Bailout Reason Three: We Sabotaged The Economy, Not Them
If we are not willing to make laws, then we need to accept that we will be lawless.
Human nature is what it is and, frankly, capitalism is what it is. Robert Reich cites studies showing that when given the opportunity to make a private decision between a more expensive version of a product made “responsibly” vs. an identical less expensive version made “irresponsibly”, most consumers (not all, but most) will choose the less expensive one. And when we give our corporate titans the mandate to compete with every tool they can find, within the limits of the law, and then we don’t provide the laws… how can we possibly expect them to do anything other than what we have paid them to do?!
We, as a nation, have elected conservative governments for 28 years. Yes, 28 straight years. Remember that NAFTA was finalized and signed under the Clinton administration, which also, by the way, continued the deregulation and union busting momentum from the Reagan and Bush 41 eras unchecked.
Our government didn’t kill off the Glass-Steagall act against our wishes, we elected the people with he ideology who would do that. Phil Gramm didn’t become a Senator by staging a palace coup. That beady-eyed, treasonous bastard was elected by our brothers and sisters in Texas… and made powerful by all the conservatives elected by the rest of us.
Who, you ask? What? Are we still talking about Detroit?
In 2000 Phil Gramm, the man who brought you the devastatingly costly regulatory fiascoes that allowed both the savings and loan debacle and the Enron failure, and his cronies forced a provision into the federal budget package that exempted a financial instrument called a Credit Default Swap from any sort of government oversight or regulation. I have discussed these elsewhere, and probably will discuss these again soon, and plenty of information is available on them, so I’m not going to go into great detail here. I will tell you that for as many times as you’ve heard reporters say that they are arcane and complex… they are not. Some of the math that gets used to figure out how much they are worth is fierce, but you don’t have to even look at the math to understand what they are. Frankly, Wikipedia has an article you can print out and read during your morning toilet and you’ll have a pretty good understanding of them.
A long time ago, we developed regulations that limited the amount of insurance an insurance company could write based on how much money it had. We did this because before we did it, insurance companies would write far more insurance than they could ever make good on, and when something happened where they had to, they would end up bankrupt, their investors walked away with years or decades of profits, and the people who had bought insurance all those years walked away with nothing. Similarly, after the stock market crash of 1929 we put limits on how much stock can be bought “on margin” (with borrowed money). We also regulated banks the same way as insurance companies in that we limited the amount of debt they could offer based on how much money they had.
We did all these things because we have learned, again and again and again, unfortunately, that if we don’t regulate the amount of debt that companies can take on, they will take on too much.
Public Service Announcement:
See the post “Why We Get Drunk on Debt”
Back to the Bailout Reason Three
We have known for a long, long time that when investors take on too much debt they put not only themselves at risk, but the whole economy. That’s why we limit how much debt investors can take on. What Phil Gramm did, however, was to create a corner of the economy that was completely unregulated and hidden from view, and within which people could borrow as much money as they wanted.
People are people, and if you give them the opportunity to earn 30% on their money rather than 10% most of them will do it, even given the risk. In fact, people who manage companies could be required to do it to maximize their investors returns. So… they did! And sure enough, when the housing bubble burst and created a bad day, this mountain of debt rippled back through the investors, to the banks, to the businesses, and it is now rippling through the workers. Oh! Did you catch that? This mountain of debt that the people we elected deliberately allowed to happen is now rippling through the businesses… like Ford, General Motors, and Chrysler.
So, is it fair to say that their bad management created their problems? Sure, their bad management exasperated their problems, but they didn’t create this situation. Phil Gramm created it. Phil Gramm’s conservative comrades created it. If you voted for Reagan, Bush 41, Clinton, Bush 43, Phil Gramm, or any of his conservative pals, you created it. I created it. Our government didn’t create it despite us, it is us. This problem is ours. And as for Toyota and Honda and their enlightened management? Well, remember, they don’t have the same retirement commitments that our companies have because they don’t, yet, have as many retirees as our companies have. So yes, their products may be marginally better in some ways, but that isn’t the whole story. And frankly, 4 years ago every one of the most profitable vehicles on the market was being made by an American company. And finally, just because the foreign car makers are stronger right now than the American ones doesn’t mean they’re strong. They may be following right behind. Should we allow our industry to go away, and our jobs to go away, only to have Japan and South Korea and Germany and France and Italy and Sweden bail out their own car companies?
I don’t think so. I think we should do whatever we can to save our automotive industry, if there even is anything, we should insist that it make the changes we know it needs to make, and then we should give it a level playing field by replacing free trade with fair trade and fixing the problem that allows young companie to force old companies to screw their retirees and force them onto the shoulders of the taxpayers.