Some thoughts on GM and the banks

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RussB's picture
RussB
Status: Silver Member (Offline)
Joined: Dec 9 2008
Posts: 101
Some thoughts on GM and the banks

(Also posted at  http://attempter.wordpress.com/2009/03/30/some-thoughts-on-gm/

So, just as many of us predicted from the start, giving the auto companies ad hoc holdover money and a deadline to come up with a plan would lead to.....giving the auto companies ad hoc holdover money and a deadline to come up with a plan. Well, the difference this time is that Rick Wagoner is out, and Chrysler has to engineer a merger with Fiat. Still no word on why Cerberus doesn't have to put up any money.  

(From the start it's seemed to me that if Chrysler's owner doesn't believe it can be saved with more cash, why should the government second guess them? Why in this case does the administration know so much better than "the market" and an iconic private equity firm, while where it comes to the banks they keep repeating, Hare Krishna-like, the chant "the government shouldn't be running banks"?)   

While I have no love for General Motors and am opposed to this bailout as well, I still differentiate between an auto manufacturer which, however sociopathic its actions and products (its role in the dismantling of America's streetcar system; the corresponding invasion strategy of highway construction; the massive social engineering project known as suburban sprawl; SUVs), still did actually produce a real product, as opposed to the big banks which were essentially running a big scam.  

So I find it telling that Obama is willing to at least make a show of getting tough with GM and Chrysler (though not so much with GMAC and Cerberus), while desperately trying to cater to every frivolous whim of the big bankers.  

(Though even here the focus is very clearly on what is good for GM, i.e. its bondholders, while the public are even in the picture only as "consumers" who must somehow be induced to buy American cars, that is as a sort of mine. Notice also how even though the UAW has already made significant concessions while the bondholders have made none, the administration propaganda line is that we're at square one, and "both" are equally obligated to give up things at this point. The bondholders are holding firm, expecting to be bailed out completely. Given how Obama is determined to do exactly that for the bankers, the bondholder intransigence here seems perfectly rational.)   

My first reaction was that Wagoner, a relatively small fish, is being sacrificed as misdirection from what is clearly a Geithner/Obama policy priority to maintain the big bankers in their jobs.  

Of course Wagoner provides a clear example of the rent-seeking neo-feudalist mindset. His commitment to the sprawl-SUV societal model, his refusal to pare product lines, tranform to a hybrid-based business model, the killing of the electric car - these all show how he and the board had become completely calcified in the finance elitist sense of entitlement. Wagoner believed GM had a "right" to exist in that form, and if reality was contradicting the entitlement, it was the government's job to suppress that reality.  

So GM's "business model" was to lobby, fund political action groups, deny climate change, and file lawsuits to preserve its bloated, calcified structure. Beyond that Big Auto long coordinated strategy with Big Oil to enforce the continued existence of the fossil fuel/personal car societal model. This is the essence of corporatism.   

I think a clear sign that we no longer have a democratic capitalist system but rather a corporatist one is that no one loses his job even over major screwups. Thus we have:  

1. No one fired over 9/11.  

2. Where it came to Katrina, Bush got rid of "Brownie" only under extreme duress. (I would bet that to this day Bush still doesn't understand what Brown did wrong, or why he had to relinquish him. Just like he probably doesn't understand why he couldn't have Meirs on the Supreme Court.)  

3. To the best of my recollection, no one was ever forced out for incompetence or war crimes in Iraq (although anyone who questioned administration policy or priorities was drummed out immediately); indeed they gave Paul Bremer a medal. This certainly wasn't for any reality-based measure of performance. Rather it was for an ideological cadre who pushed ahead with his ideologically-defined task even in the midst of a war, even where it was directly counter to the rational fighting of that war (as when he removed the entire professional class of Iraq, pretending it was de-Baathification, when it was really to remove indigenous obstacles to predatory carpetbagging; the dissolution of the Iraqi army was just one element of this "blank slate" agenda).   

4. Now no one since Fannie and Freddie is to lose his job over the planned destruction of the global economy.  

It's clear that no one but ideologues could think it's reasonable, moral, or desirable to retain the existing management of these banks, and that in the administration we obviously have such ideologues. That the existing bank management not be fired is a major policy principle for the administration. Otherwise there's simply no way to explain why the management hasn't been forced out as a condition of the bailouts.  

Let's assume that an administration is committed to a bailout policy; still, where they have roused such political anger, both reason and politics demand that you at least take the simple measure of getting rid of the dead weight management. This could go a long way toward defusing populist anger, which is so easily personalized.  

That Geithner and Obama have refused to take this step, that they are gratuitously courting such a political backlash, is strong evidence that here, just as with Bush and Bremer in Iraq, we are not in the realm of normal reality-based politics, but in the realm of ideology trying to dominate reality.       

SteveS's picture
SteveS
Status: Gold Member (Offline)
Joined: Sep 6 2008
Posts: 358
What we could have done

Instead of giving loans with no strings, why didn't the government tell GM that it would buy 'x' electric or hybird cars, or wind turbines, or something they could have geared up to make? Just giving them 'money for nothing' makes no sense.

 Like you, RussB, I have mixed feelings about all this. GM has not been a good corporate citizen and, as I understand it, the financial division is what has brought it down (or was that GE? - maybe both). But, they are one of the few manufacturing companies we have left, and why they have to jump through hoops, while the banks get bailed out, is an interesting question. I probably don't want to know the answer, but I do not see too many ex-manufacturing CEOs in high goverment positions.

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: Some thoughts on GM and the banks

I agree with you in that I am against all bail-outs, and like you, I see a difference between contributors to the real economy and fraudulent and predatory banks.

RussB said -

It's clear that no one but ideologues could think it's reasonable,
moral, or desirable to retain the existing management of these banks,
and that in the administration we obviously have such ideologues. That
the existing bank management not be fired is a major policy principle
for the administration. Otherwise there's simply no way to explain why
the management hasn't been forced out as a condition of the bailouts.

Excellent point and I would add that it is baffling that none of the banks, regulators, bond raters or government officials are being seriously investigated under criminal law for conspiracy and racketeering.  At a minimum, many in high government offices are complicit by providing a deceitful cover to protect those most guilty. 

William Engdahl wrote "The ‘dirty little secret’ which Geithner is going to great degrees
to obscure from the public is very simple. There are only at most
perhaps five US banks which are the source of the toxic poison that is
causing such dislocation in the world financial system. What Geithner
is desperately trying to protect is that reality."

"Today five US banks according to data in the just-released Federal
Office of Comptroller of the Currency’s Quarterly Report on Bank
Trading and Derivatives Activity, hold 96% of all US bank derivatives
positions in terms of nominal values, and an eye-popping 81% of the
total net credit risk exposure in event of default."

"The five are, in declining order of importance: JPMorgan Chase which
holds a staggering $88 trillion in derivatives. Morgan
Chase is followed by Bank of America with $38 trillion in derivatives,
and Citibank with $32 trillion. Number four in the derivatives
sweepstakes is Goldman Sachs with a ‘mere’ $30 trillion in derivatives.
Number five, the merged Wells Fargo-Wachovia Bank, drops dramatically
in size to $5 trillion. Number six, Britain’s HSBC Bank USA has $3.7
trillion."

"This is what Wall Street and Geithner are frantically trying to
prevent. The problem is concentrated in these five large banks. The
financial cancer must be isolated and contained by Federal agency in
order for the host, the real economy, to return to healthy function."

The derivatives beast has an insatiable appetite that will break the taxpayers unless something is done about diffusing the ticking time bomb.  Why don't they acknowledge this reality in any plan presented?  

Larry

RussB's picture
RussB
Status: Silver Member (Offline)
Joined: Dec 9 2008
Posts: 101
Re: Some thoughts on GM and the banks

I agree with you guys, that it's bizarre and a sign of fundamental rot that the more phony and parasitic the "industry", namely the finance/insurance/real estate cabal, what Michael Hudson calls the FIRE trust, the more solicitous and water-carrying the administration becomes.

It's similar to how to more unproductive and rent-collecting your income is (inheritance, capital gains, the hedge fund tax scam), the less tax you pay, while those who actually work pay the most.

Just part of how class war from above is enshrined in the law. 

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