Freddie is outraged at the disproportionate level of outrage many have shown over the automaker bailout, versus the incomparably larger financial industry bailout. Excerpt:
I've seen some strangled attempts to justify the imbalance, in both rhetoric and amount of coverage, including some commenters asserting-- really-- that the financial companies aren't "basically insolvent" the way the automakers are. Aren't basically insolvent. Let me tell you, with love and fellowship, that this idea is utter bullshit. The financials and investment banks failed in their most basic fiduciary responsibilities. They took risks with no meaningful appreciation of the odds. They did nothing to effectively inoculate themselves against the worst-case scenario that, hindsight tells us, was sadly quite likely. They spent years acquiring assets that have essentially no value, didn't or couldn't accurately appraise their value, and in doing so not only destroyed their own companies but dragged down the world economy. After doing so, they've been granted not a bailout in the ballpark of the $17 billion that has been considered for the automakers, but hundreds of billions.
Guy's got a good point. I was thinking about just this thing over the weekend. We piled into the Ford minivan for a family excursion. I pressed the washer button to clean the bird poop off the windshield. Nothing happened. "It's broken, I think," said Julie. "I refilled it the other day, and it still doesn't work."
One more damn thing wrong with this fine piece of American engineering. It occurred to me that one reason many ordinary people feel more viscerally hostile toward the auto bailout than over the far, far more consequential financial sector bailout is because what the banks do remains largely abstract to most folks -- but the annoying fact that your American-built car is semi-crappy is something many, many of us are familiar with. Therefore, the disproportionate outrage may not be rational, but is certainly understandable, if you follow me.
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First of all, a LOT of us did not support the Wall St. bail out either. But that said, the difference between the Wall St. bail out and a bail out of Detroit is pretty easy to see.
W/ Wall St. there was a sudden crisis which threatened to take down our financial industry before anyone could try and fix it. If nothing else, the bail out was supposed to buy us some time to fix the problems of Wall St. so they could move forward as solvent entities. I never believed for a second that the bail out would actually help the economy, but at least it should prevent anymore massive failures.
W/Detroit the supposed crisis has been going on for a couple of decades now. They haven't been able to get their s**t together in the time it takes for a human being to become old enough to get their driver's license. Now they want to say, "oh, but we were just on the verge of getting our crap together within the next 5 years and now this crisis is threatening our survival." Gimme a break. We'll give these bozos the money and they'll still be in danger of massive failure.
These two situations brings to mind Tolstoy's comments about unhappy families all being different; there may be formulas for success in the business world, but there are a myriad of ways to fail. These two industries are failing in different ways and have completely different prospects for recovery. And that is why we react to them differently.
I think that there's obviously not one clear answer as to why everyone is more enraged about the one bailout as opposed to the other. However, in addition to a lot of the reasons mentioned here, another one is the simplicity of the issues involved. Both the Big 3 and the financial sector are guilty of mismanagement, but one is easier to understand. Before I place blame for the subprime meltdown, I have to know what a "subprime" mortgage is. I also have to know what Fanny and Freddie do, how the secondary market for mortgages works, and why that led banks to take on too many subprime loans. With a complicated situation involving the banking industry, it's harder for people to understand that mismanagement occurred and easier for someone to say, "Give us money or the economy will collapse."
Conversely, everyone has a crappy American car story, and it's pretty easy to understand lazy union workers with high pay and restrictive work rules. Like someone previously said, we've had years for the issues of American car companies to enter the common dialogue, and the problems they face are pretty simple to understand, if not so simple to correct.
John,
Your Volvo, if it was built since 1998, was built under Ford ownership. So you probably should car.
Also, Rod, how old is your Ford minivan? They stopped making them in 2006 altogether, you know. And did you also know that Toyota and VW are responsible for the most vehicle recalls this year, last year, and the year before that? Not GM or Ford. Did you also know that the quality AND reliability gaps have closed, almost to a statistical dead-heat for vehicles 3 years old and newer?
The Camry V6 and Tundra pickup have been removed from Consumer Reports's Recommended list this year, because of transmission failures in Camrys and camshaft failures in Tundras. Both Toyota and Honda have issued major recalls in the last few years due to engine sludge issues, and total transmission failures, as well.
The fact of the matter is that the Chevy Malibu midsize sedan, 2008 NA Car of the Year, and winner of JD Power's Initial Quality survey for midsize sedans (The Accord and Camry haven't won this survery for almost a decade now), gets the same mileage as Honda's new subcompact 2009 Fit. 33mpg highway. The Fit does it with a manual. The Malibu does it with an automatic, 500lbs more weight, and 800ccs more engine displacement.
GM and Ford did make crapfests in the '70s, '80s, and '90s. Not anymore, though. And while it'll take awhile for the public perception to catch up to reality (and deservedly so), they're doing the right things now...and have been (in GM's case in particular) for about the last 5 years.
Our country has had little problem bailing out the steel companies, shipping, rail, and the farm industry. Wall Street gets a blank check and ZERO accountability (and there is NO reason to think they'll be more responsible in the future than they've been recently), but the auto industry, because of the mistakes it's made that affect consumers more directly (there's branding involved), the autos get crucified, no matter how much they've done in the last 2-5 years to turn around and build competitive products despite their cost and trade disadvantages in their own market.
the bailouts aren't equivalent for numerous reasons.
1. the economy is dependent on banks making loans. if the banking industry fails there is a multiplier effect that isn't present with the auto industry.
2. the $700 b TARP bill was supposed to purchase illiquid assets in order to soften the credit markets and increase lending and confidence. in the long run these assets are worth more than their current value. So it is likely that a good portion of this money will be recouped. Can't really say that for the auto industry.
3. the auto industry has produced a inferior product for decades and suffers from poor management and inordinate labor costs. none of that is going to be fixed by more money. the banking industry is going through a once in a lifetime crisis that even six months into the crisis, no one really understood the depths of it.
anon,
1) The auto industry has a multiplier effect that is extremely high, as well. The autoworkers who lose their jobs, their dependents and retirees who lose their benefits and pensions, the increasingly sick supplier industry worldwide who is dependent on the largest automaker in the world for components (and who also supply the foreign manufacturers), the trucking and rail industries, the steel, nickel, copper, zinc, rubber, plastic, and glass miners, refiners, and manufacturers (of which GM is the largest single purchaser worldwide), etc., will either be dealt a crippling blow and incur massive layoffs, or go out of business completely.
That's a few million people in this country that go from contributing to the tax base, as well as purchasing goods in their local economies, to becoming DEPENDENT on it. That's a twofold loss that the rest of the American taxpayers would have to front.
2) TARP wasn't used to buy troubled assets in the end. It's become a private slush fund for banks to tap, no questions asked - as long as they ask Hank Paulson says it's okay - and for us to buy equity in whatever banks Paulson sees fit to...and with no oversight from anyone else.
3) The Big 3 are managed by excellent leaders who (in the cases of GM and Ford) have not only negotiated a new labor agreement that gets the UAW close to parity with the foreign transplants (set to take effect in 2010), but have turned up the quality, reliability, fuel economy, design, and driving dynamics of their vehicles back to competitiveness (in some cases, outright leadership) with the industry leaders...and all in about one full product life cycle-worth of time. And all with the monkey on their backs that is their current cost structure.
The reason the Big 3 are at the table right now is because a) idiot foreign, energy, and fiscal policies allowed the price of oil to skyrocket faster than ANYONE (especially Toyota, who introduced about 3 vehicles this year that went BACKWARD in fuel economy) thought possible, killing sales of the only vehicles their costs structures would allow a profit on (trucks and SUVs), while b) the same idiot look-the-other-way cronyistic fiscal policies made it easy for well-connected CEOs to utterly scuttle the finance industry, while they parachuted out under a golden glow. And there's STILL no accountability for them.
But everyone goes into apoplexy when GM and Chrysler want a tiny fraction of the money we've allocated with ZERO oversight to a few financial firms, and we make them give everyone in Washington a deep tissue massage before the legislation stalls. Twice.
The Big 3 wouldn't have needed this money if fuel prices and the financial industry had stayed stable.
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