Thursday, December 04, 2008

Not A Pretty Sight

Sen. Sherrod Brown (D-OH) sat down to talk to Rachael Maddow this afternoon and compared the approach Congress took to the Investment Banking Industry and the Big 3 Auto Industry. Nobody wanted to know how much the minions of Banking were making, the CEOs got looked at. Nobody wanted extensive plans promising results or even specified results for the Banks but Auto is another thing. The only argument I could make in favor of bailing out the plutocrats of paper pushing was that a lack of credit mobility would kill business in this country. We don't have that, but what we do have is the spectacle of those who make things and whose disintegration will kill a large segment of the economy treated as children. Brown noted that almost all the employees of one wear a ties or similar and the others work with their hands. He said it was, "not a pretty sight."

About the only entity with clean hands in the Big 3 collapse is the union worker. The banks are using government money for about everything except lending to businesses and consumers. It would be easy to kick the snot out of them for that, except for one nasty little fact, large chunks of the borrowing market aren't good credit risks. This isn't just about the foreclosed houses, that missed credit card payment, the late utility bills, the lay-off notice all have impacts. This is also a consequence of the BushCo and St Ronnie view that increasing the wealth of the already wealthy at the expense of the ordinary citizen was good policy.*

*Asterisked because it's besides the point, try once in history to find a situation in which wealth worked its way down.

Management made a stupid error when they traded pension benefits for wages, it certainly helped them look good on the books for awhile, but an expanding pension class with contracting work force and market has had its consequences. The effects of health care costs on all businesses are making doing business more expensive than it should be. Finally there is a little matter of our trade policies.

Some management decisions such as focus on large and expensive vehicles are castigated as neanderthal. When there is a per vehicle cost hole going on between yourself and your competitors, you make that up with the larger price tag of that market segment and cover your losses on the smaller units. That is not a long term strategy that will work out well.

What I find infuriating is the attitude within some circles that there is some simple scapegoat in that mess and that it really is the Unions or even that it is management. I scarcely excuse the short sightedness or even outright stupidity exercised by the Big 3 but government can take onto its shoulders a lot of responsibility for the environment they have had to try to swim in. To allow the banks to get away virtually scott free in the face of their recklessly greedy behavior and cut the Big 3's throats with self-righteous bleating is inexcusable. When derivatives were first brought out as investment vehicles there were multiple warnings that they were high risk poorly understood vehicles and to be regarded as risk capital investments only. Instead banks built entire business models around them and then compounded the danger by writing swaps on top of that house of cards. Car makers didn't sell people gasoline soaked cars with Bic lighters as accessories, which would be comparable.

I've spent over two years publicly howling about the damage that has been accruing in this economy and by this point it is so systemically screwed-up that simple minded solutions aren't going fix it. If money does not move around within the system it is going to lock up tight and if the majority of the people who move money around (the citizenry) don't have it or are scared about their future can't or won't spend they also can't earn. This is the ultimate paradox of the supply side or trickle down stupidity that has become accepted thought over the last 30 years.

This, my friends, is Reagan-omics in action.


KISS said...

I'm not a very smart man, I admit to not knowing the in and outs of high finance. After spending [ pun intended] a good many years reading and using the stock market I came away completely befuddled and had no idea of how it functioned. I was not a day trader, I was in for the long haul and I followed advice from my broker, he left the business after Enron was caught cheating.
I also quit the market and read where Warren Buffet also agreed that derivatives and Hedge funds were something he did not understand, I felt better.
You go on to say Reaganomics is to blame and you may be right, but every president after has followed the abysmally path of treachery aimed at the working class. The unions also blindly followed that same path investing in the stock market and congratulating themselves for how smart they were. In Oregon they even invested in KKR known union busters.
And now Chuck here we part ways as Obamanomics goes hand in hand with the status quo.
Remember, there are 20,000 soldiers ready to battle those that might oppose the ruling class, betcha Obama will keep and maybe add more troops to our gestapo in the making.

Chuck Butcher said...

I won't argue that Clinton did no more than put some brakes on it in some senses and accelerate it in others. As for Obama, let's give the guy a chance to actually do something before we decide he's nothing like what he's presented. No, he's not a lefty, he wouldn't be President elect if he were.

Chuck Butcher said...

The "Comments Box" article was aimed at you also, KISS.

KISS, with pride said...

" The "Comments Box" article was aimed at you also, KISS." absolutely it is your blog, feel free to delete any comments by me.
So long Chuck

Chuck Butcher said...

It was aimed at you getting acquainted you touchy thing.