* The financial executives helped cause the present meltdown. Auto workers did not.* The financial executives run their firms, and are responsible for their troubles. Auto workers and their union, by contrast, just got themselves a good deal by bargaining with management. That's their prerogative. I don't see that they're any more to blame for the problems of the Big Three than people who accept unduly large cash back bonuses on their new cars would be, had the Big Three miscalculated and given away more in cash-back bonuses than they could afford.
* Financial executives have just destroyed a tremendous amount of value and ruined the global economy. Auto workers have been busy creating useful things.
* In exchange for destroying value, financial executives get paid a whole lot more than auto workers. Orders of magnitude more. They even get multi-million dollar performance bonuses when their firms lose money! And their benefits are a lot more cushy: not just good health care but private jets and chauffeurs!
* Punishing financial executives helps reduce moral hazard. Punishing auto workers does not.
She forgot to add: financial executives have been fired in large numbers and taking pay cuts that reduced their income to a fraction of what was expected six months ago. Auto workers have not. Financial firms are in the process of laying off hundreds of thousands of their best paid workers (50,000 at Citibank alone); auto firms are not.
The shrinkage of the financial industry, and the vastly reduced pay prospects of its workers, seem entirely reasonable to me, though of course extremely sad for people who put themselves through expensive rounds of schooling in order to secure luxe jobs on Wall Street which have now disappeared leaving them broke and trying to sell the houses and cars they can no longer afford into a panicked local market. But I am fairly sure that the auto workers do not want the deal, as a class, that those rapacious financial executives have been given, which includes horrifying job insecurity, massive paycuts at the discretion of their managers, and for many or most of them, the knowledge that they will almost certainly never again earn a tenth of what they had set their lives up to expect. Believe it or not, having your life ripped up in front of you and your industry destroyed, and all the plans you made fifteen years ago to build a secure future evaporate, doesn't get magically more fun because you've got an MBA.
The majority of people who are getting canned right now didn't even, as the UAW workers had, get some small vote on how they would effect the shape of their industry. Structured finance and investment funds are only a small part of what investment banks do. Strufin and the mortgage desk are out on their ass, of course--but so are lots of people in M&A; and various investment banking groups that specialized in equity and corporate bonds and wouldn't have known a CDO if it bit them on the ass; corporate and muni bond traders; cap markets guys, and so forth. All their markets dried up because of a credit crisis that they cannot even arguably be credited with creating. It's no more fair that they have to sell their house, move in with the in-laws, and try to figure out what the hell they're qualified for, than that autoworkers have to. Less, maybe, because the autoworkers have had a lot of warning that their companies are on shaky ground. What sort of moral hazard are we reducing by destroying their lives?
That'll teach them to play by the rules all their lives, get a lot of education, and go to work for a bank!
Apparently the message we want to send is "Don't go look for a high-paying job; get a picturesque one."
No one in the financial industry declared that their salaries and perks weren't on the table until some vague and unspecified date in the future, as the UAW has. Actually, from what I understand, the CEO of Lehman tried to, and he was rightly told to go piss up a rope. The executives of the failed banks had a huge portion of their net worth tied up in said banks, and have now lost most of their assets.That is not to say that we should feel excess sorrow for them, or try to preserve their jobs, or the gargantuan sums that they were paid five years ago. The financial industry was bloated, the salaries out-of-whack with any possible real economic value they could be argued to have provided to anyone, and that will have to change--but we don't need the government to ensure that, because the industry is contracting rapidly, and the worst-hit parts are exactly the places that were most out of line with economic reality. We might like to go back and seize everything they made over the last five years, but for various practical and legal reasons (and arguably even moral ones), we can't, so the pointless fantasizing isn't getting us much of anywhere.
Any CEOs who tried to pay themselves bonuses out of TARP are cretins who should not have been permitted to do so. But aside from John Thain, who didn't create the mess at Merrill--he took over in December 2007 to clean up the destruction, and lost his job less than a year later when he had to merge the bank with BofA to save it--I'm not aware of any CEOs who have been paid any bonuses out of TARP. That's not to say that there aren't any. But the AP's infamous report on outrageous compensation mostly seems to be 2007 funds that we can't claw back because, er, they lost it all in the collapse, or stock options that will only pay off if the firm does well.
In short, if the Detroit were given the deal that the financial industry has actually gotten, rather than the deal that they got in the pervasive blogger fantasy world where everyone in the industry is using government funds to continue exactly as they were before, Ron Gettlefinger would hardly be a happy man. And I think that most of the people who Hilzoy thinks of as picking on the auto workers would be willing to accept a deal in which the Big Three got some funds in order to put its balance sheet back together, then started firing people at will until they were small enough to make a profit again.
What sort of moral hazard are we reducing by destroying their lives?
Perhaps, the moral hazard that says it's a better idea to get a job uselessly moving money around instead of actually making tangible things?
Financial firms are in the process of laying off hundreds of thousands of their best paid workers (50,000 at Citibank alone); auto firms are not.
Citibank had so many executives that they had 50,000 extra? Really?
Honestly, Megan, the things you say. How can you expect anyone to believe such nonsense?
"financial executives have been fired in large numbers and taking pay cuts that reduced their income to a fraction of what was expected six months ago. Auto workers have not."
Have you lived in America these past few years? Delphi? Hellloooo?
Auto workers have been doing this for years. Now they're supposed to give more.
"financial executives have been fired in large numbers and taking pay cuts that reduced their income to a fraction of what was expected six months ago. Auto workers have not."
Have you lived in America these past few years? Delphi? Hellloooo?
Auto workers have been doing this for years. Now they're supposed to give more.
Isn't this an apples to oranges comparison?
Sure the financial sector workers get a worse deal during these hard times but they sure as hell got a better deal than the UAW when things were good. If they managed their money right they can whether this storm and come back strong. What happens to auto workers when they lose their jobs?
Excellent post, Megan.
And, as one would expect, I see the reality deprived auto-loving lefties have already started massing for their ritualistic caterwauling.
Meghan et al,
Question: I work with two equally successful software companies. One hires the best and brightest from the best schools and charges a fortune for their product. The other firm hires average kids from average school and pays them a pittance their product is the cheapest.
I'm curious - the executives at Bear or Lehman or Citi had an incentive to hire the cheapest employees they could - why did they pay kids fresh out of Princeton or Yale or Columbia 100k+ to start? Certainly they could have just hired kids out of Babson or Arizona State and pay them 55k?
I'm not so sure about that. Until recently starting UAW salary $28.12 an hour or 56k a year for a 40 hour week. This could start when you're 18 and you don't have to spend 160k on a ivy leauge degree to get it.
On Wall Street you don't start until you're at least 22yo, you've already spent (or your parents spent) 160k on a degree, and even making 100k to start you are making less per hour than the UAW and you are living in NYC.
I'd argue that, all things considered, until recently, the average 18yo UAW kid was getting better deal for at least a few years than Princeton boy at Lehman.
As for the job itself I think 8 hours on the line isntalling windshields or 12-14 hours a day doing mindnumbing spreadsheets or powerpoints the jobs suck equally.
The irony here is that I remember just a few short years back, Detroit automakers were evil capitalist neocon overlords in cahoots with Big Oil and Chimpy McHalliburton to produce too many SUVs, destroy the environment, subjugate native peoples, and kill the dinosaurs.
Meanwhile good-thinking little liberals went to places like Manhattan and San Francisco to work for liberal financiers. (Those hedge funds aren't exactly full of Texas Tech grads)
All of a sudden, now Detroit is the good guys, and Wall Street is the bad guys. Truly, it makes my head hurt.
Reminds me of college, where one of the feminist groups had put up posters denouncing George W. Bush for sending food aid to Afghanistan, where the Taliban was brutally oppressing women and blowing up Buddhas.
The moment the Taliban attacked New York, all of a sudden George Bush was evil for attacking the indigenous, oppressed, egalitarian people's movement of the Taliban, and that attempting to topple them was obviously a western neo-con imperialist trick to build an oil pipeline across eighteen thousand foot mountains in the Hindu Kush.
Speaking of, where is that pipeline they kept taking about?
Sometimes it's hard to remember who the good guys and bad guys are in liberal-land. They change so quick.
So to help out the casual readers here who only casually follow the insanity of liberals:
Whichever side is associated with America is evil. Whichever side is fights America is good.
If both sides are American, the one associated with middle class suburbanites is evil, and the one associated with upper-middle class educated urbanites is good.
@Pete: Why is it that so many cling to this nineteenth century notion that only producing tangibles can possibly be a moral and socially promotable form of employment? There was a society built around that very precept, the Union of Soviet Socialist Republics, which fell rather bluntly during the course of the previous decade.
While it is all very well and good for a developing economy to be largely dependent on tangibles (this way they have somewhat more stability in their economies since they largely have not developed the legal framework and regulatory bodies to provide protection from exploitation, once again see post-Soviet Russia) in a post-industrial economy where heavy and medium manufacture (as opposed to, perhaps, mass food production) is largely beholden to automated machine operators and those trained to be a slightly more involved George Jetson rather than Rosie the Riveter, to idolize and wax nostalgic for the good old days when people "actually made something" or what have you, is naive and backward.
Indeed, our current political situation sounds increasingly like some Bizarro-Weimar (just not as extreme as European rhetoric), with labor advocates screaming from the Left and pro-business, pro-status-quo advocates thundering from the Right and all trying to manipulate the larger mass and particularly the middle class, who tend to be shaken up after watching the systematic dismantling of their society for the last thirty years, accelerated during the "Gay 90's." To insist that white-collar workers who deal with paper, ideas, or design, are any less valuable to the overall economy, or any less important simply because their jobs are more vulnerable to contractions in the market, as services are in general, is disingenuous and makes you sound like a Bolshevik, as do so many of the posters on here regarding the auto-workers:
"Down with Management, they made this mess"
"Finance is the devil and has stolen our society's soul" (just a few short decades ago there would probably be some anti-Semitism thrown in at this bit)
"Punish the capitalists!"
"Redistribute the money of the wealthy, because clearly having wealth is a sign of exploitation of the masses"
it's comical, to say the least, that we haven't really as a collective society learned much of anything from the last century; those who ignore history wilfully are doomed to bring it down on everyone.
Megan,
Your sympathy for workers in the financial industry in understandable. However, one comparison between Wall Street and Detroit that needs to be pointed out in that the large investment banks essentially created our current financial problems all by themselves. That's unfair to a certain degree but largely true. I feel for anyone who's out on their ass, but the whole country - the entire world - is suffering because of (formerly) overpaid financial industry workers. Your friends on Wall Street may be depressed because they have to move back in with mom, and their former bosses may be bummed out because their compensation is "a fraction" of what they used to get, but if we are truly staring at a second great depression, their winter of discontent is richly deserved.
Class warfare is a double edged sword, Megan.
All by themselves? I don't think so. Just this weekend my BF's parents were after us for not buying a place yet. I'm like we're glad we didn't, if we had bought a place last year we'd have lost $80k. Their response - well its better than renting. Huh? 1200 a month is worse than losing 80k?
I think peer pressure is largely responsible for gettin us into this mess. The big banks may have been our dealers but we were the addicts. If they wouldn't sell to us we would have found someone else.
"the large investment banks essentially created our current financial problems all by themselves."
The federal government created the market for secondary mortgages in the first place, with its GSEs, and it was the federal government that encouraged lax lending standards in order to increase home ownership rates, particularly among minorities.
If the government had no involvement in the real estate or mortgage industry, we wouldn't have had 68% home ownership rates facilitated by 30 year mortgages; we'd probably still have home ownership rates under 50%, with financing provided by 10 year balloon loans requiring ~30% down payments. Without the government creating and subsidizing the secondary market for mortgages, there'd be little incentive for banks or other firms to offer 30 year, low-rate, fixed mortgages.
I don't think that making a Chevy Impala or Dodge Sebring can be considered creating value. But why debate it? Libertarian that I am, I wish we had
1) Guaranteed depositors at banks and insurance contracts at insurance companies that went under.
2) I think that car manufacturers that give up the ghost should go into bankruptcy, and we can be the guarantor of car warranties.
"Perhaps, the moral hazard that says it's a better idea to get a job uselessly moving money around instead of actually making tangible things?"
You need to move money around -- usefully -- to pay people to make tangible things. When's the last time anyone paid cash up front to build a new bridge, for example? Infrastructure gets funded primarily by municipal bond issues. Muni bonds are about moving money from people who have it now (dentists, and other affluent folks) to folks who are "actually making tangible things". That's just one example.
Fun fact. US corporations spent $1.7 trillion dollars on stock buybacks over the last 4 years. That amounts to around 75% of all corporate earnings during the period.
Now that's investment we can believe in. Especially because virtually every penny spent has now resulted in a loss as the stocks are cheaper. In some instances vastly. In some cases the companies are gone.
I have no way of even guessing, but I will anyway. Auto workers have maybe made $1.7 in total since 1920, or 40, whatever. You get the picture.
Has anyone here heard one single word about the throwing away of $1.7 trillion dollars of stockholders money? No. However we have heard gazillions of words about US autoworkers being overpaid. Thousands of idiots with blinders on charge into the breech to defend all that is right and good and logical about markets and market systems. With laser focus singling out the auto workers as the most perfect case extant which describes our economic dilemma.
I am not here to defend US auto worker pay. I am here to suggest it doesn't mean one damn thing about our systematic dilemma. (I know, it feels so good) Writing posts about demise of the slide rule industry would be as pertinent.
Nero fiddled while Rome burned. Members of our elites firmly stand their ground as the ground falls away beneath them.
rapier,
That money didn't disappear, it was given to those who sold their stock - you can't have a buyer without a seller.
I love all the opinions about who is "grossly overpaid" in our society. Hey, if you can get Double A ballplayers who are as entertaining as the Yankees for far less than the $200 million payroll the Yanks pay, then more power to you.
Somehow I think you can't. And if you can run a top notch financial institution with $40K a year graduates from Strayer or Community College of
Des Moines, then go ahead and show the world.
The borrowing world will beat a path to your door if you can significantly lower the cost of raising capital and new debt. Somehow I think the titans of Wall Street, those greedy bastards all, would have found some way to pay perfectly decent financial analysts only $40K per year if they could have.
To begin with, the amount of anger and vitriol towards the automaker bailout absolutely dwarfs the anger towards the financial bailout, even though the amounts of money are many, many times more for the financials. Because in this country, people who aren't rich are taught to hate other people who aren't rich, and to love rich people, even when those rich people have devastated our economy in an unprecedented amount.
She forgot to add: financial executives have been fired in large numbers and taking pay cuts that reduced their income to a fraction of what was expected six months ago. Auto workers have not.
As you yourself have admitted, the union have made enormous concessions, amounting to tens of millions of dollars in real losses to the union membership. But don't let those facts get in the way of your post.
I just wish you would admit that there are no situations in which you won't bash unions. Just throw me that bone. A lot of people are like that! It's fine! Just say so, instead of pretending that you are any kind of a neutral observer of unions.
rapier: You fundamentally misunderstand the purpose of stock buybacks. They're simply an alternative to dividends for returning cash to shareholders. The price of the stock when it's repurchased and changes in the price of the stock after it's repurchased are completely irrelevant.
Hum,
I think we could all agree that if the UAW and the bank executives had been anywhere from 20% to maybe 40% less greedy their respective gravy trains could have continued on forever.
The big question is: are their any institutional or policy brakes that can be applied to keep people from going for that final 10%, the 10% that pushes them over the edge?
I'm pretty certain that if the UAW has insited on starting salaries of $20 an hour and maybe $10 copays rather than $0, and if the bankers had been willing to accept salary and bonus of $750k rather than $1,000,000 they might not have been compelled to push everything so far over the edge.
What about all these hyper intelligent educated Wall Street employees buying the Black Swan and Fooled by Randomness in their thousands? Were the books fashion accessories?
Did they read these books and ask questions. Did LTCM not provide a warning for these bright sparks that the corporate structures they were trolling for might be so leveraged that they were at risk of a Black Swan implosion?
They didn't deserve their excessive compensation and if they didn't plan for a rainy day they didn't have the smarts to have been hired in the first place.
The cause of the credit crisis is two fold. First was the stupid social engineering program to increase home ownership and the second was the elimination of any type of reasonable banking criteria to reduce risk. Stir that with a willful blindness and there should be enough blood on the streets to satisfy everyone. I have to admit though that the high priced education of ivy league schools has proven itself empty.
Kevin in Philly,
Question - I don't know what you do for a living but is it possible that someone at your company is right now doing something that will cause the firm to implode?
Only a small % of Lehman or Bear was involved in CDO's. At AIG I think only 300 out of 120,000 emoloyees were involved in writing CDS. If you were a bond trader at Bear or an actuary at AIG you would have no way of knowing what some small group was doing.
That part I understand - what I don't undersand is putting all your eggs in one basket. And, if you're required to put all your eggs in one basket buy puts on those eggs!
I can't for the life of my understand some MD at Bear having 100% of his liquid net worth in Bear stock and not hedging. It makes no sense.
I'm confused, Megan. This post started out as a kind of pissing contest about who got the worse deal.
Autoworkers: We got the worse deal.
Financial workers: No, we got the worse deal!
But then it became something else, and I'm not sure your point shines through. What exactly is your point?
At any rate, you sound like someone fighting to maintain your ideology in the face of contradictory evidence, and failing spectacularly at it.
Rapier,
If you haven't heard any complaints about share buybacks at inflated prices, you haven't been paying attention. Mark Cuban, for example, has railed against buybacks.
Buybacks can make sense, in my opinion, only when a company's shares are trading for less than their book value (or, even more appropriately, when they are trading for less than the company's net cash). An example of a buyback that, IMO, makes sense, is the one announced last week by a micro cap HVAC contractor I own a few shares of, KSW. This company has about $18 million in cash and no debt, and its shares plummeted last week after a few of the contracts in its backlog were put on hold. So the company announced a $1 million buyback. Considering that the company's shares are trading for less than the company's net cash, this seems like a prudent use of funds.
There are regulatory and other practical obstacles to hedging your employer's stock. One of the primary purposes of granting employees stock (or giving them stock options) is to align the interests of the employees with the long term success of the company. Hedging defeats this purpose and is discouraged in many ways. Many employers have formal and informal policies restricting what an employee can and cannot do with compensatory stock. For example, a company may prohibit an employee from participating in a pre-paid forward sale of stock (the economic equivalent of a put/call collar) or any other form of hedging. Or a company may let its executives know that "excessive stock sales" will reduce subsequent stock grants.
Even if a company did not take actions to reduce employees' sales and hedging of compensatory stock, the market discourages such sales and hedging. Insider stock transactions (which includes sales, other transfers, and hedging) are closely followed by analysts. Large sales or hedging by executives is often seen as a sell signal to the market -- something both the company and its executives would like to avoid.
David,
Interesting! But, I have a question: Could you buy puts on a substantially equivalent rival? For example, if I was an executive at Bear could I buy puts on Lehman or vice versa?
Buybacks can make sense, in my opinion, only when a company's shares are trading for less than their book value (or, even more appropriately, when they are trading for less than the company's net cash)....Sure, you can find lot's of complaints about stock buy back programs, just as you can find lots of people complaining about excessive dividend payouts. (I've no idea what you mean by "buybacks at inflated prices" since repurchase programs take place at the current market price.) You paint with too broad a brush, however, when you state that buy backs only make sense in condition x. When a company has "excess cash", it should return the cash to its shareholders. There are two basic ways of doing this: dividends and buying shares. Until recently, buying shares gave individual shareholders a better tax answer. Many profitable firms, such as Microsoft, regularly bought back shares rather than pay dividends -- it was considered the better approach.
Nobody wants to "punish" auto workers. However, if the auto companies are to survive, they have to make cars for less cost than customers are willing to pay. Reducing labor costs is going to be necessary, unless someone can quickly invent the next SUV.
Still, there's the practical problem of hedging -- it's expensive. Unless the executive is willing and able to sell shares, how will the cost of the hedge be paid? A "costless collar" (where a put and a call are placed on a block of shares, giving the shareholder downside protection paid for by giving away some portion of the upside) carries with it the risk that an up tick in the market will result in the executive's shares being called away. If the executive cannot tolerate the risk that the shares will be called away, the executive must pay for the put -- which can be very expensive over the 30 year course of a career.
David Walser,
"Sure, you can find lot's of complaints about stock buy back programs, just as you can find lots of people complaining about excessive dividend payouts."
I confess I haven't heard any complaints about excessive dividend payouts.
"(I've no idea what you mean by "buybacks at inflated prices" since repurchase programs take place at the current market price.)"
Fair enough, even if many buybacks seem inflated in hindsight, they were made at then-current market prices.
"When a company has "excess cash", it should return the cash to its shareholders. There are two basic ways of doing this: dividends and buying shares. Until recently, buying shares gave individual shareholders a better tax answer."
That's the conventional wisdom about buybacks, but I agree with Mark Cuban that it's wrong. What do buybacks do for the shareholders who hold onto their shares? Nothing, really. And the tax argument is a fairly weak one. The current tax rate on dividends, of 15%, isn't onerous, and many investors own their shares in tax-sheltered accounts in any case. Also, "excess cash" demands a little explication. It's one thing when a company with net cash has "excess cash", but a lot of buybacks have been made by companies with net debt. Despite the conventional wisdom that net debt is good since it gooses return on equity, wouldn't companies such as SHLD have been better off using cash flow to payoff debt instead of buying back shares?
Megan,
I'm by no means a hardcore leftist, but I do think there are more than one or two instances where existing fraudulent conveyance statutes could be employed to clawback some of the "compensation" that these self-dealers have enjoyed. As to your complaints about the UAW, I think you are focusing on the wrong aspect of the problem... Sure the compensation has to be scaled back, but I would be willing to throw the workers a temporary bone on that one if we could address the asinine workrules that have emasculated management vis the transplant automakers. It should also be pointed out that the UAW situation is a tiny preview of what we face as a society with municipal and state employee union obligations coming due in the future.
David,
So very interesting!
How about this for an idea. Companies would no longer be able to prohibit hedging stategies but all such strategies should be published as part of their SEC filings. The data would have to include the number of employees hedging and the amounts hedged. That would allow investors to guage the amount of internal pessimism.
Your thoughts?
David,
Oh, and the employee would have to report the hedge to the SEC and they would add it to the 10-Q. That way the company wouldn't be able to retaliate against the hedger.
I think this strategy could harness peoples greed to create an internal warning signal for investors, the government, and the public even company executives.
For example - people might be unwilling to tell their boss that the company is in trouble, but management could see that employees are sensing trouble by the rise in internal short interest.
The auto workers don't have to give more. Just don't expect the taxpayer to subsidize your job. I think the UAW should be as stubborn as they want t about "giving more." Just be willing to bear the consequences of hanging tough, if that means losing your industry and your job. Don't hang tough at my expense. The tax payer never promised you certain wages. The world doesn't owe you a living! You seem to think that showing up to a job is enough to deserve taxpayers money. After all, "you did nothing wrong." Well, the taxpayer didn;t do anything wrong either to deserve having to bailout the UAW via the Big Three.
The tax payer never promised you certain wages.
The Big Three did, though, and that obligates them. Just as you're obligated to pay back your credit card, even though the world doesn't owe Discover's accountants a living.
Does the government owe Detroit a bailout? Now that's a different question.
Secret Asian Man--that pipeline(when it is built--and it will be) will not be over the Hindu Kush which is in eastern Afghanistan but thru(relatively) flat western Afghanistan. The oil and gas is in Uzbekistan and north.
Chet - Good point! Who do I contact in the government to have them pay off my Discover bill for me?
After all, I entered into the obligation -- just like the Big 3 -- and now I'll go broke and be unable to ever pay them again if I attempt to make good on that foolish obligation -- just like the Big 3 -- so shouldn't Discover be able to keep getting just what they want even though I can't pay them -- just like the UAW?
Or would they perhaps work with me to work out some kind of payment plan that would allow me to pay them back recognizing that putting me "out of business" would be stupid for them as they'll never get any money that way.
Of course, it wouldn't be stupid if you've got Uncle Sucker... err... Uncle Sam standing ready to bail you out and make good on whatever crazy "agreement" you can come up with. So I ask again, who do I contact about having them pay off the Discover bill that I no longer can?
Megan,
The vision you created -- of newly minted MBAs feeling despair, after years of doing everything right, of recently-minted MBAs having their lives taken away, just as they got started, of their families being torn apart on this day and their children thinking of them as failures --
That brought Christmas cheer to my heart. Thank you. Thank you, and God bless you.
Good Megan
everyone assumes that those laid off on "Wall Street" are even kids who started out making $100 K and worked their way up
there are multiple 100,000s of people, single mothers, etc. who used to process loan applications, do accounting, secretaries, middle and back office jobs done by people who live in Queens or New jersey or Charlotte NC. Most of those people never had nor ever will have as good a deal as a UAW lifer
The haters should even consider that many of the people in hot-shot jobs did in fact put themselves through the best schools (study) go to places like New York and Chicago and work 12 hour days in order to have a chance, merely a chance, to make the cut to make big money. Many people only are able to work on Wall Street a few years and most don't walk away with big bucks
I have had the pleasure of having been both a union construction worker and working on Wall Street and will confirm to your readers that nobody GIVES you anything in this world except what individuals choose to give one another.
Merry Christmas to All
Re: Financial firms are in the process of laying off hundreds of thousands of their best paid workers (50,000 at Citibank alone); auto firms are not.
??!!?
No layoffs in the auto industry? What alternate reality is that true of?
Isn't it obvious we're talking about the UAW? There have been no UAW layoffs. Generous buyouts yes, but no layoffs.... thus far.
Had Megan McCardle ever spared a second for compassion for anyone outside of her class? I have not seen it. She has pontificated about personal responsibility and suffering the consequences to defend the hideous bankruptcy laws that prevent families from getting out from onerous medical debt. She has no compassion for people losing their homes.
But let investors get a pay cut from hideously obscene salaries to merely obscene salaries and the tears come. McCardle is waging class warfare against people who actually work for a living to enrich the parasites who rob them, cheat them and get rich doing it. I guess they invite her to their parties.
RuthaLice once more needs to learn to spell the name of the object of her hatred.
You're joking.
In what way is someone being paid $75/hour - counting all the benefits as "income" - as morally responsible as someone who defrauded investors to the tune of $50 billion?
Wall Street has flat-out stolen four times as much money as the bailout conservatives are whining about. Even if Detroit's making lousy cars, they're still cars. You can go somewhere with them. What on earth are you supposed to do with a piece of paper from a Ponzi scheme?
The UAW didn't design cars no one wants to buy. Was the problem somehow that UAW workers did a lousy job building said cars? Was the welding bad? Did the steering wheel fall off?
Or did the job they were supposed to do as well as they could, as opposed the Wall Street galoots who engaged in flat-out criminal behavior?
Please. You're barely even funny.
UAW workers killed the goose that laid the golden egg. The system they set up to build cars is sclerotic in comparison to their competition.
Could they do well. Absolutely, bring back the ingenuity and market alacrity that thrilled our hearts with cars we yearned to drive.
The problem is not the workers, its the underfunded defined pension plans bogging down the system. (at least a large part). The infrastructure is there, whats lacking is the freedom and will to act.
It looks like we have to kill the patient to save him.
As for the financial industry, whay was Robert Rubin paid millions for essentially if I understand him, doing nothing?
He attracted investors!
Its a competitive industry, not a fraudulent.
Based on virtually every conversation I've had with people who have switched from the Big 3 to the transplanted automakers, yes. The fundamental problem with the Big 3 makes was substandard construction.
Annnnnnnd, here come the first-name-only union hacks.
I'm sure it's just a coincidence, though. Not like UAW pays a communications firm to monitor stories about them, like every other union.
I worked for an accounting firm that essentially went under. Over the years, I acquired a lot of technical and managerial skills but unlike the financial or car companies, my firm was not politically connected enough to secure a bailout.
A comparison between the auto and financial industries misses the point. The huge difference is between workers in politically connected industries (including government) and the rest of us. Those of us in the sectors of the economy that are not supported by government cash don't get pensions, payouts or job security courtesy of the taxpayer.
As for me, I'm looking for a a government job. 20 years of free weekends and a pension at 60-80% of my three highest years. Can you cay ka-ching!
Perhaps, the moral hazard that says it's a better idea to get a job uselessly moving money around instead of actually making tangible things? - Chet
Really Chet, were you thinking of social security when you wrote this? Or were you thinking of government in general? I've noticed that government is real good at taking from those that do know how to create and give it to those that don't.
Megan,
I found your article to be thought-provoking per usual. I live in Michigan, love the state and the people, but it needs to be said that in the last 25 years we have been devastated economically. The combination of poor corporate governance of the Big Three, union overreach, and state government unwilling to diversify the Michigan economy has seen our state experience a single-state recession, while the Sunbelt has seen economic vitality.
I hold no ill will towards the Southern Senators, who asked the pointed questions that they did of the Big 3 CEO's. The fact is that Ford and GM are bloated companies with horrendous decision-making structures in place (Ford seems as of late to have pulled out of this). Chrysler is a dead man walking, and still accepts taxpayer funding despite Cerebus, who owns 80% of the company, being unwilling to put money into its own corporation. (figure that one out).
PS There are rumblings that they may actually put money into their own company...how generous of them.
In short, no one likes pain, and Michigan, Michiganders, and people who have relied upon the Big 3 and unionization are having their lifestyles irrevocably changed. Until people allied with the Big 3 are able to face the real problems of this industry, it will not be capable of finding effective solutions, to having these corporations act more like private sector firms and less like unaccountable public institutions.
"Financial firms are in the process of laying off hundreds of thousands of their best paid workers (50,000 at Citibank alone); auto firms are not"
First, the easy way to state your premise: in the auto industry, everybody takes a 20% pay cut; in the banking industry, 20% of the employees take a 100% pay cut.
Still, the "bizarre meme" business is crap. Everybody (almost) feels bad for the low, mid and even upper level finance industry people who are now unemployed. What we're furious about are people who destroyed billions in value walking away with severance packages that will enable them to maintain an upper middle class lifestyle for the rest of their lives without working, when it's pretty clear minimum wage is $5.25/hr more than their "skills" were worth.
"We might like to go back and seize everything they made over the last five years"
Well, yes, actually; bankruptcy laws should be amended to permit this in the case of officers and directors. In fact, if you're an officer AND a director, it should be more like 100% of net worth, future earnings, and maybe even prison time if you can't make investors and creditors whole. And don't give me the crap about this keeping good people out of the business, as we're pretty clearly not getting good people now.
It will be a while before the business mags start running lead articles on wizards of finance. You know, the issues where Fred Smartguy is shown on the cover grinning like Santa Claus at the orphanage.
To mention at a party that you're in the financial business isn't going to be a status-improver it used to be.
Although, ref my first comment, the humor section can run some of the old articles.
As to the UAW: They have a union, and the union is doing what unions are meant to do: Fight to retain every benefit possible for those whom you represent. If you view the Dems and Repubs as unions - looking out for the specific interests of their own constituency - they do the same thing.
The problem is when the "to hell with everyone else, we're getting ours" attitude leads to suicide by stupidity. That is the "I'm going to jump off this building because I can fly" syndrome. The investment sector of the economy is as guilty of this syndrome as is the UAW.
Please correct me if I'm wrong, but weren't Moodys, Standard and Poors, Fitch's and other credit rating agencies a huge part of the problem here as well. (No one mentions them!) I thought part of the system put in place was to prevent sub-prime loans and Alt-A loans from being mixed and traded with the good loans, especially the AAA loans. Instead, they rebranded them all AAA loans, allowing them to be packaged together and sold in opaque bulk, carved and sold and carved and sold opaquely until no one knew what they were holding - but kept on selling and buying!
Ah yes, those Alt-A loans: Loans to the rich kids, who were buying up condos five at a time for 1.9 million each, holding them for six months, and selling at a profit. (It's not just the poor people with their sub-primes, folks, it's our fat cats and rich bitches with their Alt-A's too, and don't expect me to have one DROP of sympathy for THEM.) The credit rating agencies were not supposed to mix them into the AAA stew, and they did, as well. One suspects that the Alt-A mixing was the REAL reason the sub-primes got mixed in to... because our poor little rich kids WERE smart enough to know in advance that they needed cover for this monstrous scheme of skimming profits while the bubble was high - and they knew that Friend Paulson would be there for the rescue as well, with poor, clueless Bush going right along for the ride.
I want to know why the credit rating agency workers classes all the loans together as fake AAAs. Pressure from upper management - do this or leave? Laziness? You try figuring out a six foot high stack of paper that represents carved and recarved opaque debt instruments that have been deliberately opaqued. You might throw up your hands and just stamp em all as AAA, too... especially since EVERYONE ELSE is doing it at your credit rating agency and the other ones, too.
You think they all didn't know was coming? Give me a break.
Guarantee you this much
Those lefties pleading for the UAW fatasses are the same people with the "How Many Lives to the Gallon are You Saving" bumper stickers on their PRIUSES.
Surely medical doctors should make more because they go to college and suffer through internships and they save lives, and we want more good doctors don't we?
Surely engineers should make more because they are real smart, they go to college, they make us cool flat panel TV's, and we want more good engineers don't we?
Surely investment bankers deserve more because they take risks allocating capital, often with their own money, and they go to college and are smart, and we want more good investment bankers don't we?
Hey, I have an idea, lets have a system where labor prices (wages) are set by supply and demand in a free market for all kinds of labor. This will automatically increase or decrease the supply and cost of various types of workers to meet demand. I call it "Capitalism". What do you think?
"Auto workers have not. Financial firms are in the process of laying off hundreds of thousands of their best paid workers (50,000 at Citibank alone); auto firms are not. "
This is so disingenuous as to appear to be intentional.
Michigan has lost 400,000 manufacturing jobs over the past 10 years. Those jobs were not making toys.
The auto companies have already shrunk, reducing jobs, closing plants, matching capacity to demand. GM, Ford and Chrysler have shut down, pretty much for the month of January. Ford had done such a good job restructuring itself that it turned a profit in the 1st Qtr or 2008, before the housing bubble burst, $4/gal gas and Megan's friends on Wall Street messed us all up with their credit default swaps and mixing just a little excrement into the tuna salad and rating it AA instead of AAA.
The financial trades do not create wealth. Manufacturing does.
Regardless of your education or Union affiliation, you'll never get out of this World alive.
In my 70 plus years I have had to remake myself at least 5 times. Usually when you think you are on a roll for the rest of your life, reality intervenes. It is painful and sometimes humiliating but you take up the slack and move on.
The few times I was represented by a Union I found that their highest priorities were collecting dues, getting reelected and keeping me from being a productive Employee.
Michigan has become this Century's Old Europe lacking the means to support a civilized Society. Opportunity lies elsewhere, get out while you can.
You all forget about the secretaries and other small fries who lost their jobs on wall street this year. We are not all "fat cats" and we had nothing to do with the decisions to attach securities to these crappy mortgages (I thought it was stupid when I found out last year as I was not one of the stupid people to buy a house I couldn't afford after my ARM expired either). There are no temp jobs to get by on in this down turn.
So quit it. Sick of hearing of how myself and my compatriots have been rolling in the dough on wall street. People forget, those so called fat cats (I have never met one) employ a lot of avg working folk.
Michigan has lost 400,000 manufacturing jobs over the past 10 years. Those jobs were not making toys.
None of which had anything to do with Michigan being a closed-shop state, none of which had anything to do with the hostile business climate created by the coalition of labor unions and liberal politicians, none of which had anything to do with high taxes and burdensome regulation...
Re: None of which had anything to do with Michigan being a closed-shop state, none of which had anything to do with the hostile business climate created by the coalition of labor unions and liberal politicians, none of which had anything to do with high taxes and burdensome regulation...
Before Jennifer Granholm took over in 2002, Michigan had been under a tax-cutting and fairly popular Republican governor for twelve years, and the GOP controlled the state legislature for even longer. In fact, Michigan has been governed by the GOP more years than not in my lifetime of 41 years*.
Blaming the state's contretemps on liberals and Democrats doesn't fly in the face of the facts.
* George Romney (R ? - 1968), Bill Milliken (R 1968-1982), Jim Blanchard (D 1982-1990), John Engler (R 1990-2002), Jennifer Granholm (D 2002 - )