The Senate, house of political intrigue, punts on the auto bailout bill and here we are, now looking to the White House to solve the industry’s cash flow problems. Imagine what Jon Stewart and Jay Leno will have to say on this tonight. In fact, leave us your comments on that!
As we’ve said before in this blog, there has to be an element (or appearance) of fairness in these matters. Yet we should have learned a long time ago that politics has to do with advantage, not fairness. The Democrats put themselves at a big disadvantage by offering up a bill with so many flaws and so little to enforce a restructuring. Republicans seized the moment by piling on to the UAW which, whatever its past sins, had been the only stakeholder to come to the table.
In a news co nference, UAW Chief Ron Gettelfinger “felt the union was being asked to make immediate sacrifices that other ‘stakeholders’—bondholders, executives, retirees, and others—were not. . . . The GOP caucus was insisting that the restructuring had to be done on the back of workers and retirees rather than having all stakeholders come to the table.”
Said Sen. Jim DeMint (R-S.C.), “It sounds like UAW blew up the deal.” Sen. John Ensign (R-Nev.) agreed. Really?
Given the fact that labor cost, as we reported, is only about 10% of vehicle cost, that does seem a mite unfair. Josh Marshall in TPM today thought so too and offered three Republican motives:
“Finally, this issue now goes well beyond the fate of the American automakers. Senate Republicans are following this course for three key reasons—first is payback against a major industrial union; second is payback against states like Michigan and Ohio who have been moving away from the GOP; third is the desire to advantage Japanese auto manufacturers who disproportionately do business in their southern states.”
With all this leveraging for political position and jockeying for power, maybe the best course is bankruptcy after all. Jospeh Stiglitz, Nobel Prize-winner and one of our most insightful economists, has this to say in the Financial Times:
“The debate about whether or not to bail out the Big Three carmakers has been mischaracterised. It has been described as a package to help the undeserving dinosaurs of Detroit. In fact, a plan to bail out the carmakers would benefit shareholders and bondholders as much as anybody else. These are not the people that need help right now. In fact they contributed to the problem.”
The problem was created, says Stiglitz, by the industry’s mismanagement and the financial markets “which failed in their oversight” and allowed the companys’ shortsighted, short-term focus on profits to continue.
“As the bail-outs continue, numbers that once looked huge are starting to seem almost normal. Hundreds of billons are being given to banks and insurance companies. AIG got $150bn. Compared with that $34bn, or even $125bn, for the automotive industry seems a modest request. Even so, we should not forget that a few months ago, President George W. Bush said there was not enough money for health insurance for poor children although it cost just a few billion dollars.”
If Stiglitz is right, then a prepackaged bankruptcy finally may be the best and only real option. I urge you to read the article.
Let us know how badly you think the government has fumbled this bailout question. Is Stiglitz right?