If I'm so fond of workers taking haircuts, why not at AIG and the banks, huh? huh?
Ummm . . . .
For starters, I am not trying to punish the UAW. I am thinking about how the company can be made profitable. The company cannot, in my estimation, be made profitable with higher labor costs than the competitors.
Labor costs are not the issue at banks, or AIG; balance sheet impairment is. Labor costs are a much smaller portion of their financial burden than at an automaker. Cutting their compensation will not return the balance sheets to full strength.
However, in fact, workers in the banking industry are taking a massive hit. CEOs were forced to take huge paycuts, and if their bank is in trouble, they've already lost the greatest portion of their personal net wealth. The banks are firing huge numbers of people, and the ones who are left can count on their paychecks looking pretty anaemic this year. I know that many of you would like to see every single one of them have their paycheck reduced to that of a Nissan line worker, but it doesn't work that way. The good people at those banks have better alternatives than being a Nissan line worker, and have usually invested substantial amounts of time and money in building human capital, rather than hitting the line after high school. If you cap their pay there, they will leave to pursue those other opportunities, leaving you a firm staffed with the rejects who can't work elsewhere. Given that we are trying to save the banking industry, not destroy it, that's not a good idea. A UAW worker, on the other hand, has alternatives that are generally much worse than the wages on a Nissan line.
But workers at banks face a stark choice that GM's line workers don't: if they are not providing value to the firm in line with their salary, they will be asked to leave. As hundreds of thousands of them have, or will be over the next few months. That is precisely the deal that the UAW is resisting.
There's also the unfortunate fact that collective bargaining means collective wage reductions--what you gain on the swings, you lose on the roundabouts. For AIG to actually go through and negotiate wage reductions with every executive, every secretary, every claims adjuster, would be too time consuming and expensive, in administrative labor, to make it (probably) worthwhile. Not so with the UAW.
Finally, in the case of AIG, there's a misperception of where the costs lie. There are very few industries where executive compensation makes up the bulk, or even a very noticeable chunk, of the wage bill--sole proprietorships, some tech companies, law firms and some financial firms, and a few consultancies. In most places, however, the law of large numbers dictates that most of the wage bill is spent on the folks that all of us could agree are not wealthy by any stretch of the imagination. That means that you can almost never achieve really major cost reductions by messing with the pay of the best compensated--it's the same reason that a decade of rising inequality still left the rich with barely a third of national income. It may be wise to do so for justice reasons, or pour encourager les autres. But it does not get us any further towards our goal of a healthy insurance company or auto manufacturer.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
Megan,
There are a host of issues facing the auto companies, of which line worker pay is one. Many people who have seen union shops up close will tell you that the union work rules are probably more important than the hourly pay/insurance/retirement package.
However, this is not in conflict with your argument. The sad fact is that the shrill screaming about "fairness" in treatment of car companies as opposed to financial firms is, at best, just noise. All of the hand wringing and money on earth won't save a single company that doesn't operate in a way that results in positive numbers on their P/L's.
One more thing: Absent regulatory constraints, GM can operate profitably abroad. It only needs to cease operations in the US in order to save itself.
Megan, I really take offense with the line "rejects who can't work elsewhere."
My son just graduated with an associates degree in precession metal working from a community college, he's got a very high IQ, but he learns with his hands. He's happiest when he's building things, making things. He loves to cook, to tinker on cars.
He's an awesome person to have around, he can fix stuff. And those factories are full of people like that, people who can plumb houses, wire electrical things, fix engines, build rc cars, fix garage doors, build robotic arms, take a block of metal and turn it into a gear that meshes smoothly with other gears.
That's a hell of a lot more useful the someone who can write a paper turning a derivative into another derivative, isn't it?
What we've lost is the value of people who actually make real things.
Shame on you.
Agree with George. I find this post extremely disingenuous.
AIG got an $85 billion bailout, the auto companies are asking for $14 billion.
The issue is not RATHER the labor issue of employees is AS BIG of an issue at AIG as it at the auto companies, but rather ifit is a substantial issue at all. It is. I'm sorry Megan but it is.
When you're asking for and get an $85 billion bailout from the federal government, and us the taxpayers, over 6 times as LARGE as what the auto companies are asking for, ALL of your monetary issues, cost, and expenses become OUR business.
AIG, which went in and got a bailout again 6 times the size of the auto companies, needs to deal with labor costs as an issue.
And any intellectually honest examination of the two bailouts, particularly one from the perspective of someone like you who opposes the auto bailout, would demand that AIG do an honest analysis of the labor cost, and likely cut some payroll jobs.
The only difference here is: a) in the type of worker (white collar v. blue collar), b) distrust of the Big 3 and c) dislike of the unions.
All of these may be relevant reasons for not giving the auto industry a bailout. But they in NO WAY justify not also demanding that AIG, which also asked for and already RECEIVED a bailout, take cost cutting measures as a result of us, the tax payers, having given them a bailout.
We gave AIG $85 billion. If they came to us, needing an $85 billion bailout, they are doing something substantially wrong in terms of how they run their business. And they need to do a serious re-evaluation of how their company operates.
Yes, it's mere coincidence. Mere coincidence that in every situation-- not most situations, but every situation without exception or fail-- libertarians and economic conservatives throw their lot in with the rich, and the powerful, and against the less rich, and the less powerful. Every time, without exception. But it's all coincidence, nothing but coincidence....
I want an answer to a simple question: why are the car companies in trouble right NOW?
Is it because prospective buyers can't afford the cars? If so, then shouldn't we consider another tax rebate vel sim.?
Is it because prospective buyers can't get loans? If so, then shouldn't we be focusing our attention on the credit side of things?
Is it because nobody wants to buy their inefficient cars? But gas has become relatively cheap again.
Is it because all the cars suddenly suck for some reason besides fuel efficiency, like aesthetics? Then why don't we just paint naked ladies on them, or at least bring back fins?
I don't really understand the underlying cause of this crisis; and so I have trouble evaluating the proposed solutions.
Problem: Line workers did not design the awful GM vehicles of the past 10 years. No one wanted the Lumina, the malibu, or any of their other sedans. So why do they have to pay for the consequences? I am just curious.
Also, in finance, they fire people indiscriminately. Perhaps your time in DC has made you forget how this works. UBS shut a whole building in New Jersey by firing their employees one by one and then having them escorted out by the cops from the top floor so no one would see what was happening. People were not even allowed to retrieve their stuff. I have friends with 7,24, and 55's who are making 41k in this market, thats about $19 per hour. There are no better jobs, and AIG execs still walked away with golden parachutes.
Unions achieve some good, contrary to popular belief. Anyone who has spent a week in NYC lately gets that.
zic, your son would go crazy working on a Detroit assembly line under the UAW/Detroit work rules, although he might well be okay at Toyota.
The work rules are designed to make the employees interchangable and to severely restrict the company's ability to take advantage of individuals who excell and to make flexible changes in the way the line is put together. That's a good part of the reason it takes a lot longer for a Detroit company to introduce a new type of vehicle than for Toyota to do so -- the sheer complexity of negotiating the change in the line is immense and any mistakes become cast in concrete.
-dk
I hadn't realized fairness was the main issue here.
It is not fair for taxpayers to pay the Big 3's wages.
We will pay them anyway in the form of retiree and health benefits being dumped on us in the future.
Aren't blue-collar workers all about pride? Salt-of-the-earth, manly stuff? So quickly turned victim!
The government is opening the Treasury doors and giving away nearly a trillion dollars to big business. To address a severe recession, they are taking *ordinary people's* money and playing trickle-down economics with it. Under the circumstances, the main issue is really how that money will end up back in ordinary people's pockets. Issues of transparency, accountability, and control should be paramount. Instead we are seeing multiple signs that the Treasury is simply being looted. Sorry, but if you're focused on lowering people's wages at the bottom of the chain, you are missing the big picture.
C'mon, people. Have some pride. You're really going to resort to the "other (and bigger) people are stealing, so why can't we?" argument?
C'mon, people. Have some pride. You're really going to resort to the "other (and bigger) people are stealing, so why can't we?" argument?
Do you really think it's mere coincidence, Sam, that all the right people always think it's perfectly appropriate and smart for us to bail out white collar bankers and investors, but not blue collar line workers? Do you really think there's an alternate universe where the situation would be different and libertarians would be calling for auto bailouts and not bank bailouts? If you do, you're very naive.
"But workers at banks face a stark choice that GM's line workers don't: if they are not providing value to the firm in line with their salary, they will be asked to leave. As hundreds of thousands of them have, or will be over the next few months. That is precisely the deal that the UAW is resisting."
While the reporting on this issue has been poor, I don't believe this is correct. There have been substantial job losses amongst unionized autoworkers already this year. As I understand them, the collective bargaining agreements with the UAW do not stop companies from laying off workers, and the UAW has already agreed to suspend the"job bank."
Unions provide some job protection for their members; in most industries, though, protection against layoffs caused by decreased demand for the firm's products isn't part of the deal.
Freddie, who's richer- the average US taxpayer, or the average UAW worker? UAW worker. The proposed bailout would move money from the taxpayer to the UAW worker- to the rich, from the less rich, as you say. Megan and others are against this.
Look, the situation with the Big 3 sucks. A few straw men out there may be cackling about this fact, but many are not. I'm not. If you have a new argument for why this bailout is fair to the average US taxpayer, or some new evidence why you think it might work, please share.
Levine, you're so unfair to poor Megan. She's a tender, caring person. She opposes minimum wage laws, she opposes unionization, she hates the thought of universal health insurance, she supports a nice, flat tax structure, and it's all to help the poor, cross my heart and hope to die.
Nate, there is plenty of blame to go around. The engineers and designers didn't build the steaming piles of crap that were Detroit cars aver the last 30 years, current management didn't negotiate the work-rules from hell or the retirement bennies.
There isn't one group you can point the finger at to blame for everything. So the best bet is just to scrap it all, and start over. That's called bankruptcy. Cars will be made, parts will be ordered. It will be done by people who don't make quite as much, management and workers, and under work rules that bear some resemblance to what it takes to run a profitable company. UAW retirees will be covered by our wonderful government run healthcare, like almost every other retiree in the US.
Problem: Line workers did not design the awful GM vehicles of the past 10 years. No one wanted the Lumina, the malibu, or any of their other sedans. So why do they have to pay for the consequences? I am just curious.
Like Megan said in her last post:
"This is not a question of what would be nice, or what would make the workers happy, or indeed what, in a platonically ideal universe the workers should be paid. It is an empirical fact: if GM does not get substantial labor concessions right now, then it will either come back for more money, or end up in bankruptcy anyway."
Do you really think it's mere coincidence, Sam, that all the right people always think it's perfectly appropriate and smart for us to bail out white collar bankers and investors, but not blue collar line workers?
You must be joking. How many finance sector employees have lost their jobs in the past three months? How many UAW members?
Wow. Usually in the morning I read '9 Chickweed Lane', then 'Schlockmercenary', then Mark Thoma. This time I clicked on Megan by accident, and didn't realize it until near the bottom of the post. My first thought was that Mark must have had a stroke: the quality of the reasoning was so poor, and the quality of the writing to express it so atrocious that there simply couldn't be any other explanation except ill health.
Anyway, this all seems like cobbled-together nonsense. Let's look at it point by point:
This is presented with absolutely no supporting evidence. In fact, Megan has earlier defended $70 billion of a $700 billion bailout going towards the pay of various workers on Wall Street. And not just regular pay, but retention bonuses! So, in the absolute sense, $70 billion - going towards payroll, mind you - is more than twice the size of package being requested for GM. And in the percentage sense, well, ten percent is a very significant chunk of the total cash flow. I don't think you need an MBA to realize this, but if you do happen to possess that bit of certification, such an assertion is an extremely foolish one to make.
Another insupportable statement. Bank workers have 'better alternatives'? Really? Care to specify just what those 'better alternatives' are? In a country with extremely high unemployment in general, and a glut of financial workers in particular, one would think these people would have extremely poor prospects, and would be very happy to keep their jobs.
But Megan offers no evidence for her position (what else is new?), and in fact, says something directly contrary to those 'iron laws of economics' she professes to so devoutly believe in. In fact:
This is precisely the sort of nonsense people speak of when they talk about glibertarianism. In fact, as is painfully obvious to all but the most ideologically steadfast, large swaths of the financial services industry did not provide value in line with the remuneration dispensed to the workers. And here is also a core glibertarian bit of hyprocrisy: when a blue-collar worker is asked to take a pay reduction, or is denied a raise despite increased productivity, glibertarians almost invariably make a comment to the effect that the value of a person's labor is just what someone else is willing to pay them. Nothing more, nothing less. But when these upper-echelon white collar workers are asked to take a bath, glibertarians start making comments about the added value they bring to the table. Uh, no. That's a Marxist idea, I've been told, at least when applied to the blue collar set. Either there is or there isn't 'added value', not one set of ideas for one type of worker and another for a different sort.
This is just plain innumeracy. Mendacious innumeracy. Who is the 'best compensated'? The CEO? The top 1%? The top 5%? The term is an adjustable one, and the figures irrelevant. In an earlier incarnation, we had people saying that 'the workers' share of each car was some thousands of dollars, while 'the CEO' had a share of pennies, dollars at most. Yeah, that's an honest comparison all right. Why the cutoff there? Why not the top 10% of GM employees? Wouldn't by any wild stretch of the imagination be because of the fact that then the possibility arises that they contribute a very significant percentage of the cost of that automobile, would it?
In short, this posting is nothing more than an incoherent hodgepodge of justifications to support a predetermined conclusion. It's certainly not a well-presented defense.
Freddie:
Which libertarians were cheerleading the bank bailouts?
Zic,
The line "rejects who can't work elsewhere." referred to the bankers not the line workers.
I think a lot of people would be better off if they went to occupational school and learned a good trade.
Mechanics, plumbers, electricians are always in demand and their jobs can't be outsourced. After a few years learning the trade these folks are in a good position to spin off as an independent or they can start their own company.
Better pay and better regional and occupational flexibility than a lot of college degrees.
Freddie,
Here is a piece of advice- if someone supported the bank bailouts, TARP, and the AIG takeover, then that person is, by definition, not a Libertarian. Libertarians can be easily identified in this entire crisis- they are the group that opposed all the bailouts right from the very beginning, and still oppose them today. I didn't need to see Megan's support of the finacial firms bailout to tell me that she was no Libertarian, not even a small "l" version (but I still respect her arguments and character, and I still find large areas in which I agree with her), but the bailout should have clued in every other person who had doubt.
I really don't see how someone could oppose one bailout, but not the other. This is one of the reasons we should never have traveled down this bailout road- everyone in danger of losing a job feels entitled to receive one, but it is a literal impossibility to protect everyone with a bailout.
I don't often agree with Scent of Violets but I think he is exactly right above. When I read Megan's original post my first thought was "here is a poster child for glibertarianism" but decided it was sufficiently poor not to warrant the effort to point out the many fallacies. So thanks to SoV for making the effort.
And as someone who has been watching students go to the financial services industry for almost 15+ years, yes it's true that there certainly are some exceptional ones, but most of them in truth are just about as fungible as a GM assembly line worker. They are cogs in a system and their alleged high productivity is a function of their position in the system much more than their individual qualities, in much the same way that a factory worker's productivity is highly dependent on the amount of capital equiupment he/she is provided with. Fund managers are the example par excellance. Reading about the Madiff meltdown provides numerous examples.
One bit of irony for all of the liberals complaining about the lack of support for the bailout is the fact that government policies, strongly supported by the liberals, are probably the single biggest reason the US car companies are in such bad shape now.
SUVs and light trucks were cash cows for the US car companies. Unfortunately for the car companies and their union workers the CAFE standards (much loved by liberals) Forced them to make unprofitable cars.
Absent CAFE standards the US car companies finances would have been in much better financial condition.
Their balance sheets would have been in better condition, which would have allowed them to spend more on quality improvements, engineering and research.
This would have given them the capability to ride out and respond to the current economic situation.
Detroit's Other Legacy Burden
Why do you want workers to have haircuts?
I am still mystified by this continual childish harping on the whole, 'Well, the banks got lots of money!' point.
At what point did throwing good money after bad become an issue of fundamental fairness? Whether you agree with the bank bailouts or not has absolutely zero bearing on whether it's a good idea to bail out the car industry.
It wasn't fair to taxpayers to have to bail out AIG. So the "fairness" argument for bailing out the automakers basically boils down to the insistence to two wrongs make a right.
The financial bailout was justified to the public, not to protect the workers, and not to protect management compensation, but (rightly or wrongly) on the grounds that the public cost of not bailing them out would be far, far greater than the cost of the bailout. So if the auto industry wants to make a case for a bailout by comparing themselves to AIG, that is the case they would have to make. Does anybody doubt that the bailout would have happened already, if automakers were able to make the case that all of their cars would stop working if they were to fail, and people would be unable to drive to work?
The fact that bailout advocates are talking instead about the poor autoworkers and greedy financial executives only sends the message that they are unable to come up with an a substantive argument that a bailout would be more in the public interest than bankruptcy.
There are two indispensable parts to that argument:
1) The public costs of a bailout will be less than the costs of bankruptcy, or at least will be to some extent paid back in the future, and
2) The automakers won't go bankrupt anyway.
So far, nobody seems to be making a persuasive case for either of these.
No you're misreading the fairness argument.
The problem is that Megan is making an argument, based on absolutely no evidence, that labor costs of paying workers was not a problem at AIG.
This is after we gave them an $85 billion bailout. Well yes they were.
And, as scentofviolets pointed out, not only is it untrue but we have previous evidence of Megan justifying using parts of the $700 billion bailout to PAY white collar workers on Wall Street and at the banks that took the money.
Megan is contradicting herself and taking her personal dislike of unions (which is fine) a step even further by somehow justifying why she is willing to put aside her (supposed) libertarian beliefs to agree with the notion of somehow paying arguably over-priced white collar workers at a firm that failed disasterously.
She has, in this post, as others pointed out, reached the very pinnacle of "glibertarianism." It's kind of sad actually.
Several of you are missing the point on the difference between wage cuts at AIG & UAW.
If you cut wages substantially at AIG may of them will leave because there will be other jobs available. Those jobs are being set by the market.
UAW jobs on the other hand are above market wages - which is precisely the problem. Part of the problem with the big 3 is that their labor prices are so much higher than the competition.
If you set AIG salaries below market prices then all you have left are people that are less productive than the people you forced out. Hence the "rejects that can't work elsewhere." This is a statement on what happens when you force wages below market clearing prices, not the quality of work that gets done at the assembly line.
Freddie, the justification for bailing out AIG and other financial firms was that the economy as a whole depended on a healthy financial sector - its a point I disagreed with - but right and left seemed to buy into it. Saving the Big 3 (or more precisely the wages of UAW) isn't being proposed to do the same by anyone that knows what they are talking about.
This is one of the reasons we should never have traveled down this bailout road- everyone in danger of losing a job feels entitled to receive one, but it is a literal impossibility to protect everyone with a bailout.
It is a literal impossibility to protect everyone with a bailout -- true. But fortunately there's a very limited number of firms who fall into the category of "too big to fail." I didn't hear of any major efforts afoot to save Circuit City. The whole moral hazard argument is tired and weak. Human beings have brains -- and while it may be difficult to come up with objective criteria -- those brains are capable of recognizing "too big to fail" when they see it. AIG, Citi, California, and yes, GM, fall into this category.
It wasn't fair to taxpayers to have to bail out AIG. So the "fairness" argument for bailing out the automakers basically boils down to the insistence to two wrongs make a right.
I agree we should probably dispense with arguments about fairness (not going to happen, but whatever). Ideally the sole criterion we should consider when discussing lending government money to Detroit is: are we better off doing so or not? With 5% unemployment and 3.5% GDP growth I say the answer is "not." With 8% (and rapidly rising) unemployment and collapsing GDP, I say the answer is "yes."
"If you cut wages substantially at AIG may of them will leave because there will be other jobs available. Those jobs are being set by the market."
Really? The market is setting the conditions of the pay for workers at AIG? After we gave them $85 billion in bailout funds. You don't think that, in any way, schewed, the payscale of AIG workers with regard to the market?
Given that their company needed an $85 billion bailout, do you really think their employee's salaries are really driven by or even vaguely commensurate to the market?
One might think, that $85 billion just might change the payscale a little bit.
And if they were honestly being driven by and living with the consequences of the market at AIG they wouldn't have needed an $85 billion bailout.
"If you set AIG salaries below market prices then all you have left are people that are less productive than the people you forced out."
Why is this necessarily the case? Please substantiate this with proof? Have you SEEN the recent job market? No I'm sorry I don't think if you lower AIG salaries below market price right now they're going to go anywhere else.
Besides shouldn't their salaries be somewhat reliant on how good of a job they're doing? I thought that was free market capitalism.
I'm sorry it's time to call what's going on here what it really is: corporate welfarism.
Plain and simple. And in it, you and Megan, are trying to justify paying workers at failing companies, who there is no evidence did good jobs, an inordinate amount of money out of this taxpayer-funded corporate welfare chest.
That is not libertarianism. Not in any sense of the word.
I think this is pretty interesting:
(http://extremeinequality.org/?p=101)
Evidently, Rick Wagoner makes more than half as much as the top 32 executives of the world's largest and most profitable car company combined. So let's make a deal, Megan. We'll pay UAW workers at American car companies the same rate as American workers at Japanese car companies so long as American CEOs accept compensation in line with their Japanese counterparts.
"I agree we should probably dispense with arguments about fairness (not going to happen, but whatever).'
Yet you still want to bail AIG, Citi, all of the banks and not the auto companies. Strange.
Yeah I think I'll stick with the fairness argument.
Look I can respect those of you who were against all of the bailouts. But not those of you who were for AIG and Citi on the notion that they're too big to fail, but against the auto bailouts (even though they're too big to fail) because they're somehow inefficient.
You are contradicting yourselves. And you know it.
Yvonne said it perfectly right. You cannot be for any of these bailouts and be a libertarian. Plain and simple.
It's also impossible to be for some (based on the notion of being too big to fail) but against others (based on the notion of being inefficient) without contradicting yourself.
Yet you still want to bail AIG, Citi, all of the banks and not the auto companies. Strange.
Some people have really bad reading comprehension skills.
"Some people have really bad reading comprehension skills."
Really? I must have misread this then:
"It is a literal impossibility to protect everyone with a bailout -- true. But fortunately there's a very limited number of firms who fall into the category of "too big to fail.""
But yeah, no reason to argue about fairness.
Here I'll make it even easier for you:
Do you believe that there are companies which are simply too big to fail?
If so then you're not a libertarian. It's a very simple test.
And, if so, I might rationally argue that there is no sane argument that would not put the Big 3 auto companies in this category of companies too big to fail.
Do you believe that there are companies which are simply too big to faill?
I believe some firms are too big to be allowed to fail, yes (at least given sufficiently dire economic conditions, like those we're experiencing now).
If so then you're not a libertarian. It's a very simple test.
Er, no, I'm definitely not a libertarian, that's true.
I might rationally argue that there is no sane argument that would not put the Big 3 auto companies in this category of companies too big to fail.
Well, I'd probably disagree with you were the economy growing briskly, but in December of 2008, I'd certainly put the Big Three in said category.
Now, I'm not sure about the justification for AIG's bailout, other than the "too big to fail/systematic risk" one, so I won't go there.
However, as long as AIG gets the money, management shouldn't be browbeaten for offering retention bonuses to people who had nothing to do with the current carnage. AIG has some very profitable insurance subsidiaries, but they are starting to get into trouble because their employees are losing confidence and leaving in droves to competitors. Insurance is a people business, and the company is only as good as its underwriters.
Just last week, AIG's most profitable subsidiary (Lexington Insurance Company) lost its CEO and COO.
It doesn't help anyone to nickel and dime the people who can help get the company out of the morass its in.
Several of you are missing the point on the difference between wage cuts at AIG & UAW.
If you cut wages substantially at AIG may of them will leave because there will be other jobs available. Those jobs are being set by the market.
This is specious. The finance industry is hemorrhaging jobs and is not likely any time soon (never, Ojala) to reach its former bloated employment levels. Where are all these valuable escapes from a failed company going to land?
Second, those wage rates are set by hierarchy, by an internal decision-making process within the firm, not by the market. That's not to argue that the market doesn't influence prices, just to point out that in the short to medium term wages rates of the type in question are managerially rather than market determined. And of course it's a "market" in which entry is restricted and a great deal of self-interested dealing occurs. It really has more than a few similarities to the way that union wages are set via negotiated contracts. Or are you arguing that the wages of unionized auto workers are set by the market?
I suspect that somewhere some real libertarians actually exist, but a lot of what I hear under the libertarian label sounds like people trying to attach a more intellectually appealing name to a mismash of permissive social policy and pro-business political economy. Ron Pauls they ain't.
"Thou thy worldly task hast done, Home art gone, and ta'en thy wages; Golden lads and girls all must, As chimney-sweepers, come to dust." Corporate icons are bound to die as well.
Someone will build the cars to replace the vehicles which are on the roads now. That much is certain, probably the same people who build cars now. Who can say that if the big three auto companies were liquidated, that a dozen new companies would not spring up in their places? I can see a time when a buyer may sit with her laptop, order a new car equipped exactly as desired, choose from a menu of financing options, select a local shop for warranty work, and have that car delivered to her driveway in three to four weeks. I also remember the hand-wringing and finger-pointing that occurred when the government broke up AT&T, but I can now make long distance calls for 2.1 cents per minute. In order to regain comparative advantage in manufacturing, old companies that cannot change on account of vested interests should not be subsidized. A stable social safety net and the auctioneer's gavel represent a surer, quicker approach to recovery than dubious bailout schemas.
There is some absurd notion within business journalism that people in finance jobs have critical "talent" compared to other industries and we are worried that they will leave for other jobs. I would love to hear a good explanation as to why this talent is needed and why we should be so worried that these people leave the industry. These companies have lost staggering amounts of money and are expected to continue paying bonuses through 2008. I say let them leave for greener pastures!
The reality is that most hedge fund, wealth management, investment banking jobs are grossly overpaid-- even after their latest paycuts. Let them get exactly what their performance entitles them to-- zilch.
So why is this banking talent critical, but automotive talent not? Please explain, because I have yet to read anything of substance and your post did not clarify.
Is it always such a jungle in the comments? I just stopped by to say nice post.
I haven't read all the comments above, of all of the discussion about the GM et al bailout, has anyone addressed the question of how to allow GM (or Ford, or Chrysler) to go out of business if the can never manage to make cars profitably?
This is not a snark. I'm not saying that they never can make cars profitably. I'm just saying that the biggest selling point for capitalism is that under capitalism people who cannot do what they are doing effectively eventually stop doing what they are doing, and go onto doing something else. What structural mechanism to the bailout fans have to replace this, because I can see nothing but subsidies till the end of time.
AIG got an $85 billion bailout, the auto companies are asking for $14 billion.
There seems to be a lot of fantasizing about the treatment AIG got, as if the gov't helped it by giving it $85 billion.
What AIG got was a loan at *11% interest* (in a 2% interest world), with the loan to be paid off in two years by AIG being carved up into parts and the parts sold off.
“There is now going to be a feast, as buyers rush to pick up A.I.G.’s assets at fire-sale prices."
http://dealbook.blogs.nytimes.com/2008/09/30/aigs-bailout-terms-revealed/
OK -- so if you *really* want the Detroit auto companies to be treated just like AIG, then you want the govt to give them a far above market rate loan, to be paid off in two years by carving up them up into pieces to sold off to Toyota, Honda, Nissan, VW, the Koreans, and whomever else will buy them.
Now tell us true, is this really the kind of bailout that you and the UAW want for the US auto companies, just like AIG's?
This should end the whole argument.
Re: Bank workers have 'better alternatives'?
Meagan isn't entirely wrong here. Office work is pretty generic and most laid-off finance workers will find jobs at other companies making comparable (if not quite as munificent) salaries. Certainly anyone with "Goldman Sachs or "Morgan Stanley" on his resume will find doors opening more easily than someone with "GM auto body plant".
I worked at a major Wall Street bank office in Florida which emplpoyed 200 people at its height. The layoffs began last year in the fall. About 25 of us were kept on, but transferred to other locations and duties. The laid off personnel had months of prior notice and received very generous severance if they worked until their last day. Some did, some didn't, many went out and found other jobs locally despite the faling economy. In fact, of the people in my own department everyone who didn't relocate is working.
That said, the best argument for the bailout is that this is just not the time to destroy a million plus jobs. We have so far avoided a Big Stupid like the stuff that was done in the early 30s that turned a bad recession into the Great Depression. Sending the auto industry down the tubes could be our Smoot-Hawley tarrif, that cooks the economy's goose for good. The bailout is all our interests.
Didn't the CEO of AIG receive deferred compensation of $3 million after they blew up? And you can sit there with a straight face and try and justify the money given to AIG rather than the auto industry.
Yeah, you can shut up now. Your credibility is blown.
That said, the best argument for the bailout is that this is just not the time to destroy a million plus jobs.
Right. While there are no doubt exceptions, most of my fellow liberals wouldn't hesitate to allow GM to expire if economic conditions resembled those of, say, the mid to late 90s (most of would still want the country to have a far more robust safety net to deal with such contingencies, but that's another argument).
We have so far avoided a Big Stupid like the stuff that was done in the early 30s that turned a bad recession into the Great Depression.
Well, Lehman aside, your point is well taken.
"That said, the best argument for the bailout is that this is just not the time to destroy a million plus jobs."
JonF,
I don't think Megan's against a bailout; she just thinks it ought to be accompanied by steps that would make the automakers viable going forward. That means reductions in debt, labor costs, capacity, dealer network, etc.
"The good people at those banks have better alternatives than being a Nissan line worker . . .If you cap their pay there, they will leave to pursue those other opportunities"
Hah, hah, hah! Great opportunities where exactly? 'Looking for incompetent bankers - must have experience destroying a large financial institution necessitating it's being bailed out by US taxpayers. Starting pay: vastly more than a Nissan line worker.'
@DaveinHackensack - it sounds to me as if Megan wants all costs associated with any sort of restructuring to be born by the workers. Otherwise, no jobs for you losers. This is not smart and certainly not fair.
Get rid of the bloated incompetant and overpaid management, then we can discuss why UAW workers have to take a salary cut immediately. Management brought the company to this point. Let me say that again - these companies are poorly managed by incompetant and overpaid individualsNobody wants to buy their cars. They thought they could clean up on Hummers and the like and skate to annual multi million dollar bonuses. To completely ignore this fact in order to take the opportunity to beat up on unions destroys any credibility these "arguments" may have in my opinion.
Ditto the lack of any mention of inflexibility in negotiations on the part of Republicans. Are you going to negotiate our way out of this mess in good faith or are we going to demagogue our little pet ideologies? If you read this blog, the answer is sadly quite clear.
Nathan,
Only a small percentage of the bankers were involved in structured finance. The guy who works the municipal bond desk, or the broker with a big book of busines, won't have any trouble finding a new job.
Nathan,
There's a key difference between the banks and the automakers when it comes to labor costs: if the banks' labor costs become unsustainable, they can cut them. In fact, that's what they are doing. Through October, the financial industry had already cut 130,000 jobs this year. Plenty more layoffs are coming as well. For example, Citibank announced recently that it planned to cut more than 50,000 jobs.
MikeM,
I don't know anyone who is arguing that only UAW workers will need to make concessions to make the automakers viable. In any rational reorganization, a lot of groups are going to take hits: shareholders will get wiped out, bondholders will probably get their debt swapped for equity, non-union auto employees will face layoffs and pay cuts in some cases, dealers will go out of business, etc. Certainly no other group of stakeholders expects to defer any concessions until 2011.
Which concessions is the management team making to return to profitability exactly? I've heard of none.
Are they going to completely redesign their product development team?
Are they going to reduce their management workforce to complement the UAW cuts?
Is upper management (you know, the doucebags that ruined this industry) going to be given the boot?
Is anybody even discussing these issues? That's a rhetorical question since certainly nobody on this blog is discussing anything other than the evil UAW workers.
If anybody wants to start holding the incompetant morons who drove this industry into the ground accountable, then maybe we could justify why wage cuts for line workers is an immediate need. As it is, these arguments sound like the same class warfare we've been waging for the past 30 years. In my opinion this is the attitude that allowed auto management to stall and prevent the changes that brought them to this point. I for one am not inclined to indulge in this kind of thinking any longer
And good luck finding sympathy for "stakeholders" such as auto industry bondholders and shareholders. I may be wrong, but something tells me the mood of the country isn't exactly swinging towards sympathy for the moneyed financial class right about now.
The AIG situation is completely different for another reason--it's a holding company where the vast majority of the owned assets make money. The financial services division in London that put the bad risks on the books had 350 employees. AIG's top level home office? Probably another few hundred, and in both cases I'm talking director right on down to mail clerk. AIG as a whole? Over one hundred thousand employees, the vast majority of whome are in positions that add value to the company. That's why there haven't really been any layoffs.
I work for one of AIG's insurance companies (and hopefully add value). We just lost our chairman/ceo and president to a competitor because they were dissatisfied with how things were going (and because Ed Liddy is a prick). It was a big blow, and hearing blog reports and news stories grousing about "retention payments" and "executive bonuses" kills me--what are we supposed to do, let good managers of profitable companies leave just so we can publically flog ourselvees?
Mike,
Come on, you haven't heard that the CEO's are working for $1 a year?
Gimme a break. Lee Iacocca invented that "work for a $1/year" gimmick during the Chrysler bailout in the early 80's. They're compensated by bonus (whose requirements for payout are either non-existent or laughably low bar), stock options, paid housing, free cars, access to the company jet, etc. etc. etc.
Or was that a joke? I'm hoping it was a joke.
Mike M,
Do you have a cite for that - or are you just pulling it out of your a*s?
"What are we supposed to do, just let good managers of profitable companies leave so we can publically flog ourselves?"
AIG is profitable? News to me.
But here's a thought, maybe paying out elaborate bonuses given the current economic environment isn't such a hot idea. Especially when you're receiving taxpayer money. If you Richard R. Worthington wants to take his MBA and record of piss poor management up the street I don't the taxpayers are going to mind.
"Which concessions is the management team making to return to profitability exactly? I've heard of none."
If you've "heard of none," then you haven't been following the news closely.
Also, the current management may or may not be 'douchebags', but the greatest managers in the world couldn't run the Detroit automakers profitably between the constrains of CAFE and the UAW cost structure. As I mentioned in another thread, Chrysler brought in a great manager last year -- Jim Press, who worked his way up over 30+ years to become the president of Toyota's North American operations and the first non-Japanese manager of that company's board. Even as talented an auto executive as Jim Press can't turn around a Detroit firm within the current constraints.
"And good luck finding sympathy for "stakeholders" such as auto industry bondholders and shareholders. I may be wrong, but something tells me the mood of the country isn't exactly swinging towards sympathy for the moneyed financial class right about now."
Who's looking for sympathy for them? I'm not the one making emotional appeals here, and I would have no problem with a bankruptcy judge or a 'car czar' wiping out the shareholders or sticking the bondholders with equity in place of their bonds.
BTW, the 'moneyed financial class' may conjure images of portly men in top hats and monocles, but I doubt many Daddy Warbucks-types are among GM's current shareholders. Mutual fund families such as Dodge & Cox and Vanguard are among the top institutional shareholders, and I doubt most clients of no-load fund families like Dodge & Cox or Vanguard would be considered members of the 'moneyed financial class'. I wouldn't be surprised if the average Vanguard client made less than the average UAW worker.
http://www.heritage.org/research/regulation/bg276.cfm
Here's a good one from 1983 that dispels many of the same myths that are being regurgitated here, including this idea that CEO's have slashed their salaries to effectively zero. And that's just the FIRST google search I came up with....
Please, do not buy into this $1/year idiocy. Think for one minute. Who can honestly live on $1 a year? The way these people live. Think about it. I mean its hilarious.
Wow from 1983? I'm convinced.
Also, the people who are going to leave are the "Richard R. Worthingtons" who were running the AIG divisions who were making money. Only a very small part of AIG was responsible for the problem and all those employees have been fired and their divisions shut down.
Mike,
The whole point of mentioning that AIG is a "holding company" is that, yes, it consists of many, many profitable companies. Frankly if you got your wish and canned every single person whose business card says "American International Group" and nothing else you'd eliminate, oh, maybe two or three percent of the employees? The vast majority of people here don't work for AIG, they work for Aviation Finance, or New Hampshire Insurance, or Lexington, or HSB and so on and so forth. Like I pointed out, AIG was brought down by the risks put on the books by one financial services division in London--the one that insured the CDO's. The culprits are there and in the AIG holding company home office and there aren't a hell of a lot of them. When the other, profitable, comapnies lose competent management (like we did!) all it does is make it less likely we're going to get out of this thing and pay back our loans.
Please enlighten me, I'd love to hear about the concessions management is making. Arriving to beg Congress for money in a hybrid car doesn't count.
At this point I'd settle for an agreement whereby management agrees to no bonuses until the company is profitable again. Are they willing to do that at least?
Clearly you did not read the article as it details how auto industry CEO's receive fat compensation while being able to claim they only make $1/year.
And the fact that this article was written in 1983 and we're still dealing with this garbage is not exactly an argument against its relevance in my opinion.
Even sadder is the Reagan era thinking that's getting espoused here. Its really archaic.
I'm a business manager myself at a large consulting firm in Philly, I'd be flat out ashamed to receive a five or six figure bonus if my firm just received $25 billion in tax payer money. To say nothing about what's going on in the world right now.
The lack of shame and ethics in corporate America is one of the reasons we're in this mess.
Mike,
Even if you hadn't done anything worng and were entitled to the money - you would give it up just because some guys in the London office made some bad bets? If they told you no bonus you wouldn't start returning those headhunter calls?
Why? To me it doesn't make any sense.
Uh....because your firm just took $25 BILLION of taxpayer funds to cover mistakes that your management team made.
And I'm sorry, but I'm not buying "hey that wasn't me" attitude. Management is a team. If you were unaware of what was going on in the various divisions of your firm then you either don't know how to read an annual report or you're not worth a damn as a manager. In either event, you certainly haven't earned a bonus which will be financed by taxpayers.
And hey if you don't like that, then go ahead and bounce. If we're going to be cavalier about throwing people who make $56K (oh my GOD THATS SO MUCH MONEY!!!) assembling cars out into the street I don't see why we should care if AIG folds.
Hell any manager worth a damn shouldn't want to be associated with a firm like that to begin with. Assuming they had real talent that was marketable and a sense of ethics of course (tall order I know)
Mike M,
By your reasoning, if employees at AIG should forgo bonuses, the autoworkers at GM, etc. should be so embarassed about being paid so much more than the more efficient workers at their profitable competitors that they should volunteer to reduce their compensation in order to right the ship. I don't think you are arguing that however.
So, I'm a consultant that gets a utilisation bonus, and because I work in the healthcare division we've been very busy. Should I not accept my utilisation bonus because all the financial services guys are on the bench?
I'm not a manager - so why should I give up my bonus?
Not at all. I'm arguing that demonizing blue collar workers who make on average $2 - $5 more per hour in Detroit than comparable workers do in Alabama where the cost of living is much much lower is severely myopic. Salary cuts coupled with severe management overhauls are a topic for serious discussion, but that's not a conversation anybody seems to want to have. You give managers (the people who made decades of poor decisions) a free ride yet again. The time for that thinking is long past as I believe the recent election should have made abundantly clear. People are hurting. Badly. The same people we rely on to buy things and keep the economy moving. Maybe screwing them over or placing blame on them isn't the smartest of moves as hurtle towards the precipice of disaster.
And can we at the very least agree that UAW did in fact agree to wage cuts? The sticking point was timing. Do we do this in 2009 or 2011? In other words do we do this in six months or 24 months? That's what is driving this whole unions killed the auto deal argument. It would be laughable if the situation wasn't so serious.
Lots of the anti-UAW people here have never heard of shorting options and how these are profitable in 9 years out of 10 but then in the 10th year lose the entire 9 years of profits and then some.
As a result, unless you were able to clawback the profits and salaries from financial workers and companies during the good years to pay for this bailout, comparing salaries and "going market rates" for this labor is total nonsense.
Banking is a net loss over the history of the system, and this latest crisis puts it strongly in the red.
The point isn't that London made bad calls this year, it was that NY made bad calls in '98 and we had to clean up the mess, Texas made bad calls in 90 and we had to clean up the mess.
We spent a few hundred billion in the early 90's, destabilized the entire financial system to avoid the Asian crisis, and then pushed rates down to zero to inflate a bubble after the stock bubble burst.
We keep bailing out rich guys, and leave UAW workers - who are as much a captive of a broken business model as the companies - hanging over and over again. Ask the LTV steelworkers how much those pensions are worth now. We have screwed millions of american workers by leaving them without a pension, and then expose them to the market in 401k's. As long as you base your economy on "let's not argue about who killed who" when the crisis for financial firms hits, but screw over 10's of millions of workers when crisis hits them we are going to get poorer and poorer.
Lots of this lack of understanding comes from not knowing that accounting identities determine the availability of money, but some of it is simply malice.
"Why should I give up my bonus?"
Because you had the misfortune of working for an organization that decided to participate in the grand pyramid scheme that is the CDO market. I'm sure auto workers are wondering why they should have to take draconian salary cuts when they're not the ones that decided to let the Japanese lead on innovation.
But I guess market based trickle down effects are only to be felt at the blue collar level.
"some of it is simply malice"
Exactly. All of this reads as the privelaged class scapegoating unions and "rejects" yet again. The lack of empathy decency and hell even common sense is astonishing. Megan seems to think that because she didn't get a fat consulting gig and instead had to "settle" for a gig as journalist at a magazine, then auto workers should just take their lumps and hit the streets too.
Again - it would be laughable if the situation wasn't so serious.
I, and other people I know, who used to be doing well financially, would be very happy with a job that paid $15 per hour, with NO BENEFITS AT ALL. I actually applied for one job that pays $10.28 per hour, no benefits. It bothers me that the UAW is simply being asked to accept less money. We can argue about whether they make $50 per hour or $30 per hour, but from my viewpoint, even $30 per hour would be like a gift from Heaven right now. So I cannot sympathize with the UAW, even as I desperately want to see the government inject money into the economy.
What if I am willing to consider giving up my bonus in 2011? Is that sufficient? I'm pretty sure that is the UAW's bargaining position with regard to concessions.
Mike,
I know for a fact that you would never do as you say here. You would never suck it up if you had a choice, you would leave for the better run company.
@babyming
Well according to the logic I've seen in these posts and scrawled on these boards you're getting exactly what you deserve. I'm sure that will be very comforting to you as 3 million formerly employed auto workers join you in the bread lines and your job prospects shrink even further due to allowing our auto industry to implode and drag the rest of the US economy down a dark hole with it.
At least we'll have taught those UAW a*sholes a lesson though, and hey isn't that what really matters right now?
Mike,
Also, don't lie. "I'm arguing that demonizing blue collar workers who make on average $2 - $5 more per hour in Detroit than comparable workers do in Alabama where the cost of living is much much lower is severely myopic."
Until recently the starting wage for the UAW was $28.12 an hour. Are you arguing that the starting wage at a Toyota plant is 23-26 an hour?
The starting wage at a Toyota plant is, in fact, $15.50 an hour.
So, don't say $2-$5 when the real number is $12.62.
Uh yeah I would leave for the better run company, I don't think I ever suggested otherwise. I'm saying they paying out bonuses to retain "talent" when your company just had to borrow taxpayer funds to stay afloat is BS. And yeah a lot of people are going to leave. My question is - who cares? Why is keeping the best and brightest at AIG such a priority for the country right now? Why should the CEO of AIG receive a $3 million dollar bonus?
If you come crawling to Congress to correct your management errors you've foregone your right to fat bonuses you've become accustomed to in years past. Again, if you don't like it bounce.
And I've left companies (GM among them) that I knew were heading down a path to disaster. I'd argue that's exactly what you're supposed to do. To argue otherwise while simultaneously demonizing UAW workers ($56K a year!!!!) is the disconnect that many just don't seem to realize. Its kind of sad.
Mike,
How would the company possibly survive if the people like you, who had been bringing in revenue, left?
Mike,
And that's 56k to start! Not even counting benefits. Yes, 56k is more than Harvard and Stanford grads make on their first jobs and it's fu*king rediculous!
No legal business can survive paying starting wages of 56k a year to unskilled high school grads.
Got me - I facetiously pulled the $5/hour figure out of the air, so let's use your numbers
$12.62 which translated to about $24K a year. After taxes that translated to take home of about $15K a year or around $1200 a month. Between somebody who lives in Detroit and somebody who lives in Arkansas (or anywhere else in the south which is where many Japanese auto manufacturers work).
And this strikes you as an injustice of some sort. In light of the fact that Detroit auto workers have agreed to salary cuts in the future.
Okay man that's your perogative (I'm not seeing it, but whatever). But again, is anybody willing to hold management accountable? For anything? I'm pretty sure if people were actually buying the cars this conversation wouldn't be happening. Is anybody willing to hold anybody who actually did something to get us into this situation accountable? For anything?
Riiight. I just hired somebody right out of school for an entry level accounting position at $50K a year. And that doesn't include benefits either. In Philadelphia. He graduated from a state school.
I'm sure the modern dance degrees from Harvard pay a little less, but c'mon. Have you guys ever been to Detroit? Are you at all aware that costs of living vary from state to state? Region to region? Ask somebody who lives in California if they could live high on the hog for $56K a year.
Mike M,
Why is paying substantially above market wages to all your unionized employees while pleading for a government bailout acceptable? You seem to have no problem demonizing AIG employees, but any criticism of overpaid UAW workers is totally taboo. I'm sure AIG employees would be willing to discuss the idea of bonus concessions in 2011, if they got the same bonuses in 2009 that they got in 2008. That is basically the UAW position.
Mike,
Do I really need to give you the links to coldwellbanker.com to show that housing costs in Detroit and Little Rock are similar?
(sigh)
Again - wage cuts are part of a restructuring package that makes sense, not the be all end all to save this industry. Can anybody point me to some real concessions management has made that partnered with the proposed wage cuts (leaving aside the timing issue for now)?
You can't because they don't exist. You're happy with the conventional wisdom that unions are "bad" and the idea that some guy in Detroit could be making more than he should. This is somehow a grave injustice while AIG bonuses are not. And the people who point out that this doesn't make sense are the ones who don't get it. Or the even worse argument, you can't really effectively restructure an organization like AIG through wage cuts. Right. Like the ones who bought and sold CDO's to the point of no return weren't bonused on that.
People, people. Financial workers have taken a pay cut. For example, on Wall Street, bonuses make up a huge portion of an individual's compensation. It is estimated that 60% of total Wall Street compensation is made up of bonuses.
Guess what...Wall Street bonuses are estimated to be by down 50% this year. Therefore, if bonuses are 60% of Wall Street compensation, that translates into a pay cut of 30%.
Sources:
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=ahE8xVisWsbE
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMPdmak0IjJQ&refer=home
Not necessary. Being from a military family I lived in both Detroit, Little Rock, Atlanta and Florida as well as various bases around the northeast. Its much more expensive to live in Detroit than Little Rock or anywhere else in the south (maybe not South Florida). Anybody who would argue otherwise, well there's not much point in engaging that sort of person.
Mike,
Again you lie. I just did a search for homes in suburban Detroit and in Little Rock and you can buy a very nice home in each area for a little over 200k.
I tried to attach the links but the filter won't let me.
Wow a pay cut of 30%! On people who routinely would get bonuses of $500K or more. Impressive.
So yeah - I'm with you now. Screw those $56K a year a*sholes. Good lord this country really is doomed isn't it?
And correct me if I'm wrong, but can't you buy a $200K house pretty much anywhere in the country? What are taxes like? Utilities? Rents? What kind of house do you get for $200K? You're really going with a level of analysis on average costs of homes?
Why is the concept that it costs more to live in some areas of the country hard to grasp exactly? The idea has the added benefit of being true (though some think its a lie since it makes them feel better).
Mike,
The houses are similar 3 bedroom 2 bath 2000 square feet suburban. How hard is it to understand that Detroit is the most depressed real estate market in the country.
I'm not arguing that it cost more to live in NYC than in Kentucky. I'm arguing that since it cost the same to live in Detroit and is down is Little Rock and paying people in Detroit 2x as much as people in Arkansas makes ZERO sense.
:-)
What I mean to say:
I'm not arguing that it cost more to live in NYC than in Kentucky. I'm arguing that since it cost the same to live in Detroit as is does in Little Rock, paying people in Detroit 2x as much as people in Arkansas makes ZERO sense.
Mike M, not every Wall Street banker gets $500,000 bonuses. There are plenty of bankers who make $100,000 and get $30,000 bonuses in a good year...plus no job security and 72 hour weeks.
My point is simply this: It is incorrect to imply that financial workers are not getting a hair cut. The bailout has not preserved their compensation.
Are you really here to defend that?
So the tired $70 an hour argument rears its head. Those figures you're citing are not what an auto worker takes home, the pension of retired workers is factored into that.
http://mediamatters.org/columns/200811250012?f=h_column
But i can't even concentrate on that right now, I'm too busy shedding croccodile tears for the Wall Street banker who makes $100K a year with a $30K bonus. That poor guy. Let's give them some more money!
PS - if does not cost the same to live in Arkansas as it does in Detroit:
http://www.ded.mo.gov/researchandplanning/indicators/cost_of_living/index.stm
But hey if it helps stoke your rage at unions, I'll concede that you could buy a $200K house in Detroit as well as Little Rock (whatever that proves)
Mike,
Fine - you have already agreed that the starting salary was 56k a year. So, after 20 years how much are they making? I'm not even counting salary and benifits - just salary?
Keep in mind that even the UAW agrees that the average UAW worker is 46.3 years old and have 19.6 years of experience.
How much do they make? And can that be justified?
I'm not sure what your point is. Are auto workers going to be making more 20 years from now? I sure hope so. In fact I'll go out on a limb and baldly state that I hope everybody makes more 20 years from now since everything is going to cost a lot more 20 years from now.
Or are you arguing that people go into a plant making $56K a year. I don't believe that to be the case, that figure it based on an average salary. Some make $75K a year. Some make $35K a year.
And again, none of these figures seem extravagant to me. This is more what you would call a living wage. We used to believe that if you gave the middle class a living wage they would drive the engine of the economy. That was before the Masters of the Universe on Wall Street started making $500K a year pushing junk paper around the world.
All of this is veering way off the main topic we SHOULD be discussing however. How are we going to fix this? I'm still contending that laying the entire blame for this mess at the feet of auto workers is just plain dumb (and about what I expect from Megan after her feeble attempt to engage Greenwald in a debate). They don't make that much money as it is, they've suffered plenty as the industry suffers and they're going to suffer a lot more no matter what we do. Maybe we can do the least harm by holding the feet to the fire those who bear the REAL responsibility - MANAGEMENT.
Until we start doing that and talking real solutions the rest of this is just a sideshow. It reeks of the same 80's hate for the "welfare queen". This misguided notion that some poor idiot somewhere is getting over on the taxpayer. That is simply not the case.
Let's cut wages (yes, everybody agrees this is necessary, even the workers!), renegotiate bloated pensions, move the industries if need be (looks pretty cheap down south) and bring the workers if they want to come, fire management, bring in fresh ideas and talent, create mandates to ensure the industry more closely mirrors what the public wants. Make the industry attractive again. Any of these measures may work or they may not. Complaining that the blue collar class isn't giving in quickly enough to your demand that they bear the brunt of this mess isn't going to cut it. Its misplaced, cruel and frankly dumb.
Mike,
You are a smart guy and have some corporate experience. Is it that hard to belive that the average UAW worker costs +140k a year.
Starting wage 56k a year, average starting age 26.7, UAW contact allows them to retire after 30 years. How much would your company have to pay to provide a pension that would allow a worker to retire at the average age of 56 with a full pension. Plus, how much would your company have to pay to provide health insurance equal to what the UAW provides?
$70 an hour isn't really that hard to belive - and that's going with the UAW's own numbers.
You just got pwned!!!!!
http://www.usatoday.com/money/autos/2007-09-25-uaw-wed_N.htm
And I quote: "Manufacturing workers would make a starting wage of $28.12 under the new contract."
If it is the case - does that change your mind?
Now, who is to say - maybe USA Today is wrong. But, if USA Today is correct, and the the UAW starting wage is 56k.... what are your thoughts?
Got me. Starting salary is $56K a year. $6K more than that kid I just hired out of school with an accounting degree.
I'm not sure why we care though. That's not that much money in this day and age and I've already agreed their salaries are too high. The main killer are the pensions they negotiated way back in the day. That's a baked in time bomb that people rightly were questioning at the time. Its blowing up and need to be addressed ASAP. I personally have no problem with somebody who works around dangerous machinery all day in a Detroit suburb making $56K a year though. I'm sorry, I just don't.
Read my post above if you want to believe what I feel we SHOULD be talking about it. This ain't it.
Mike,
But, it's not 56k after he's been there for 20 years, it's 56k to start.
I know for a fact that kids from good schools are getting jobs in Boston, NYC, and San Francisco that are starting at 45k tops...
You know, I was initially agnostic on the Detroit bailout. But now I staunchly oppose it for a variety of reasons. The most emotionally satisfying reason, though, is to piss off people like Mike M.
Mike, your reasoning is illustrative of everything that's wrong with progressivism today. You can't stand the thought that somewhere, some AIG employee might have gotten a better break than a UAW worker, when you don't even understand why the government intervened in AIG in the first place. (Hint: it sure as hell wasn't to save jobs at AIG.)
And to dismiss the stakeholders at the big three as the "moneyed financial class?"
Just how ignorant can you be?
Where do you think UAW pension funds are invested? You never heard of institutional index funds? Who invests in them? Pension funds and endowments. A huge chunk of that is workers' money.
Take your job bank, your bitterness toward the "moneyed financial class" (also known as your employers and your customers) and your sense of entitlement and shove it.
Mike,
And to be honest, I'm a little freaked out.
I used to think (prior to about an hour ago) that the Big Three management must have been horrible. But, I work with one of the most successful software companies you can name. They hire kids out of MIT, Stanford, and the U. Of Chicago starting at like 52.5k a year. I can't imagine a situation in which even the most brilliant manager could figure out a way to build a successful business paying high school kids 56k to start.
It makes me want to throw up in my mouth... but the fact that Rick W. kept it going for this long....
Point one: who got cut out of what by how much? Some evidence on what a 'financial worker' makes (nice term, that) in what categories would be considered appropriate, I would think.
Point two: if you look at the heading of the post, the question is not why financial workers are not getting a haircut; the question is why was this not a requirement for the financial bailout packages. Megan's initial justifications have been shredded, I would say, so unless anyone has actually got new ones, I believe the discussion on those points are actually over.
Quelle Surprise. Jason Van Steenwyk (of the Westchester Van Steenwyk's perhaps?) is against the auto bailout. Not on any sound principle mind you, but just to piss off liberals. Now that's an intelligent and reasonable response.
And we scratch our heads and wonder how we arrived at this sad point in America. Douchebags like this guy are willing to turn a deep recession into a terrifying depression to teach those dirty liberals a lesson. As if the real world were some sort of half assed reverse version of the movie Caddyshack or something.
And yet somehow I'm the one with a sense of "entitlement" (even though I'm not an auto worker but a CPA). Tell you what, you take your con job of an industry masquerading as something intelligent and beneficial to humanity and shove it up your white bread a*s. You and your ilk have driven this country into the ground and now you want to salt the earth so nothing can ever grow again. Your smug sense of satisfaction over "pissing off the liberals" is going to be cold comfort in the days ahead if we don't have this bailout.
And I'd rather give $100 billion to high school kids who work hard and make something then a red cent to a*ssholes like this guy and all he represents. My guess is come January 2009 you'll find this worldview is going to be far more prevalent than your greedy hateful spiteful one. Good luck coping with all that.
Mike,
I really don't see America comming to the side of high school kids making 56k to start.
I would have to figure that 56k is higher than the starting salary of 99% of americans.
There's substantial circumstantial evidence that financial sector executives were not, in fact, good at what they did. It's hard to imagine that they have better options, and it's harder to imagine that replacing them wholesale with new people would lead to worse outcomes. So while I accept the general propositions that Megan has laid out, I think she's on empirically suspect ground with regard to the irreplaceable competencies of financial sector executives.
Rich, ten, fifteen years ago, I was one heavy caliber dude with 'leet skillz. Besides of course knowing html inside and out, I was expert in the proprietary language our company used for its products(Procomm->DataStorm->Quaterdeck->Semantec.) Had a lot of fancy certification in Windoze, knew unix well enough to be an administrator, and even a good working knowledge of JCL, JES2, etc. And of course, was fluent in Pascal, Lisp, API, Fortran (IV, I believe), c, c++, COBOL, as well as that new-fangled Java stuff.
And I made a pretty good living then if I do say so myself. Then things went into a nose dive starting in '99, verging on the later dotcom crash. Funny thing that, I never thought that I would be one of those laid off - I had skillz dambit, not like those other bums. And if I did ever think about being laid off, it was always with the irritable thought that it might take me a couple of months to find some position worthy of me.
About a year after that, I was pounding the pavement, along with several thousand of my kind looking for work. Some younger guys bit the bullet and accepted jobs with few bennies paying perhaps $12/hr, along with such indignities as being 'on call' on the weekends, and being required to change toner cartridges and put more paper into the printers. Me, I went back to school.
So don't tell me about how these displaced 'financial workers' will still be able to command dazzling sums of money, what with their 'leetness and all. You want me to believe these bland, reflexive assertions(which are, oddly enough, at a complete variance with the glibertarians professed economic beliefs), you better be able to show me some hard figures.
Mike,
You dipshit: do you know how many people who work for banks who make less than the average UAW worker? Lots of them. Whole back offices are full of operations workers making $50k or $60k or less (which is less than most UAW workers make with overtime). Those bank workers are getting canned by the bushel full -- as well they should be, when the banks can't afford to pay them anymore. That's how business works: when you lose money, you cutback on staff and reduce costs. The idea that someone should keep their overinflated wages until 2011 while their company hemorrhages money is absurd.
UAW workers have been getting paid $80k per year for sleepwalking through high school. That sort of largess might have been sustainable circa 1950, when the rest of the world's factories were still in rubble, but it hasn't been sustainable here for years. The average American couldn't afford a new car without the sort of securitized lending that lead to the housing bubble. A new car wouldn't need to cost $30k if every knucklehead turning a screwdriver on the assembly line weren't getting $73 per hour in wages and benefits. It's unsustainable.
The idea that someone should keep their overinflated wages until 2011 while their company hemorrhages money is absurd.
If they have a contract that says that, I don't see what's so absurd about it. I thought libertarians were all about the inviolable contract.
ScentofViolets,
You're both missing the point. If there's no demand for bank workers, there's nothing stopping the banks from cutting their wages or firing them en masse as they are doing now. That's how companies stay in business in lean times -- they cut costs. That's also why the domestic automakers are on the verge of bankruptcy now -- the union contracts their previous management was stupid enough to sign prevents them from cutting costs similarly.
"If they have a contract that says that, I don't see what's so absurd about it. I thought libertarians were all about the inviolable contract."
1) I'm not a libertarian.
2) The contract was between the UAW and the automakers, not between the UAW and the U.S. taxpayers. Since the terms of the contract were onerous enough to bring the automakers to the verge of insolvency, the UAW's contract legally entitles them to whatever piece of the automakers' corpses a bankruptcy judge sees fit to give them; the contract doesn't entitle them to anything from the U.S. government.
Gosh no, as a CPA with an MBA I was sincerely unaware that there are low paid workers in the banking industry (rolls eyes).
We're talking about the high flying slick useless types who decided it would be an awesome idea to earn a quick commission by allowing people with incomes of $20K a year to borrow every needed penny of a $700K mortgage because they knew full well it would be off their balance sheet, securitized into essentially a junk bond (with the rating agencies turning a blind eye) and then CDO'd eight different ways to Sunday in order to give the appearance of a safe investment. Those people and the industries they mismanaged with abandon (and certainly no oversight) lo these many years were just authorized $700 BILLION of taxpayer money to cover for their idiocy. The only reason people are bitching about giving any money to overpaid auto workers (and again, nobody is arguing they are overpaid, maybe you should actually read the posts before you open your ignorant mouth) is because those are icky poor people.
But tell us genius, what do YOU think will happen once the auto industry disappears from America? Also, do you honestly believe its solely the fault of line workers that nobody wants to buy American cards (who designed the Malibu, the slacker who slept walked through college?!)? Or are you too busy seething with rage over the idea that your tax dollars could be going to one of "their kind". Posts like yours reek of elitist classist snobbery (these people slept walked through high school! they don't deserve my money!). You have no idea what you're talking about (I'd be willing to bet my first born you've never been within 10 miles of an auto worker) and you have no concept of the larger implications of letting these businesses fail at this point in time.
Its idiots like you that are going to turn this nightmare into an apocalypse. All to preserve your sense of being better than some common prole from Motown. In short you're a know-nothing snob.
Mike,
You lost - stop fighting.
No one has one ounce of sympathy for some high school dropout douche who's making 56k.
Find another group of douches to carry water for.
Except Congress(well not Republicans, but clearly they have awesome judgement). And President Bush (who has amazingly turned out to be the sane one on this issue). And the governor of Michigan. And 3 million auto workers. And Economists who agree that letting these guys fail would be a terrible idea at this juncture. When the grown ups have their say and we figure out how to keep this industry afloat until things settle down, what justification will you use? Actually, nevermind. I don't care.
So now we've degraded these human beings from sub par high school students to high school dropouts. Very telling. And you're essentially carrying water for the Rick Wagoner's of the world. I'll take my douches any day of the week.
May I ask why? Why do you have sypathy for them? What have they ever done for you?
From where I stand all they have every done for anyone is make them pay inflated prices for shitty cars.
Again, I lived in Michigan for three years. We were military, but many of my neighbors were auto workers. They were good people. They just want to make enough money to raise their families in a nice suburb and go on vacation every once in a while. To me they're not some abstract evil force who should be punished.
And again, we all know high wages are part of the problem. But compared to the gross excesses of Wall Street (which we have no problem rescuing apparently) these guys are a drop in the bucket.
$700 billion to bail out Wall Street. $15 billion to keep Detroit working a few more months with the possibility to force real change and prevent our economy from tanking further. That seems like a bargain to me.
Megan McScrooge says they need to reduce unit labor costs so line workers need Holiday haircuts. Grinch Brooks decries the mindset that led to the bailouts and then goes on Lehrer and mounts a defense of 2008 bank CEO bonuses for the ages. Sampson needs his hair.
Of course this was only the first of many battles -- there were many more bailouts coming that Congress could have refused or certainly forced haircuts. Why not chill the bleep out, do the $14B, let kids have their presents, push it all down the line. There aren't going to be anywhere near 60 votes for a bailout that lets Detroit off the hook in the new Senate.
This time of year, when you're already arguing that millionaires should keep their eight-figure bonuses, why not just come out for kicking the can down the road? Even if the logic isn't there, even if you know you're right, what's the real harm in pursuing the restructuring in the new year, and give some people some very temporary peace of mind? I guess I should be impressed by Megan' and David's seeming indifference to the spirit, and the reality, of the season-- I trust they would volunteer for an organization of laissez-faire advocates who go to all the houses where there aren't Christmas presents (as Megan has literally advocated) to explain all this to the kids. But instead I'm just depressed at my lack of surprise at it.
As Jeffrey Goldberg would have us say (if we're so moved): Merry Christmas.
I'm having a hard time figuring out if Mike is for real or if he's doing a bit.
He says that $56k isn't that much money to pay the factory workers, that he just hired a kid out of school for an accounting position for that much (I'm assuming that he hired the kid out of college).
Isn't the median income $60k? So it's perfectly reasonable for starting salaries to be fairly close to the median income, overall?
Mike,
You are an honorable man and I accept what you have to say. But, I think the failure of the UAW and the failure of Bear, AIG, etc. all have the same root - greed.
If the UAW was willing to settle for a starting wage of 40k and relax the work rules they could have made it work. But, no, they had to go and ask for starting wages that even Microsoft, Google, and Apple couldn't justify.
We need to condemn greed in all its' forms, UAW, Goldman, AIG etc.
And Mike, I want to live in a world where high school drop outs make 56k and state school grads make 120k and Harvard grads start out making 250k, I really do. But, all the UAW has done is convince the vast majority of Americans that unionism is the path to ruin.
I want to live in a world where high school drop outs make 56k and state school grads make 120k and Harvard grads start out making 250k, I really do.
Given the rate the Fed is printing money, that day may come sooner than you think...
Most people in this country are not opposed to helping D3 and its employees with a bailout loan. We oppose the bailout in its current form because we want UAW to agree to a viable wage and benefits structure that will convince debt holders to restructure also.
Without UAW willingness to accept market/competitive labor terms, it is not possible to restructure D3 so it can have a chance to turnaround and save the domestic industry and associated jobs.
jmo, a Gallup poll dated 12/01/08 shows that 59% of Americans have a favorable view of unions, and that only 32% of the public wants them to have less influence. Here's the URL:
http://tinyurl.com/6krlfu
You're either hanging around with the wrong people, or you're spending too much time watching Fox News.
In the end, there's no doubt that both GM's UAW and salaried workers will have to give up some of their fringe benefits. In the end, I expect that a) the upper midwest will join New England and the Acela states as a no-go area for the GOP, and b) the pressure for universal health care will become overwhelming in the next few years. Senator Shelby and Megan's other heroes are playing the same role for Joe the Auto Worker and Fred the Car Salesman that Tom Tancredo and Lou Dobbs did for Hispanics in the last election. As ever, Barack Obama is lucky in his enemies.
Re: I don't think Megan's against a bailout; she just thinks it ought to be accompanied by steps that would make the automakers viable going forward.
I agree with this. And in fact there are preliminary plans and proposals already in existence toward that goal. Where I disagree (with the Senate GOP at least) is that I don't think every "i" must be dotted and every "t" must be crossed before we can proceed. If a patient shows up at the ER with a heart attack you don't lecture him about his weight and exercize habits; you first deal with the crisis and then put him on the road to healthier living.
Re: There's a key difference between the banks and the automakers when it comes to labor costs: if the banks' labor costs become unsustainable, they can cut them.
And the auto makers have not been cutting jobs?
The town where I grew up used to have three auto factories in or near to it. Now there's just one. Yes, the auto makers have been giving out expensive severance deals, but the big banks do this also. I know what the severance package was for those who worked through their last day at our now defunct Florida office, I am not allowed to talk about the details, but let me say it was a lot sweeter than just one month's pay for each year of seniority, which is typical of corporate America.
Re: I, and other people I know, who used to be doing well financially, would be very happy with a job that paid $15 per hour
Once upon a time when all was not well I took a job telemarketing for $10 an hour. That does not mean I think everyone should be paid $10/hr, or would have been happy to get that myself for the rest of my life. Again I have to ask why so many people seem to resent the idea of the US having a prosperous working class.
Re: Its much more expensive to live in Detroit than Little Rock or anywhere else in the south
I'm from SE Michigan. I don't know about living in Detroit proper, but the place in general was cheaper than most other places I've lived. NE Ohio is comparable, but Florida was more expensive (both Tampa Bay and S Florida) and Baltimore now is much more expensive. Of course you have high heating costs in winter in Michigan and the auto insurance rates were absurdly high, but rents and housing proces are fairly cheap, unless you're in the Bloomfields, the Grosse Pointes (millionaire territory, both), or Ann Arbor.
Got me. Starting salary is $56K a year. $6K more than that kid I just hired out of school with an accounting degree.
I'm not sure why we care though. That's not that much money in this day and age and I've already agreed their salaries are too high.
Ah, this is a winner of an argument. The median HHI in my mid-sized city is $48k. If you want to generate public support among us for spending tax dollars on UAW workers, just explain to us how $56k is "not that much money".
Is this a serious question? The answer is fairly obvious--because the regulators were in a hurry, and financial worker salaries were not a major contributing factor to the problem in the first place--in fact, most of these employees worked for components of the company that were in fact turning a profit. AIG was not a company that was on the ropes before the crisis due to high salary costs.
Now perhaps it is possible that due to some kind of market inefficiency, the financial industry is overvaluing its workers, and a company could reduce salaries without losing their most competent employees to the competition. Maybe (as some people here clearly wish to believe) they could hire guys laid off from the auto assembly line and do just as well as hiring guys with accounting and business degrees from top colleges.
So even though it probably would make no difference for the company's prospects of survival, perhaps salaries could be reduced without harming the company's prospects, just to make the taxpayers feel better (I'm sure that everybody agrees that there should have been something in the deal about expensive executive retreats). But by how much for each job description? Maybe a team of top economists could figure it out over a few months.
Except, of course, that there was no time--the company would have collapsed by then.
Judging from your complete inability to address the issues raised by Megan's post, I'd say you 'lost' - and lost very, very badly. Take your glibertarianism elsewhere.
America was known as a high wage country for centuries. That is one of the reasons people would come here to work - that is why they still come here to work.
High wages are not the problem.
Plus, $50K to start for a semi-skilled worker is about right. You act like these people are just sweeping the floor, when they need to have some smarts and show up for work on time every day. Plus, I don't mean to be rude, but my uncle works for ford and he doesn't make all that much money. He is about to retire. We white collar people think $50K is great, because we get some 10-20% bonus, basically every year. They don't get bonuses in that range.
What really eats at me about the AIG bailout--perhaps this is part of what JVS hints at in one of his earlier posts--is that it appears to be going mainly to unwind the speculative CDS bubble. Perhaps 10-20% of counterparties that bought CDS from AIG actually intended to protect bondholdings against default risk, but the rest of the counterparties are hedgies that found a way to "short" the housing market/market crash. I find it outrageous that taxpayer money is going to honor these CDS positions at full value. At the very least, the Treasury should have forced speculative buyers to accept a steep haircut in settlement. If I understand the situation correctly, the seniority of CDS contracts in their claim on AIG's assets is high because of collateral requirements, but since CDS contracts are still relatively new and unstandardized, it isnt really clear how enforceable they are. I think the way the Treasury has bailed out CDS market will not discourage this sort of speculative abuse of derivatives in the future.
MH, this is precisely correct. I would have much more sympathy for the argument of unacceptable consequences given for bailout of the financial services sector if groups like AIG actually used the money for it's stated purpose, that is, to keep lending in a shaky economy.
They didn't, in fact, the amount of lending has contracted since then, $70 billion of that $700 billion is going towards 'retention bonuses' and other such folderol, and substantial fractions of the rest of that money is going towards the acquisition of other institutions. As well as - as you note - the surreptitious unloading of what one banker famously referred to as 'turds in a briefcase'.
The argument that infusions of cash were needed in this particular industry to prevent a financial implosion is completely bankrupt.
"I would have much more sympathy for the argument of unacceptable consequences given for bailout of the financial services sector if groups like AIG actually used the money for it's stated purpose, that is, to keep lending in a shaky economy."
Huh? AIG is not a lender. It is an insurance company. The theory behind AIG's bailout was to prevent a domino series of failures across the financial industry.
"They didn't, in fact, the amount of lending has contracted since then, $70 billion of that $700 billion is going towards 'retention bonuses' and other such folderol, and substantial fractions of the rest of that money is going towards the acquisition of other institutions."
Interesting charge. Any sources?
Megan writes:
"Labor costs are not the issue at banks, or AIG; balance sheet impairment is. Labor costs are a much smaller portion of their financial burden than at an automaker. Cutting their compensation will not return the balance sheets to full strength."
One big part of improving their balance sheet is attracting new business, retaining their current business, and getting consumers to trust them again. In short, they need to restore their goodwill, and paying secret bonuses to employees using bailout money isn't conducive to this.
If I, as an investor, see how frivolously they treat the money coming from the public coffers, why would I expect them to treat my money any differently? Why should pay their management fees when I can just throw my money into an index fund at Vanguard?
The modifier, MnZ, is 'groups like' AIG, that is, the rational given for the bailout was for money to be lent. Is giving money to AIG causing more money to be lent? Yes or no? Not a difficult question.
I'm not at all sure what you mean by this. Do you mean that if I give you reputable sources that you'll agree with me? That you'll say that yes, there is a bit of hypocrisy vis a vis the Big 3 vs the financial sector?
Megan,
Do you consider Vanguard's employees to be the "rejects who can't work anywhere else"? From what I understand, their compensation pales to employees in the prestige investment firms, but their returns, when all is said and done, aren't a whole lot different than those of the funds with 3%+ management feees.
Maybe I'm confusing personal investing with institutional investing, but I can't imagine a huge difference in the output of a guy making $300-500,000 a year and the guy making millions. The only difference is that the guy making millions is better at getting business for the firm; basically a glorified salesman who doesn't add much value to the product offerings. I don't see how those guys are indispensable at a time like this...
Scent,
I don't know the answer to that question because I have not studied it closely. However, the stated reason for the AIG bailout was to prevent a domino effect. Therefore, to extent that the AIG bailout prevented further bank collapses and greater credit market turmoil, then it has expanded lending over what would have prevailed otherwise. In other words, solvent banks make more loans than insolvent banks.
Staash,
Vanguard only does certain functions within the financial industry. They do not do intermediate functions such as advising companies that seek raise capital and underwriting securities. These intermediate functions is where the high salaries are.
The guy who's great at getting business for the firm isn't indispensable to the company?
Damn. This place gets dumber by the minute!
ScentOfViolets: "Rich, ten, fifteen years ago, I was one heavy caliber dude with 'leet skillz. Besides of course knowing html inside and out, I was expert in the proprietary language our company used for its products(Procomm->DataStorm->Quaterdeck->Semantec.) Had a lot of fancy certification in Windoze,..."
See, this is where I get the impression you weren't as l33t as you think.
At this point I'm thinking you were the 1999 equivalent of a J2EE code monkey. Seriously, windows certs? Knowing html?
"...knew unix well enough to be an administrator, and even a good working knowledge of JCL, JES2, etc. And of course, was fluent in Pascal, Lisp, API, Fortran (IV, I believe), c, c++, COBOL, as well as that new-fangled Java stuff."
If Simon Peyton Jones claimed to be fluent in that many languages, I'd buy it. You realize that doing a few homeworks in lisp does not make you fluent, right?
Statements like this strongly suggest you are not fluent in any language, and don't even know what fluent means.
Also, did you mean APL rather than API?
But that was not the argument. The argument was that the financial industry needed the money to keep lending. Individual firms may need their cut of the bailout money for different purposes, but that is the argument. That is, in fact, why I used the modifiers I did - 'groups like' - rather than simply saying AIG. That is also why I am referring to the $700 billion package, and not just to what AIG is getting.
So arguing that more credit is available than otherwise is simply off-point.
Chet: "If they have a contract that says that, I don't see what's so absurd about it. "
As a taxpayer, I don't recall signing any contract with the UAW.
Jason Van Steenwk sneers:
"The guy who's great at getting business for the firm isn't indispensable to the company?
Damn. This place gets dumber by the minute!"
Sigh. I knew someone was going to twist that statement immediately after I hit the "post" button.
I have no doubt that these people are very valuable to their particular firm. What I question is their value to the industry as a whole vis a vis Megan's original post. I contend that these glorified salespeople don't really add value to the industry, they just divert money that was going to be invested anyway to one particular bank or another. If they leave the industry for retirement or otherwise greener pastures, I don't think the industry as a whole would be much worse off. This is in contrast to Megan's notion of not wanting the "rejects" (aka anyone who isn't incredibly venal) running the show.
Sigh. NZ, I really don't think we should be talking; my opinion of your knowledge, reasoning abilities, and consistency is really very low.
But for other people: the notion that these financial people have some sort of portable skill set that somehow makes them more employable is laughable.
Yes, Windoze certifications won't get you a relatively high-paying job; but, like nursing, it's supposed to get you some sort of job with some sort of wage floor. Same thing with knowing legacy stuff like COBOL, JCL, etc (in fact, COBOL people are supposed to be able to command big bucks, according to some people.)
Those skills, in short, were billed as being portable. They weren't. Not with a glut of labor on the market with those same portable 'elite skills'(I don't know if there is an objective measure of 'fluent'; suffice it to say that at one point I knew several languages well enough to be profitably employed coding with them. And let's face it, not being fluent in several languages in the IT profession is - or was - generally considered a mark of incompetence.)
But thanks NZ for playing the foil of Simplicio. Btw, do you have an explanation for why so few people even bother to reply to you on economistsview?
[a] substantial fractions of the rest of [the bailout] money is going towards the acquisition of other institutions
I don't know if this is true, but it wouldn't surprise me. One big lesson of the bailout has been that you need to be too big to fail. If you're not, you should do M&A activities until you are. It's exactly why GM & Chrysler were talking merger a while back.
It's yet another reason why the bailout was a bad idea. As could reasonably be expected, it created the wrong incentives. Which is not to say there shouldn't be any intervention, but it should have treated the real problem (lack of liquidity in credit markets) rather just throw a bunch of money at the failing banks and hope it all works out in the end.
ScentOfViolets writes: "But for other people: the notion that these financial people have some sort of portable skill set that somehow makes them more employable is laughable."
Agreed, although in terms of so-called human capital (intelligence, drive, industriousness) and existing assets it's not unbelievable that they could find some success elsewhere, though I doubt they'll be making what they did in 2006.
ScentOfViolets writes:
"In a country with extremely high unemployment in general, and a glut of financial workers in particular, one would think these people would have extremely poor prospects, and would be very happy to keep their jobs."
Perhaps I'm being naive, but I would really like to think that the people working in the industry would, aside from just being happy to keep their jobs, be willing to take pains to set their firms (and by extension the industry) back on course. Maybe, you know, be willing clean up the mess that they made and heavily profited from?
Of course, that's pure fantasy. Today's bankers resemble Michael Milken a lot more than J.P. Morgan. And yes, that is a slight ethnic jab, although the UAW is behaving more or less the same way...
Jasper writes: "Ideally the sole criterion we should consider when discussing lending government money to Detroit is: are we better off doing so or not? With 5% unemployment and 3.5% GDP growth I say the answer is "not." With 8% (and rapidly rising) unemployment and collapsing GDP, I say the answer is "yes.""
A lot of people are ignoring the timing of the bailout, saying, "Well, if they're going to fail anyways, why not just get it over with?" That argument is irrelevant if the case for the bailout is the immediate systemic risk that the failure poses to the economy. I think the bailout will mainly serve to keep these companies on life support for the time being. If they prove to be hopelessly doomed, we can always pull the plug at a later date.
The auto companies and their unions should work out the problem for themselves. If they want their industry to survive, they'll find a way.
Staash
We won't pull the plug later. Quick- name one government program directly benefitting over a million people that was ended. Name one that ended that benefitted 100,000.
And the automakers won't be alone. There are a lot of industries (airlines, I am looking at you) that will then look to the government for direct support.
For the automakers, a far better route is a chapter 11 reorganization. If the government wants to really help, it can allow the companies to realign their product mixes to those that are most profitable. This means repealing the CAFE standards and the corresponding restrictions that it places on the companies product mix.
There is a viable business here, but it needs the force of bankruptcy to incentivize the necessary changes, but the government needs to do its part and allow the companies to ax the unprofitable parts of their operations without having to worry about being hauled into federal court.
Yancey, during the Johnson presidency the government paid beginning dentists to provide oral care for poor children in rural areas. I knew several dentists in the 60's and 70's who worked for these programs in Michigan's UP. They said they saw case after case of children who had never seen a dentist before they arrived on the scence and who were on the verge of losing their permanent teeth. The War on Poverty ended when the Republicans took control, and when it ended so did the rural dentistry program. That's one program that ended, and I'm sure there were more. And it benefitted in a very direct way millions of people.
No one has one ounce of sympathy for some high school dropout douche who's making 56k. Find another group of douches to carry water for.
And we should have sympathy for someone like you who reeks of class and intellectual bias? Neither Bill Gates nor Steve Jobs graduated from college. Are they douches too?
I guess there are jobs some Americans think they're too superior to do.
It's interesting to see so many so-called libertarians, self-proclaimed free marketers, support an attempt by the US Senate to force American workers to work for lower wages. That they think there's nothing wrong with letting foreign companies set wage standards for US industries by Senate fiat as opposed to market forces is mind boggling.
Ronnie Schreiber
Motorobilia
It's interesting to see so many so-called libertarians, self-proclaimed free marketers, support an attempt by the US Senate to force American workers to work for lower wages.
I must have overlooked the part of the bill that says that workers aren't allowed to quit.
That they think there's nothing wrong with letting foreign companies set wage standards for US industries by Senate fiat as opposed to market forces is mind boggling.
"Market forces" have determined that the wages for a large number of current auto industry jobs should be zero.
The real differences between AIG (and banks equally) and GM:
1) cutting salaries at GM would help it compete; capping salaries at AIG would prevent it from competing
2) AIG's losses stem from poor business decisions (going into the CDS mkt, about which it knew nothing), not exessive compensation; GM's losses stem from employee strangulation
3) compensation at AIG will trend lower if competition forces these changes (it will be able to hire people more cheaply); GM's union views getting above mkt pay as an achievement (European unions are far more sensitive to competitive forces of their companies)
As a taxpayer, I don't recall signing any contract with the UAW.
Um, that's retarded. You don't have a contract with the floor workers at Best Buy, either, but their wages determine the prices of the TV's you buy.
If the UAW workers have a contract that specifies a certain wage, they're under no obligation to voluntarily take a pay cut to help out Detroit fatcats, or even to ease the burden on the American taxpayer.
It's a legal contract. A lot of those workers are depending on that contract being fulfilled, and I don't see how it's anything but naked classism that libertarians, who otherwise venerate contracts, are calling on them to voluntarily turn pay away.
Re: AIG's losses stem from poor business decisions (going into the CDS mkt, about which it knew nothing), not exessive compensation; GM's losses stem from employee strangulation
Saying that GM's business decisions have nothing to do with its current perils is flat out absurd. What next, The deaths on 9-11 had nothing to do with terrorism?
Good grief.
Any time a business gets into trouble its business decisions have something-- a lot-- to do with its problems. That's true even if you do think its wages are too high: after all the management agreed to pay those wages.
The buck really does stop in the boards room.
Chet: "It's a legal contract. A lot of those workers are depending on that contract being fulfilled, and I don't see how it's anything but naked classism that libertarians, who otherwise venerate contracts, are calling on them to voluntarily turn pay away."
The taxpayers signed no contract, and are under no obligation to give a bailout. If the UAW wants to stick to their contract, the American people are free to keep their money.
Then the UAW and other creditors (who also have contracts) can fight it all out in bankruptcy court.
This, by the way, ignores the fact that force was used to induce the big3 to sign that contract.
Dick King, Thank you for those kind words, I know you're right. The problem is the nature of a union's mission -- protecting workers' jobs -- in the face of rapidly changing technology, which tends to eliminate the need for so much labor, and the competitive battle for corporate profit.
The easy answer is to say unions are no longer important. But I don't believe that. I live in paper mill company, and I've watched how the unions here have grown fat and lazy, just like Detroit, making the mill unable to move and respond, just like a person who's grown to 300 pounds. The workers didn't like the results any more then management or what became very distant ownership. One mill I wrote about for a local trade mag was shut down for more then a year, sold and reopened. The union bent over backward to rework the rules, going nimble. Both the new owners, the union, and the workers were much happier after the reorganization and newer, nimble rules that allowed workers to do more things, to pitch in more and participate in the mill's success more.
Unions are also important in industrial situations. There are many dangers on a shop floor, and workers need a strong voice. As long as health care is employer based, unions are important. (When are we going to recognize that health care is the rot at the core of the free-market system in the US? Single payer would eliminate so many problems for business, I don't understand why employers aren't screaming for it.)
Perhaps a union that helped workers constantly train for the new technology -- partnering with local community colleges and university, staying ahead of the education curve that eliminates jobs by retraining -- instead of freezing jobs in an obsolete line is the answer. I don't know.
My son will be just fine. He starts a new job today at a good company, after a short break-in time, he'll apprentice as a tool maker, the first step on the way to his dream of someday making product prototypes. But he's lucky, he's got parents who believe in doing work that makes you happy, not crazy.
Lot of bankers would rather have been working with their hands, but their parents thought they should be making money. Now, they are out of work, and they have forgotten how to get dirty. And they don't even have a union to look out for them. Pathetic. I'm predicting a boom in furniture building classes.
The taxpayers signed no contract, and are under no obligation to give a bailout.
I don't recall arguing that they were.
This, by the way, ignores the fact that force was used to induce the big3 to sign that contract.
"Force"? Absurd.
"Single payer would eliminate so many problems for business..."
Unless that business is a pharmaceutical company, a biotech company, a medical device manufacturer, a surgical robotics company, etc. -- you know, the companies that profit from our partially-free market health care system, and along the way, come up with new treatments and cures that advance the state of medicine. A 'single payer' system would lead to price controls (particularly when the government's dollars will have to stretch to cover every campesino who walks over from Juarez), which would erode profit margins among these businesses, which would gut industries that America leads the world in, and which would reduce the pace of medical advancement. No thanks.
Chet,
You argued precisely that, at 11:19 above, with this breathtakingly stupid statement:
If the UAW workers have a contract that specifies a certain wage, they're under no obligation to voluntarily take a pay cut to help out Detroit fatcats, or even to ease the burden on the American taxpayer.
As a taxpayer, I'm telling the UAW to go screw themselves.
Apparently, I'm not alone. And it's precisely because of this obnoxious attitude of entitlement exhibited by the UAW and their supporters.
Jason,
Chet is a liberal who bases his comments on emotion, not facts and reason. Expecting logical consistency from him is folly.
Fred, are you suggesting that with single payer there would be rigging in the system, a lack of competition, toward specific industries/companies?
And you don't think that already happens? Sorry, you loose on that one. America's heads are buzzing with phama to prove the point, given out by the handful until you hooked. Then you've gotta pay to play.
No, I'm talking about the weight of private insurance, a burden placed on private industry for far too long. It makes us unable to compete on the global market, and it should be removed from the backs of industry. Single payer for all; private insurance for those who want and can afford it above and beyond.
I think there would still be competition for treatments; I've got a medical problem that I've seen at least 15 different drug advertisements I could have asked for to treat it. They might not have solved the underlying ailment, but they all would have treated the symptoms and numbed my discomfort. And I'd have gotten those first fistfuls at the docs office for free, I'm pretty sure.
After the last 30 years of Reaganomics and modified Reaganomics (Clintonomics) we've reached the point where paying people market wages is nothing but the most efficient form of demand destruction.
Union wages, starting with the UAW, have propped up the nation's entire salary structure since the 1950s. That includes the wages paid to Toyota and Honda workers in the South. Luckily, we're about to get rid of all these pesky unions.
The Unions have given up every advantage they had over non-union labor.
http://emptywheel.firedoglake.com/2008/11/15/what-the-ap-left-out-about-the-uaw/
http://emptywheel.firedoglake.com/2008/11/15/what-the-ap-left-out-about-the-uaw/
From the link:
In its contract last year, the UAW made painful concessions, adopting a two-tier wage structure, such that new employees make just $12 to $15 an hour. The move is projected to bring the American manufacturers in line with their Japanese rivals’ non-union labor costs in the near future.
In addition, the union has taken responsibility for providing retiree healthcare, thereby eliminating one of the last remaining competitive disadvantages for the American manufacturers’ unionized workforce as compared to their Japanese rivals.
With these agreements, the UAW has managed to save jobs, while still providing the superior labor force that leads most segments in terms of the most efficient plants measured in hours per vehicle.
The UAW’s workers have made deep concessions to ensure American-owned auto industry remains competitive with its foreign competitors. Now that the American-owned manufacturers have eliminated some of the structural disadvantages that gave foreign competitors a market advantage, it would be a terrible waste for its country not to do what’s necessary to sustain American manufacturing though this tough financial period.
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All information sourced in the link.
No, the banks are not 'full of good people' , though the people who are full of it may work there, and being full of it, and being able to spout it, might help them land a 'better alternative elsewhere'.
Just read 'liars poker' -- investments banks give a lot of leeway to inexperienced college kids with zero idea and tell them to churn and burn, or take insane risks. If these people were any good at allocating capital efficiently , their one purpose in life, we wouldn't be in the situation we are in. Again, let the banks fail, rescue the real economy, replace the banks with a centralized, computerized lending facility.
In 2007 General Motors and Toyota both sold about the same number of vehicles. In fact it was a record sales year on a worldwide basis for General Motors.
But while Toyota turned a profit in 2007 of about 10 billion dollars, General Motors lost about 30 billion.
Remember, this was when General Motors was selling more of its product than in any year in its history.
I don't believe the government is capable of determine the correct wage to pay the UAW autoworkers. That's why taking this issue to Chapter 11 bankruptcy is the better option.
It would allow General Motors to get out of the losing position that it is currently in, a situation where it loses money even when it sells a record number of its vehicles.
Clearly the taxpayer should not lend to a corporation that can't even turn a profit when its sales are the highest ever. There has to be a restructuring of the corporation.
Otherwise the taxpayer will end up paying on this forever.
It will be like the farm subsides. Americans not only pay for the food we buy, we also have to pay taxes to pay farmers for surplus crops.
This could be the situation we find ourselves in if the bailout goes through. We would have to pay for our cars, but we would also have to pay taxes to keep General Motors from going out of business because it can't turn a profit no matter how many cars it sells.
"I know that many of you would like to see every single one of them have their paycheck reduced to that of a Nissan line worker, but it doesn't work that way. The good people at those banks have better alternatives than being a Nissan line worker, and have usually invested substantial amounts of time and money in building human capital, rather than hitting the line after high school. If you cap their pay there, they will leave to pursue those other opportunities, leaving you a firm staffed with the rejects who can't work elsewhere."
A) These "highly-trained" and "highly-skilled" financial workers have already proven that they are in fact rejects.
B) The vast majority of these "good people" simply have 4-year degrees, with the remainder generally having a 2-year MBA at best. I'm not sure why you think they have so many other opportunities. My i-banking friends who have been laid off or quit in the past couple of years have had significant trouble landing other jobs, and none of those paid nearly what they made at Lehman, Goldman, etc.