Not to say I didn’t warn everyone, but my worst fears are coming to pass in regards to this whole bailout situation. Remember when we were told that if the bailout didn’t pass by the end of that week, the whole financial system would collapse? Then President Bush came on the air and said we would buy up all these toxic assets that weren’t really worth anything right now, but we’ll probably be able to sell them and actually make a profit in a few years. Well, welcome to reality. Today Secretary of Treasury Paulson announced that the Troubled Asset Relief Program would no longer involve purchasing actual troubled assets. Uhhh . . . color me dumbfounded.
Perhaps we should have listened to those House Republicans. I thought at the time, and believe now that we were sold a fraudulent bill of goods, and its looking more and more like I was correct. Furthermore, it seems that all this cash that we have injected into the banking system, you know the cash that was supposed to free up lending so our credit markets didn’t spiral out of control, is indeed being hoarded by banks instead of loaning it to those who could use it. To add insult to injury, its even being reported that Paulson and the Treasury are going to loan American Express money to “bail” them out as well. This is beyond anything that I can even think of as a rational thought. How in the world are we going to bail out American Express, probably the least forgiving creditor in the entire world when it comes to their own debtors? Is American Express “too big to fail” too? Could someone please explain to me who isn’t “too big to fail”?
Prediction, within 6 months the Obama administration will come back to Congress and ask to extend that $750 Billion dollar bailout amount to even more. I am not usually an alarmist, but at this rate, we are staring at the complete disintegration of our current market-place right in the face. The only solution to this problem is to start letting companies fail. Would it hurt if the auto industry failed in this country? Hell yes it would, thousands would loose jobs. However, someone would come along, buy those assets and start building cars again under the Ford or GM name, and they’ll do it without the legacy pension costs and the extortionate labor costs (the big Three labor costs are about double of Toyota thanks to Unions) and they will succeed. That is what always happens. America, wake up!
November 12th, 2008 at 2:22 pm
While the auto industry is very important to the U.S. economy, any bailout assistance to them is only a reward for poor negotiating skills when dealing with the UAW and other unions. The Big 3 would be much better off to file for reorganization under the bankruptcy code nullifying their supplier contracts and forcing the unions back to the bargaining tables. That is the only way the auto industry will survive for the long haul. It doesn’t make sense to pay a line worker from the Big 3 in excess of $75 per hour with benefits when the Japanese are paying between $45-$50 a hour with benefits.
November 12th, 2008 at 2:36 pm
Precisely James. If you are paying nearly twice the amount in labor costs as your competitor, no matter what quality your car, you just cannot stay competitive. To be honest, I’m quite interested in the GM Volt and some of the other innovations at GM, but I have no sympathy for companies who are poorly managed and then come to the government for help. Personally I think the $75 per hour is insane for production work. I am a JD and an MBA (soon) and I’m not sure if I even make $75 an hour.
November 12th, 2008 at 3:31 pm
bryan, i agree with some of your points, but i have these two additional comments/rebuttals:
1. The auto industry, it has been said, encompasses by some definitions 10% of jobs in this country. To let them fail outright would guarantee a depression. I tend to agree with your sentiment on this point but I think pragmatically we just can’t let them fail.
2. government purchase of MBS’s was always always a bad idea. The better idea, by far, is to inject capital into financial companies, effectively making taxpayers partial owners of those companies. dollar for dollar, that’s the better strategy for both taxpayers and the companies’ balance sheets. Paulson’s coming to that position is an *improvement* on his original plan. The markets don’t agree — but the smartest economists do.
students of the great depression acknowledge that it was a mistake to approach that crisis with a do-nothing mentality, which is the instinct of most libertarian philosophers. This time, we’re going to try to do something about it. I don’t think the outcome will be much worse than a decade-long depression, which is the certain outcome of your prescription.
November 12th, 2008 at 3:52 pm
[violates comment policy for language. 1st warning.]
November 12th, 2008 at 3:52 pm
As long as the left needs the labor vote it doesnt matter what the unions will extort these companies for.
Yesterday I heard someone mention that each car produced by the big three has somewhere around 1200.00 + in medical attached to the cost of each car while Japanese makers only attach 120.00.
If the fed does decide to bail these guys out there should be some conditions they are held to meet in the very near future.
Tell the unions to stick it and come up with a more realistic contract.
The fed should also let the manufacturers get rid of some the costly environmental standards that have proven useless and only purpose is to stretch the sticker out.
In addition to opening trade with Europe and Japan seeing as how its almost inpossible to buy an American car in either of those countries
I was glad to hear Paulson say that this 750 is not nor should it be used to bail out the automakers
November 12th, 2008 at 4:00 pm
Irony, I have no idea why the spam filter caught your first comment. We almost never censor based upon ideas here, only language. Feel free to dissent away.
November 12th, 2008 at 4:14 pm
OK, please respond to my post and we can continue the conversation.
November 12th, 2008 at 4:50 pm
Irony, the auto industry does consist of a lot of jobs, but it’s misleading to say that letting the U.S. auto companies fail will lead to tremendous job losses. Toyota manufacturers much of its cars in the U.S. In fact, Japanese car manufacturers may account for a huge percentage of that “10%” number you bring up. All those jobs are staying even if G.M., Ford and Chrysler all fail. Also, G.M., Ford and Chrysler these days don’t do much manufacturing in the U.S.
If the government wants to be an activist, it should take the U.A.W. and retrain them to do something else, or train G.M.’s management to learn how to make a product that people actually want. The U.S. car industry is in shambles for a very good reason. They LOST. I’m for innovative government policies in these times, but throwing a bunch of cash at G.M. so that it can waste another few years as an non-competitive crap company is NOT the answer.
November 12th, 2008 at 4:53 pm
ig, i see where you’re coming from, but you do need someplace for these workers to go, and the infrastructure of the industry needs to be transformed. the unions pose a difficulty, no doubt. it’s not a problem with easy solutions…but I think letting it fail outright would be a disaster, and many economists agree with me. it’s a best-of-evils situation.
November 12th, 2008 at 5:04 pm
Filing for bankruptcy does not mean the Big 3 will fail. All three are advocating a bailout similar to what Lee Iacocca was able to pull off at Chrysler. Unfortunately, none of the Big 3 have anyone at the helm like Iacocca. Toyota, BMW, Mercedes and Kia/Hyundai are all locating manufacturing plants in the U.S. so auto manufacturing will not go away. The Big 3 must reinvent itself to survive with lower production costs, fuel-efficient and improved quality cars. Manufacturing plants must be modernized with more utilization of robotic driven production (CAD/CAM) systems similar to the Japanese which will impact the number of headcount required. The unions must also come to the table and be willing to negotiate, even if that means giving something up for its membership. Put a cap on executive bonuses, unless tied to incentives, such as the production improvements and cost reductions. The cost of durable goods, not just automobiles have outpaced most cost of living increases. Things must be done to bring them into line for affordability.
November 12th, 2008 at 5:15 pm
There is much debate about what caused the Great Depression and why it lasted much longer here in the US then the rest of the world. Certainly some of the problem that contributed to the Great Depression was we went into trade protection mode and we raised taxes.
There are plenty of economists who believe the actions of FDR actually prolonged the Great Depression because he tampered with the market too much. The great misconception is that “Hooverism” or hands off economics is what caused the GD. It may have contributed to it, and I don’t advocate going back to it. However, constantly toying with the economy and over-regulating it can be just as dangerous.
November 12th, 2008 at 8:38 pm
Hoover almost doubled the tax % though, in a cashless environment.. Hoover also refused to deficit spend.. which no politician has a problem with now..
Hoover was not as bad as history looks at him.. a lot of his ideas and policies helped the 1920’s be “roaring”.. but he did make some bone headed moves, but he was dealt a bad hand at the beginning of his presidency..
I agree FDR (as much as I liked him) did react to much and tinkered too much.. I liked his ideas but I beleive he got impatient with results.. The dust bowl did not help the situation too much either..
I do not think any policy would have helped during the depression, becasue we got so low in production and output, the country needed a stimulus and WWII was that stimulant..
Regulations are needed and so are unions, but both need to be reevaluated.. Unions have been very important to our country by protecting workers which was needed more a 100 years ago than now, but they are still important but need to be reevaluated..
Bush and Paulson have misled America, but I am not surprised.. I believed a bailout or recovery package was needed of some sort.. but I knew it would be mismanaged..
I do not see why they can not help Big 3 in Detroit if they are going to be giving AIG 40 billion every month, and what AMEX now?
Give me 40 Billion.. And I will do more for the Economy than those comapnies that just pocket the money or buy out other companies that are failing to help their taxes go down thanks to Paulsons other action reversal of that tax code..
November 16th, 2008 at 6:29 pm
Your right about Paulson letting us down. Naively I took him at his word and given his credentials and the statements of backing by Bush that he would do what he promised. He didn’t. He too is a product of Wallstreet as former head of Goldman Sach’s til 2006 supposedly payeed ?60 million on his last year. None of these people are to be trusted and an article by Lewis in today’s Portfolio.com outlines just want these people are all a bout. My original thought was on letting wallstreet sink completely and simply secure the commercial banks that do mainstreets banking, people’s money markets and bank accounts ira’s and 401k’s so that we would only need to get through a short to intermediate term fiasco. Now everybody wants free money and there is no way to truely analyze who is telling the truth or even how to project an end game. Senator Shelby of Ala, has been forthright on speaking out on this matter, so I defer to his common sense approach. If its all just throwing good money after bad and incurring more debt maybe we should just endure this storm in its entirety right now. There are areas of hope in our ability to innovate and grow out of this mess, and with a new administration credibility and faith might be restored. On a macro scale we are at an inflection point of truely moving into a new even “more” global era with the needs of building out new infrastructure, green industries, health care and energy. So maybe this crises will free up people’s enegy and talents to starting anew in these areas. Either way we need to revisit moral and ethical issues as that was our undoing.
November 16th, 2008 at 6:52 pm
you know if you add up all the money lost by the banks, wallstreet, and aig, and add to it all the taxpayer moneys given in addition, and in the future, plus the loss of all the banking and wallstreet jobs, and tax revenues you can safely say our finanical institutions have taken a huge chunk of our national wealth and flushed it down the hudson river into the atlantic. We will be measureably poorer as a nation for this for a decade or more even if we suceed in reving up again quickly. And when is the harvard trained lawyer cox of the sec going to have the self-dignity to resign anyways?
November 16th, 2008 at 6:59 pm
Dont depend on “green jobs” or the green industry to do anything but replace the jobs in our tradintional energy work force if they do replace any at all since most of the people needed for green initiatives, scientists, researchers, manufacturing, are already in place. Its a huge red herring.
Lawmakers are in ther back pockets of the large energy companies, who are buying up many of the present solar farms which will do nothing but keep energy prices at present market levels, no matter how renewable the fuel is. You can expect the same whether its geothermal or wind.
The whole “climate change/global warming” fiasco is just a huge corporate and government sham designed to make money of course, but worse can be used to directly control a certain population.
November 16th, 2008 at 7:53 pm
green industries involve more than windmills, but environmenatl efficent building and houseing designs, effluent archetecture, the conversion to led lights for city streets, dispoability, ceramic conductors, solar film, electrical grids, engine efficency, food processing, cattle grazing, forestation, fisheries, so many things to improve. Secondly we have no choice but to deal with global warming now. Think of it as being a good camper. Clean up your camp site so the next user can barely tell you used it. We need to lower the human footprint on the earth and blend in better with nature. I would also consider SETI an arm of green research and would increase both nasa’s and physics labs budgets world wide. What we learn and can patent and expertise are products we can sell to china and the rest of the developing/developed world. If we restructured our auto industry to truly make feul efficeint cars and trucks that would be a big part of the greening of the US and world. I think boone pickens is onto something by mining a wind corridor, and even with that we need to build out an efficent electrical grid to harness our newly churned electrons. I would also dredge the hudson and cuyahauga rivers of course and work on a cleaning of the water of america. And we also need to figure better ways to manage our forested lands and waterways. Think of all the tarp money we are dumping on what is left of wallstreets heads and the other trillion plus, think of how even a quarter of that money could tackle so many needed infrastructure and green projects. With 500 billion we could do a lot, and with 2 trillion we could have done a lot more, but alas and alack its been sucked up by the financial folks who are just so darn good at badlyl manageing money. About 8 trillion dollars in global governmental money is going to pay off the bankers, and if that money ahd been allocated to the above refurbishing of our planets real physical attributes we would be so far ahead of the game.