Slog
News & ArtsWednesday, February 18, 2009
Economy The GM Bailout
Posted by Jonathan Golob on Wed, Feb 18, 2009 at 12:17 PM
The bailout of the financial sector—costing us about a half-trillion dollars—has resulted in massive zombie banks incapable of righting themselves, perpetually on the government dole just to survive. The individuals responsible for destroying their institutions, and taking down the entire global economy, can only muster the introspection to whine about a proposal to limit their salaries—to a meager half-million dollars per year.
Take this asshole, for example, willing to be quoted in the New York Times whimpering:
“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”
And we bitch about public schoolteacher accountability.
So, it makes sense for many of you to be weary as the auto industry now comes, hat in hand, expecting their turn at the public till. Take this as a small comfort: some of the most skeptical economists out there, the ones we might still trust, agree that GM's bailout plan, announced yesterday, is pretty damn good. (CalculatedRisk called the plan a start—high praise from him for any bailout plan.)
I'm somewhat lonely here, among The Stranger writers, in my support for the auto industry bailout. This one I like. The plan lays out a realistic plan to recover the company to independence from taxpayer support (unlike the banking bailout). Everyone, from line workers to executives, takes a cut in compensation (unlike the banking bailout). The most obscene and absurd products are being dumped (unlike the banking bailout). Hundreds of thousands of skilled workers' knowledge and talent will be protected by the plan (unlike the banking bailout).
And, it'll cost a fraction of what the financial bailout has already cost the taxpayers.
Welcome to bailouts in the Obama-era. Compared to the Paulson-led, Bush administration plan for the banks, this one has a very good shot of succeeding. At stake is a huge piece of the global industrial economy and the future of some genuinely innovative green technology. With the collapse of the mercantilist US-China trade of the past couple decades, Americans must start making things again worthy of export. It's about time we work out a proper industrial policy. As CalculatedRisk noted, this is a good starting place.
1
I don't know. I think it's just the first step in emulating the British auto industry's bailout-and-consolidation pattern of the 60s and 70s. That one ended in the inevitable industry-wide tits-up that we can still probably expect here.
2
Fnarf:
I was reading up on the British auto bailout, when thinking about the present situation. The sheer scale of GM (and the US market) means the situations are not directly comparable.
One of the things I liked about this plan from GM was the honest evaluation of what sort of US automaker could survive the global competition. Halving the nameplates--ditching Saturn, Hummer, Saab and Pontiac--is an excellent place to start. So is the focus on heavy-duty hybrid tech.
No automaker is doing well now. Russian, Korean, Japanese, European or American--all are struggling. At least GM is saying, give us some money now and we'll remake the company in specific ways to match the new reality.
I was reading up on the British auto bailout, when thinking about the present situation. The sheer scale of GM (and the US market) means the situations are not directly comparable.
One of the things I liked about this plan from GM was the honest evaluation of what sort of US automaker could survive the global competition. Halving the nameplates--ditching Saturn, Hummer, Saab and Pontiac--is an excellent place to start. So is the focus on heavy-duty hybrid tech.
No automaker is doing well now. Russian, Korean, Japanese, European or American--all are struggling. At least GM is saying, give us some money now and we'll remake the company in specific ways to match the new reality.
5
Please go easy on the CR mentions and linkage if you can. It's in the national interest to avoid the likes of us mucking up their comments.
6
"And we bitch about public schoolteacher accountability."
Clearly its high time that bank executives unionized themselves and insisted on collective bargaining...
Clearly its high time that bank executives unionized themselves and insisted on collective bargaining...
7
@ 3 & 4,
Yes, thank you. Obama should summon the magic unicorns and declare a jubilee.
Say it loud and say it now: jubilee! Jubilee!!
Yes, thank you. Obama should summon the magic unicorns and declare a jubilee.
Say it loud and say it now: jubilee! Jubilee!!
8
It's hard to tell if GM's plan will work or not, but it's clearly the most well thought through and documented $30 Billion of *any* of the money the government has spent. At least they have a plan, unlike most of the spending that has come up to now.
9
Well I’m so sick of seeing teachers and social workers driving around in their Aston Martins and Ferraris.
Where’s the fucking accountability? Can’t those socialists do their jobs for less than $500K??
Where’s the fucking accountability? Can’t those socialists do their jobs for less than $500K??
11
And isn't the real problem that the US is now a perverse, kleptocratic anti-meritocracy?
(Or has it always been that, and the curtain's just been pulled back?)
(Or has it always been that, and the curtain's just been pulled back?)
12
Hey Science,
Can you give us all all your expert opinion of why or why not it might be a good idea for the feds to forgive student/credit card debt of everybody making less than, say, 50k/year?
Maybe compensate for the appearance of rewarding irresponsibility by closing peoples credit line when forgiving their balances. I know I'd be blowing about $500 more per month if I didn't have to worry about paying Visa. Is this a god or bad idea? Give us a post about it.
Thanks
Can you give us all all your expert opinion of why or why not it might be a good idea for the feds to forgive student/credit card debt of everybody making less than, say, 50k/year?
Maybe compensate for the appearance of rewarding irresponsibility by closing peoples credit line when forgiving their balances. I know I'd be blowing about $500 more per month if I didn't have to worry about paying Visa. Is this a god or bad idea? Give us a post about it.
Thanks
13
You wouldn't buy our shitty cars, so now we'll be taking your money anyway! Bwhahahahahaha!!!!! We're the Big Three; we don't need to compete!
14
Golob, 17 billion for life support doesn't translate into an effective business plan for GM. Start preparing your next post when GM receives another bailout.
Second, the idea that you can compete well in the export game while simultaneously supporting "middle class wages" when there are players like China out there is laughable. In the 1950s and 60s the world competition didn't exist like it does now.
Second, the idea that you can compete well in the export game while simultaneously supporting "middle class wages" when there are players like China out there is laughable. In the 1950s and 60s the world competition didn't exist like it does now.
15
Even after all this, I have conservative friends whining that Obama needs to not cut, but ABOLISH taxes. Take this gem:
"Abolish corporation taxes.
Abolish capital gains taxes.
Abolish taxes on dividend income.
You will be amply rewarded by this country's vast pool of talented producers and entrepreneurs, and your coffers will overflow."
They're all fucking crazy.
"Abolish corporation taxes.
Abolish capital gains taxes.
Abolish taxes on dividend income.
You will be amply rewarded by this country's vast pool of talented producers and entrepreneurs, and your coffers will overflow."
They're all fucking crazy.
16
GM is now asking for a total of roughly $30 billion in bailout loans. They say they hope to be able to pay it back within 2 years.
I don't see how that's possible. Lets say they pay back $500 per vehicle. They would have to sell 60 million vehicles to pay off their loan (assuming an interest rate of zero). Now, the big 3 are estimating roughly 10-13 million vehicles per year sold for the next few years (that's total sales of all brands of cars). GM stated last month that it plans to produce less than 400K vehicles in the first quarter (a rate of roughly 1.5 million units per year). It would take 45 years to pay off the loan at $500 per vehicle (at zero interest). So that doesn't work. To pay it off in 2 years, they would have to pay off at a rate of $10,000 per vehicle, which is crazy.
I know I'm oversimplifying. This doesn't include sales in Asia and Europe. It doesn't include profits from other entities like GMAC (their financing arm, which also got a bailout from the bank bailout plan). I can't find enough data, and the math starts getting beyond me. Still, I just don't see how they can viably pay back $30 billion... ever.
I don't see how that's possible. Lets say they pay back $500 per vehicle. They would have to sell 60 million vehicles to pay off their loan (assuming an interest rate of zero). Now, the big 3 are estimating roughly 10-13 million vehicles per year sold for the next few years (that's total sales of all brands of cars). GM stated last month that it plans to produce less than 400K vehicles in the first quarter (a rate of roughly 1.5 million units per year). It would take 45 years to pay off the loan at $500 per vehicle (at zero interest). So that doesn't work. To pay it off in 2 years, they would have to pay off at a rate of $10,000 per vehicle, which is crazy.
I know I'm oversimplifying. This doesn't include sales in Asia and Europe. It doesn't include profits from other entities like GMAC (their financing arm, which also got a bailout from the bank bailout plan). I can't find enough data, and the math starts getting beyond me. Still, I just don't see how they can viably pay back $30 billion... ever.
19
@ 17
Ah, but the problem with that is they can't cut taxes on actual average citizens. That's socialism.
Ah, but the problem with that is they can't cut taxes on actual average citizens. That's socialism.
21
Johnathan's a frustrating writer, because you can tell there's a spark of intelligence in there somewhere... but it's buried under so much intellectual dishonesty and ideology.
How many canards do we have in this one post?
- "The individuals responsible for destroying their institutions, and taking down the entire global economy, can only muster the introspection to whine about a proposal to limit their salaries." Let's see, that's wrong in several ways.
- - First, the individuals responsible are largely the homeowners who took out mortgages they couldn't afford based on stupid assumptions about the housing market, the stockholders who neglected to provide any oversight, and the politicians (on both sides!) who let political gain outweigh the national good. Some CEO's share blame, sure. But it's a drop in the bucket.
- - Many of those CEO's are doing considerably more than whining. You may not like what they're doing, and complaining about salary may be unreasonable. But it's flat out dishonest to claim that's the only thing going on.
- - The quote is from a compensation consulting firm, who of course get paid a percentage based on the salary of their recruits. This guy isn't to blame for the current crisis, so it's silly to hold him up as an "asshole" who caused the mess, and from his perspective, he's looking at placing $10m talent at $500k rates, reducing his commission from $100k to $5k. What do you expect him to say?
I could go on, but what's the point? Johnathan, please get thee to some kind of journalism training, or at least a logic class. You've got potential. It's embarrassing to see these partly-informed but dishonest posts.
How many canards do we have in this one post?
- "The individuals responsible for destroying their institutions, and taking down the entire global economy, can only muster the introspection to whine about a proposal to limit their salaries." Let's see, that's wrong in several ways.
- - First, the individuals responsible are largely the homeowners who took out mortgages they couldn't afford based on stupid assumptions about the housing market, the stockholders who neglected to provide any oversight, and the politicians (on both sides!) who let political gain outweigh the national good. Some CEO's share blame, sure. But it's a drop in the bucket.
- - Many of those CEO's are doing considerably more than whining. You may not like what they're doing, and complaining about salary may be unreasonable. But it's flat out dishonest to claim that's the only thing going on.
- - The quote is from a compensation consulting firm, who of course get paid a percentage based on the salary of their recruits. This guy isn't to blame for the current crisis, so it's silly to hold him up as an "asshole" who caused the mess, and from his perspective, he's looking at placing $10m talent at $500k rates, reducing his commission from $100k to $5k. What do you expect him to say?
I could go on, but what's the point? Johnathan, please get thee to some kind of journalism training, or at least a logic class. You've got potential. It's embarrassing to see these partly-informed but dishonest posts.
22
For most of our nation's history, bankers did not make a lot of money.
Heck, a bank president would be lucky to see 65,000 in a good year, at a time when an industrial firm would pay a CEO 145,000.
But, under the America-hating neocons, that changed.
For the worse.
Heck, a bank president would be lucky to see 65,000 in a good year, at a time when an industrial firm would pay a CEO 145,000.
But, under the America-hating neocons, that changed.
For the worse.
23
@ 20,
Sadly, no. The value of gold fluctuates widely just like everything else. It also has no practical value, except maybe as an electrical conductor.
If you really expect full-on, Mad Max-style cannibal anarchy, then stockpiles of food, water, medicine and ammunition are your only safe bets.
Sadly, no. The value of gold fluctuates widely just like everything else. It also has no practical value, except maybe as an electrical conductor.
If you really expect full-on, Mad Max-style cannibal anarchy, then stockpiles of food, water, medicine and ammunition are your only safe bets.
24
@21: if there's such a thing as $10 million talent, it does not exist in the business and finance industries. They aren't nuclear physicists.
25
@ 21,
Yes, how dare we have the gall to refuse to pay millions of tax-payer dollars to the corporate execs who nuked the world economy, especially since their companies should no longer exist in the first place.
Yes, how dare we have the gall to refuse to pay millions of tax-payer dollars to the corporate execs who nuked the world economy, especially since their companies should no longer exist in the first place.
26
One wonders why we haven't clawed back the bonus payments, stock options, and other benefits granted to CEOs and top execs based on misstated results (aka "LIES") during the false reporting of CDO "profits".
And put them in jail for their fraud.
Just sayin.
And put them in jail for their fraud.
Just sayin.
27
"I'm somewhat lonely here, among The Stranger writers..." not having many stranger writers on your side is generally a good sign that you won't end up on the losing side after it all comes out in the wash, wondering what the hell happend and how you could have been so deluded. again.
on the other hand, for these people, misreading which way the wind is blowing is always their excuse to go out and get drunk and feel sorry for themselves.
on the other hand, for these people, misreading which way the wind is blowing is always their excuse to go out and get drunk and feel sorry for themselves.
28
@ Will in Seattle,
Because that would be socialism. (And impossible since our "representatives" actually work for them. Such as.)
Because that would be socialism. (And impossible since our "representatives" actually work for them. Such as.)
29
@21:
The homeowners are to blame, eh? The homeowners?! That's like blaming the heart for the heart attack.
Most honest economists, like me, see the core of this crisis in the deregulation of the financial services industry, by heavily-lobbied-for legislation like the Financial Services Modernization Act that ended the Glass-Steagell regulations.
How many homeowners were trading in CDSes? How much of that sixty-trillion dollars of speculation can be placed at the feet of poor first-time homeowners. How much of the naked short selling? How much of the corruption between the rating agencies, the investment banks, the commercial and retail banks?
Jesus fucking christ.
This is why I have no respect or hope for the financial companies. If you cannot even admit you've fucked up, despite the overwhelming evidence of the epic failures of the entire financial system, how on earth can anyone expect you to make it better?
At least GM--hell, just about any other fucking person in the country who isn't an executive at a financial company--can honestly say now, 'oops.'
I am literate. I understand the quote I picked was from a courtesan of the same fucking financial executives that created this mess. Quotes like that--and the fear of his loosing huge commissions for a totally bullshit task--make me, and I suspect a majority of your fellow citizens, ready to set up the guillotines again. Your continuing idiocy only confirms this desire.
The homeowners are to blame, eh? The homeowners?! That's like blaming the heart for the heart attack.
Most honest economists, like me, see the core of this crisis in the deregulation of the financial services industry, by heavily-lobbied-for legislation like the Financial Services Modernization Act that ended the Glass-Steagell regulations.
How many homeowners were trading in CDSes? How much of that sixty-trillion dollars of speculation can be placed at the feet of poor first-time homeowners. How much of the naked short selling? How much of the corruption between the rating agencies, the investment banks, the commercial and retail banks?
Jesus fucking christ.
This is why I have no respect or hope for the financial companies. If you cannot even admit you've fucked up, despite the overwhelming evidence of the epic failures of the entire financial system, how on earth can anyone expect you to make it better?
At least GM--hell, just about any other fucking person in the country who isn't an executive at a financial company--can honestly say now, 'oops.'
I am literate. I understand the quote I picked was from a courtesan of the same fucking financial executives that created this mess. Quotes like that--and the fear of his loosing huge commissions for a totally bullshit task--make me, and I suspect a majority of your fellow citizens, ready to set up the guillotines again. Your continuing idiocy only confirms this desire.
31
@28 - no, under real capitalism, the share OWNERS of a corporation get to VOTE on the PAY of their EMPLOYEES - aka CEOs and execs.
In our system of Republican Socialism we share OWNERS don't get to vote.
In the EU and Japan we get to vote on how much pay our employee CEOs, COOs, CFOs, and other top execs get.
In our system of Republican Socialism we share OWNERS don't get to vote.
In the EU and Japan we get to vote on how much pay our employee CEOs, COOs, CFOs, and other top execs get.
32
@21
The homeowners did it! Yeah, right...they were the ones who cooked up the pie-in-the-sky mortgages, the credit default swaps and the mortgage backed securities. Oh yeah, they just sat around the kitchen table at night, after putting the kids to bed, figuring out how to game the system. God, I hate homeowners!!!
The homeowners did it! Yeah, right...they were the ones who cooked up the pie-in-the-sky mortgages, the credit default swaps and the mortgage backed securities. Oh yeah, they just sat around the kitchen table at night, after putting the kids to bed, figuring out how to game the system. God, I hate homeowners!!!
33
i'd love to see the "talent will go elsewhere rather than work for 500K max" bluff called.
cuz where they gonna go? there's only 1 planet.
cuz where they gonna go? there's only 1 planet.
34
Jonathan, given that we've got a massive climate change problem incoming, how can you justify the auto bailout? They're a massive part of the problem. This seems like the perfect opportunity to change the system.
35
STJA:
I'd like to change land-development patterns and reduce the number of people living and working in places that require driving for every little task--not just commuting.
Until then, we're going to need an auto industry. At least a US-based one will have to conform to environmental regulations. As I referenced in my post, I think GM's approach to making green vehicles is at least as good as any other car maker on the planet.
I agree, we need to change. It's going to take time. Just getting rid of the filthiest of older cars on the road today, replacing them with more efficient newer small vehicles, is an important early step.
I'd like to change land-development patterns and reduce the number of people living and working in places that require driving for every little task--not just commuting.
Until then, we're going to need an auto industry. At least a US-based one will have to conform to environmental regulations. As I referenced in my post, I think GM's approach to making green vehicles is at least as good as any other car maker on the planet.
I agree, we need to change. It's going to take time. Just getting rid of the filthiest of older cars on the road today, replacing them with more efficient newer small vehicles, is an important early step.
36
Who killed the world economy?
It was the Homeowners in the rumpus room with the Collateralized Debt Obligation, obviously.
It was the Homeowners in the rumpus room with the Collateralized Debt Obligation, obviously.
37
@29, 32: I'm unclear. Do you think homeowners made rational choices, and that somehow someone else is to blame, or do you think that the mortgage crisis is entirely due to CDO's? I'm saying there's lots of blame to go around, and while I agree that deregulation is the root cause, my point was Johnathan's targeting of CEO's as "individuals who caused the mess" is sophomoric. The *process* responsible is deregulation; the *individuals* are homeowners, stockholders, and politicians, in addition to executives. If you disagree, please explain why homeowners and stockholders are not responsible for their financial decisions, but executives are.
@25: Nice rant against something I didn't say. I support the compensation caps, as long as they're implemented carefully and we're willing to adjust for unintended consequences (such as, as some people predict, a revolving door executive staff that leaves only those not competent enough to get a better offer working at bailout-accepting firms). I would respond with a violent defense of anchovy pizza, but I think you'd miss the implicit point.
@25: Nice rant against something I didn't say. I support the compensation caps, as long as they're implemented carefully and we're willing to adjust for unintended consequences (such as, as some people predict, a revolving door executive staff that leaves only those not competent enough to get a better offer working at bailout-accepting firms). I would respond with a violent defense of anchovy pizza, but I think you'd miss the implicit point.
38
Until Americans work marketing suscebtibility out of their systems there is no way ANY industry producing consumer goods can avoid these sorts of catastrophe inducing cycles.
Marketing means brands and brands mean inflated prices (by removing a key condition of competition - product homogeneity). Inflated prices mean labor power and higher wages. That locks firms into a position that they can't retreat from.
There are only three ways out of the dilemma: nationalization or at least national administration of the industry, breaking up big firms and keeping them broken up, and bankruptcy followed by reorganization.
The current proposal is something like the first way out - with the government forcing the auto industry and the unions to act to back away from the busted brands and to start producing cheaper cars.
Marketing means brands and brands mean inflated prices (by removing a key condition of competition - product homogeneity). Inflated prices mean labor power and higher wages. That locks firms into a position that they can't retreat from.
There are only three ways out of the dilemma: nationalization or at least national administration of the industry, breaking up big firms and keeping them broken up, and bankruptcy followed by reorganization.
The current proposal is something like the first way out - with the government forcing the auto industry and the unions to act to back away from the busted brands and to start producing cheaper cars.
39
@24, not really considering their life's work won't ever be put to practical use due to Nuclear Fear-mongering.
40
Well, they're suffering for it a hell of a lot more. People are losing their homes. Stockholders have seen their 401ks halved. Executives are looking at a reasonable cap on pay. Suffer the little children.
If you disagree, please explain why homeowners and stockholders are not responsible for their financial decisions, but executives are.
Well, they're suffering for it a hell of a lot more. People are losing their homes. Stockholders have seen their 401ks halved. Executives are looking at a reasonable cap on pay. Suffer the little children.
41
if wall street had paid a realistic price when those bad loans were first put up for sale, this never would have gone out of control. the demand that created so many bad loans came from the financial wizards who pumped up their value into a huge, phony bubble. otherwise the story would have begun and ended with the homebuyer and the first lender who made the dumb loan; that lender wouldn't have made more of the same kind of dumb loans to more homeowners without the incentive from up the food chain.
so there, cunt
so there, cunt
42
@40, I have to wonder though, who is in need of mortgage help at this point in time? Those that can't afford their homes due to a false belief, those that lost their jobs, who?
43
Toyota and Honda make reliable, pleasant, dare I say fun pieces of engineering. GM and Chrysler make fetid piles of shit that start falling apart as you drive them off the lot.
For twenty years, they basked in the money they raised as mouthbreathers, particularly in the south, lapped up the few products in which the Americans had a pseudo-monopoly: trucks, big SUVs, and big sedans.
Now that Toyota is eating their lunch in these and every other category, when they STILL don't make a decent sedan, much less a good hybrid, I'm supposed to prop them up with my money? FUCK NO. Fuck 'em, fuck 'em, fuck 'em, fuck 'em, fuck 'em, fuck 'em, fuck 'em.
For twenty years, they basked in the money they raised as mouthbreathers, particularly in the south, lapped up the few products in which the Americans had a pseudo-monopoly: trucks, big SUVs, and big sedans.
Now that Toyota is eating their lunch in these and every other category, when they STILL don't make a decent sedan, much less a good hybrid, I'm supposed to prop them up with my money? FUCK NO. Fuck 'em, fuck 'em, fuck 'em, fuck 'em, fuck 'em, fuck 'em, fuck 'em.
44
@42,
I'm hardly advocating a bail out for homeowners. I'm saying that executives taking a pay cut is nothing compared to the havoc they wreaked. Fuck 'em. And good luck to them in finding any job that payed what they got in the bubble. They're lucky to have a job at any salary.
I'm hardly advocating a bail out for homeowners. I'm saying that executives taking a pay cut is nothing compared to the havoc they wreaked. Fuck 'em. And good luck to them in finding any job that payed what they got in the bubble. They're lucky to have a job at any salary.
46
Oh, and GM gets a double FUCK YOU for shortsightedly starving Saturn in the mid-nineties when me and my friends were buying Saturns left and right. Americans- even sandal-wearing granola-chomping ones such as hang around with me- were willing to buy American cars when they THEY WEREN'T SHIT. But no, GM had to sink more money into the Aztek, and the G6, and all the other anonymous scat that litters airport rental car lots everywhere.
Advertisement
Most Commented on Slog
-
Hating People Doesn't Make Them Thinner by Jen Graves
-
Los Angeles Gay Bar Bans Bachelorette Parties Until Marriage Equality Is Attained by David Schmader
-
Fill in the Blank by Grant Brissey
-
This Reminds Me of the Great Calculator Scare of the Late '70s/Early '80s by David Schmader
-
Idiot Tries to Defend Bigoted Anti-Gay-Marriage Preacher on Anderson Cooper by Paul Constant
-
SL Letter of the Day: Putting It In by Dan Savage
-
Six Moms with Too Much Time on Their Hands and a Shitty Website Decide to Fight Gay Superheroes by Paul Constant
-
Why Mayor McGinn's Wife Canceled Her Family's Seattle Times Subscription by Eli Sanders
-
What the Hell Is Wrong With Seattle's Pride Parade? by Dominic Holden
-
Meet the UW "Swagga Suit" by David Schmader
RSS
Facebook
Twitter
Comments (46) RSS