Make Wall Street Take The Same Deal The Autoworkers Get

Comparison shopping is big this time of year. As a consumer, you want the best value for your money, so you tend to compare different businesses and see where your dollar will go further. I'd like to apply this commonsense notion to the two most recent bailouts that all of us -- the American taxpayers -- have just "purchased" with our tax dollars.

The first was the bailout of Wall Street (known to wonks as "TARP"), which will cost $700 billion, half of which has been allocated by Congress and subsequently spent. The second is the bailout of the auto industry, which could wind up costing a little over $17 billion for the next few months.

I've been waiting for someone to intelligently compare the two, and finally read the article I've been looking for this weekend. It was written by Bruce Raynor for the Los Angeles Times. Raynor is the head of a union, and is also the chairman of the board of the only union-owned bank in America (according to the Wall Street Journal). So I would assume he'd have a pretty good perspective on both bailouts.

They [Republican Senators McConnell, Corker, and Shelby] claimed that they couldn't support the bill without specifics about how wages would be "restructured." They didn't, however, require such specificity when it came to bailing out the financial sector. Their grandstanding, and the government's generally lackluster response to the auto crisis, highlight many of the problems that have caused our current economic mess: the lack of concern about manufacturing, the privileged way our government treats the financial sector, and political support given to companies that attempt to slash worker's wages.

He goes on to provide some statistics.

When one compares how the auto industry and the financial sector are being treated by Congress, the double standard is staggering. In the financial sector, employee compensation makes up a huge percentage of costs. According to the New York state comptroller, it accounted for more than 60% of 2007 revenues for the seven largest financial firms in New York.

At Goldman Sachs, for example, employee compensation made up 71% of total operating expenses in 2007. In the auto industry, by contrast, autoworker compensation makes up less than 10% of the cost of manufacturing a car. Hundreds of billions were given to the financial-services industry with barely a question about compensation; the auto bailout, however, was sunk on this issue alone.

OK, comparison shoppers, let's pull out the trusty pocket calculator and do some math. The first thing we notice is that $17.5 billion is a miniscule two-and-a-half percent of $700 billion. That's right. When we talk about the Detroit bailout, it's always good to keep it in perspective -- 2.5% or one-fortieth of what the Wall Street bailout cost. I will even bend over backwards to be fair about it: since this is likely to be only the first installment for Detroit, I will only compare it to the money actually spent on Wall Street ($350 billion), making it five percent of the first payments to both.

Five percent. It's important to keep this in mind, to put it all in perspective.

The next math problem we have is figuring out the employee compensation for each. Now, ten percent of $17.5 billion is $1.75 billion. That's what the autoworkers are "costing" us from our taxpayer money. As for Wall Street, 60% of $350 billion is $210 billion. For employee expenses.

So which do you think Republicans are angry about, the part that is under $2 billion, or the part that is more than one hundred times as big, at $210 billion?

And remember, they've got another $210 billion lined up, unless Congress shows some backbone.

But Chris (you say), maybe those numbers aren't right. Maybe you should check the facts. Well, I'd like to. But I can't. Because even Fox News is suing the White House to get some information about how that $350 billion was spent, and George Bush is refusing to release any details. From the other side of the spectrum is Huffington Post blogger Gail Vida Hamburg, with the wonderful headline: "You Morons, What Have You Done With Our Money?" The Associated Press just ran a story that states the 600 top executives at the banks we just bailed out got over $1.6 billion just for their own compensation.

But the financial companies ain't talking, the Treasury or the White House ain't talking, so basically we have no idea what happened to that $350 billion. Or, to put it another way, we just gave twenty times what we're going to give the car companies, and we forgot to ask for a receipt.

Paul Krugman, who incidentally just won the Nobel Prize in Economics, had some choice words for what happened:

The financial services industry has claimed an ever-growing share of the nation's income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it's not just a matter of money: the vast riches achieved by those who managed other people's money have had a corrupting effect on our society as a whole.

Let's start with those paychecks. Last year, the average salary of employees in "securities, commodity contracts, and investments" was more than four times the average salary in the rest of the economy. Earning a million dollars was nothing special, and even incomes of $20 million or more were fairly common. The incomes of the richest Americans have exploded over the past generation, even as wages of ordinary workers have stagnated; high pay on Wall Street was a major cause of that divergence.

But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.

Consider the hypothetical example of a money manager who leverages up his clients' money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while -- say, as long as a housing bubble continues to inflate -- he (it's almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big -- but he'll keep those bonuses.

O.K., maybe my example wasn't hypothetical after all.

He also puts some numbers to the scope of the problem:

We're talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America's G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing -- and it probably was -- we're talking about $400 billion a year in waste, fraud and abuse.

But the costs of America's Ponzi era surely went beyond the direct waste of dollars and cents.

At the crudest level, Wall Street's ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven't closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.

Once again, this man just won the Nobel Prize in Economics, so he's no slouch and probably knows what he's talking about.

So what is Congress doing about it all (Senate Republicans in particular)? They are forcing the CEOs of the car companies to give up their private jets, while the Wall Street companies are allowed to keep their fleets of private jets (and the news media doesn't even blink at the rank hypocrisy involved). They are trying to force autoworkers to take a huge pay cut, while at the same time refusing to even talk about the outrageous Wall Street salaries. And the Detroit bailout, remember, is five percent of the Wall Street bailout, so far.

Now, I am not arguing here for the righteousness of either Wall Street or Detroit's cause. American automakers made some horribly bad decisions over the past few decades, and are now paying the price. Wall Street made some horribly bad decisions too, and they are now paying the price.

Or, to put it more accurately, we are all "paying the price." But the debate is one-sided. If we're going to minutely examine autoworkers' wages, and dictate the travel plans of one industry we are bailing out, then it seems eminently reasonable to do the same for the banking industry. Because, as any smart comparison shopper will tell you, when one of these items costs twenty times as much as the other, that's probably where you can save more money. It's only fair, if we're going to micromanage Detroit, that we do the same to Wall Street.

I would suggest that no employee of any Wall Street firm getting taxpayer money can make any more than a union autoworker. That would be a good place to start from.

 

Chris Weigant blogs at: ChrisWeigant.com

 

Comments

[katielady]

this is what Congress and Oversight should be demanding... but they are too chicken...

[Michale32086]

I doubt courage (or lack thereof) has anything to do with it..

It's all about money and power...

Things they Left enjoy obtaining and wielding as much as the Right...

Michale.....

[sticksnstones]

You quoting Madonna again ?? I notice on this stream you can't comment about Labor Unions/The Left/Democrats without using pejorative adjectives. Straight out of the Tail-Gunner Joe McCarthy Playbook. We get it that you are a social conservative. What you don't get is that not everyone else is a social conservative. Spouting the same nonsense over and over again isn't going to change their minds, and is quite frankly boorish behavior.

[seedyrum]

THE WORLD STILL WATCHES AND CRIES BUCKET OF TEARS

Now is the time for us to get our fiscal house in order

CUT THE CREDIT CARDS: Dont patronize those former investment banks if you can (we know they have their tentacles in every piece of the pie)

Hold your local bank accountable: if they are getting any federal bailout money> see what the top execs are receiving and voice concern if the compensation is out of line

Save your money for big ticket items or emergencies even if its nothing but a dollar>eat less expensive foods>dont buy what you dont need>dont go to where you dont need to go (football games or movies or shopping or eating out) sure this will hurt the economy but you got to think of yourself first before you can take care of the economy)

hold the elected officials accountable> the laws they put in place caused this as well lack of oversight: vote those career politicians out of office

[Michale32086]

@LiarLiarIraqsOnFire

}}}}
Why shouldn't workers be allowed to utilize the Job Banks when they lose their jobs due to lack of work, Executives get Golden Parachutes when they are fired for bad performance, not lack of work.
{{{{

For the exact same reasons that ya'all are castigating those CEOs and their "golden parachutes"...

}}}}}
As to the issue of greed, what exactly did the suits do to "EARN" their wages? While you're at it please explain how a suit can "EARN" a bonus for driving his company into the ground?
{{{{{

The same way the Unions can get raises and benefits for doing the same thing.. Driving the company into the ground..

I am on record as blaming the CEOs and the Management of the Auto Industry as well as the Unions.

Is it your position that the Unions are BLAMELESS???

Michale....

[LiarLiarIraqsOnFire]

Answering questions with questions is not an answer, it's a diversionary tactic that suggest, in this situation, that you have nothing more than talking points to base your 'arguments' on.

[Michale32086]

Translation: "I can't answer the question because it points out the inherent illogical and bigotry of my argument."

Gotcha... {{{wink}}} {{{wink}}} :D

Don't worry.. We all know the answer. Of course the Unions are not blameless in this mess...

Which has simply been my point all along..

Michale.....

[LiarLiarIraqsOnFire]

Lincoln was right when he said:

"Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration." Lincoln's First Annual Message to Congress, December 3, 1861.

Unfortunately, he was also right when he said:

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country; corporations have been enthroned, an era of corruption in High Places will follow, and the Money Power of the Country will endeavor to prolong its reign by working upon the prejudices of the People, until the wealth is aggregated in a few hands, and the Republic is destroyed."

[Michale32086]

@Luigi53102

}}}}
The Republicans initially opposed the Wall Street bailout, but never said that it was because the financial institutions were not rolling back the wages of Wall Street employees, or because the Wall Street companies refused to give up their fleets of private aircraft. It would appear that hypocrisy is much to subtle a concept for you to actually deal with.
{{{{

And yet it was your Democrats who pushed the Wall Street bailout from the get go, regardless of the no rolling back of wages or all the fleets of private aircraft..

Your Democrats were the guiding force in the Wall Street bailout and you talk to me about hypocrisy???

How hypocritical...

Michale....

[Michale32086]

@Vige

}}}}
They opposed the Wall Street bailout until it got filled up with pork barrel goodies and then it became acceptable.
{{{{

Actually, that is incorrect..

It was a few reluctant Democrats who got Pork...

The reluctant Republicans got a bunch of Patriot Act additions...

It's amazing how Democrats scream and whine about lost liberties and the Patriot Act etc etc but are MORE than willing to give the GOP a bunch of Patriot Act goodies so that Wall Street could be bailed out..

Don't you find that amazing??

}}}}}
If they was any pork to be had in the Auto bailout they would have found that acceptable too.
{{{{{

Assumes facts not in evidence...

Michale.....

[MoeJava]

Why isn't Big Oil bailing out Detroit?
Big Oil has seen some healthy profits and Detroit is their #1 Fan......

[taikan]

Both you and Raynor do a pretty good job of comparing the way bankers were treated in the financial sector bailout and the way wage earners were treated in the bailout of the auto companies. However, to a certain degree that is comparing apples and oranges. Why not compare the way the auto industry bailout treated wage earners with the way it treated salaried employees (including executive management)? Wage earners were required to agree to accept reductions in wages to bring them to parity with the wages being earned by wage earners plants owned and operated by Japanese auto manufacturers. However, salaried employees were not required to agree to accept reductions in salaries to bring their pay into parity with the salaries being earned by their counterparts at the Japanese auto manufacturers.

[Luigi53102]

Whew. Talk about missing the point.

[LiarLiarIraqsOnFire]

Why is it that when it's taxes being cut the Rs use the Trickle Down theorem, but when it comes to wage cuts they insist on starting at the bottom?

[Michale32086]

Why is it that Democrats want to privatize profits but socialize losses??

Michale.....

[sticksnstones]

Chris ... Thanks once again for a great article. I don't think anyone can successfully argue that some Social Conservative congressmen haven't placed an unequal set of loan criteria upon the auto industry as opposed to the financial market. I think the real question is WHY. Why the antipathy against, in particular, the UAW? It seems to me that the UAW generates more ire from these social conservatives that other union groups. I've wondered about this, and I believe I've come across a clue.

John Nichols, in an article in the Dec. 15, 2008, NATION mag., provided some interesting background for me. In the article he writes: " It was the UAW that fought for national healthcare and pensions and, when these policy initiatives were blocked by reactionary Congresses, forced corporate America to create a social safety net for workers and retirees that would form the model for union and nonunion workplaces across the country. It was the UAW that fought government- and corporate-sanctioned racial discrimination, integrating Southern factories, supporting the 1963 March on Washington and bailing the Rev. Martin Luther King Jr. out of jail in Alabama. It was the UAW that withdrew from the AFL-CIO in the 1960s and '70s rather than take labor's big right turn; the UAW that opposed the Vietnam War; set up a research department that studied the cost of bloated military budgets to domestic progress; opposed aparteid in South Africa ... "

[sticksnstones]

Continued ...

So, it's not hard for me to understand the special antipathy the UAW has generated with regard to those Social Conservatives still living among us. There is no doubt in my mind that the UAW has been in the cross-hairs of these folks for a long time. The economic situation offers an opportunity to FINALLY dismantle this union for the very reasons the rest of the country should support its survival.

Disclosure Statement: I'm not a union employee, and except for a short time before and just after my military service in the late 60s, have not been a union employee.

[Michale32086]

Perhaps it's the issue of Job Banks and other indications of greed and desire for wealth unearned that has people up in arms...

Just a thought..

Michale.....

[sticksnstones]

Job banks are off the table, and you know that if you've been paying attention.

As a side note, a few days ago you accused ME of following YOU around "from stream to stream and commentary to commentary". And yet, here you are on one of my comments again. I guess what's good for the goose ain't necessary good for the gander ...

[LiarLiarIraqsOnFire]

Why shouldn't workers be allowed to utilize the Job Banks when they lose their jobs due to lack of work, Executives get Golden Parachutes when they are fired for bad performance, not lack of work.

As to the issue of greed, what exactly did the suits do to "EARN" their wages? While you're at it please explain how a suit can "EARN" a bonus for driving his company into the ground?

[seadickrun]

In two years, every member of the House and one third of the Senate is up for reelection. There are, believe it or not, other parties besides the Dems and Repubs. What is the definition of insanity? Voting for the same two parties again, and again, and again, hoping for different results.

[LiarLiarIraqsOnFire]

The third party candidates that run in Indiana are usually KlanFreaks & Fundies, so no thanks.

[Rule Of Law]

"I would suggest that no employee of any Wall Street firm getting taxpayer money can make any more than a union autoworker. That would be a good place to start from."

Right On Chris! What is it about blue collar or working class/middle class Americans? Why do we feel we need to be continually punished, degraded, used? Why would all the working people of America who actually Produce something of value, rather than shuffle paper and imaginary dollars around, believe that they are somehow worth less than one of these Ivy League legacy master of the universe bozos who've flushed our economy and country down the drain?

I didn't do that ? Did you do that? Are we the ones responsible for this Wall Street Ponzi scheme. NO! Are we standing around with our hands out asking for trillions of dollars more direct from the Treasury? NO!

[LiarLiarIraqsOnFire]

The economy would have been better served if we the tax-payers had gotten the $$$.

[Michale32086]

Damn skippy...

Michale.....

[Rule Of Law]

cont.

Then why is it that the Elites can ask for more and more and more from us, and we ask for and get nothing from them in return? Aren't you angry yet? We work for $20 and hour, if we're lucky enough to get it, and still lose our homes, our jobs, our dignity! They create financial doomsday and get $15 Million dollar Bonuses! They wear suits and ties and are admired and looked up to though they make nothing of value. We wear work boots and jeans and make the cars and tools and food that keep the country running and are treated like criminals.

In England not too long ago, it was said that a "Gentleman" doesn't work for a living. That was for the lower classes. Things are no different here! Having a degree doesn't automatically make someone a better, more valuable, or praise worthy person. Working People need to stop being so consumed with self hatred and denial and Assert ourselves! This is Class Warfare. It is. And the rich are winning--again.

[LiarLiarIraqsOnFire]

No matter what the fight, don't be ladylike! God almighty made women and the Rockefeller gang of thieves made the ladies. - Mary 'Mother' Jones

Feel free to swap out genders if you prefer.

In Solidarity

[jhNY]

What I'd like to know is whether it's possible to bring Wall Street up on RICO charges, as the whole thing seems to be institutionalized criminality.

[Michale32086]

You'de have to prosecute all of Congress as well...

"Aidin' and abettin' "
-Sheriff Farley, MY COUSIN VINNY

Michale.....

[jhNY]

It is manifestly impossible to achieve the outcome you desire, in that nobody in government seems capable of doing more than wishing mightily that the busted captains of Wall Street would do the right thing when they get money thrown at them, which they haven't done so far, and won't do tomorrow.