The Mistake in Bailouts
These bailouts are an awful idea -- the worst of K St. capitalism (== kapitalism) inviting an insanely bad future for the industries affected. If there's one thing worse than Detroit managed by the managers who have been driving the American auto industry into the ground for the past three decades, it is Detroit managed by politicians.
I'm not against all bailouts. I think it was appropriate to save the airline industry after 9/11, for example: That was an unexpected shock that produced a failure not directly related to the bad management of the airlines.
But these bailouts are not that. Both the auto industry and the banking industry are insanely inefficient. They have been for decades. And rather than being saved from a shock, both need a significant shock to management to radically change how they do business.
Perhaps the shock to banking would be too great just now. I'm willing to be persuaded that intervention is necessary there. But the more I read about the auto industry, the less I am convinced.
People speak about this as if not bailing out Detroit means automobile production in America ends. That's not what failing to bailout Detroit means. Not intervening now would mean these automakers would enter bankruptcy. And bankruptcy means the assets of these dinosaurs get reorganized: Someone else buys these companies, at a price the market sets, and runs them profitably, because of the price the market set.
Obviously, that change would not be painless. And I'm all for minimizing the pain where the pain is doing no good -- with workers, or others depending upon these industries. But I'm against interventions designed to minimize the pain where the pain would do good -- by radically changing how that industry is managed. The whole justification for insanely high executive compensation is, in part, so they can weather such storms. I don't see why the government should be in the business of building safety nets for the (relatively) well off.
"But what if foreign car companies buy American car companies?"
So what. I just don't get this fear. We live in a global economy. If you want to own Toyota, buy Toyota stock. In the vast majority of cases (meaning there are exceptions I'd be willing to consider), the place of incorporation of a company should mean squat little to these sorts of issues. Or better, the ability of the company to build and manage production should matter much more.
Originally published at Lessig.org
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What proof does anyone here have that taxpayer money will cause GM to all of a sudden become a profitable car maker. If by this logic we are giving GM money just to prevent massive job loss then Gm as just become a middle man to government welfare for auto workers and thier unions.
1979 Chrysler received government loans, while the free marketers were calling for it to fail. Those loan were paid back. It's an old track record, but a track record.
Perhaps a current example of government welfare might be:
Mitch McConnell's Kentucky took in $1.45 from the Feds for every dollar it paid in taxes.
Bob Corker's Tennessee received at $1.30 from the Feds for every dollar it paid in taxes.
Richard Shelby's Alabama extracted a $1.71 from the Feds for every dollar it paid in taxes.
Michigan meanwhile lost $.31 for every dollar it paid in Federal Taxes.
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Worth reading! This post on CNN breaks down how vulnerable the whole nation is if the automakers are pushed into bankruptcy.
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If you still think YOU won't be affected, pour me some of that Koolaid you''re drinking. It must be strong stuff!
Busting Unions is the MOST IMPORTANT PRIORITY, GM can NEVER compete as long as the unions force them to pay twice what the competition pays.....
Please recheck your facts. The UAW doesn't get twice what non-union autoworkers get. Never have. Never will. That "fact" came from a New York TImes story that has since been retracted, as their math was faulty.
This battle isn't about the price of cars. Check them out. Domestic and foreign are about the same. This fight is about an industry that's on the ropes because of a perfect storm of high gas prices and the credit crisis. Will this country follow the "leadership" of the protectionist Southern Senators and follow them into a Depression, or will the provide a loan to let them get back on their feet?
The economic meltdown was caused by Reagan's deregulation process which was expanded in succeeding administrations. This gave the industry the ability to give themselves better rewards in much less time. So greed and short-sighted thinking, the selling off of our industry, and the creation of garbage which passed for financial investments became the instruments of our destruction.
The auto industry wasn't complicit in this, guilty only of being lazy - delivering to us their behind-the-curve models while keeping their visionary products always in the planning stage. Their sudden fall is due to the failure of the banking system which has, of course, made us all too cautious to buy stuff - anybody's stuff. That Detroit would eventually reach the place where they are now without the sudden push from Wall Street is pretty certain.
Wall Street vs Main Street? Bailouts should have enough visionary governmental involvement to guide us out of this mess with some oversight and tangible production, or we shouldn't have done anything or do anything more at all. The naive belief in our nation's continuing success will hinge on "pure" capitalism is what got us to where we are now. Lessig is right! Globalization is a game--changer and we must compete in that arena in order to survive. All of those other countries out there have their governments involved in their management.
I'll say this: I sure don't want George W Bush's "government running anything anymore. that much we can agree on.
"But what if foreign car companies buy American car companies?"
"So what. I just don't get this fear. We live in a global economy. If you want to own Toyota, buy Toyota stock."
Great solution..
He starts out dissing "K" street and then, gives a "K" street talking point about the inevitability of Globalization which has ruined the world
Chapter 7 ,the likely outcome, is the End of American Manufacturing on a scale that gives hope!
TARP is the last salvation of our Manufacturing Base!
Before Reagan America was:
1. The Largest Exporter of Finished Goods
2. The Largest Importer of Raw Materials
3. The Largest Creditor Nation
NOW 28 Years Later America is:
1. The Largest Importer of Finished Goods
2. The Largest Exporter of Raw Materials
3. The Largest Debtor Nation
1 and 2 above are the definition of a 3rd world country
The Auto Makers are the remaining base of manufacturing after the stripping down that took place over the last 28 years and accelerated in the last 8 years.
Clearly, the markets SHOWED they know that a bridge loan to the Big 3 Automakers is what is needed and have rallied repeatedly every time a deal looked close!
Unfortunately, the Senate Republicans think that Busting Unions is the MOST IMPORTANT PRIORITY in the middle of this CRISIS/Possible Depression! This may be their "Custer's Last Stand" and a very poor use of the little power they have left.
If Bush-Paulson let the Big 3 disappear then they will have completed the work Reagan began and will be remembered as our Worst Presidential Administration!
Paulson-Bush are the Worst Presidential Administration in history before they even leave office. I for one have finally stopped purchasing foreign goods and that even includes food, because we have become the largest importer of finished goods. We don't make anything anymore. The free ride is over and we have come to realize that it was never a free ride. Support America, buy American, except maybe our cars. Even the UAW have been protesting all the senseless production of SUV's and Trucks for years. They aren't the problem, if they were in charge, the Big 3 would already be leading the pack with hybrids and electric vehicles.
So, a bunch of southern Republican senators want to bust unions and many Americans wish them godspeed. What has our country sunk to when some workers are jealous of what others are paid? Have we become a bunch of envious slatterns who can only feel good about ourselves by knocking others down?
The process of destroying our manufacturing base and placing control of our nation's economic viability in foreign hands is easily defined. It is treason, pure and simple. Any who would argue otherwise need simply look at history to see what happens to empires that outsource their destiny.
Perhaps it's time for Michigan and other donor states to fight back against the welfare queens like Sen. Shelby of Alabama. For each dollar in taxes Michigan supplies to Washington, only eighty-five cents makes it back to the state in federal spending. For each dollar Alabama supplies, one dollar and seventy-one cents is returned. This massive wealth transfer needs to end now.
You are missing the point:
GM is bankrupt. It is not the government's function to support bankrupt companies. Period.
If we let GM go bankrupt, both Ford and Chrysler can fill the empty space and become profitable.
People don't appreciate that the market works. It just does not work in "nice" ways.
Please elucidate "the point". Is the point that NINE TRILLION dollars to support bankrupt financial players who created phony papers that were supposed to represent wealth can wallow freely at the taxpayer's trough while fifteen billion for companies that produce actual tangible goods is too much and we should "appreciate that the market works"?
If that is "the point", I did not miss it. I rejected it.
NO, you are missing the point and won't realize it until the US is a third world country. Unless that is what you are looking forward to...
The market does not work (it used to) and has been perverted (a notion you have obviously bought into) to the point of pure unadultered greed with no sanctity of country, patriotism or self.
Maybe it's time to pass the torch to the new kid on the block.
For everyone who keeps regurgitating the fact the Toyota gets paid less per hour, including benee's because of some idealogical shift are wrong. The Big 3 have been around for decades so they have legacy costs. That is the only differnce, period. If Toyota et al, is still around in 30 years you will see them picking up legacy costs. I believe that the top end wage (no benefits) is $30/hour versus $28/hour for the Big 3 (or vice versa). Add typical benefits and the number for both grows to $48/hour.
How they came up with $70/hour for the big 3 was a mind game because all they did was add up all of the current legacy costs and then divided this number by the current workers, which gave the impression that they were making $70/hour. The legacy costs are a fixed cost added to the price of a car, just as they will be for Toyota, Honda and Hyundai in a decade or so...
As far as this article goes, it stinks. Who's gonna buy a car from a bankrupt company. Can someone guarantee that the warranty will be upheld?
The potential number of layoffs will equal the last 8 years put together (and then some). But, you know, lets give some a few hundred billion more to the banks, because they are really doing a lot of good with it, eh???
Toyota is around since 1937. Do you really think nobody retired at Toyota since then?
In any case... GM could have decided to compete on quality and take a smaller share of the market at a higher price. That would have been a better match to their cost structure. Instead they were trying to price everybody else out of the market with their sell at a loss at all price sales strategy. The result is that they bankrupted themselves.
And now they want tens of billions of tax payer money to continue the same loser strategy?
I don't think so.
Toyota's first assembly plant opened in 1989 in Kentucky.
Swing and a miss!
This statement is in this article: -- "Perhaps the shock to banking would be too great just now. I'm willing to be persuaded that intervention is necessary there. But the more I read about the auto industry, the less I am convinced.
So, on a SUPERFICIAL basis of what you "read", the Detroit auto industry should be sold at fire sale prices and workers should be thrown to the elements and fen for themselves?
What do you "read"? Newt? or the Southern senators? Or some "expert" by title as Auto Industry Reporter? Ayn Rand? I'm so glad to have such learned comments regurgetated.
He might be reading GM stock charts (especially the part since 1999 is interesting):
http://fin
Enjoy!
Oh, the stock charts, the legal casino in the Big Apple, where careless (or methodical)rumor can sink someone just as much as the true fundamentals.
You see, people like KTM don't care about anyone or anything outside of what they can gain from it. They have the empathy of a serial killer and the greed of a thousand Gordan Gekkos. Good luck to you, I hope that the riches you seek bring you the happiness you desire.
If there's one thing worse than Detroit managed by the managers who have been driving the American auto industry into the ground for the past three decades, it is Detroit managed by politicians.
If Detroit had been forced (managed) by politicians to meet a higher CAFE standard, would they
not be better off today?
We live in a global economy.
If there are worker populations willing to build autos for $2 an hour, doesn't that mean we all
eventually will sink to that level? I am all for it, Mr. Lessig, as long as you come along for the ride
with us.
There is no doubt change is coming to the auto industry. Now is the time, I believe, for a top to bottom review of our nation-wide transportation system, with the objective of identifying the best mix of auto and rail transportation, all things considered. (The anticipated future cost and availability of fossil fuel being one of the major considerat
I'm not sure why there is so much comparison between the auto bailout versus the bank bailouts -- hundreds of thousands of 'regular' people lost their jobs when their banks failed, or had to downsize. Others are getting their compensation cut (to zero). The media and others like to focus on the top 5% of earners at the banks, but what about the regular people that are losing their jobs in financial services.
They're not sitting on guaranteed health care or pensions, or a "job bank". This is not a comparison point at all. Businesses have to restructure, if the UAW is unwilling to make any concessions when their employer cannot make payroll or pay suppliers -- there's no other recourse than bankruptcy.
The wages at a Toyota plant per the latest numbers per A/P are higher than at UAW plants in the midwest where the cost of living is higher and the workers are older. .
Why are they paying such "good" wages ... they have to or the workers would then unionize. Its what we did in the Newspaper Business. We promised our non union newspaper employees if they did not unionize they would be paid as well. If it was not for the threat of being unionized, we could have paid less.
Lower Union Wages or remove the Unions and you lower the non union wages eventually. Thats the GOP goal. Pls note 3 million workers competing for the few MFG jobs left will put a downward pressure in wages in the transplant plants for decades.
Regards
I'm not sure what Toyota is paying these days but when I worked for them 6 years ago the wages were nowhere near UAW wages, and our facility was in California. I also worked for Honda of America in Ohio for 5 years and, again, our wages were nowhere near UAW wages. We did receive roughly the same benefits so we were compensated well. I believe the Japanese have a different philosophy behind their wages and I think your prediction is wrong. It was just reported yesterday that Toyota and GM sold roughly the same amount of vehicles last year. Yet Toyota made a 1.9 billion profit and GM took a 9.1 billion dollar loss. Now if I were the Japanese and I could match U.S. production of GM while profiting as they took a loss then what would be my incentive to lower wages? When you have a good thing you don't mess with it. The Japanese know this very well. And I must say that their priorities are not the same of their U.S. counterparts. Money isn't everything.
I read a Newsweek article which (if my math is correct) indicates that the avg. wages for Nissan are less than 10% smaller than UAW--the difference is in retirement benefits mostly. I agree with torrep's comment.
KillThe: WHY do you go on this board spreading so many lies about GM. You've lied about who their major stock holders are , etc. Does it make you feel good to lie?
I didn't lie about their major stockholders. Look it up. I didn't claim that Barclays and Credit Suisse were the largest holders. You might want to repeat "reading comprehension".
:-)
http://fin
$15 Billion is basically 5 or 6 weeks of paying for the Iraq war/debacle/morass. Let's bailout Detroit, fire ALL of their top management, fire their design teams, strip the bigwigs of their assets, and get married to a foreign car company that knows how to make cars people will actually want to buy.
Then we pay for it all by getting out of Iraq 6 weeks ahead of schedule.
Bang, done.
Nothing wrong with their designs now.. Of the 3 largest car producers in the world, 2 are Big 3.
Nissan is headed up by French man, who is also president of Renault (both were basket cases, Nissan was bailed out a few years back).. but who worked in the Big 3.
Most body designs originate in the U.S.... in Design Centers in California.
The Big 3 are the only auto MFGs in the world that has not been in a protected home environment, that donot have government paid for research and development, nor governement paid for healthcare which cost more then the labor in moxt cars now. NO VAT tax like in China, Korea, and Japan that are refunded to auto MFGs.
.Every Auotmaker in the world is being bailed out. 100 Billion in Europe. In Japan interest free loans are the norm. Toyota has loaded up with debt selling at low profit to get market share.
They suffered from product quality for many years and trying to compete with MFGs whose wage structure was much lower. The quility is good now. GMand Ford have their best car lines in years.
They make money in countries where the healthcare is paid for and they dont have 100 years of legacy cost and product lines and dealership lines they cant close because of Fed and State laws.
Regards
"In Japan interest free loans are the norm."
That's nonsense. Japan simply is fighting deflation with basically zero interest rates. Bernanke does the same.
"Toyota has loaded up with debt selling"
But unlike GM they can service it.
Cheers.
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