Opinion

The Great Debate

One rule for banks, another for autos

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.

Betting on the unthinkable in the euro zone

James Saft Great Debate — James Saft is a Reuters columnist. The opinions expressed are his own –

Some crises bring partners closer together. Some, as investors in the euro zone are likely to discover this year, drive them further apart.

Look for rising tensions about fiscal and monetary policy among the bloc’s 16 member nations, and for a bigger penalty to be imposed on the euro and some euro zone assets against the possibility of a breakup or a secession from the currency group.

  •