obvious that Wall Street have tight grip on Capital Hill’s balls.
Otherwise how can the same institutes, who are responsible for creating the current mess, milk the taxpayers for more money.
In my opinion no one on the Main Street wants to give away their money to Wall Street.

Posted by Sajid | Report as abusive
 

Well it’s clear by now, Obama is nothing more than a glib talker and an opportunist. After harping over change, when time for action arrived he did nothing more than preserving everything that is old and rotten. Even today he is reluctant to impose regulations on hedge funds and the world of finance. He has done no more than giving public speeches about his anger at the executive pays and financial excesses but does not want to take any long term action that will curb such excesses in future. Why are hedge funds so essential that for their sake Obama is ready to sacrifice consensus at the G20 and leave scope for future catastrophe.

If Obama is that honest why is he trying so desperately to protect hedge funds from regulations. Like all his predecessors he is a liar. If France and Germany can afford to rein in these monsters why not Obama. And all developing countries want restrictions on these whose financial markets have been robbed again and again by these predators. May be those who have controlled Washington in the past have been successful to buy Obama also. What value do these people add rather than indulging in speculative activities and creating bubbles. Their power comes from the fact that they control huge amount if money. Ban them and they will be worse than beggars as they know nothing other than gambling.

Obama has shown where his priorities lie and for whom he works. Also amazing is that Britain which harder hit than most other European economies has not yet officially pushed for financial regulation and sought to put pressure on Obama. Even British Prime Minister is doing nothing more than paying lip service. In my opinion Obama has successfully run the biggest ponzi scheme in the electoral history of the world.

Posted by asterix117 | Report as abusive
 

A perfect market works when there is no assymetry of information. A system that allows few(hedge funds and investment banks) to so shamelessly exploit asymmetry of inofrmation and regulatory oversight to the disadvantage of others can never be capitalistic. Obama and his team have even manipulated meaning of capitalism to suit the needs of their benefactors. Shame on you Obama and your team for misleading the entire nation and tarpedoing hopes of global regulatory consensus at the G20.

As far as deregulation goes, tell thieves that wont be imprisoned for stealing money, and they will be able to make as much money as these hedge funds. For hedge funds just exploit absence of oversight over them to steal money others. When stock markets fall everyone looses but these people glory by making money as they are not regulated and tend to take the stock market even lower making common people even more poor and making themselves richer by short selling and other innovative approaches.

Just have a look at the way market has been swinging over the past few weeks. What this has done is drive away most retail investors and robbed them of chance from benifitting from America’s recovery. Stock market is now nothing more than hadge fund’s and big bank’s gambling toy. This is what Obama is striving to protect. I dont understand is it capitalism or a wild jungle without any laws.

Posted by asterix117 | Report as abusive
 

The govt. has been trying to kill manufacturing in the US since 2000. What makes this any different. Actually, it started under Bush the father and just continued under Bush the son. Why should Obama be any different?

Just one question:
When manufacturing is gone in America, who is going to make our tanks, planes, etc? I guess we can sub that work out to China.

Posted by Dale | Report as abusive
 

Jim G has it nailed. Let’s see…Henry Paulson-former Wall Streeter. Here in New Jersey, we elected a Goldman Sachs boy, Jon Corzine, and ANYONE will tell you how he’s trashed our state. Here’s a question: Why would you spend hundreds of millions of your own dollars to get a job making a couple of hundred grand? Hmm…might it have something to do with advancing your own agenda? Perhaps dumping NJ’s already weakened public pensions into Goldman Sachs?

My father worked for The General (GM) on an assembly line for 39 years, and I’m here to tell you that the quality and style issues come from the liberal mainstream media. GM, Ford, and Chrysler vehicles are just as dependable as their foreign counterparts. But the general populace (aka lemmings) have bought completely into the line of BS shoveled their way. My wife and I bought a new ’91 Toyota Camry back then, and that car had electrical problems throughout our entire ownership. “Car guys” know that European vehicles are notorious for this, including the quite expensive Range Rovers. BUT, the MSM doesn’t tell you this…

Here’s another example: Ask anyone who uses a truck (pickup, etc.) what they use. How many of you have seen Toyota Tundras, Nissan Titans, or Honda Ridgelines as “working” trucks? Could it be because they’re not “tough enough”? Take a look around you…you’ll see plenty of Sliverados, F-150s, and Dodge Rams, all beat up, banged up, dirty, but solid working trucks. “Pretty boys” drive around in their wannabe foreign trucks!

To get back to the economic issue, the MSM never informs the masses just how many smaller suppliers to the Big Three would go under, should Mr. Obama continue with his hard-line stance. As a whole, these smaller “Main Street” companies employ far more people than GM/Ford/Chrysler. Conservatively, allowing GM and/or Chrysler to fail would put an estimated 3 to 8 MILLION people out of work within 3 months: Compare that to today’s report of 750,000 new unemployment claims! Furthermore, the MSM never discusses the ripple effect…the lunch trucks, the diners, the local economies that would be wiped out.

Meanwhile, who got hurt when Wall Street got beat up? What, some yuppie bars and fancy restaurants in lower Manhattan? Puh-leeze…and yet, both the Bush and Obama administrations have dumped billions into these corrupt firms, without no oversight whatsoever. Meanwhile, they’re putting people in charge of the GM situation who have no, ZERO clue what an auto company is about.

Have the Big Three made poor business decisions? You bet! However, they have done NOTHING that could remotely be construed as criminal behavior, unlike the thieves at AIG. The Big 3 have shuttered dozens of factories, putting tens of thousands of honest, hard-working Americans out of work. Yet, AIG and others continue to operate with “business as usual”.

Mr. Obama and his cohorts in Washington and Wall Street ought to be fearful of what MAY happen relatively soon here in America. The massive “middle class”, who has be pounded by this recession, will not continue to tolerate this nonsense much longer. In speaking with many “common folk”, it’s clear that there’s a rising current of discontent and anger that’s bubbling just below the surface. Imagine for a moment if Obama allows GM to go under, and hundreds of thousands of autoworkers mass together and march on Washington and Wall Street. You think those civil rights marches of the 60s got ugly? You haven’t seen nothing! Let’s see, a hard-working guy, getting by on $50 thousand gets the rug ripped out from under him by a President who supposedly was looking out for the average guy, goes to NYC to confront some Wall Street bigshot pulling down $20-30-50 million a year? My friends, that is going to get ugly. Do NOT discount the possibility of this happening…desperate people do desperate things.

The American people are slowly waking up to the fact that our economic base is off-kilter. Many are realizing that having a miniscule manufacturing base is bad news. Ask yourself this question: Many (if not most) of our consumer products are made overseas. What happens if our relations with these countries goes sour? What do we do THEN? We have then placed ourselves as a country at the mercy of others; so much for saying that we’re the world’s superpower! We must also realize that this process has been ongoing over the past several decades, and BOTH political parties share the blame. Many formerly great American companies have vanished, thanks to Wall Street’s insatiable desire for more, more, and MORE! I get a good laugh, which rapidly changes to anger when I hear these “analysts” saying that this company or that company needs to do this or that, all to keep the shareholders happy. Meanwhile, these clowns have never worked a day in their lives; they’ve never worked at any of these companies; ergo, they have NO clue. Want an example? Take pharmaceutical companies…we have an incredible collection of scientific talent and intelligence at these companies. We could easily prevent/cure numerous ailments. BUT, these efforts take TIME…and THAT is a verboten word on Wall Street. These “analysts” don’t want to hear that a drug that will cure “xxxxx” is going to take 5 years; “we need results by the end of the quarter!” So, numerous drug trials and efforts get shelved, all because Wall Street said so!

In the end, I’ll say this: perhaps we need to “reboot” and start all over. After all, Germany was in shambles after WW2, and they managed to get rebuilt. Yes, it took some time, but look where they’re at today. America has had a heckuva run for the past 230+ years, but I fear that our time is rapidly running out. I certainly hope that my fellow citizens can prove me wrong…

Posted by Mike Porcellana | Report as abusive
 

Yeah, moral hazard. With bankers in charge what else did you expect to happen? Until they are crushed, nothing will change.

Posted by Robynne | Report as abusive
 

There is no double standard here no more than with all the other industries (home builders, newpapers, airlines, etc.) that are in big trouble in todays economy. Why is the auto industry so much more special that the airline industry or other industries? If Chrysler goes bust, will we make and buy less cars? No – and someone else will step in and build those cars (maybe Ford?). The big difference between the banking and auto industry is the banking industry in intertwined is every corner of our every day lives and every industry in the world economy is dependent on a stable banking industry. The current instability of the banking industry is the root cause of our economic problems today – the ailing auto industry is just a sypmton – not a root cause. So, if we can stabilize the banking industry, we should be able to get back on our feet. Another difference is most feel that many of the financials institutions we are helping out have viable business models for the future once we get through this crisis. In the auto industry, the opposite feeling exist. Most feel GM and Chrysler are not viable business models under their current structure and would require a permanent government subsidy to survive unless they make drastic changes. There is no double standard here as the auto industry and banking industry are two different problems requiring different solutions.

Posted by Brad Cesario | Report as abusive
 

IF you have ever hatched a bird from an egg, you learn very quickly that you must let it remove the shell by itself or it will result in dire consequences for the emerging baby bird.
Many of these banks and the auto industry have been around for over a hundred years, but they still need to remove the hard times by themselves or they, like the bird will suffer dire consequences. I think in the end the auto industry will come out stronger without government help than the banks that are getting showered with government help.
We are weakening our banking system by leaving the very people in place that let the system get into trouble in the first place, and then supporting them with large sums of money. My concern is that our banks will come out of this as damaged goods, like the rich kid that the father keeps supporting regardless of how fast he wastes his father’s money.

Posted by Craig Coal | Report as abusive
 

One rule for banks, another for autos. And yet another for unions.
Wagoner is canned, and most of GM board is on the way out. It’s still being argued if they screwed up GM or simply were not sufficiently quick to fix what was screwed before them. Some even argue that, if not for the current crisis at the scale that no one could foresee, Wagoner’s plan had good chances to succeed, and in fact it was pretty close.
Somehow Gettelfinger keeps his job. Yet it’s beyond argument that it is UAW that screwed up not just GM but all of formerly-Big Three. Screwed them up just as badly as PATCO was screwing airline industry by striking, if not worse. Disbanding UAW would solve most of auto industry problems. But it would take Ronald Reagan to do so. Obama is no Reagan, he’ll never do anything that would harm his union buddies.
Too bad that no one understands one simple thing. Auto industry will be better off without UAW. On the other hand, if automakers go down, UAW will follow. Parasite usually doesn’t survive death of its host.

Posted by Anonymous | Report as abusive
 

GM has too many brands. Why have 10 brands that all make a version of the same car? Or make multiple models of cars on the same same unibody framing. This is uninspiring to say the least. The bean counters mad thes decisions, not the designers. Car people should run car companies, accountants should run banks. We can see how well they do this, eh hmm. Take a look at the new Corvettes and you can see what US auto workers are capable of when accountants are running the design program. But the real reason the bankers are getting the red carpet to the Treasury and the Unionized autoworkers are getting the red carpet to the proctologist is simple. UNION BUSTING.

Posted by J | Report as abusive
 

It doesn’t tae agenius to figure out that the tough stand of the president has to do with one simple issue, The power of the unions. The executive compensation is a no issue and should not become the important point in this matter. The banks do not have unions that have a crippling effect on their own organisations or worse the inability to compete due to costs associated with the unions. As harsh as it may be, remove the union and the business can succeed.

Posted by Bob Jones | Report as abusive
 

Mr. Saft misses a critical distinction between the banking and auto industries, and in so doing fans the flames of poorly conceived populist discontent. The point is that there is no risk of systemic failure if the auto industry goes bankrupt. We cannot lose sense of what is at stake. As a result, when Commentators like Mr. Saft provide simplistic solutions (such as raise capital standards and let those that can’t meet it go bust…) all they do is pander to popular discontent while conveniently avoiding altogether any examination of the possible consequences of their prescription. Standing on a soapbox and bemoaning the outrage of it all while taking no ownership for the many potential consequences of such actions is one good example of intellectual laxity.

Posted by Paul Scott | Report as abusive
 

Two primary reasons for the difference in gov’t treatment…..first, car makers are a much, much smaller part of the GDP than the gov’t bailed out banks and thus have a much smaller overall economic effect on/in America. Second…. how many auto maker CEO’s have you heard of lately that have become big shots overseeing auto regulations made in Washington? None? You are right. That’s the main difference.

Posted by richard | Report as abusive
 

Respectfully Dale, our government has allowed the manufacturing base to erode in this country for over 40 years. First clothing and electronics than autos and steel. the list goes on and on. NAFTA merely opened the flood gates in the middle 1990s. This economic crisis may well seal or fate as an industrial and financial power.

Posted by Anubis | Report as abusive
 

Obama must soon put his money where his mouth is and stop just preaching his well worn sermons about what is wrong with America and how we have the ability to make things right.

He must give us hard and detailed solutions that we can sink our teeth into in order to see that he is gaining a grasp on what needs to be done. And, when it will be done.

One of my questions still unanswered is….why are we giving Chrysler public money? It’s a private company and the public has no ownership in it thus no responsibilty to help it out. “Too big to fail” is a BS reason. All companies that can’t cut it should fail, public or private, and Chrysler has failed, but if any sense can be made of gov’t help for failing companies it does seems to make more sense to help out only publicly owned companies.

Posted by richard | Report as abusive
 

As Americans we must give our President a fair chance to solve this mess, which was created over many years.

Posted by Roger Johnson | Report as abusive
 

The lovely thing about reading an artcile like this is that is illustrates the nature of awareness that people have about the way societies are governned.

James. the financial system is one arm of the system of governance. The government controls the fiscal arm and the central banks and its agents control the monetary arm. Governments collects taxes and levies to generate their income and the financial system uses various means but pricipally interest to generate their revenues.The civil service is the administrative and protection agency that enforces the rules of both these arms of the ruling group.

Bringing the problems of car makers into this discussion simply does not make sense as it fails to understand the structure of governance. Government and the banking industry generate revenue from paper based transactions. Car makers have to manufacture and distribute commodities in a global market. The difference in the nature of ruling group financial/ government business and car makers should be glaringly obvious.

Another false assumption in James’s reasonong is that the ruling group are some kind of wise Platonic rulers who do things for the best interests of everyone. Wrong, they sell what is their best interests to the public and portary it in the media as the general good “best solution”.

Finally, politicians are only the representatives of their principals. So, for example, if a key principal of Gordon Brown is NM Rothschild then the advice received from the principal will guide policy making prior to selling to the public.

Wake up and welcome to the real world.

Posted by Gregory | Report as abusive
 

But of course!! I do not see any auto-firms in the list of “Obama for president campaign” contributors! Whereas all the bailed out banks and financial institutions that have been bailed out are in the first 10 most important donors. Citigroup, Bank of America, Wachovia and many others, “donated” millions to the president. AIG not only donated but also became the intermediary between banks and politicians. Hurray for true corporate democracy.

Shame not on the corrupt politicians and corporations but on us who still put up with them and blinded, keep on giving them all the power they wish for. SHame

Posted by Ngr | Report as abusive
 

I agree with Gregory. This is the way the government works and this is the way economy looks at when it comes to reviving.
I don’t give this credit to Obama because he likes to be a center of attraction all the time instead of coming up with good ideas. All these ideas are inherited from Bush and he is not doing anything new by his so proclaimed “Change” mantra which got him this position.

Posted by Someone | Report as abusive
 

Another very solid bit of analysis, in my judgement.

My thanks.

Posted by atomikweasel | Report as abusive
 

“Is it Capitalism, or a wild jungle without any laws”? What an interesting statement begging for some definition of terms.
Some say the British form of Capitalism began with the onset of the Industrial Revolution when the rich began fencing off historical ‘commons’, so they could raise more sheep, produce more wool, and get richer. The ‘poor’, who used to live and work these lands found themselves in city slums working for the Industrialists to produce more wool cloth, so the Industrialists could get richer from the labor of the poor.
The Continent had had a different system of a ‘Rich Merchant’ class for centuries, with a different relationship with their own ‘peasants’. The Europeans still have different views about the relationship between ‘bosses’ and ‘workers’ all these centuries later. The bottom line is still the same, some ‘classes’ do the work and some ‘classes’ make the money. I look for the G20 summit to shine a historical spotlight on the cultural differences in how each group responds to the other. Interesting times!

Posted by QueZen | Report as abusive
 

FASCINATING COMMENTS: In every case, a lot of pent-up anger at the politicians. Perhaps a belief that this economic situation has exposed politicians for what they really are, and they really are NOT representing the will of the people. When frustration turns to anger over economic instability, political instability can easily follow.

Posted by A. Yall | Report as abusive
 

Re: Yall’s comment and similar by others:

I agree that we’re looking at rather a significant probability of significant social and political instability down the road.

Certainly if the rate of overall economic contraction doesn’t moderate fairly soon, and with tensions rising as the ‘establishment’ interests attempt to maintain their present position . . .

It will be interesting to see how it plays out.

Posted by Not Silent Not Bob | Report as abusive
 

You know what angers me most is the way Obama has hugged these financial monsters when they should all have actually been kicked out to change the culture at banks and financial institutions and set a strong precedent for others. It’s even more amazing when those protesting in London are dubbed by the media and ministers as hard core anti-capitalists. Really, are these people capitalists or socialists? I guess they are neither. These are people who have lost their jobs and their homes and have seen their near and dear ones suffer. They are angry and helpless. If someone who has been wronged protests for justice then dub him as anti capitalist so as to deprive him of any public sympathy. Even American and British media have become increasingly disgusting and insensitive. What should have been a fight for justice and regulation is now protrayed as a fight between capitalists and anti capitalists to dilute any public opinion in favour of regulations and protect the blessed ones. Kudos to you Mr. Obama. As always you have been brilliant in pulling off another sham.

Posted by asterix117 | Report as abusive
 

The Banking club comprises movers and shakers with fat pay checks and Bonuses. They have Harvard,Stanford and Wharton pedigree so their old boys network can swing and cut them into every deal. To expect the Auto Industry to receive the same generous bale out terms is being naive. The Government does not give a shit about fairness or moral hazard. The Financial Industry is where the big bucks can be made and favours granted could prove lucrative,so Tax payers be damned.
The World is ruled by the rich and powerful and they will do whatever is necessary to preserve their Wealth. Profits should be theirs and losses should be distributed equitably to the rest of the population. This is not Capitalism,Socialism or Communism.
Welcome to KLEPTOCRACY !

Posted by F.Daruwala | Report as abusive
 

I agree for the most part however, there are a few relevant facts missing from your argument. First and foremost the banking/financial industry is not comparable to that of the auto industry. Yes a failure in the auto industry would have a far reaching effect, but not nearly to the extent of a “financial sector failure”. This is like comparing fruit to the tree. If the financial sector were allowed to fail, there would be no auto industry, no entertainment industry nor any of the other industries with their hands out asking for a bailout due to the economic downturn. Next we must recall that the bank and financial sector “bailouts” are actually loans, meaning that if the financial institutes whom were given assistance are able to succeed, our government will get all of the money back with interest. Thirdly the bank “bailout”/TARP was in my opinion completed in haste. Recall that it was the Bush administration that designed drafted and pushed the TARP plan. Now it seems that everyone including the media, (who happen to be much more informed and intelligent than they are misleading fellow citizens to believe), want us to believe that it’s now the current administration or the stimulus plan’s (which for those of you who are easily confused, IS NOT THE SAME AS TARP!) fault for the AIG bonuses. Yeah sure… it’s the stimulus plan’s fault that it didn’t correct all of the hasty mistakes and deregulated decisions of TARP, give me a break. So now because we have an administration and gov who wants to get it right the first time, we hear all these people whining about fairness. In my opinion, the auto industry is simply NOT a good investment. We could loan them money but I do not have the confidence we would see a return on investment nor our initial support returned leading to a total loss, which it seems most GOP are hoping for. That is why before billions more of taxpayer dollars are put into any of the US auto makers, we need more confidence that they will survive if bailed out, hence the tighter regulations. The banking/financial industry is different, for this exact reason: it can not fail, literally it is impossible. It’s like water failing to be wet. If the global financial industry fell, what would money even be? Do you think there would be such thing as a deficit, GDP or anything related to money if there were not a financial industry…? Think about it for one minute. The “financial industry” has been around since 700 BC when the first coins were made by the Lydians. And technically monetary-like objects date back to 5000 BC. The auto industry which has been around since the previous turn of the century is not even comparable.

Posted by Eric | Report as abusive
 

With respect, I would argue that we have essentially a plutocracy in that our social value system is based overwhelmingly on money. We have, really, very few other values. It’s a shallow culture, really.

At present we may be nearing one of those ‘inflection points’. The established elites are, of course, attempting to maintain their present positions, and have by and large thus far succeeded.

Yet anger and pressure is building, along with the real possibility, it seems to me, of social disorder and/or restructuring unless the present attempts to stabilize the situation succeed.

Against this fact remember, as well, that we are seeing an historic shift in relative power toward Asia.

If the present attempts to hold the present structures in place with only minor reforms fail — and I think they will fail — we will see the loosing of fairly chaotic forces, the outcome of which is even more impossible to predict with any confidence than is the outcome of the present situation with respect to financial institutions.

It will likely prove interesting, and as in any transitional situation, a premium will be placed on flexibility with respect to questions of survival, emergence, and ultimate dominance, both at the individual, social, national, and international level.

Posted by Not Silent Not Bob | Report as abusive
 

The simple reasons for what you seem to be upset about:

1. If the auto industry goes bust – there are other cars to buy.
2. If the banking industry goes bust – there will be no banks ready to lend.

I understand that a lot of jobs are at stake and and a lot of companies that do business with the auto industry are at stake and a lot of hardworking Americans will lose their jobs etc. BUT, and this is where the tough love comes in, it does not affect ALL consumers, manufacturers, industries etc. directly and immediately.

And so the financial team in WASHINGTON can flex their muscles a little more in DETROIT. How hard is that to understand?

Posted by whocares | Report as abusive
 

Maybe the social faultlines and fracture points are not “capitalists” vs “proletarians” as in 1909, but generational – how much debt has been laid on under-30s to preserve the wealth of over-50s in the last year ?
Or ethnic – armed ghettos of white condos, latino favelas, …
Or religious fanatics vs each other and secular liberals …
Stay tuned for your future folks !

Posted by Survivor? | Report as abusive
 

It seems to me that the classic observation is that as stress and disorder grow there’s a tendency to turn to a ‘strong leader’. The choice is often arbitrary. Bush, for example, was in general estimation regarded as being not terribly bright if not an outright dullard child-of-privilege frat boy until 9/11. As of 9/11, though, the vast majority of the public suddenly felt–in their fear–that he was very bright and very knowing and ought rightly be followed wherever he led. Absurd, of course, but the natural impulse of a population under stress.

Now consider that we may be facing, if worse comes to proverbial worst, far greater stresses than those imposed by 9/11.

The populace will then be strongly inclined to seek a change in leadership, perhaps quite extreme, that promises to rescue and redeem them and may very well be willing to cede to that ‘authority’ very great power–the lessons in history on this one are pretty clear, I think.

If it comes to that, it will prove interesting.

Personally, while I support much of the Obama administrations plans and priorities other than with respect to the financial sector, I think that the Summers/Geithner/Bernanke strategy will ultimately prove catastrophic. Not only is it ill-advised and likely to fail, its failure will further increase various forms of class resentment and further compromise what little authority the elites possess.

This is not a path that leads to stability.

Still, American culture has, I think, sown the seeds of this storm for many decades, over many administrations, and the populace at large–not merely the elites–share in the blame. Greed, short-sightedness, and self-celebration at a national level, combined with an ineffective and nearly-paralyzed decision-making process, all accompanied by notions of exceptionalism, chanting of ‘We’re Number One!’ and telling the world (if not the cosmos) it needed to follow the American lead, were never in my opinion likely to lead to a pleasant end, and, more importantly, those qualities combined with the notion that stressful times inevitably summon a magical savior/leader are hardly likely to lead to competent decision making in the current crisis.

So here we are, and no one knows what follows on, though some of the broader tendencies seem fairly clear.

Posted by Not Silent Not Bob | Report as abusive
 

These are times that prove Proudhon’s formulation: “The fecundity of the unexpected far exceeds the statesman’s prudence.” Americans should enjoy the moment of victory for just that long, a moment, and after that, look beyond the war and consider that their country cannot for very long assert its authority, moral or military, unless it can bring its realities at home into closer alignment with its persona in the world.

Posted by LOUIS WOOLF | Report as abusive
 

During all of those years under Greenspan banks cooperated to support the economy. Keep in mind that there was a 3-year market slide and a true sense of national loathing after 911. I personally saw a 50 percent return on some bonds that I held for about a month. That is total insanity. But the market-maker gave me the cash.

The auto makers in contrast were economic beneficiaries that failed to adapt. Managers got caught up with financial engineering techniques. Obviously I do not blame the average worker who simply exploited available resources. It’s fine to blame executives. We also have to accept the possibility that nobody is to blame, that there are too many car manufacturers. Competition brought us exactly where it is supposed to bring us. Everybody loves Monet, but we can’t keep living in the pastel colors of simple times.

I like bankers less than I like auto workers. But unfortunately there is little justification to subsidize auto makers. We need to make hips, knees, artificial legs and organs. The baby-boomers are getting old. We need improved indoor air and water quality equipment for schools, malls and homes. Cities are getting polluted. Energy costs are getting expensive. We need more monitoring and crime prevention systems. People are getting psychotic. There are all sorts of new industries that we are starving.

We are putting all of this money into the auto companies, but we are not actually increasing the size of their markets. If we gave auto workers retraining packages, which is more than what most Americans are getting right now, that would be a much more productive use of limited resources. Do not assume that people will buy more cars in the future. Do not assume that there will be fewer competitors. Do not assume that prices will be higher. There will be cheaper cars being sold by more manufacturers to fewer people.

Posted by Don | Report as abusive
 

I have a hard time believing that “Big Bank” CEO’s are feeling all warm and fuzzy with Obama sitting in the White House. Considering Wagner’s fate, I’m sure much sleep is being lost in Vikram Pandit’s bed as he lies there waiting for the other shoe to drop.

Posted by Tommy | Report as abusive
 

Re: Tommy’s Remarks

I agree that there has to be unease in the financial sector in that they have to interpret the hard line toward Detroit as intended quite consciously as a warning for them–principally that they have to accept the write-down value of their assets combined with additional government funding and control following the ‘stress test’ conclusions–which are the very definition of the term ‘foregone conclusion’ and which also do not, in fact, model for any truly severe stresses, only middling stresses which are labeled ‘severe’.

I think, though, that their vested interests (pun intended) combined with a limited range of options on their part (from their perspective) as well as the administration’s increasingly diminished political capital will likely result in semi-paralysis and failure of this phase of the re-capitalization efforts.

This is a high stakes gamble, and the only reason I can find as to why this path of maximum risk is being taken rather than dealing in more forthright fashion with the need to write-down the bad assets and force institutions into conservatorship is that the sort of interests which Summers, Geithner, and Bernanke represent are unwilling to accept the diminution of their power.

It isn’t complicated, really, at least in that sense, but it is unfortunate, and it speaks ill for Obama’s judgement or sense of interests in this most critical area.

Unless, of course, in Machiavellian terms, he wants this approach to fail and then intends to attempt to capitalize (pun once again intended) on that failure for still-more-drastic steps. Which might, of course, be impossible given his leadership of the failed strategy and the aforementioned diminution of his political capital.

That, though, would be a hell of a gamble indeed, and I doubt the depths of strategizing run that deep.

Then again, who knows?

Let’s all stay dialed in to see what happens next . . .

Posted by Not Silent Not Bob | Report as abusive
 

James, I agree pretty much with your view on this.

But I would be more specific and say that the Glass-Steagall Act, which Clinton so wrongly tore up (after lobbying by the Banks)needs to be re-instated.

Also the Hedge Funds need to be regulated.

Failure to do this means that the economy will always be at the mercy of voodoo Finance as now practicised by those grossly rich, and over-indulged IDIOTS on Wall Street.

Lastly, while I don’t really have a problem about the Government lending the Banks money, I do have a problem with the Banks toxic Assets being dumped on the Taxpayer.

WHY should that happen? It’s obscene and unacceptable to at least 99.99 percent of Taxpayers.

Posted by Joe McTavish | Report as abusive
 

A disinterested observer might conclude that Washington prefers to aid white-collar bank employees rather than blue-collar auto workers.

Posted by S. Hellinger | Report as abusive
 

Mr. Saft, thanks for bringing up an issue people can relate to and argue a point. Sadly, I don’t think that the contributors in favour of banks’ rescue are being honest in their views, having subscribed to the skewed mainstream media portrayal too much lately. None of the major US banks is nowhere near collapse (just the equity and capital ratios are little thin, that’s all – so they can’t lend and thus generate profit. But who cares, there are many, many others able to step-in. Their liabilities will not increase dramaticaly over time and assets will eventualy rise in value). I don’t favour an auto industry rescue as such, loan however is a different matter – it’s a win/win situation. Frankly I think the US auto industry missed the boat 20Y ago – much of the blame again thanks to incompetence of the executives (and the price of gasoline that was in fact a risk factor and ignored for years, yet lives being lost at wars for securing a supply line)- pretty much the same reason banks’ execs are blamed for. So there are more systemic cracks in the US corporate culture. The problem is that the prezident is being told by the financial/Wall-Street lobby that disaster will happen unless banks are helped when in fact much bigger negative impact would be had if jobs are lost at the car factories and downstream chain (while the amounts they need are miniscule comparing to the likes of AIG).

Posted by Franz Kafka | Report as abusive
 

Less charity… more justice.

Posted by Quintin | Report as abusive
 

Another distinction between the auto industry and the banking industry, which was not mentioned in the well-reasoned article, is that much of the day-to-day activities of the banking industry are regulated. While one might argue that the auto industry also is regulated, none of it is directed at vertical integration, reserves, or discretionary decision-making, nor should it be. Once there is an infusion of financial support, the industry must conduct its manufacturing operations and other day-to-day business as it sees fit.

For that reason alone, any conditions which the Government wants to impose to safeguard its investment for the taxpayers must be done now. We have to be able to trust that the persons using the money will not simply resort to the tried-and-true business practices which put the Autos in this perfect storm. Considered in this context, one could argue that the rule for both industries is the same, although imposed in a way that fits each.

Posted by Stephen S. | Report as abusive
 

The bankers have clearly shown who’s got the money got the power, the banks are about just as messed up as the sutomakers are but they get special privileges because they hold the money. It’s a shame that so little support would go to the auto workers who make products that people use day-to-day and so much go to money-movers who essentially do nothing to make the world a better place.

Posted by Eldon Lopes | Report as abusive
 

Perhaps if there were more ex-auto industry executives in working in the Obama administration and less finance people we would see a completely different posture. Adam Smith stated in “The Wealth of Nations” a capitalist society builds wealth by producing; ie, manufacturing. George Carlin was right, our language is full of euphemisms. They obfuscate and mislead. Euphemisms can make something appear to be what they are not. A perfect example is the finance industry marketing lines of credit or credit default swaps as a product. Clearly nothing was produced except paper. It very is common in the financial industry to call investment vehicles products. Could it be our leaders from both major political parties are confused by such language or do they simply lack character?

Posted by Anubis | Report as abusive
 

Talk about euphemisms: “toxic” assets.
There is nothing toxic about “nothing”, because these “assets” are empty, void, worthless.
But “toxic” sounds nicer.
The Banks themselves are dealing with “nothing” with each other, selling good old “snake oil”.

Posted by zyclop | Report as abusive
 

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