Bailout agonistes

Updated.

All I really know about what's happening in the economy is that everything stinks.

And I don't even really know that.   Everything doesn't stink.  The candy industry's doing ok, I hear.  But if sure feels like everything stinks.

Here's what it looks like to me.

The object of the auto industry bailout is to save the American auto industry.

The object of bailing out the banks isn't to save the banking industry.  It's to use it.

Detroit is knocking at heaven's door.  Chrysler and GM may be dead no matter how much money inject into them.  Radical surgery is their only hope.  It stinks that autoworkers are going to have to suffer for this.  But there's no point in protecting benefits workers can't collect for twenty or thirty years if those workers aren't going to have jobs next year.  And it's not just the union guys whose jobs and benefits are at stake.  The industry extends far beyond the auto plants.   The delivery truck drivers who work for the suppliers, the secretaries and bookkeepers at the dealerships, the waitress at the diner where the service techs come for their coffee breaks and lunch, the agent at the little independent insurance office in town, all these people work in the "auto industry," and their jobs and benefits are on the line too.

The Obama Administration is thinking about future jobs too.  If the American auto industry goes under, who's going to build all the green cars?  Are we going to buy all our cars from the Asians the way we buy all our clothes?  Not a lot of Americans sewing shirts these days, are there?

I think the President is figuring that although we'll lose some union jobs now, we'll get them and others back later, and as for the benefit cuts, he's counting on his own health care plans and reforms to compensate for that.

It stinks that he has to take such a ruthless gamble but what's the alternative?

Bailing out the banks requires a different sort of ruthlessness.

As a plan for "fixing" the banks, the Geithner Put isn't one.  Not one anyone expects to work, at any rate, probably not even Geithner.  The banks don't need to be saved the way the auto industry needs to be saved.  Some banks should fail and are going to.  What the President wants is that the banks that aren't failing start banking again.  What they've been doing for the last six months is looking out for their own survival.

The object is to get money moving.  The Geithner Put is a covert stimulus plan.  We're working with the warlords here.  We're bribing them to do the right thing, which is to start lending in a big way.  The TARP money that appears to be going to buying up toxic assest is actually, indirectly and inefficiently, going into loans.

The object is to see to it that businesses that have been cutting hours and production and laying off workers because they can't get the loans they need get those loans.  The object is to see to it that start-ups start up.  The object is jobs.

We're not going to make back all of the money we're spending to buy up toxic assets.  But just because we're not making the money back here, doesn't mean we're not making it back over there.

Everyone who gets a job or who keeps one thanks to this gets paid back with a paycheck.  The rest of us get paid back when those people pay income taxes they wouldn't have paid because they had no income.  We get paid back when they buy things with that income.  We collect it in sales tax.  We collect it in our own paychecks which we continue to receive because the companies we work for are making money from those other people are spending.

The stimulus plan wasn't big enough.  The Geithner Plan is a way of moving money into the economy that the President didn't get---because he didn't expect to get it and didn't ask for it---from Congress. 

Looking at the bank bailout as a bank bailout means seeing the problem as a banking problem.  The problem is unemployment.  The problem is that people are in trouble, not that the banksters aren't paying for their mistakes, sins, crimes, and idiocies.  "Fixing" the banks isn't the priority at the moment.

Fixing the banks in most economists' view means taking them over.  Clearly, the President doesn't want to do that.  He doesn't want to add the job of running the banking system to his agenda right now.  He's said things and given signs that reform, re-regulation, and even some retribution are all on the drawing board.  But he's got enough on the assembly line right this minute---jobs, the budget, health care, Afghanistan.

As I understand it, most critics of Geithner's plan hate it because, besides apparently socializing risk while privatizing gains, it won't clean up the mess.  It may make it worse.  They're also concerned that this is the President's one shot.  If he doesn't get this right, he won't be able to go back to Congress and ask for money for a almost certainly necessary second stimulus.  Brad DeLong, though, thinks that the President has concluded he wouldn't get the money, now or later, no way, no how, and the Geithner plan is Plan B.

Or Plan V.  V as in Voinovich.

The problem is that the Geithner Plan appears to me to be too small – between one-eight and one-half of what it needs to be. Even though the US government is doing other things as well –fiscal stimulus, quantitative easing, and other uses of bailout funds – it is not doing everything it should.

My guess is that the reason that the US government is not doing all it should can be stated in three words: Senator George Voinovich, who is the 60th vote in the Senate – the vote needed to close off debate and enact a bill. To do anything that requires legislative action, the Obama administration needs Voinovich and the 59 other senators who are more inclined to support it. The administration’s tacticians appear to think that they are not on board – especially after the recent AIG bonus scandal – whereas the Geithner Plan relies on authority that the administration already has. Doing more would require a legislative coalition that is not there yet.

Will it work, at least to a limited degree?

Seems people's feelings about this depend on whether they believe Paul Krugman or Brad DeLong, on just how corrupt and stupid they think the banksters are, on whether they think Larry Summers is a weasel and Tim Geithner a stoat, and how much they're willing to trust that President Obama knows what he's doing and has our interests at heart.

I respect both Krugman and DeLong.  But Krugman seems to be focusing on the economics to the exclusion of the politics and on the problems not the problem---that is he saw the stimulus as one thing and the Geithner Put as another, with the stimulus being about jobs and the Geithner plan being about fixing the banks and it doesn't fix the banks.

I think the banksters have demonstrated that they aren't just corrupt and stupid, they are actively hostile to the people's interests and common welfare.  They are part of a class that sees workers as the enemy perversely insisting on being treated like human beings with rights and needs instead of accepting their place as overpriced cogs in a machine that needs constant refitting with more efficient and cheaper cogs, that sees consumers as suckers and chumps, that looks at the whole country the way a coal company looks at a mountain in West Virginia.  I don't expect them to do the right things the President wants them to do out of the goodness of their hearts and a sense of patriotism, and I agree with Jeffrey Sachs and Felix Salmon that that they're likely to take the opportunity the Geithner Plan offers to game the system.

I think Larry Summers is a weasel.  I think he's a weasel because he is a weasel.  But I don't think Tim Geithner is a weasel or a stoat.  He's a technocrat doing the job his boss wants him to do, and I think in his mind his boss is the President not Larry Summers.

I trust that the President has concluded that this is the best option he's got at the moment.  I trust that he has our interests at heart.

I'm not quite sure who he thinks we are though. I'm afraid he might have us mixed up with the banksters.

_____________________________

Christian Livermore had a fine story in our local paper Sunday about the impact of the collapse of the auto industry on people around here who work for "Detroit":

On a recent morning at Healey Chevrolet in Beacon, about 10 employees roamed the empty showroom. They would wait a long time for a customer.

Healey, like just about every auto dealership in the country, has seen its sales deteriorate as consumers, worried about their jobs, aren't about to sink thousands of dollars into a new car.

Now, Paul and Dwight Healey, partners in the business their father started, are shedding ballast in an effort to stay weatherly in the worst economic tempest in decades.

Because the reach of an auto dealership into its community is wide and deep, cutbacks at Healey Brothers Automotive Dealerships mean cutbacks for their vendors and beyond. The belt-tightening extends to the guy who washes their windows to the diner where employees used to eat dinner.

And here are The Ten Cars That Sunk Detroit.  As much of a booster of the American auto industry as I am, if I was in the market for a new car I'd reflexively head for the nearest Toyota, Honda, or even Hyundai lot and would have to force myself to consider buying American, because I remember every single car on this list.  These too.

Update:  Over at his spanking new blog, Ian Welsh finds one person in Washington who seems to be thinking and saying the right things about TARP.  Too bad Elizabeth Warren doesn't have real clout.

Comments

[Doug K]

I agree with your analysis of the bank(rupt)s. Ezra Klein writing on healthcare made a similar point; there is the best possible plan, and then there is the plan which is politically feasible. They won't be the same. It's the art of the possible, as the Iron Chancellor said all those years ago.

The problem with the auto companies is similar to that of the banks inasmuch as both were created by rancid lackwit CEOs imagining themselves Masters of the Universe. As you note the problem is they haven't gotten over themselves even now.

As an immigrant to America I always wanted to buy an American car, but the Consumer Reports reviews scared me too much. I have owned a couple of Fords that were fine.

[Rana]

For me, the car that turned me off of American cars (despite a lingering fondness for Jeeps and the small Ford pickup) was the Chevy Corsica. Ugly, un-ergonomic, expensive to fix, and a piece of crap plagued by poor design (let's put the most expensive part of the engine - the electronic regulator - right under an oil gasket!) and shitty materials (let's make the brackets holding down the driver's seat out of an alloy that will succumb to metal fatigue in less than five years!). I got $1200 for it on a trade-in on a brand-new Honda 13 years ago, and I've never looked back.

[policomic]

Thanks for one of the smarter, less vitriolic things I've read about TARP, the stimulus, and Detroit (the wisdom of your take is that it looks at these as pieces of a larger whole, and unlike Krugman and those who agree with him, does not ignore political realities).

[tdraicer]

>I trust that the President has concluded that this is the best option he's got at the moment. I trust that he has our interests at heart.

That's where we part company. I don't much believe in "trust" as a political concept anyway (see Rex Harrison in Cleopatra) but I wouldn't trust Obama to do anything except for Obama. Trust has to be earned, and he hasn't earned it.