Is the well finally going dry?
Surely everyone heard about the bigwigs of Detroit cruising into Washington a couple of weeks ago on private jets–with their hands out. The Big 3 American auto companies are apparently on the road to financial ruin and now they feel entitled to taxpayer money to keep them going. You can’t blame them for trying. I mean, they’re reading the same stories on the bailout of the financial industry that you and I are.
In this November 24 article, Bloomberg had the cost of the bailout calculated at ~$7.7 trillion! Now, everybody wants to share in the bounty–states and cities want in, why shouldn’t everyone share in our children’s future earnings? So in march the auto executives to plea for their share–$34 billion. Since we’re throwing so much money around, why not?
Michael Rosen believes we must bail them out in this November 20 article on Biztimes.com, because they are the backbone of American manufacturing, because their collapse could turn the current recession into a “full-blown depression,” and because we did it for the financial industry. Do you think we find ourselves on a slippery slope?
Let’s address these points one at a time.
First, bankruptcy doesn’t mean close the door, turn out the lights, walk away and never look back. The U.S. steel industry used much the same argument a few years back when it sought government bailouts. This article describes the 20+ year journey of the industry from bailout to bailout until finally it reached the end of its rope–and fell, hard. Company after company went bust, and only then did the changes occur that once again made the industry competitive–and profitable.
Second, our economy is on the skids and these bailouts aren’t going to help it recover–in fact, they’re more likely to impede its recovery. Most people balked at economist Robert Parks’ 60% chance of a coming depression when this article was published in March, but now his predictions seem to be coming to pass. From the article…
…he sees a further steep fall in housing prices, continued major deficits in the federal budget and in the international trade balance, a tumbling dollar, and a weak stock market leading to a genuine depression with 30 to 35 percent unemployment, greater poverty, more loss of homes, plunging bond and stock prices, even some starvation.
Though things aren’t quite as glum as this prediction yet, several of his predictions have already come to pass. It makes one wonder if his prophecy is yet to be fulfilled. The fact is, bailouts will only prolong the agony by delaying the inevitable. Bailouts don’t address the underlying problems that created this mess.
Finally, bailing out the auto industry because we did so for financials is ridiculous. We made (continue to make) one mistake so we’re obligated to make another? Does this argument make any sense at all?
The Bush administration, in an apparent attempt to prevent the current crisis from defining his legacy, is spending money like Richard Pryor in the 1985 movie, Brewster’s Millions. Indeed, he’s perfectly willing to spend more as evidenced in this AP article.
“Obviously I don’t like the idea of people losing jobs, or being worried about their 401(k)s. On the other hand, the American people got to know that we will safeguard the system. I mean, we’re in. And if we need to be in more, we will.”
So, just how far are we willing to go? How much of our children’s future labor are we willing to commit to this effort to sustain these mismanaged beasts and their incompetent managers? Apparently, even our elected officials are beginning to ask these questions. Finally we’re seeing some encouraging signs on this front. From this AP article on Newsweek:
The Senate’s Democratic leader said there still weren’t enough votes to tap the $700 billion federal bailout fund to prop up the foundering Big Three.
Maybe, just maybe, reason is beginning to prevail in our nation’s capital.
Some interesting notes related to this story:
According to The Corporate Law Society, GM CEO Rick Wagoner’s salary is $15.7 million and Ford CEO Alan Mulally’s is $22 million. That’s excellent compensation for running these two companies into the ground!
According to CNSNews.com, it costs over $70 per hour to employ a U.S. auto worker when benefits are included. Is it any wonder a new car costs so much?
According to CBS News, there are approximately 3,500 auto workers currently being paid an average of $50,000 per year while not working.