Is This an Obama Epiphany?
I seriously doubt it, but hearing Obama talk about GM provides at least a glimmer of hope that he just might be getting it. "If all of us are doing our part, then this restructuring, as painful as it will be in the short term, will mark not an end but a new beginning for a great American industry" the President proclaimed. Yes, but why isn't what's good for General Motors good for America? Why does he think the country does not need a painful resetting, but instead just needs some big fat government spending?
I suspect in Obama's mind GM is a plain-old business (which of course it is), and so he's a lot more comfortable with the notion that it ought to sink or swim like any business, while he's rather intimidated by those financial institutions with their mysterious Doomsday powers. Thus the banks and AIG get bail-out after bail-out despite being far more irresponsibly run than G.M., which is mostly suffering from a double-whammy shock of a tripling of gas prices followed by, once the gas prices went back down, a major recession.
Still, maybe there's some hope that Obama will hear his own words and actually recall and understand them next time the financial industry steps into his view. Perhaps he will realize that there's lots of "haircuts" and compromises that could be going on there as well. Maybe the thought will pop into his head that Goldman Sachs doesn't have to be paid in full on every deal they've ever entered into - particularly not when taxpayer dollars are on the line.
I suspect in Obama's mind GM is a plain-old business (which of course it is), and so he's a lot more comfortable with the notion that it ought to sink or swim like any business, while he's rather intimidated by those financial institutions with their mysterious Doomsday powers. Thus the banks and AIG get bail-out after bail-out despite being far more irresponsibly run than G.M., which is mostly suffering from a double-whammy shock of a tripling of gas prices followed by, once the gas prices went back down, a major recession.
Still, maybe there's some hope that Obama will hear his own words and actually recall and understand them next time the financial industry steps into his view. Perhaps he will realize that there's lots of "haircuts" and compromises that could be going on there as well. Maybe the thought will pop into his head that Goldman Sachs doesn't have to be paid in full on every deal they've ever entered into - particularly not when taxpayer dollars are on the line.
posted by ziel | 3/30/2009 10:24:00 PM
5 Comments:
Simon Johnson, a former chief economist at the IMF, argues that the financial industry now constitıtues an oligarchy which is effectively controlling the government, at least on issues that pertain to its interests.
"If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform."
The article is here:
http://www.theatlantic.com/doc/print/200905/imf-advice
Yes, that's an excellent article. Peter Brimelow has a little review of it (along with Mat Taibbi's similar Rolling Stone article) at MarketWatch.
What is so mind-boggling about the car bailouts vs. the bank bailouts is the difference in the size of the money being discussed.
GM only wanted 50 Billion. Perhaps they'd need as much as 100 Billion. Initially they wanted this as mere loans they intended to pay back.
Wall Street had gotten over a TRILLION now, and this is money we have just GIVEN them. Wall Street has gotten over 20 times what GM has, and look who employs more Americans.
If we lose it, we lose it. I would NOT however, bet on the Japanese and Germans continuing to build plants here if both Ford and GM go down. They wouldn't have to, and the sales-pitch of "these cars are made in the US" would no longer be necessary, etc. Bob Corker and Jeff Sessions might envision 10 more large car plants down south if GM is put down like an old horse, built by their competition, but I dont. We are probably the only country in the world so enamoured of "the free market" that we have many who would gleefully allow our ability to manufacture automobiles to dissapear, while agreeing to bail out people who play with 'money-on-paper' in Manhattan.
I would NOT however, bet on the Japanese and Germans continuing to build plants here if both Ford and GM go down.
I would. The American plants are integral to the foreign automakers' business model. They're close to their customers, which provides a competitive advantage (not just "Made in the USA" prestige). They can design their products better and expedite delivery. Also, they can maximize production in a particular market and use the excess as specialty products in another market. For example, larger cars like the Camry and the Accord are novelties in places like Japan, which rely on smaller vehicles. But, because the U.S. market looks at these vehicles as mainstays, the Japanese can export these larger vehicles to Japan and sell them at a high profit margin. Even if all of the Detroit three went under (and Ford will probably survive), the competitive pressure will still exist. If, say, Toyota said "screw it, we're outta here" (which would mean shuttering hundreds of billions of dollars worth of plants and infrastructure and trained personnel), Honda, Nissan, Hyundai, Volkswagen and other companies would still be around looking to score points off of such a move.
What is so mind-boggling about the car bailouts vs. the bank bailouts is the difference in the size of the money being discussed.
THIS is a valid point. The banks should have been told to sink or swim. It would have been painful, but most useful lessons are.
OTOH, the auto companies haven't exactly found out about their competitive problems yesterday. It's been a glaring problem since the late 70s, and both the companies and the unions have dithered, refusing to make the tough choices necessary. Now it's come to a head, and since a lot of Americans have horror stories with American-badged cars, there's just not much sympathy out there.
That said, just because we did something stupid with the banks doesn't mean we should do the same thing on a smaller scale with domestic automakers. Handing them money only keeps them from making needed reforms. Really, the bailout is more for the UAW and the dealer networks than the companies themselves. The problem with this path can be seen with the British automakers who got similar treatment in the 70s.
What should have happened is what Sen. Corker suggested in the first place: a Chapter 11 in everything but name. The government would provide Debtor-in-Possession financing as the old work system and contracts were ripped up and re-worked to make the sick companies competitive again.
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