Will We Let Detroit Go and the Recession Deepen Out of Disgust Over Financial Bailout?
The debate over the bailout rages on.
On the one hand, the companies involved have only themselves to blame. No one denies that they brought this on themselves. The nation watches incredulous as the wealthy CEOs fly into the nation's capital on their private jets and claim that it was not their fault--and begrudge anyone who suggests that their compensation should limited if they receive federal aid.
It is hard not to want to let them face the rigors of bankruptcy. Let others in their industry who did not make bad decisions reap the rewards of their strategic wisdom and take market share from those made bad choices. That is the way it is. That is the way it's supposed to be.
Those arguing for the bailout question whether the economy can sustain the wreckage and havoc that will ensue if the companies are allowed to fail. They argue that rather than risk the widespread repercussions of a collapse, we should invest in the companies, shore up their financial condition, and hope they make better decisions going forward.
So we held a national debate and in the end, after the cajoling of Wise Men from across the Capitol, Congress and the President approved the $700 billion bailout for the finance industry.
We had a referendum on pain and our willingness to walk the walk of our capitalist principles, and we decided we just weren't up to it.
Now come the automakers. It is like deja vu all over again. Once again, the companies have brought this on themselves. Once again, the wealthy CEOs fly in on their private jets, and show nothing approaching accountability for their circumstances.
And once again the fundamental question is whether the companies and their stakeholders will suffer for their own bad judgments, and whether their competitors who have demonstrated strategic wisdom will be allowed to take market share from those who made bad choices. The way it is supposed to be.
Those arguing for the Detroit bailout question whether the economy can sustain the wreckage and havoc that will ensue if the companies are allowed to fail. But this time, the resistance is fierce.
The hypocrisy of the moment is profound. This is not an argument for or against aid to Detroit, but against the hubris that now surrounds the debate. Would a debtor-in-possession bankruptcy process be a better choice over the long term to secure a better future for GM and Ford? Perhaps. Are other American automakers that are highly successful in the marketplace--Toyota, Honda, Nissan, BMW et al--disadvantaged by a government bailout? Sure.
And each of these arguments could have been made in the financial bailout. Like the automakers, the best efforts of Hank Paulson may just be delaying the day when Citibank succumbs, and newer, foreign-owned banks with a growing presence--Toronto Dominion, Banco Santander, FirstBank--emerge from the middle market to replace those at the top who fall under the weight of their bureaucratic indifference to the customer and their derivative-laden balance sheets.
As Joseph Schumpeter famously wrote, the process of Creative Destruction is the essential fact about capitalism. It is the driving force of innovation and growth. But as we are now witnessing, there is destruction and collateral damage along the way. Sometimes the damage is small and incidental, and sometimes the damage is cataclysmic.
We already chose not to face head-on the consequences of failure on Wall Street. Now, as the economy is coming undone, one has to question whether this is the moment to let GM and others fall under the weight of their legacy cost structures. The arguments for bankruptcy and the urgency of finally having Detroit make the real changes that are essential to its future are valid. But bailout opponents should not kid themselves into thinking that the process will be smooth or without collateral damage.
All of the obligations that GM will walk away from in bankruptcy--retiree healthcare, support for redundant dealerships, bond and lease payments for redundant facilities--are payments that someone else receives. Our essential challenge as we address the economic recession is to sustain economic activity and demand in the marketplace as consumers and companies reduce their spending. A GM bankruptcy will exacerbate this challenge and increase the costs to government at all levels to sustain economic activity and mitigate the collateral damage.
In many ways, our response to the auto industry is shaped by our response to the financial collapse. We rose to the urgency of that challenge, and now watch incredulous at the apparently arbitrary allocation of those billions of dollars of our money. Why has $150 billion been allocated to secure the interest of counterparties to AIG derivatives rather than simply to secure the policyholders? Why have we given tens of billions to the largest commercial banks only to see them cut back lending and increase banking fees? Why are we giving money to American Express--the lender to the richest Americans--while little is done for homeowners? Why have we rewarded failure and not instead mitigated collateral damage and allowed those who have been successful in the marketplace to win?
We have watched one bailout unfold, and we have not been impressed. We heeded the Wise Men, and now we feel violated.
But how do we now hold failing auto companies to a higher standard? And why now, when money is being tossed around the Street like confetti? Is it because this time the beneficiaries would be autoworkers and retirees rather than well-heeled moneymen, who to this day have yet to apologize to the nation for the destruction they have wrought?
Read More:
Should the Government Bail Out the Big Three U.S. Automakers? HuffPost Bloggers Weigh In
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It would be insane to let the Big 3 auto makers go out of business.
Should we let them go into receivership?
How about we invest, but demand accountability and regulation:
Much higher CAFE standards,
new management,
STOCK FOR OUR INVESTMENT.
Take those trillions for GAMBLING BANKERS on energy, infrastructure, states, unemployed, facing foreclosure.
Order a trillion dollars in Wind turbines to install
200 GW !!!!!!!!!!!!!!! (600GW nameplate)
Don't ya think that would jump start the economy?
Cover appropriate roofs with a trillion dollars worth of Solar Cells:
Generate an Average of 125-500 GW !!!!!
Electricity sells for roughly 1$ per Watt per year.
100 to 500B$ per year.
10 or as little as 2 years. Only Maintenance cost, from then on for 20-40 years.
ROI of 100% to 500% over 20 years
I say NO! to a Detroit bailout.
Look, the Big 3 will now be the middle three. The hog trough that the corp execs and the UAW has wallowed in is empty. Mr. Wagoner needs to go, along with his team? of lackeys.
During the Ohio State - Mich & the Penn St - Mich State games Sat afternoon, GM ran TWO Escalade ads and then TWO Hummer ads. They don't get it. They are still trying to sell $50,000 vehicles to the masses.
Also, don't get so giddy over the Corp heads salaries and perks. They are easy to slash. The elephant is 100,000 workers supporting 800,000 retirees. The math doesn't work.
This am Barnacle commented on "the working class" and included the UAW workers. The TRUE working class makes $18.00/hou
Mr. Wagoner needs to tell the UAW to either cut ALL their costs 30% or he will let a bankruptcy judge do it.
You wrote:
> ...and whether their competitors who have demonstrated strategic wisdom will be allowed to take market share from those who made bad choices.
It's important to realize that foreign automakers who located plants in the US did so by GETTING GOVERNMENT SUBSIDIES. These subsidies -- usually provided by state tax dollars -- have amounted to many billions of dollars.
Further, most of these plants were wooed by right-to-work states that have every motive for wanting to see unionized automakers fail. Which is to say: The vast set of sunbelt auto plants didn't arrive here without first demanding huge handouts themselves, and their arrival helped to hurt the domestic automakers, who paid better wages and benefits. Driving down Miss Daisy, you might say.
Now it's true that the domestic car makers offered us crappier products for many years, but that's arguably untrue now. In any case, a true level playing field WOULD take into account the fact that foreign automakers have received huge subsidies in exchange for turning high-wage jobs into more modestly compensated jobs, and moving them in the process, helping to trigger the so-called Rust Belt effect. But now we're supposed to blow off GM, Ford and Chrysler? I don't think so.
IF YOU OWE A FINANCIAL INSTITUTION $1,000,000, THEY OWN YOU. IF YOU OWE THAT SAME INSTITUTION $25,000,000,000, YOU OWN THEM.
Is that what you're saying? Hm. You're probably right: If they fail the collateral damage will be far more than $25, $50 or $100 billion dollars. So.....
The Feds should expropriate the 3-Corps(es), fire everyone at the top of the Corporate ladder and install their 2nd-in-commands with the full financial support of US Government (this will calm the current owners and help future sales.
The American auto industry had had this feeling of entitlement since the 60's.
I remember an ad at that time stating that GM had received less than expected earnings in the previous year, so as a result, the price of GM cars needed to go up (so much) %.
Without questioning why the earnings were down, they just raised prices.
I have never bought a GM product since.
Remember the EV-1?
Several US Auto makers made a (limited) electric car and truck. But they would not sell them, only lease them. After a few years they quietly recalled them and crushed them.
This is the leadership that we seek to help.
I say, "Let them sink or swim, they wouldn't let us have the cars/trucks we needed, let the oil industry bail them out, they caused this mess".
A piece of advice for the new bankrupt USA: don't go to Ecuador, Argentina, Chile, or the Phillipines for help or advice.
The cognoscenti in those countries must be having juleps (mojitos? mate?) on ice, right now, celebrating this day of reckoning. Their countries were all victims of the same "free" market, Chicago School advice that underpinned our current financial fiasco. Their countries, yea their very cultures, have paid quite dearly for their governments' following of the Friedmanites, and now it's our own turn to pay up for that foolishness; and not past time.
Chile paid with Pinochet, the Phillipines with Marcos, Ecuador with breadlines and death squads, and Argentina -- perhaps the luckiest, in some ways -- with a mere decade of grinding poverty, after a vicious Junta-led pogrom that did away with thousands of problematic reformers.
America no longer leads by shining example. We've abdicated that privileged position for the pale imitation of twisting arms -- which will of course work only until we have no way to twist any more arms. Our squandered armed services are well and truly tied up in the Middle east, and we're soon to lose all credibility as a financial power, as well. Certainly no one is going to try something now, just because "that's how it's done in America."
Thanks, George, for everthing.
We, the people want and need BIG CHANGE. That's how we voted. No bailout, only "assistance" with severe rules and guidelines for change. FIRE EVERYONE AT THE TOP OF EVERY CORPORATION THAT GETS FINANCIAL AID. No severance, no goodies, just a pink slip like anyone else. That's how the free market that these CEO's propose to espouse works. You mismanage you're gone. Start over from scratch.
GM is expanding in China and building a factory in Russia....
They are in America until they can get cheaper labor....n
for people in other countries.
Unless the Union lowers their demands, these big guys aren't interested anymore the way
they used to be when they needed help to grow the auto industry.
Now they are "stuck" paying for commitments they made years ago such as retiree health
benefits and retirements.
They already said that new people that they hire won't get the insurance or retirement benefits
that they paid in the past.
Maybe Detroit is just the middle guy until GM gets a bigger foot in China and Russia so they
can pay for more and bigger corporate jets.
I'll answer those questions. The auto industry is being allowed to hang because the lost jobs are the last remnants of our middle class. The 'ownership' class is bailed out because they rule Washington. You won't see a single congresscritter standing up for the little guy here, folks. The wealthy will maintain their incomes, but not us. We will be sold out again under the Bush League.
All one needs to do is look at the political donation patterns of those begging for bailouts to know who will be saved. Lehman Brothers has historically given more to the Democrats so they are 'allowed' to fail. The bailout is a partisan ploy to further undermine the liberal economic base which has taken it on the chin because they tend to not support the wage slavery that has made the conservative aspect of the economic spectrum very wealthy. Since Reagan deregulated it has become the party of the white collar criminal and the sweat shop owner.
The only 'We' have here is the 'We' that voted for a new federal administration. There is absolutely nothing the public can do about the theft of taxpayer money by big business except hope that they take it quickly and get on with their well-funded retirements so the rest of us can put our economy back together and hopefully leave the large regulations in place this time so that we can only get raped in small ways over time.
The problem is that large corperations have gotten used to getting bailouts with no regard for the american people who are bailing the companies out. We can just as easily invest in a State owned Car company that will provide new jobs, better wages, and better insurance coverage.
What do these coreperations think they can do. They think they can cheat the tax payers, cheat the employees, and then cheat the tax payer again.
No BAILOUT WITHOUT EXTREEM OVERSIGHT!
NO LOANS – BUT DON’T KILL THE HEARTLAND
It depends on HOW a bailout is structured, but one should be attempted.
BAILOUTS ARE COMPLEX BEASTS, but Try something outside the box like this to save the U.S. Auto Industry - - -
http://pac
Trying something outside the box like this, is the only way to save the U.S. Auto Industry.
There is much creative talent hidden inside the U.S. Big 3 that has been smothered by mismanagement and the UAW. ... and they actually "make" something, .... unlike Wall Street. Detroit deserves saving.
Earlier there was a suggestion of nationalizing the auto industry, this is where Milton Marx comes in:
http://sta
When playing baseball it's best to keep your eye on the ball and not the scoreboard. If you do, the scoreboard will take care of itself. For example, Toyota focused on quality, reliability and value and the sales took care of themselves. I don't really know what GM has been focusing on but I recall a few years ago they were advertising that Chevy had Scotchguarded upholstery. 'Scotchguard'??? Gimme a break. No wonder they are in trouble.
i remember when Lexus first came out with 'the relentless pursuit of perfection'. You just knew it was true before you even saw the car. When the Big 3 CEOs couldn't even tell how much money they needed or what they would do with it, it revealed that they can't even think at this point.
Put another way, aside from people not having faith that the automakers are genuinely willing to change and become competititve, or that a bailout will save them even if they do, people simply don't trust lobbyists, I mean, Congress, to even make a pretense of implementing an equitable bailout scheme.
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