Failing to funnel billions to a failing business is a form of authoritarian punishment. As an alternative, we're offered the proposition that we "want affordable, safe, fuel-efficient, environmentally sound cars built by committed workers who are rewarded for undertaking this task on our behalf." I think it's a lot more revealing to contemplate the sort of mindset that insists on seeing every economic outcome as a political "reward" or "punishment."This whole familial frame seems to amount to an inverted Gospel of Wealth: Where the 19th century claimed that financial success was a reflection of moral worth, the function of public policy in the 21st century will be to create that symmetry. The only question is whether workers in a particular industry are naughty children who need to be sent to the corner for a time-out, or well-behaved children who should get a gold sticker for effort. This is, as I hope goes without saying, a pretty authoritarian frame on either side. It also seems like a manifestly awful way to make economic policy choices. Barring some marvelous Lebnizian coincidence, the answers to questions about the moral desert of workers in particular sectors are unlikely to consistently match the answers to quesitons about what's in the long-term interest of the economy as a whole.
The notion that this bailout is primarily a matter of virtue is not helpful, as I'll go into more a little later.
The notion that this bailout is primarily a matter of virtue is not helpful, as I'll go into more a little later.
I agree. The problem is, many of your commenters find the refusal to bail out the Big 3 a matter of virtue, and will proceed to tell us all so with the usual libertarian ferocity; and in drawing the boundaries for your opposition but not for your allies, you handicap the people who disagree with you in this forum.
Julian points out that authoritarianism isn't some exclusively Republican vice
Anyone who ever thought it was is too stupid for words and probably beyond help.
Ahh, I see this thread traces back to firedoglake. So, yes, too stupid for words and probably beyond help.
It's the libertarian and the conservatives who are insisting that the money shipped up to Detroit be conceived of as an "investment".
Frankly, it's wise _spending_, in the current economic environment.
Right, because economic authoritarianism is the same thing as military authoritarianism.
The problem is, many of your commenters find the refusal to bail out the Big 3 a matter of virtue
Well...it is a virtue. To refuse an involuntary (and unpopular) transfer of wealth is virtuous. Perhaps not the highest virtue given the consequences, but a virtue none the less.
I don't see why that can't be accepted as a given and the onus placed on those supporting the bailout to justify that wealth transfer. I'm not saying it can't be justified, but the presumption ought to be against it.
I agree with Julian Sanchez (at least the excerpt that you posted as the site is blocked at work) and would add that I don’t care whether the management and the unions did everything right from day one or whether one or both of them were corrupt/incompetent and worked to loot the company for their own benefit. Either way, I don’t support robbing taxpayer A to feed tax eater B by providing them with an unearned, unpaid for subsidy.
And no, I didn’t support the bailout of the financial sector either even though there was a much stronger case for it. For the auto industry, it really does come down to decades of an unsustainable business model that finally is crashing around them. The industry needs to restructure and while they have slowly made small movements in that direction, it may take a Chapter 11 reorganization to enable them to make all of the necessary changes that they will need to make.
Right, your vague indirect money transfer that will affect most people in an imperceptible way is the not virtuous thing. The whole, making sure millions of people don't lose their jobs in the worst economic climate for decades is virtuous as shit.
It's all The Big 3's fault for being at the end of a long restructuring plan right as a huge collapse in credit contracts the entire car market. But more so, it's those damn unions that insist on asking for what they were promised. If they'd just agree to live in shacks and only eat peanuts, then GM could make a fucking KILLING.
You know, I hate American cars and I'd love to see them fail, but don't you think we should put that off till a time when it won't drag down an already sinking economy? Oh, wait, you mean it's ALWAYS evil for the government to help? Our lord and savior Ayn Rand said so? Oh, well, then okie. I guess let those plebes starve then.
But more so, it's those damn unions that insist on asking for what they were promised.
I don't mind them getting what they were promised, I mind them getting it from people who didn't promise it to them.
NutellaonToast:
If someone had a bailout proposal that actually accomplished what you say, then we could meaningfully discuss the pros and cons. But all the bailout proposals on the table simply defer the day of reckoning to early next year at the latest.
If we're really talking about postponing this until when the economy recovers (2010? 2011?), it's unlikely to be an imperceptible amount of money. It's also unlikely to end then.
And it's also the case that each bailout begets the next bailout. Look at all the people who point to AIG and the finance industry as justification for the Big 3 getting bailed out. Even if this one were imperceptible (an assumption which I question), will the next one be? Will the sum of them be?
Certainly the case can be made that the bailout is a lesser evil, but it's still an evil.
The problem is that the auto companies cannot deliver on that promise. If they do, they'll fail. Unions restructuring contracts is nothing new. They do it when they are forced to. When the alternative was losing their jobs. In this case, the UAW's only hope is that we will subsidize them.
The result will be this (more or less): the automakers will pay them about $45 per hour including benefits, a fine middle class wage that goes farther than usual in states where you can buy a decent house for under $100,000. We the taxpayers will give them a welfare payment of an additional $25 per hour including benefits.
What do you do with an extra $25 per hour when you're already making a solid middle class wage? You buy a boat. Or you take that cruise to Europe. All well and good, but why should I pay for that?
Well, if you have a better alternative, we're all ears.
Well, if you have a better alternative, we're all ears.
Let the workers that remain get paid $45/hour, and use the $25/hour to fund transition programs for the people who are inevitably going to be laid off. If they don't want to accept $45/hour, I'm sure there are other workers that would be happy to take it. Perhaps even some of those who were just laid off...
Why not just get up a convertible bond issue and sell it to the 70 million people who voted for Sen. Obama and anyone who thinks this bailout makes sense? Couple hundred $$ a piece ought to do it. Then, when this bailout works and GM is profitable in several years, they can convert to equity and laugh at all those who stood on the sideline and said bankruptcy was the best course of action. Usually, though, the thought of risking one's own money for a social cause or a football stadium or a Mummers' Museum focuses the mind on "proving" it deserving of taxpayers' funding.
I don't mind them getting what they were promised, I mind them getting it from people who didn't promise it to them.
Well put.
"Unions restructuring contracts is nothing new. They do it when they are forced to. When the alternative was losing their jobs."
I wish. For one counterexample, ook into the history of the GM plant in Fremont CA (now NUMMI: New United Motor Manufacturing). Truth is the existing employees / contract beneficiaries are all too often willing to screw the next generation of employees AND the company in order to get "what they were promised".
Why did bailing out AIG make sense? Because it had it's fingers in every damned financial pot out there?
Well, guess what? The auto industry has the same problem. It's not finance per se, which is what people here seem to understand, but the spreading effect of the auto industry. The ripples of its failure will, I think, be just as cataclysmic as AIG'S would have been.
Without Detroit and the auto industry, the only thing left holding American manufacturing together would be some glimmer of green manufacturing on the horizon and defense, which is still generating jobs despite the election. We're still cranking out machine guns and tanks, still repairing hum-vees and plating vehicles. Still building 50-caliber guns the fire endless rounds of bullets.
I'd rather build bullet trains.
And the amount of blue-collar prejudice is astounding. It's a union's job to protect the jobs of it's members. They've already given up a tremendous amount. And we've just heard there's no limit on banker's compensation, thanks to our beloved President Bush. Almost makes me wish Sarah Palin and her Joe Sixpack's had been taken more seriously, despite the Needless Markup clothing.
I smell an income-redistribution rat in the gardens around Detroit and Wall Street. And he's not looking to benefit the folks in Detroit.
Rob Lyman: There is a problem with your problem:
It may cost a great deal more for us to pay for the failures of the big 3 in a great depression then for us to meet the demands of the UAW.
Which problem would you prefer, given your druthers?
Well, guess what? The auto industry has the same problem. It's not finance per se, which is what people here seem to understand, but the spreading effect of the auto industry. The ripples of its failure will, I think, be just as cataclysmic as AIG'S would have been.
Perhaps, but I don't think so. That is, I don't think they're going to fail in the same way. Banks can't go Chapter 11. That's an avenue that wasn't available to the finance industry.
It makes sense for GM. There's a viable business inside GM, it still has something like a 30% market share. The problem is that the viable business is being smothered by a dealer network, labor force, retiree pool and other liabilities that remain from when it had a 60% market share.
Given the credit crunch, there might be a role for government in supplying DIP financing. Perhaps the government should underwrite warranties during the reorganization (I don't completely buy the argument that Ch.11 is any worse for GM's outlook than the current situation, but I'll accept it arguendo). I'm not ruling out any and all interventions.
But any bailout plan that doesn't fundamentally reduce GM's liabilities in order to make it competitive is throwing good money after bad. Reducing labor costs is a necessary, but not sufficient, part of that restructuring.
Clearly, I'd rather pay for the UAW than a great depression. But 1) the US produces 21% of the world's manufactured goods; China makes 12%. So we apparently have more to our manufacturing base than just the Big 3.
2) I'm not convinced that the alternative to paying for GM retirees' health care is that the factories are blown up and the workers take up rum running and brigandry. An orderly bankruptcy, with government cash backing it up, is a realistic possibility.
3) If the issue is aggregate demand, then let's find a more equitable way to distribute the cash. If Medicare is good enough for my parents, it's good enough for the UAW's old people, too.
I think a lot of this is missing the point. We shouldn't bail out the auto industry because "the workers deserve it" and we shouldn't refuse because "they'll just be back for more". We're about to embark on the largest government spending plan in the history of civilization, and guess what, we should. The avoidance of another Great Depression hinges on it. Just ask Herbert Hoover.
In context of that, we should bail out Detroit because it's in America's interest to have a viable manufacturing base that is American owned. Yeah, it's going to mean robbing Peter to pay Paul, and it's going to mean that some people get things that they don't necessarily deserve. But so what? This situation has never occurred before, and it requires a rewrite of all the rules.
Yes, this bailout is going to engender more bailouts in other industries. But so what? Those industries aren't going to come with their hands out BECAUSE of Detroit, they're going to come with their hands out because they (like Detroit) are in a huge whole without a shovel. We have to bail them out as well, not because our principles dictate that we should, but because blind obedience our principles got us into this mess and it's not at all clear that more stubborn insistence on those principles will get us out.
All these comments about whether the UAW workers (and their whole industry) 'deserve' to get bailed out are just silly. Of course they don't, and neither does anybody else, according to our principles. But then again, George Bush deserves to be in prison or executed, according to those same principles. (Vide today's senate report on torture). By the way, one of our principles is 'life', so I guess my grandfather didn't 'deserve' to get lung cancer. Oh well, he still did.
The point is that the world does not operate on our principles. Let's all try to remember that as we struggle through the next five years, it may make the pain a little easier to bear.
blind obedience our principles got us into this mess and it's not at all clear that more stubborn insistence on those principles will get us out.
The principles that got us into this mess is mistaking credit for capital and a belief that we could borrow our way to prosperity. I don't see how borrowing yet more money to allow industries to attempt to continue operating like nothing has changed isn't exactly perpetuating the mistakes of the past.
I agree that we have to change. This bailout is not a change - it's a stubborn refusal to change.
OGWiseman--
Assuming you are correct that the continued existence of GM and Chrysler is a necessary condition to the US maintaining an "american owned" manufacturing base, why is the bailout (as discussed to date in Congress) the best means of achieving that? Are you sure that Chapter 11 (even with government assistance of some kind, e.g. DIP financing or warranty guarantees, etc.) wouldn't be a better way to ensure the survival of that manufacturing base?
A common problem with pro-bailout commentators seems to be that, whatever their desired end result, they never seem to explain why THIS BAILOUT PLAN is the best means of achieving that end result. If anyone is able to do that, it might go a long way to improving the quality of this debate.
Rob Lyman: I'm afraid that 21% will be a lot smaller if the big 3 go down; since they are the bottom of the food pyramid for the supply chain that feeds the manufacturing base in the US. Just as AIG's failure would have destabilized the world's financial markets, there's a similar possibility here. My fear is Detroit's failure would cripple our national ability to manufacture anything.
That is the point of a bailout, keeping jobs, keeping the nation's manufacturing sector healthy enough to become vibrant again. I'm not sure bankruptcy meets those requirements.
Couldn't agree with you more about the retirees health care, but I'm a proponent for a single payer system, I think it would solve a lot of what's wrong with American business at this point. Make us competitive, make small business competitive again. But that's a distraction. We've got an economic crisis on our hands, and the real question is what role Detroit does or doesn't play in it, don't you think?
Without Detroit and the auto industry, the only thing left holding American manufacturing together would be some glimmer of green manufacturing on the horizon and defense
Y-- you're kidding, right? How about spending some quality time here and get some actual data?
Yes, the auto industry and its peripherals are huge. No, the auto industry and its peripherals are not all bound up in the Big 3, and no, automobiles are not the majority of all manufacturing.
Zic: "Why did bailing out AIG make sense? Because it had it's fingers in every damned financial pot out there?"
No, because Gov. Patterson of NY allowed the investment portion of AIG to borrow from the insurance parts of AIG. This would have caused many insurance policies to go unfulfilled.
Normally this is highly illegal, but Patterson suspended that law for AIG. He made a small problem for NY into a big problem for the country in order to get the bailout, probably to protect a few jobs in NY. (They call it moral hazard for a reason.)
"I'd rather build bullet trains."
Once the big 3 sheds it's excess manufacturing capacity and workers, the cost of producing bullet trains and other manufactured goods will go down.
My fear is Detroit's failure would cripple our national ability to manufacture anything. That is the point of a bailout, keeping jobs, keeping the nation's manufacturing sector healthy enough to become vibrant again. I'm not sure bankruptcy meets those requirements.
The Big Three haven't been "vibrant" in a very long time and generally haven't been profitable for the past few years. You seem to be laboring under the view that if they go into bankruptcy, they simply disappear. Nonsense -- they have a market, they have products, they have manufacturing capacity to continue in same. In banruptcy, they can attempt to reorganize their obligations in such a fashion as to be profitable again. There is no evident path for doing that under their current obligations, therefore there is no politically-feasible bailout that can "save" anything -- it's merely a very expensive way of deferring judgment day.
That is the point of a bailout, keeping jobs, keeping the nation's manufacturing sector healthy enough to become vibrant again. I'm not sure bankruptcy meets those requirements.
I take the opposite view: only bankruptcy can make the Big 3 "healthy" again, where "healthy" means independently profitable without recurring infusions of taxpayer cash. Cash now is like a doughnut to an obese guy--sure, he says he's hungry, but if he won't do what it takes to get really healthy long-term instead of merely not-hungry right now, feeding him is probably making it worse.
I'm not imagining a chaotic scramble akin to a consumer with too many credit cards, I'm imagining a rational (and preferably pre-packaged, weekend-long) process where profitable lines of business are identified, unnecessary costs and useless lines are cut, and a business plan is created with a snowball's chance in hell. So far, that's not on the table.
I agree that the role of Detroit in the present crisis is the dominant concern. But until they convince me they know what's wrong and how to fix it, sending them money makes the crisis worse, not better, by draining scarce resources from other sources of employment and wealth and/or encouraging inflation.
A lot of people are going to suffer, including both white and blue collar workers. I am not, broadly speaking, in favor of suffering. But there's just no way to avoid it, in this case. Interestingly, the banking sector didn't need to be told that suffering and job losses were an essential part of getting healthy; they seem to know that already.
"The principles that got us into this mess is mistaking credit for capital and a belief that we could borrow our way to prosperity"
Thats a bit of an oversimplification isn't it? You're completely ignoring how speculation was encouraged in the real estate market. Nurses making $60K a year who own seven condos (to use my cousin as an example). Why was she able to borrow this much money? Who invented products like ARMS and then aggressively marketed them to people who were a risk?
Short answer? People who didn't care because they got commissioned on loans that were going to be off their books and securitized with all the other garbage out there. Where were the rating agencies? Along for the ride.
Who decided to blow the CDO market to 62 trillion in an effort to hide this feeding frenzy of stupidity and greed? It wasn't a UAW line worker.
People who are opposing the bailout have valid reasons for doing so, if you:
1. Ignore that we just gave $700 billion to the people I'm describing above to....actually I have no idea (and I doubt anybody else does either, including Paulson and Congress).
2. You think allowing the auto industry to fail at this juncture won't have a profound negative effect on the entire country at this juncture.
If you're engaging in #1 (as Megan annoyingly does), then you really have no leg to stand on. You either feel its okay to give to white collar or you don't understand what these people were doing.
If you're engaging in #2 I encourage you to do some additional research. In either event, you're way off the mark here. Its not 1981 and this isn't Reagan facing down the air traffic controllers. Letting these people go under in December 2008 is akin to slitting our own throats. I for one am not willing to do that in order to prove some outdated financial theory.
If you're engaging in #1 (as Megan annoyingly does), then you really have no leg to stand on. You either feel its okay to give to white collar or you don't understand what these people were doing.
Third possibility, you feel it was necessary to avoid driving institutions into bankruptcy that, by law, have only a dissolution option available and, by practice, are at the root of nearly every business dealing in the United States and a large portion of the world as well. Concomitantly, you are not willing to bail out institutions who have a reorganization option available and were not profitable on net operations even during the peak of an economic bubble.
Never omit the third possibility -- it usually explains why a lot of people think differently than you yet don't possess all the other signs of insanity.
Let's assume you're correct for a moment, do you think its reasonable that the taxpayer has essentially gotten nothing in return for its $700 billion investment? The banks aren't opening the credit floodgates with the money. Investment and bonus structures (which I would argue are the root cause of this mess) are still in place. Nothing has fundamentally changed, you've just allowed the culprits to walk away with the gains while privatizing the losses.
If we're willing to do that, I don't see how giving a fraction of funds to save an industry that will benefit taxpayers directly is going to do much harm. Especially when we (the taxpayer) can leverage our investment to turn this around.
My preference would be to give the money to both parties but with the strict caveat that fundamental changes have to made:
1. Regulated rating agencies that actually rate investments
2. Gutting the bonus structures that allow this sort of thing to happen. If you make 100 loans a month and only 3 ever have a chance of being paid back you haven't earned a bonus, you've created a time bomb.
3. Tighter regulation of the securities market. No more putting lipstick on a pig and selling it 500 times over to every institute on the planet.
4. Get real concessions from top to bottom (management and workers) from the auto industry to force them to manufacture something somebody wants at a profit. Why can't we have these factories build high speed trains under taxpayer (govt) supervision?
Any of these options would work far better than espousing that mystical market forces step in at this point. We went too far down that road, its time to pull back and take the reins.
The avoidance of another Great Depression hinges on it. Just ask Herbert Hoover.
The elementary-school-textbook portrayal of Hoover as a hands-off do-nothing is completely false. He taxed, he spent, he meddled. FDR ripped off Hoover's policy agenda in near entirety and got all the credit for it, including positive credit for the counterproductive bits.
My preference would be to not follow their example. When GM goes bankrupt their factories will not evaporate and their workers will not keel over and die. They will both become inexpensive resources unburdened from legacy foolishness that can be put to new, productive uses.
" When GM goes bankrupt their factories will not evaporate and their workers will not keel over and die"
I think the glibertarians have a new motto.
Your view of depression economics is interesting, but I think its safe to say you're one of the few people who holds such an opinion. Hoover's view was by and large a laissez faire one, not unlike the one you're describing.
Tell you what, send us your address and we'll have the first Yetterville set up on your front yard. They may suffer horribly, but they wont keel over and die so its all good right?
I refer back to my second post in the thread.
Joel: If a company is in trouble because it's highly leveraged, that's an argument that it can be successfully restructured in Chapter 11. That's exactly what Chapter 11 is supposed to fix, a viable business with an unsustainable capital structure.
The auto industry is leveraged, too. Chapter 11 probably not an option.
Huh? How does being leveraged imply not being able to go into Chapter 11? That's what exactly Chapter 11 is meant for.
I refer back to my second post in the thread.
And I refer to my response that immediately followed.
Isn't Chapter 11 designed to negate many of the debts and obligations currently held by the organization that enters into it? How exactly does that help our economy? For the auto industry to not have to pay its bills?
More importantly - how do you envision the industry getting out of Chapter 11? Until this is intelligently discussed bankruptcy remains another glib pro-market "solution" that will make free market cheerleaders feel good about staying true to their ideology without solving a damn thing.
Mike M,
Taxing the owners of productive businesses and taking money from the current owners of capital to give it to Detroit firms isn't a bad idea because of some mystical half-understood theorem of finance. It's a bad idea for a very simple reason: Detroit on net, for whatever reason, destroys value.
They buy from suppliers. Buying from suppliers sends signals that those suppliers should employ their capital in the production of parts for GM rather than whatever else that factory could be used for (and no, I don't know what else that might be, which is why it's a great idea to not let me (or anyone as ignorant (like you or a bureaucrat)) decide what that factory should produce).
GM, Ford and Chrysler own loads of factories and machines that they use to produce goods which are worth less than the inputs to those factories. Really, think about that for a minute. They use machines, labor, land and raw materials and the product that comes out the other end is worth less than the stuff that they put into it. Other companies do not do this. Other companies use inputs to produce goods that are worth more than the cost of the inputs. This is called profit and this is how you can tell that you've got a real company and not the Soviet department of shoe production. The Soviet shoe production department employed plenty of people and met the stated goals. They tried setting a goal of producing lots of shoes (because there were shortages). Guess what happened? Hope you like right shoes in one size, because that's what they made. Without profit, companies have no incentive to make anything that anyone wants.
Once you prop up Detroit (further, because I would argue that this is 80 years of policy coming to a head), you get a firm that only does exactly what it has to to keep its customers pleased. Who are it's customers now? Well, the auto czar and congress. More workers not working (so they can man the phones and organize GOTV efforts), more payoffs to congressmen, etc.
Re: Why can't we have these factories build high speed trains under taxpayer (govt) supervision?
And the demand for these trains is what exactly? And how many of them do we need built?
Re: Banks can't go Chapter 11.
Deposit banks can't, but other financial institutions can. Lehmann Brothers filed Chapter 11, thereby beginning the current cycle of calamities.
"Lehmann Brothers filed Chapter 11, thereby beginning the current cycle of calamities."
Lehman filed chapter 7. Liquidation. Not chapter 11, reorganization. No Lehman anymore.
Isn't Chapter 11 designed to negate many of the debts and obligations currently held by the organization that enters into it? How exactly does that help our economy? For the auto industry to not have to pay its bills?
The auto industry can't pay its bills, that's a given. The only question is who's going to take the loss. The parties that entered into contracts with the automakers willingly assumed the counterparty risk and presumably priced accordingly. Chapter 11 is a well established process that makes sense when the company has more value as an ongoing business than it would if liquidated. Pretty much all the airlines have been through it (some more than once). It's a fair approach to enable the automakers to become the smaller companies they need to become if they're going to survive long-term.
There's a argument to be made against allowing bankruptcy (the same argument leads to debtors prisons) but it is the law and this is exactly the situation that Chapter 11 is intended for. Post-reorganization GM is probably has many fewer dealers, fewer manufacturing facilities, not paying retiree benefits, lost several brands (likely down to Saturn, Chevy, and Cadillac) and is paying labor costs and has labor flexibility that is competitive with the foreign transplants. In sum, it becomes a company with obligations commensurate with its 30% market shares.
How does it help the economy to make other people to pay off the Big 3's losses? That doesn't make the problem go away,it just moves the burden onto the successful people and companies, who didn't play any part in the US auto industry's failure. That's not merely bad economics (rewarding failure and punishing success), it's just plain unjust. And even if you did it now, it wouldn't solve the core problem GM has obligations that it can't meet given its market share and profit margins. GM must to get smaller and leaner to effectively compete.
Deposit banks can't, but other financial institutions can.
Thanks for the correction.
Some have calculated that $8 trillion has been spent or pledged in various bailouts and support programs and here is post 112 about the auto bailout, the last plan amounting to $15.
Yes, a line in the sand must be drawn somewhere and obviously this is it.
The Chrysler bailout of 79 was a loan guarantee for less than $100 million and the load was paid by Chrysler so it didn't cost taxpayers a cent. Ever since every GOP politician who ever speaks of it says they would not have supported it. The S&L bailout cost taxpayers over $400 billion and I have never heard a politician of either party say it was a mistake or should not have been done because of principal.
I look forward to post 113 and 114 and on and on as we tilt at windmills and support ancient principals.
All of these arguments have merit, but nobody has dressed by fundamental questions:
1. How is giving the financial sector $700 billion commensurate with giving money to unsuccessful companies and
2. How is allowing this contraction in the middle of a severe recession not going to cause a depression?
Either we follow fair market principles or we don't. From what I can see we do for some but not others, and most arguments for why this is the case have to do with class based arguments (i.e. these are low skilled overpaid workers dragging the rest of us down, as opposed to the low skilled grossly overpaid financial sector)
Yes, Mike M, that is one of the two (actually three) issues. This one goes to consistency.
The second one is one of reality. Let us take the libertarians at their word that they thought providing hundreds of billions to trillions of dollars to the financial sector was done to prevent a liquidity crisis.
The fact of the matter is though, that there is little evidence that these infusions of cash actually had much, if any, of the claimed effects. Instead, tens of billions of dollars - far more than the entire bailout package for the automotive industry - is going towards 'retention bonuses'. More of that money also appears to figure in the takeover of other, smaller firms that did not get any of the bailout money, and didn't need it. Finally, it seems that large sums are going towards unwinding extremely toxic assets.
In short, the argument for liquidity seems to be entirely unsupported.
Now, if libertarians would just admit that they were wrong about what happened, that would be one thing. Or if they could plausibly claim they were against the bank bailouts from the get go, that would be a credible position as well.
But instead, it appears that what is happening is that few libertarians are backing off from their claims vis a vis the policy towards the financial sector, while at the same time, making yet more claims about the automotive industry. Unsupported claims, contradictory claims, often completely innumerate claims.
You can't have it both ways. Not and have anyone think that you're remotely worthy of any sort of respectful hearing. I think Freddie nailed it the very first post.
It's a brave intellectual who has the guts to stand above the battle and then come down after it's done to shoot the wounded.
Well, certain wounded.
1,2,4 6,8,12 years ago and more I, a schmuck hourly worker in Michigan, was fully familiar with substantive arguments about the flawed monetary, credit, and financial structures which caused this collapse which were often libertarian based or flavored. Was Megan?
As a general heads up, taxpayer bailouts are not consistent with libertarian principles.
Yes, Megan supported it and Megan calls herself a libertarian, but Megan's a squish.
We all are squishes in our own way. Externally, it looks like hypocrisy, internally it looks like balancing competing principles.
But however you slice it, it just so happened that she squished on something that'll cost us 8+ trillion dollars, which is a *very* bad squish. (The Iraq war cost 1/10th as much). But don't confuse her squishiness with libertarianism.
And right on cue, the Fed just purchases $39.3B of MBS from AIG for $19.8B. When asked about the deal the Fed says what a great idea it was and then refused to disclosed exactly what securities there were. Considering that the Fed has purchased trillions in assets from the financial sector, wouldn't it be nice to know what those assets they are? The Fed just says "trust us, we'd never give trillions to our buddies in the banking sector in exchange for worthless securities"
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/
Mike M, on your second point:
Firstly, I am not sure about the difference between a severe recession and a depression. My understanding is that the word "recession" was introduced as a euphemism for depression.
Secondly, the money used to bail out the big car companies means money not available for something else somewhere in the economy, either the government will spend less on something else, or taxpayers will have to pay more taxes. And every dollar that the government spends on things like Medicare or infrastructure has knock-on effects, just like every dollar spent by one of the auto companies has knock-on effects. Why would the auto companies be a more valuable use of this money?
Thirdly, what are fair market principles? Did you mean to type "free"?
$700 billion later and nothing has changed on Wall Street. The same culture. The same system of rewards. The same regulatory structure. No limits to pay or benefits for multimillionaire. And still no credit flowing.
I expect to see Hank Paulson disappear to some private tropical island to reap his reward for the massive gift he is bequeathing to his buddies.
of course it is not virtue. this is not the bio-ethics department of an university or is it? i thought it was economics and how to save the economy with the limited resources we have.
usually - when my resources are scare and I feel pressure to create some more asap - I do not not go to Vegas unless I can play "the bank", which literally never loses. virtue.. go vegetarian or give some money to charity for some virtue.
I have a plan for the government. Why do not give 1% of the Detroit bailout to those who have already produced voluntarily what you want to force the big three to do. Not as reward but as an investment. Toxic mortgages - inefficient companies - we already ARE in recession - we do not have to work on getting there?
...and what is the government doing to my put options. When Toyota first introduced the RV4 EV in 2001, a big 100% electric SUV, while GM came out with the small and crappy GM EV1 - I knew that the big three are in trouble. only a fool does not realize that when it comes to electric cars - the bigger the better. only when it comes to gas and hybrids do you have to be small and light. GM would have been the most ideally positioned of all car makers to go green first (no need to change your plants expensively).
What has GM done instead - it lobbied against CAFE, successfully, and killed the EV1 and the RV4 EV as well. It killed it's own first chance in decades to experience a renaissance, it slowed down our economy and new infrastructure investments as a process. Instead of us all driving around in a cool H3 EV - we have to wait for a Volt?
Even if the Volt ever gets finished - it will cost more than the RV4 EV had back in 2001 with less room and speed and... Get lost... virtue my...
Wake up you half-wits.. we do NOT need small, light and fuel-efficient cars. We need and want big fuel-LESS cars. They are cheaper than the small ones if you can connect your batteries to the grid during peak time. (unless of course your state has not deregulated it's energy market.. because it and its utilities too have GM managers sitting, eh, lying, around somewhere.)
Hugo pottisch -- I'm not sure you're right, I think safety regulations made us think we wanted big; particularly if we had two or more kids in car seats. But those regs were written to push us toward purchasing the cars that were profitable for Detroit to build, weren't they?
When at war, generals are often called upon by tactical necessity to hurl cannon fodder to the front, not to win the war but to avoid losing it. Sometimes forestalling a major loss is all the gain of the day one should expect.
The many, who upon seeing the carnage decry the waste, want the general's head, and a vow put forth to never again do such a thing. That is until the enemy is at their gate, lusting for their blood and their possessions.
The general with the foresight and fortitude and yes, even some cold-heartedness for the troops who can forestall a major defeat with a little sacrifice is a wise one indeed. He is usually a lonely soul.
I think from some of the comments I might have been a little unclear - if libertarians who were against the financial bailout want to slam the automotive industry, that's okay by me, as far as being consistent is concerned. If libertarians who were for the bailout on 'balancing principles' want to admit that they were wrong about what would happen when various financial consortia(?) actually did receive that money, that's okay too.
But you can't keep holding these contradictory positions after the facts on the ground have shown you to be wrong about one of them.
Sometimes the generals are also very mistaken about what constitutes "tactical necessity." Google Battle of Hurtgen Forest for example.
Just imagine that tomorrow morning, after deciding that it's just too expensive, "the Atlantic" decides it will no contribute to Megan's pension fund. Furthermore, it's going to withdraw all the funds it's already contributed. So she may have $30,000 there, but they're going to take it.
Is that okay?
That's what many of you are advocating that the auto companies do to auto workers in the name of profitability.
When it was suggested that higher management in banks have some of their benefits touched, folks here seemed a bit more squeamish.
I would really someone here to explain the double standard, because I find it sickening. Bankers should have already diversified; they had the money and the knowledge and the ability. Did retired auto workers?
There are, indeed, two Americas. One pays income tax. The other, pays income tax and mostly pays capital gains tax, and complains loudly about the higher rate of income tax. But they really don't pay their fair share, particularly when it comes to capital gains tax. I may have seen my wealth decline, but I've seen my neighbors work themselves to the bone and slip further and further behind over the last eight years. Their small pieces of the pie don't nourish their lives any more.
Those auto workers don't deserve this. And those bankers didn't deserve the money they got without strings.
Just imagine that tomorrow morning, after deciding that it's just too expensive, "the Atlantic" decides it will no contribute to Megan's pension fund. Furthermore, it's going to withdraw all the funds it's already contributed. So she may have $30,000 there, but they're going to take it.
Is that okay?
That's what many of you are advocating that the auto companies do to auto workers in the name of profitability.
No, it's not right, but it's not an appropriate analogy either. I think there's a misunderstanding about what Ch. 11 means (and perhaps it's mine). I believe in Chapter 11, the company presents the judge with their balance sheet and their restructuring plan. If approved by the judge, the company's obligations are written down (or waived outright) according to a well established priority order. My understanding is employee obligations are pretty much at the head of the line.
Your analogy is wrong in at least two senses. One, a company couldn't do this unilaterally. It has to be approved by a judge, and it has to conform to bankruptcy laws. Secondly, I'm pretty sure that even in bankruptcy a company can't claw back pension plan contributions.
And besides, the argument is not that the Big 3 should just be able to walk away from their debts. The argument is that continuing to hold them to allow of their obligations will cause the company to go out of business. If forced to make good on their outstanding liabilities, they won't have capital to continue to buy parts and pay workers and will be forced to shutdown. Something is going to have to give, and it's ultimately better for everyone to let company wind down its liabilities in a controlled fashion overseen by a neutral 3rd party and remain in business as a smaller company than it would be to drive it completely out of business.
What's the counter-argument? That they should be driven out of business to minimize the losses to existing creditors (they can't be made whole in any case)? Or that funds should be taken from uninvolved 3rd parties (diverting capital from more productive uses) in order to allow them to satisfy their creditors? Without a radical reorganization, that bailout doesn't end. GM has no prospect of being viable without major restructuring.
The fact that bankers wrongly got a bailout doesn't justify the automaker bailout. Two wrongs still don't make a right. There's a valid role for government intervention (DIP financing, underwritten warranties), but not without a more serious and viable restructuring plan than what has been presented to date.
TakeFlight said: "Sometimes the generals are also very mistaken about what constitutes "tactical necessity." Google Battle of Hurtgen Forest for example."
Great. It is obvious you got my point. I will also presume you see a set of conditions that might necessitate such an action.
Hurtgen Forest was an allied OFFENSIVE. Try again.
I'd say try Battle of the Bulge or Corregidor, the Battle of Stalingrad, the Battle of Berlin.
The point of difference being that those were defensive and troops were thrown into the breach with no thought of winning anything but merely not losing before a better tactical situation could be attained.
Just like the auto bailouts.
The question that should be foremost in the auto bailout debate is this: what is the possibility that a complete failure of the auto industry would produce a depression? Predicated by this q: are the CEO's bluffing about the possibility of complete failure?
If you get past that, then you ideologues can steam full speed ahead.
Hi zic
in the context that I was talking about - a bigger electric car is cheaper than a small one (the larger and heavier a batterie can be - the cheaper it gets). If it is also more secure - good for us. But don't tell me that America's fascination with "bigger" has started due to car safety etc.
At a "normal" company - there would have been board and grass-root activism from the workers for change. You take Mr John F. Akers and, despite some costly delays, do the right thing and replace him with Mr Louis V. Gerstner. Despite your dislike for change, your old reputation and a natural tendency to rationalize that the old will always prevail...
you do the right thing eventually in order to save the workers, investors and yourself... At the very least to save investors and yourself. Nobody in Detroit knows what this means. Not the board, not the workers and not the management. Ask a Detroit worker what he or she thinks of climate change. They will say "what?". After you explain yourself they go "oh.. you mean global warming..." 'nough said. The Tesla is not for me. I am in city and have dogs and need space. Where is my cheap and big zero emission car?
ScentOfViolets
I believe that libertarians might have supported the financial bailout to keep the economy going. Not in the supportive "balancing" sense of the middle ground hypocrisies - but in the essential to life sense. If liquidity dries up - we all suffer. The financial sector in this sense is a public good. The car makers are not, they are individual companies that in this case do not deserve any more support than any other company.
Some people say - "but at least GM produces cars and not 'nothin' like the banks". It is not "at least" but - on top. Are we going to subsidize CO2 and foreign-oil dependence now before we even have taken first steps to tax it? Again - unlike with the financial sector where the whole world suffers at the same time - Toyota is not asking for a bailout.
This is an investment for our children. Not a random one - but one during a recession that better pays off quickly. Artifficialy keeping somebody alive is not comparable to producing a new baby.
Would you rather invest in something with a high chance of success - or the opposite? Would you rather invest in something that does not harm the environment - or in something that makes it harder and harder for our children... call it "safety^3". No - better to invest in energy and other infrastructure. I want better roads for my new Toyota RV5 EV.. yeah!
25 billion.. only to start with... freak - I wished we had invested that much only once into something with... a future. or at least buy Toyota stock with that money and distribute it among obsolete detroit workers as a pension? Now Obama wants to invest up to 150 billion in energy - up from 50 billion.. but.. over 10 years... Farmers get $280 billion over 10 years and they are not in crisis but millionaires. What is going on...
One should ask what the best investment is for America right now - not the best Xmas charity. If, because of its timing, religion ends up saving GM in the end...
Yo - can religion somehow help me too - by stopping the government from mingling with the value of my put options. If GM does deserve charity and a reward for incompetence - I deserve to not be punished for foresight?
Mike
Why do I assume, without googling, that the forrest lost that battle?
$700 billion later and nothing has changed on Wall Street. The same culture. The same system of rewards. The same regulatory structure. No limits to pay or benefits for multimillionaire. And still no credit flowing.
I don't know, 100,000 laid off bank workers might think something has changed.
And I have no problem with this argument . . . as long as the person who advanced it admits that subsequent events have not shown this view to be the correct one.
That doesn't tend to happen. And it is those people, who still support intervention in the financial sector but who also oppose any such thing in the automotive industry that I say have no standing or credibility.
ScentOfViolets
I doubt that libertarians who have supported the unlibertarian intervention in the financial sector on "liquidity" grounds are happy with the types of intervention and it's effectiveness. Include myself in it (although I was never a strong, always a reluctant, supporter of facilitating liquidity).
It makes sense, however, that the same libertarians are now even more cautious regarding the big three. This is not to be confused with a 360° panic change of direction .. but I agree with the core of your argument that it is always good "as long as the person who advanced it admits that subsequent events have not shown this view to be the correct one."
Quote from comment above:
Jumping up and down and shouting "but you promised!" is not an apt response. The whole point is that GM cannot pay its bills! Apparently, they will run out of money to pay to those whom they have made financial promises, including workers. When someone won't keep a promise, maybe pouting and saying "but you promised" makes sense but when they can't keep their promise, it is down right ignorant and juvenile.
Furthermore, it was GM who made promises to unions, not the taxpayers. Take it up with GM, leave us alone!
Also, a particular point has been made several times in the comment section of this site but those who support a bailout intentionally ignore it because it undermines their emotional rhetoric: most of us did not support the financial bailout! Most of us did not want either bailout. But you know this. You just want to be able to deploy your class warfare rhetoric "sure, help the white collar bourgeoisie and let the blue collar proletariat worker suffer! Its all about class! You don't mind bailing out middle and upper management but refuse to help the 'working' man!" If stopped falsely attributing to us a defense of the financial bailout, you would have to stop making this particular class warfare point, so you simple ignore what we say and project whatever view on to us that is convenient for your rhetoric at the moment.
Grow up.
SOV,
Where do you get the premise that libertarians, in great or even large minority numbers, supported the bailout of the financial industry?
That's a premise I haven't seen backed up in a regular reading of libertarian blogs...and I read a lot of them.
The notable libertarians who were somewhat sympathetic to a financial industry bailout, like Megan McArdle (Tyler Cowen being another) are the rare exception and not the rule.