Why I'm less offended by a potential "Big 3" bailout than I am by the bailout of Wall Street
November 13, 2008
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There's no shortage of hilarious cartoons out there about the current mess that the "Big 3" automakers have gotten themselves into. The promise of comedy is the carrot at the end of the stick to get you to read my thoughts on the potential bailout of the auto industry first. Deep down I know that bailouts of terribly run companies (and take it from someone who works in the industry and has been squawking about it for some time, that is exactly what the Big 3 automakers have been) are wrong.
Having said this, for some reason I am much less offended by the government providing low interest loans to GM and Ford (Chrysler should be left for dead and picked apart by the vultures) than I am by the free handouts that Paulson has been giving to his friends on Wall Street. I'm sure that part of it has to do with the fact that I work in the industry, so through a trickledown-effect anything that infuses billions of dollars into it is ultimately good for me.
But there's more to it than that. Many of the companies in the financial sector, like investment banks, hedge funds, and those lying ratings agencies, are worthless and add no real value to the economy. They just move money around and create profits by using leverage, smoke, and mirrors. Real economies are not service based. Even though they are inept at doing so, at least GM and Ford make stuff.
While I take everything that he writes with a HUGE grain of salt and don't look as him as a psychic savior like many who blog do, Peter Schiff often has some good points and he certainly says them in an entertaining manner. I am currently reading his latest book "The Little Book of Bull Moves in Bear Markets." In it he sums up what has happened to our economy beautifully:
"A service-based economy has largely supplanted one based on manufacturing that was now at a competitive disadvantage to producers in Asia and elsewhere who were less burdened by regulation, high taxes, and mandated worker benefits. America had become a nation of consumers, and producers were disappearing.
Reflecting that reality the balance of trade was running huge deficits, with imports exceeding exports by some $800 billion annually."
This one's a gem, too:
"As strange as it may sound in our postindustrial, credit-fueled, savings-depleted, shop-til-you-drop society, consumer spending in and of itself does not constitute an economy. Rather than being part of the solution, consumer spending is a major contributor to our current malaise."
The problem with America is that we were turning into a place where no one created anything. All we did was use an unsustainable credit bubble which created rapidly rising asset prices to make everyone feel rich and then shovel this imaginary money around by performing services for each other while farming out the real value-adding productive work to foreign countries. As annoying as the resulting inflation was, I actually saw the falling dollar as a good thing because at least it was encouraging companies to produce goods in the United States once again. The annoying temporary spike in the U.S. dollar will only serve to erode our manufacturing base even more.
So while I don't want to see any more ineptitude or bad behavior rewarded, and I certainly don't want to see the government go any further into debt, I have a lot easier time justifying bailing out manufacturers than I do financial institutions.
Now for the funny stuff.
I love the note above the gas tank on this one that says to fill with "Premium tax $ only" HA
Deej
No position in GM or Ford
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