I have held off writing about this, as there are so many people weighing in on what our government should do about the banks. It is amusing to watch spreading groupthink, as pundits and economists who never would have trusted the Bush administration with massive involvement in the economy leap to ever-widening trust in Geithner and Summers. One thing you can say for Bush: had he taken over the banking industry and the auto industry and parts of the insurance industry, he would have been absolutely definite about his ability to do so, no matter the actual results.
Here's my view, conditioned by years of considering myself a moderate Republican. Government involvement is necessary whenever the market cannot achieve a necessary aim, that is, when questions of equity or safety outweigh the magic properties of free-market capitalism. Almost everyone accepted the federal projects to electrify the nation (for example, the TVA) because electricity was seen as vital to the interests of our citizens, and it was highly unlikely that any private company was going to supply power to certain poor areas. Other than a few purist zealots, we all think that government should play a role in product safety, because the industries themselves have few incentives to guarantee a certain level of freedom from worry about the dangers of lead paint or infestation (I mention the zealots because there are those who will make a case that the dangers are self-limiting; once consumers realize they're dropping dead from lead-painted toys, they will put the offending companies out of business - most of us reject this "wisdom").
Intervention in the banking industry is touted as necessary because, without it, lack of credit will cripple businesses and consumers and the entire world could be caught in a financial conflagration. If that's true, then our government has a necessary responsibility to do something other than stand by and hope for the best.
It's a lot harder to make the same case for the auto industry. There is nothing vital in having a domestic manufacturer of cars, as is obvious when we look at the growing market shares of Toyota, Hyundai, and so forth. One might still offer an argument if the contention is made that employment cannot take the sudden shock of GM bankruptcy, but, since the remedy currently offered is to drastically reduce employment, that argument doesn't hold up.
So here's what I would suggest. Let's let the auto industries go. Maybe Ford will survive, but GM and Chrysler are unlikely to ever become functioning entities again, and it's time to pull off the Band-Aid.
As for banks, let's nationalize them and instantly sell off every piece that isn't commercial or personal banking. If a bank is doing something that doesn't involve supplying credit to a business or individual, that function has to be excised, because it's not vital to the operation of the republic. Merger and acquisition advisory services, gone. Sponsorship of opera nights or marathons, gone. We simplify the business for two reasons: first, we should only be propping up those parts that are truly necessary, and, second, government may have a better chance to operate a loan operation than it does a CDO shop. (This would have the pleasant by-product of eliminating those nasty bonuses, as the "hot" banking areas would be on their own.)
If you want four more takes on the auto industry question, see the New York Times' Room For Debate, Does the U.S. Need an Auto Industry?
Robert Reich, who has realized that bailout plans rely on the dismissal of workers, is outraged in his post from yesterday, The Auto Bailout Is Going Off the Road. I respect Professor/Secretary Reich a lot, but he seems a little late to this party:
Here's my view, conditioned by years of considering myself a moderate Republican. Government involvement is necessary whenever the market cannot achieve a necessary aim, that is, when questions of equity or safety outweigh the magic properties of free-market capitalism. Almost everyone accepted the federal projects to electrify the nation (for example, the TVA) because electricity was seen as vital to the interests of our citizens, and it was highly unlikely that any private company was going to supply power to certain poor areas. Other than a few purist zealots, we all think that government should play a role in product safety, because the industries themselves have few incentives to guarantee a certain level of freedom from worry about the dangers of lead paint or infestation (I mention the zealots because there are those who will make a case that the dangers are self-limiting; once consumers realize they're dropping dead from lead-painted toys, they will put the offending companies out of business - most of us reject this "wisdom").
Intervention in the banking industry is touted as necessary because, without it, lack of credit will cripple businesses and consumers and the entire world could be caught in a financial conflagration. If that's true, then our government has a necessary responsibility to do something other than stand by and hope for the best.
It's a lot harder to make the same case for the auto industry. There is nothing vital in having a domestic manufacturer of cars, as is obvious when we look at the growing market shares of Toyota, Hyundai, and so forth. One might still offer an argument if the contention is made that employment cannot take the sudden shock of GM bankruptcy, but, since the remedy currently offered is to drastically reduce employment, that argument doesn't hold up.
So here's what I would suggest. Let's let the auto industries go. Maybe Ford will survive, but GM and Chrysler are unlikely to ever become functioning entities again, and it's time to pull off the Band-Aid.
As for banks, let's nationalize them and instantly sell off every piece that isn't commercial or personal banking. If a bank is doing something that doesn't involve supplying credit to a business or individual, that function has to be excised, because it's not vital to the operation of the republic. Merger and acquisition advisory services, gone. Sponsorship of opera nights or marathons, gone. We simplify the business for two reasons: first, we should only be propping up those parts that are truly necessary, and, second, government may have a better chance to operate a loan operation than it does a CDO shop. (This would have the pleasant by-product of eliminating those nasty bonuses, as the "hot" banking areas would be on their own.)
If you want four more takes on the auto industry question, see the New York Times' Room For Debate, Does the U.S. Need an Auto Industry?
Robert Reich, who has realized that bailout plans rely on the dismissal of workers, is outraged in his post from yesterday, The Auto Bailout Is Going Off the Road. I respect Professor/Secretary Reich a lot, but he seems a little late to this party:
What? Having General Motors or Chrysler cut tens of thousands of jobs in order to be eligible for a government bailout reminds me of "saving" Vietnam by bombing it to smithereens. Aren't we giving these companies billions of taxpayer dollars to save jobs? If not, we're just transferring money from taxpayers to GM and Chrysler bondholders and shareholders.Unfortunately, even a man with his intellect doesn't really offer anything useful as an antidote:
The purpose of any auto bailout ought to be to help American auto workers keep their jobs, regardless of whether they work for GM or Toyota or anyone else. Or if they lose their jobs, help them get new ones that pay almost as well. Yet we’re doing exactly the opposite: We're paying GM and Chrysler billions of taxpayer dollars to keep them afloat while they cut tens of thousands of American jobs and slash wages.True, until we ask the question, what jobs "that pay almost as well," and what does "almost" mean? This conundrum is the exact reason that our leaders consistently punt on this issue; there are no solutions to this dilemma. We're seeing the props come out from under this economy, and nobody has the answer for 300 million Americans.
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