Respectful Insolence

Jon Stewart on the Detroit bailout

As usual, he nails it, at least a significant part of it:

Again, I remain ambivalent about the whole bailout thing, mainly because I hate rewarding incompetence. On the other hand, the economic devastation that would result gives me pause, the reassurances of some commenters that it wouldn’t be such a huge deal having utterly failed to convince me. However, there is one thing that irritates the hell out of me, regardless of the relative merits of this bailout versus the financial bailout, and that’s the grandstanding and amazing hypocrisy of some truly annoying politicians–especially from states with foreign auto plants who would stand to gain if the Big Three fail and from New York state, one of whom (Carolyn Maloney) asked why her constituents should bail out the Big Three when automakers fought state laws designed to lower greenhouse gas emissions. Well, I would ask why taxpayers from my state should give bankers and speculators on Wall Street 20 times as much money when they fight both at the national and state levels any laws to regulate them more closely, laws that might have forestalled the economic meltdown that is due in a large part to their own greed and incompetence?

I’m not saying that just because we bailed out Wall Street we should bail out Detroit. Rather, I’m saying that Wall Street is just as guilty of opposing laws and regulations that would have restrained them and potentially benefited society, both at the federal and state level, and they got a handout more than 40 times as much without nearly so much pontificating and tongue lashing of their executives. Heck, the first version of the Wall Street bailout was only one page long and gave the Secretary of the Treasury essentially carte blanche to distribute the $700 billion however he saw fit!

The hypocrisy of Congresscritters never ceases to amaze me.

Comments

  1. #1 Schwartz
    December 7, 2008

    You keep forgetting that the US Gov’t nationalized some of those financial organizations and fired the management. You also forget to mention that the Gov’t owns parts of many of them. You also forget to note that the Gov’t is financially responsible for covering owed money if the banks fail.

    Speaking of hypocracy, have you told us which brand of car you drive yet?

  2. #2 Jeremy
    December 7, 2008

    They go forward with the bailout on the condition that the CEOs resign. There has been a complete lack of foresight and planning from these companies, an utter and disgraceful failure, and the leadership needs to change if we are to have any confidence whatsoever that they will be turned around and that the bridge loans will be repayed. How about laying off CEOs instead of workers for once!

  3. #3 Robert Grumbine
    December 7, 2008

    If you haven’t read it yet (and it seems you haven’t) get hold of a copy of C. Northcoate Parkinson’s _Parkinson’s Law_. He describes exactly what (imho) is involved here.

    His example was military budgeting. Went something like this: The budget oversight committee sits down to review the expense list for a project. First item is “Tank, $20 million”. After a minute or two of commentary, it’s approved. Nobody really understand what a million dollars is, nor is there any good reference for what a Tank should cost. So it goes down the list until we get to the hour long argument over “100 AA batteries, $100″ Now the fur hits the fan. One member got his for $15 for 20. Another found his on a sale for $10 for 20. And yet another found an even better sale from a generic brand for $7.50. So they argue about the price that’s appropriate, whether the generic batteries are good enough, etc. In the end they approve $25 and congratulate each other on their fiscal responsibility.

    So it goes with the bailouts. Congress thinks they understand something about cars, what they should cost, how much it should cost to make them, etc. So that request gets a lot of examination. Apparently nobody, the financial firms included or especially, understands just wtf mess they’ve created is, how bad it is, what exactly they’ve bought or sold, or, any more, to whom. So the $700 billion carte blanche passes almost unmodified and with it apparent that even though nobody knows where it went or what good it did (or will do) that the financiers will be back for more.

    Show up asking for $50 to tide you over a short small problem in your home business — which would let you hire another 3 people if you got past this current cash flow problem, and bankrupt you otherwise — and, of course, you’re not going to get heard at all. Even though the return in jobs per dollar of bailout would be far higher.

    Parkinson’s Law is about 50 years old now. Some things don’t change.

  4. #4 Robster, FCD
    December 7, 2008

    If it was just losing Chrysler, Ford or GM, I could do without one of them.

    But it isn’t.

    How many companies are out there making parts to supply the big three, and losing one of those companies would wipe out a much larger portion of the US manufacturing base than is immediately obvious.

    Its going to take some serious change at the top of these companies to put them into a position where they are truly competitive. FFS, the head of GM thinks that global warming is fake!

  5. #5 Badger3k
    December 7, 2008

    Not on topic, sorry, but I was curious to hear your thoughts on the fact that Autism Speaks has decided to go with Open Access. Given what I have heard about them, I am dubious as to how well this will work for them, unless by Open Access they mean “immune to peer review”.

    http://feeds.feedburner.com/~r/ScienceblogsCombinedFeed/~3/477586706/autism_speaks_open_access_poli.php

  6. #6 The Science Pundit
    December 7, 2008

    Wow! My first car was also an AMC Gremlin. Now I will refrain from divulging specifics about my sex life, but Jon Stewart nailed it! ;-)

  7. #7 Graculus
    December 7, 2008

    I know what burns me. Our .gov is talking about bailing out the automakers. 6 months from now the US unions will demand that the Canadian plants be shut down “to preserve US jobs” and the Big Three will walk away with our money, while your UAW will put our workers out of jobs without a second thought.

    So I’m tending towards “screw you, Detroit”

  8. #8 Michael L
    December 7, 2008

    @Grumbine:
    Good point about lawmakers thinking they should know something about making cars, especially how much per unit the cost ought to be, particularly when that is held against the very opaque nature of CDOs and credit default swaps, and so forth.
    However, something that I think too often is overlooked when comparing Detroit to Wall Street is the emergency presentation of the latter. Basically, after Paulson and Bernanke met with W. and told him what they were going to do, they met with Congressional leaders (on a Thursday evening) and put it to them like this: If you don’t do something, there may not be an economy come Monday morning. I haven’t heard anyone say that if Detroit is not propped up there will be no cars for sale next week.

  9. #9 trrll
    December 7, 2008

    The rationale for bailing out the financial industry was not that they merited a bailout. Neither was it that a lot of their workers would be out of a job and it would deepen the recession. Nor was it that the financial workers were so deserving or so much in need that they should receive special protection from the consequences of their company’s decisions, beyond that extended to other workers who are losing their livelihoods as the result of the financial crisis.

    The argument for rescuing the financial industry was that many, many other things in our economy would not function if these businesses were allowed to fail. The analogy would be if the automakers were able to argue, “You can’t let us fail, because if we do, all of the cars we made will stop running, and nobody will be able to drive to work.” If they could have made that case, they’d have had their bailout weeks ago

    But of course, they can’t make that argument. So instead we have “It’s unfair to let us fail because the financial industry was bailed out.” This is true, but they’re hardly alone. Is it less unfair to let Circuit City go under? The same goes for the argument that a lot of people will lose their jobs. It’s a recession (at least). A lot of people not working in the auto industry are losing their jobs and pensions too. So what is the argument that spending limited funds bailing out the auto industry would be more cost-effective than bailing out all of these other businesses, or providing general relief for workers in all industries who have lost their jobs because of the crisis?

    People are arguing about whether the auto industry is deserving, because that is the only conceivable argument that could hold water: “The auto industry has been so remarkably public spirited that we owe them a bailout for the risks that they have taken in building energy efficient cars instead of SUVs, to reduce our exposure to foreign oil and the risk of global warming.” Except, of course, that they haven’t done any of that.

  10. #10 Phoenix Woman
    December 7, 2008

    By the way, Dan Quayle’s firm Cerberus is trying to get out from under some bad gambling debts by forcing the shotgun marriage of Chrysler and GM:

    http://emptywheel.firedoglake.com/2008/12/07/dan-quayle-and-cerberus-holding-american-economy-hostage/

    From the link above:

    Making a Chrysler bailout contingent on GM’s acquisition of it is two things. First, a refusal to do the most logical thing with it, nationalization. With nationalization, Cerberus loses everything–as it should–but the country will have veto power over which company acquires Chrysler in the future (making sure, for example, that China’s Dongfeng doesn’t acquire it so it can have easy access to the American market).

    But far more important, making a Chrysler bailout contingent on GM’s acquisition basically bails a bunch of muckety-muck Republicans and pseudo-Republicans out of their stupid business decisions.

    There are a whole bunch more excellent posts on this over at http://emptywheel.firedoglake.com.

  11. #11 Phoenix Woman
    December 7, 2008

    Oh, and by the way: Toyota and Honda use the same parts suppliers the Big Three does, so they don’t want to see Detroit go away. In fact, they were pushing the Harper government in Canada to try and press the Bush government here to a bailout. (Of course, now that Harper had the GG shut down the Canadian government for two months to save his own skin, a joint Canadian-US auto bailout probably won’t happen.)

    Reminds me: A recent CBS News piece talked up how a Japanese car plant in Alabama could switch from building trucks to sedans in a matter of hours, as opposed to the weeks such retooling would take for a typical GM plant in Michigan. But they did admit that in the GM plant, things like engines are built from the ground up, whereas in the Alabama plant there is no need for retooling because there’s no need for tools: All the important work, such as putting together engines, is done elsewhere and only the final assembly is done at the Alabama plant. (Something to do with the educational level, or lack thereof, of the Alabama plant’s workforce.)

  12. #12 Orac
    December 8, 2008

    Oh, and by the way: Toyota and Honda use the same parts suppliers the Big Three does, so they don’t want to see Detroit go away

    Indeed they do. If the Big Three go under, a lot of these parts suppliers will go under too, so many that it would become very difficult for Toyota, Nissan, and Honda plants in the U.S. to find replacement suppliers easily. That’s one reason why Ford was asking for a line of credit that it didn’t plan on tapping unless one of the other three went bust. Of the three, it’s in the best shape and most likely to survive.

  13. #13 Tracy W
    December 8, 2008

    “Hypocrisy is the due paid by vice to virtue.”

    Given what I know about the average moral standards of lawmakers (and I have to say that the USA hardly has a monopoly on badly-behaved politicians), I think it is a generally good thing that politicians are hypocrites. We don’t want them only holding others to the standards they live up to themselves.

  14. #14 Don
    December 8, 2008

    >Speaking of hypocracy, have you told us which brand of car you drive yet?

    And that is relevant . . . why? A selection of car brand is a vote, not a measure of hypocrisy . . . .

  15. #15 Scott
    December 8, 2008

    Bottom line, there are two gargantuan differences here.

    1. Letting the financial system collapse would have made the Great Depression look like a picnic. 90% unemployment and mile-long lines to buy stale bread would be about the best-case scenario. Even if all of the Big Three, all of the suppliers, and (just for good measure) all the foreign manufacturers were liquidated, the damage would be orders of magnitude less.

    2. The structure of the financial bailout means that, in the end, the taxpayers will get much/most of the money back and have a decent chance of even making a profit on it. Since the domestic operations of the Big Three are almost certainly doomed anyway, there is no meaningful chance of getting any of this money back.

    Propping them up for a bit, so that the fallout when they inevitably collapse doesn’t come when the economy is so weak already, may well be worthwhile anyway. But the similarities between the cases are quite superficial when it comes down to it.

  16. #16 jayh
    December 8, 2008

    Interestingly, while the financial markets indeed contributed to their problem, the majority of the automakers problem is due to the financial sector rather than to their own market. Toyota and Honda have had one of their worst months ever here too, it’s not just a matter of kind of product (before earlier this year, the larger US style vehicle was still the best selling and most profitable on the market, they were guilty of making what the market demanded–they made efficient cars too, but the public was unwilling, in large part, to buy them).

    I suspect that the irrationally high spike in oil earlier this year was actually the financial markets starting to come apart, as the financial markets started to crack, probably lots of failing bonds were backed somewhere by derivatives or similar instruments tied to oil futures. The collapsing market pulled the oil prices higher and higher until the whole system could not stand on its own weight.

  17. #17 Don
    December 8, 2008
  18. #18 kerFuFFler
    December 8, 2008

    Schwartz,
    you misspelled hypocrisy. Hypocracy—–the way you spelled it—– suggests an alternative form of government, a state run by hypocrites. Maybe that’s what we’ve had instead of a democracy the past several years!

    As far as the bailouts are concerned, I think top management resignations should be a requirement of any of these arrangements. Let ambitious new, managers work for reasonable salaries to put these companies on their feet. The ten million dollar bonuses should be a thing of the past.

  19. #19 AntiquatedTory
    December 9, 2008

    A friend of mine in business writes that she does not understand why the government does not provide the Big Three with standard Debtor In Possession financing.

  20. #20 Harry Eagar
    December 9, 2008

    Scott, I will cheerfully sell you my share of the expected profits from the government purchases of preferred stocks in insolvent banks now. And for an attractive price.

    Cash, though.