Justin Fox over at Time offers up a comparison between the failures of Wall Street and Detroit:
“Imagine there was this industry–Industry A–that had been flying high for years. It benefited from major regulatory shifts, and changes in the tax code. Its employees were the highest paid of any industry. Then it landed in a crisis entirely of its own making. It had been manufacturing defective products and selling them around the world. Buying them all back would have bankrupted the industry, so it asked Congress for help. Industry A got $700 billion, to be administered by a Treasury Secretary who was the former CEO of one of the industry’s leading firms. He soon began handing out the money at generous terms, with very few restrictions.”
“Imagine there was this other industry–Industry B–that had been struggling for a while. Some of its problems were of its own making, but government policies played a significant role in its decline. Its employees, while still paid better than their peers in similar industries, had given up perks and pay, and their ranks had been decimated. Then Industry B landed in a crisis that was mostly the making of Industry A. It asked Congress for $25 billion to tide it over. Members of Congress criticized its leaders sharply, and told them not to come back until they had a detailed plan for how they would spend the money and how they would pay it back.”
Much of the political class, Fox included, supports bailout funding for some or all sectors of the first group – the financial industry. Republicans and Democrats alike are finding billions, with no strings attached. The auto bailout, however, has been pilloried with execs taunted for their use of private jets while Congress drops all manner of conditions on them. Why?
Fox argues that banks are critical to all sectors of the economy, as well as explaining that banks are suceptible to panics so that a bad one failing can cause good ones to fail as well. He also suggests a public perception problem:
“Most Americans simply no longer identify with the domestic auto industry (or with the states of Michigan and Ohio). To the Southerners who now make up the core constituency of the Republican Party, it’s a bunch of coddled, unionized workers trying to get handouts that the South’s auto industry (Toyota, Hyundai, Nissan, Mercedes, BMW …) doesn’t need. To the coastal urbanites and suburbanites who now make up the core constituency of the Democratic Party, it’s an industry that makes crappy big cars and fights against higher fuel efficiency standards. And to the business press it’s the worst thing of all: a trio of companies that are neither exciting nor financially successful.”
Bailout opponents, particularly union-bashing Republicans, have pitched outright lies about the industry. Auto workers don’t make $70 an hour, but who will defend them? The business press hates unions, the Democrats aren’t particularly committed to Detroit’s business model, and the clout of various Michigan politicians is fading fast.
In contrast, the financial industry provides its own “impartial” experts. Whether on Bush or Obama’s team, all the Very Serious People with the Very Serious Solutions are the same ones who tanked these institutions in the first place. Robert Rubin? Citigroup. Henry Paulson? Goldman Sachs. Laura Tyson? Morgan Stanley. William Daley? JP Morgan Chase. This is not a condemnation of Obama, nor Bush for that matter. It’s simply the way that finance is handled as a combined political and economic issue. The same people who drive the car into the ditch are presented as the only ones capable of driving it out; the theory being that, well, at least we’re sure they know how to drive. Enabling this, the press has presented the financial crisis in the passive voice. Dean Baker explains:
“Let’s imagine that the economy in Venezuela gets really bad in the next few years. Will the Post write about how Hugo Chavez had to cope with enormous economic turmoil?
That’s unlikely. The Post would most likely be running articles that tell readers how Chavez’s policies led to an economic disaster.
But, a different standard is applied to our economic chieftains who pursue policies that the Post endorses. The first part of a two-part profile of Treasury Secretary Henry Paulson’s actions in the crisis is headlined “A Conversion in ‘This Storm.'” The headline implies that the economic crisis is something that came out of the blue as opposed to being an entirely predictable result of the economic policies pursued by Paulson and his predecessors.
The point is extremely simple. There was a huge housing bubble that should have been visible to any competent economic analyst. The bubble was fueled by an enormous chain of highly leveraged finance. (As head of Goldman Sachs, Mr. Paulson personally made hundreds of millions of dollars from this bubble.)
It was entirely predictable that the housing bubble would burst and that its collapse would have a huge impact on the financial system and the economy as a whole. There is zero excuse for Paulson being caught by surprise by a “storm” that he helped create. The Post should not be in the business of covering up for Paulson’s massive failure.”
The narrative on the auto industry is that it failed because of poor choices by management and labor. The narrative on the financial industries, however, is that it just sorta happened. No one would dream of asking the CEO of GM (let alone the head of the UAW) to design the plan for a Detroit bailout, and yet that’s exactly what the entire political class does when they anoint the various de-regulators and speculators as managers of trillions more taxpayer dollars.
There isn’t an easy solution for either crisis. I would, at least, suggest that we listen a bit more to people like James Galbraith, Paul Krugman and Nourial Roubini and a little less to Rubin and his acolytes even as they pander to the new orthodoxy. Then again, it’s probably too much to ask that politically influential people be judged on performance. Trix and accountability are for kids.