Tuesday, March 31, 2009

The Banking Industry vs. The Auto Industry

What went wrong?

Auto Industry: Fucked up due to extremely poor decision making and short sided thinking. The short sided thinking manifested itself as lobbying against increased government regulation that could have kept them out of this mess.

Banking industry: Fucked up due to extremely poor decision making, excessive risks and taking advantage of extremely lax rules brought on by a massive deregulation of the industry.

Who takes the losses if they go under/are temporarily taken over by the government?

Auto Industry: The shareholders, bondholders and CEOs and Boards of Directors would be on the hook. But so would several million workers who depend on the industry for their jobs, health care and pensions. Let's keep in mind that unlike the first group (CEOs, board of directors, etc...) the second group has had ZERO say in the business decisions that drove their companies into the ground. They would be losing their jobs/pensions/health care due to events completely out of their hands.

Banking Industry: If they are temporarily nationalized, the Shareholders of the banks, the bondholders, the current CEOs and board of Directors would be the losers. And by losers I mean they'll most likely walk away from the situation with more money than you or I will ever see in our lives.

How were they Treated when the Asked for a Bailout?

Auto Industry: There was a brutal fight to get the "bridge loans", including public apologies by most CEOs. Multiple GOP senators got aroused when they saw the crisis as an opportunity to bust the UAW. They got bailout money, but scale is much much smaller than that given to the banking industry, and was given with actual enforceable and stringent conditions (as all government money should be).

Banking Industry: Were given inconceivable amounts of cash (upwards of a trillion dollars, possibly more) with zero enforceable restrictions on how the money is spent. When they came back a second time, they got a lot of angry words thrown their way, but in the end still got what they wanted, once again with no enforceable conditions. Congress attempted to put enforceable conditions on executive salaries, but removed them after heavy lobbying from the Obama Administration.

Can we Break their Contracts?

Auto Industry: The Obama administration plan for the industry is focused around the idea of breaking contracts, both with the union and with the bondholders, although according to the Wall Street Journal, the brunt falls mostly on the retirees. Renegotiating contracts during a bankruptcy is pretty common place for failing businesses, but it's pretty sickening to see the brunt fall on retirees who have been counting on their pensions (And as previously mentioned, had NOTHING do to with the position the industry's in now).

Banking Industry: After the outrage over the AIG bonuses, Obama and other Administration officials claimed anger on all the Sunday talk shows, but responded that "we are a nation of laws", and other bullshit excuses when anyone attempts actually do something about it. The Administration position is that their contracts cannot be broken.

What Happens to the CEOs who Fucked up?

Auto Industry: Rick Wagoner is kicked to the curb for his massive role in GM's decline. Not only was this the right thing to do, but it shows that the Administration is willing to use the leverage it has over these failing companies to force major changes.

Banking Industry:
CEOs have lunch at the white house, get a stern talking to about how they should lend more money and stop fucking up. Bush Treasury Secretary Henry Paulson fired AIG's CEO, but replaced him with equally craptacular Edward Liddy. Obama team claims they thought about firing Citigroup CEO Vikram Pandit, but said they're was no one better to replace him.

- - -

This isn't meant as a defense of the auto industry, but simply to show the actions that the Obama Administration is capable of when they're willing to take them. The problem is that when the media played up the Wall Street vs Auto Makers story line on on Monday, I think they missed real reason why Obama, Summers and Geithner are coddling the bankers. It's not that they're actively trying to sell us out and reward their friends on Wall Street, even though they're doing a Grade A job of making it seem that way.

The reason Wall Street thinking is all that Geithner and Summers understand. It's all they've ever known, and because of that they'll believe just about any of the bullshit that the Banks tell them. The opposed limits on CEO pay because they believed that it would prevent AIG from keeping their team together, they truly believe that those fuck ups are the only ones who can get us out of this. They truly believe you can't find a better CEO for Citigroup or Bank of America than the same people who drove those very companies into the ground.

While solutions like what Stiglitz is proposing may seem like common sense, Summers and Geithner can't conceive of a world where those types of actions would be required. My hope has always been that the dire nature of our current economic situation would force them into things they don't really believe in, but so far the prospects for that aren't looking so good.

Oh yeah, and putting aside the whole "right thing to do and good for the economy" part, someone should probably tell the Administration that being seen as the defender of bank CEOs is not a good look.

Please make it stop.


  1. The thing you don't realize, however, is that auto manufacturers like going bankrupt. An employee somewhere in mid-level management released an internal memo where the CEO said something to that effect. You can use theGoogle to look it up if you don't believe me.

    Also, I didn't bother reading the entire article after the first few sentences. My attention span is so short!

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