Bailout?
November 24th, 2008 by Andy 
(Stolen from Cagle.com - please don’t hurt me)
So the global economy is fucked, our overlords claim. However, “the crisis was not a failure of the free-market system, and the answer is not to try to reinvent that system,” according to W. My question then becomes, why does the current administration support an Obama-esque “socialist” bailout of the financial industry… wait… the financial industry and the auto industry (and probably all big business pretty soon). Shouldn’t an ardent capitalist decide that companies which have clearly been mismanaged, misguided, or are straight up outdated die a quick death? There should be no real opposition to high risk/high reward behaviour, as long as all involved parties understand the nature of the risk involved, but this also means that losers must be treated as such - the range of possible results should not range between roaring success and neutral.
I am still torn over this whole bailout situation. On one hand, I really want to let everything pan out according to the rules of the free market… if these car companies were too stupid to invest in clean technology while their foreign competitors realized that this was where consumer demand was headed, then fuck them. But then I feel like the realist kicks in, and you have to consider the impact of tens of thousands of laid off autoworkers. These people were betrayed by greedy unions and horrible corporate policies, and it seems somehow wrong to leave them suffering. Besides, according to Obama anyway, the cost of social assistance for these people would exceed bailout money many times over.
This post isn’t really going to go anywhere, because despite all the time I have spent thinking about how the economy should be helped, I haven’t really gotten anywhere. Any thoughts?
November 26th, 2008 at 10:19 am
While I won’t deny that the American auto industry cashed in on short-term greed for far too long by putting all their eggs in the light truck basket, in terms of competitiveness in the other market segments, the gap isn’t nearly as large as the media makes it out to be. They’ve made huge strides in technology, efficiency, quality, materials, and even design in a surprisingly short time - to the point that I’m convinced that a lot of the public perception associated with the domestic auto industry is just outdated stereotyping. And so of course, people aren’t willing to buy, because that’s what they hear about pervasively in the media.
In terms of “clean-tech,” they’re really not that far behind, either. If the Chevy Volt actually comes out in 2010 as expected, it will be revolutionary, and will be beating the Japanese at their own game, and by a good margin. You can talk about clean diesels, but that’s largely a higher-end Euro manufacturer’s approach to the problem. GM has some entry level hybrids with less advanced tech than the Prius or Honda hybrids, but that’s also kept their costs lower. And the GM heavy-duty SUV hybrids are far more significant than a cynical observer might think, since they improve efficiency by a dramatically greater margin than slapping a hybrid system on an already efficient compact car.
Bad marketing and bad press, and certainly some bad management…but I’m not sure that I buy the premise of bad product.
November 26th, 2008 at 10:20 am
Shit, that could practically have been its own post.
November 30th, 2008 at 8:23 pm
I agree with what Andrew says about the technology aspects of the business. There’s no doubt that the “domestic” product is significantly better than it was even a few years ago.
We, in North America, live in vast countries, with relatively low population density (Especially Canada, which is basically a country 350 km wide by 6000 km long.) We generally have much greater distances to travel than our European and Japanese friends, and long distance travel is generally much more comfortable in a larger, heavier, quieter vehicle. So there is a lot of built-in inertia to a wholesale switch from the larger vehicles to smaller ones. The technical advances in the last decade has been startling in smaller cars and the change is happening, but at the artificially low cost of fuel, it is slower than it might be. If motor fuel were taxed more, then the average person might be more inclined to purchase a smaller more efficient vehicle.
I know that the Big 3 have been in some trouble over the past few years, and that the accumulated health benefit and pension costs are a significant burden on them. The Unions are not to blame for asking for a fair shake for their members, if Management makes them an offer and they accept. Management has the final decision on the matters. They still have the power to starve the unionized workers out if the demands are unpalatable. The real problem for the Big 3 is that the United States, alone in the developed World, has no universal health care plan and the close-to $2000 bucks a vehicle that they have to pay for the health care benefits of their employees and pensioners is an additional cost that no other major auto manufacturer must bear. Take that cost off, and the Big 3 instantly become MUCH more competitive, and profitable.
In addition, pension costs for retirees is a significant burden for the Big 3. In North America, they have been building cars for close to 100 years and they have a LOT of pensioners. The foreign manufacturers in NA are relatively new and they have almost no pensioners and their pension burden is minimal. The way pension funds are supposed to work is that the contributions by the workers and Management are set aside and invested to provide for post-retirement income. Once the worker has made a, usually mandatory, contribution, generally the money is untouchable until he. or she, retires. Corporate contributions, seem to be less so and, often less mandatory. In times when the stock market is booming, the Company will go to their actuaries and say, “How are our obligations?” If the actuaries say that there is no problem, the Company opts not to make a contribution. And management gets big bonuses. But when things go pear-shaped, and they aren’t as profitable, and the Pension Fund isn’t doing so well, management is obliged to ensure that the Fund is solvent and can meet the legal obligations so they have to contribute more when they can least afford it. Income isn’t as high as it should be and people blame the unions for putting too large a burden on the Company. And management still gets big bonuses.
In my opinion, contributions to Pension Funds from the workers and the Company MUST be mandatory and untouchable, until they are used for pensions. They must be invested to optimize growth in safe investments. That’s the way it should be for every worker in the country. In Europe, retirees of all sorts can survive on their Government pensions and don’t have to rely on self administered investments to survive. If they have disposable income and have invested wisely, then they obviously have more income, but at least they won’t starve.
Anyway, the proverbial straw, in the case of the Big 3, at this time is the utter collapse of the financial system in the United States. This collapse was due to the incredible incompetence, GREED, and dishonesty, of the financial community. They got incredibly wealthy on the backs of the sub-prime borrowers, and when those, who, in the past would never have been given a mortgage because they could never have been expected to pay it off, defaulted, everything went to hell. American bankers had fobbed off dodgy loans to the global financial markets as first class instruments. The buyers didn’t show due diligence in their purchases, also being greedy and incompetent, and instantly the World Economy has gone to Hell. But the original bankers are still incredibly wealthy and Governments all over the world have no choice but to bail them out or else All Hell will really break loose.
When legitimate home owners see the value of the homes they have paid for for many years fall below what they paid many years ago is it any wonder that they get gun-shy about buying a car of any sort, or any other big ticket item. And the economic plunge continues and gathers speed.
Anyway, I feel you are being unfair in putting a large part of the blame on “greedy unions” for the difficulties of the Big 3. There are much bigger factors at play. The problem has been developing over a century, but has only come to a tragic head as a result of the complete laissez-faire policies of the “conservative” W regime.
I guess this could have been better thought out and posted . . .
November 30th, 2008 at 8:34 pm
BTW - Great cartoon!
December 1st, 2008 at 6:45 am
I realize that this post centered more on cars, but as far as the bailout goes, we all know that it isn’t “socialism” so much as it is “theft.” If it were actually socialist, the government would become the owners of the companies they’re bailing out.
What’s more, the billions of dollars that seem to be dished out on a nearly daily basis are being used by banks to BUY OTHER BANKS. Or, to pay for massive executive bonuses. When Lehman went bankrupt, the bosses still made a killing. The money isn’t being used to give people loans or pay off toxic debt (as is intended), because there is no mandatory requirement to do so. It’s like “voluntary” carbon caps.
With the case of the auto-makers, it’s a little more tangible - they make actual things that can be given monetary value (instead of moving debt around), and, as you mentioned, they employ thousands of people who aren’t, in fact, filthy rich. Still, I’d love to see the workers that would get laid off be funnelled into factories building wind turbines instead of cars.
What’s more, I question how much damage would REALLY be done if the financial sector couldn’t get its greasy fingers on all the free money that’s being thrown about. If, instead of giving the money to people who are not and will never be poor, the money were given to people to help pay off their various debts? The various loan defaults would no longer be in default, so the banks would still have money, and people wouldn’t get kicked out of their houses.
There’s no question that some sort of monetary injection is needed to keep things going, but the “bailout” (as you called it) is such a shitstorm compared to what it could have been. (Also of note, though I don’t have a source so maybe not true: $700 billion was roughly the calculated value of all the various programs that Obama had planned…)
Wow, verbal puke.
December 3rd, 2008 at 7:30 am
I hate talking about economics without real numbers on the table - naturally that drags the conversation down a bit, though.
In bullet form:
I hate the North American auto industry.
I hate the CAW with a burning passion.
Stupid unions are to blame for the problem, as is the economy, horrible management, and stupidly paternalistic mandatory pension/health care contributions.
The government is a horrible, horrible, HORRIBLE decision maker when it comes to making good financial investments (them getting bullied into saving antiquated car factories is a great example).
Any kind of bailout to the “people” (whatever that means) would be a stupid short-term investment that fails horribly (as much as I like people buying another TV only partially on credit, this time).
December 3rd, 2008 at 5:50 pm
Your bullet points aren’t so much arguments as statements that we should assume are true…why?
That post sounded more Rush Limbaugh than Pavel…
December 4th, 2008 at 1:15 am
Wow! Pavel is sounding more than a little right wing. The unions have never caused economic meltdowns that led to the Great Depression, the Enron debacle, and the state we currently find ourselves in.
Why do “conservatives” get positively apoplexic when one group of individuals exploits the tools that they have available to them, as a result of democratic processes I might add, to improve their lot a bit. That group is the unions. But another group comprising, say, the financial “industry” can manipulate, finagle, and be downright dishonest about things, and get fabulously wealthy by building straw houses that must inevitably collapse taking with them the livelyhood and savings of millions of people. Of course, they remain wealthy and a government which is dedicated to maintaining free enterprise bails them out so that they can benefit even more.
It is also an old right wing truism that government can never make a good decision and that public ownership of whatever industrial facility is doomed to failure. If honest, intelligent people are hired to run publicly-owned industries and governments are not free to meddle in the decisions made by those industries, then publicly-owned enterprise CAN succeed and be for the common good. Fine examples of this are Ontario Hydro and other publicly owned electrical utilities across Canada which can be given much of the credit for Ontario’s and Quebec’s industrialization. It is only in the past 30-40 years that governments have felt that they had to fix an industry that wasn’t broken and began to meddle with future plans, rate structures, partial selloffs at fire-sale prices, etc, that the vision has become murkier.
Finally, unions have lost any amount of influence and power they once had, especially since NAFTA initiated the race to the bottom. Plant after plant, many of them NOT unionized and still profitale, have closed and been moved to Mexico, or China, or Bugtussle, Arkansas, by owners who care not a whit about their employees and loyalty, only about maximizing how much they can put in their pockets in the end. The vast majority of people in this country and the USA manage reasonably on $50K or less, but company presidents whose remuneration is ten times that begrudge workers so much as a living wage.
Another rambling, stream of (wacky) consciousness rant . . . sorry.