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Obama Tough On Detroit, Easy On Wall Street, Part 2

By Big Tent Democrat, Section Economy
Posted on Mon Mar 30, 2009 at 10:56:03 AM EST
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President Obama's statement on auto industry bailouts:

What we are asking [from the auto industry] is difficult. It will require hard choices by companies. It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts. Only then can we ask American taxpayers who have already put up so much of their hard-earned money to once more invest in a revitalized auto industry. . . .

(Emphasis supplied.) I missed President Obama's speech demanding "painful concessions" from Wall Street. I missed President Obama's condition for Wall Street bailouts that "creditors [must] recognize that they cannot hold out for the prospect of endless government bailouts." Why is President Obama being so easy on Wall Street?

Speaking for me only

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    Obama Tough On Detroit, Easy On Wall Street, Part 2 | 40 comments (40 topical)

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    Easy (5.00 / 8) (#2)
    by jbindc on Mon Mar 30, 2009 at 11:01:17 AM EST
    He was the candidate who received the most money from Wall Street.  Needs to keep those bundlers around for 2012. Too bad he electorally he just lost about 12 states.

    Wonder if he's going to ask if the creditors of all those autoworkers to make more painful concessions.

    This is all complete hogwash.

    Should the U.S. Government (none / 0) (#3)
    by andgarden on Mon Mar 30, 2009 at 11:05:09 AM EST
    be in the business of making cars? If so, for how long? The British example is not encouraging.

    I don't think there are any easy answers, but probably the only way to avoid job losses in Detroit is an AIG solution.

    Parent

    I do not know what the solution is here (5.00 / 2) (#9)
    by Militarytracy on Mon Mar 30, 2009 at 11:13:44 AM EST
    I think it takes an auto community effort that includes engineers on the cutting edge of the auto industry to be able to put things on the right track as quickly as possible.  How can the auto industry be so whippable though for its lack of accountability to market reality, vision, and planning, and Wall Street so forgivable?

    Parent
    Apples and Oranges (none / 0) (#22)
    by dallas on Mon Mar 30, 2009 at 11:44:10 AM EST
    The auto industry made products that were money makers in the market. Them big SUV's people were buying like crazy. Problem is the auto industry didn't see $4 gas coming. That was their big downfall. And then came this broader recession and the took a double hit. Now they are to big to retool fast enough and probably don't have the money to do so anyway. Plus if they could have the right products tomorrow the market isn't buying anyway. They are like in no mans land. There is no way to turn that is good for them. Now they will have shrink in size to just to exist. But doing so will hurt them when the market comes back because they won't have the size, the money, the dealer base, or the workforce to ramp up real fast.

    Now the banks on the other hand are a completley different story. There was nothing wrong with their consumer products. And the recession didn't hurt them that bad as people are saving money and putting some of it in banks. Their problem was those assets going bad in the eyes of many. A lot of them mortgages are bad. But many are not.

    So the problems that each industry has to fix are as different as night and day. You can't apply the same fixes to the banks that you do to the auto makers when not only are their business models completely different but so are the problems they have. One size doesn't fit all.

    For example the auto people have a ton on creditors. They buy stuff. Lots of it. The banks on the other hand don't have a bunch of creditors  because they don't buy a lot of stuff. They have some bonds and they have interest expense. That's bout it. So you can't do exactly the same things to fix the banks as you do with the auto makers. The problems are different. The bad assets are not payables related. In fact in the case of the assets it is just the opposite. The banks that can't get paid on those assets. If they could they would be fine.

    The auto makers can't pay. The banks can't collect. Apples and Oranges.

    Parent

    Ha! (5.00 / 4) (#23)
    by Big Tent Democrat on Mon Mar 30, 2009 at 11:46:53 AM EST
    "The banks on the other hand don't have a bunch of creditors  because they don't buy a lot of stuff."

    Except "toxic assets" it seems.

    Parent

    Well yeah (none / 0) (#26)
    by dallas on Mon Mar 30, 2009 at 12:17:50 PM EST
    they did buy those. Which was my point. Their problem is different than the auto makers. And the fixes for the two different problems are different. That is what I was talking about and responding to bud.

    Parent
    Their problem is not different (5.00 / 3) (#27)
    by Militarytracy on Mon Mar 30, 2009 at 12:25:55 PM EST
    They made worthless junk and sold it back and forth to each other until AAA was leveraged 16 to 1 or something like that.  How is that not their own doing?

    Parent
    And I need proof that the recession didn't hurt (none / 0) (#28)
    by Militarytracy on Mon Mar 30, 2009 at 12:28:24 PM EST
    them that bad but I'm not going to get any of that anytime soon because the stress tests aren't happening now are they?

    Parent
    well if you (none / 0) (#29)
    by dallas on Mon Mar 30, 2009 at 12:41:02 PM EST
    don't want to recognize the differences between the business models and the problems that need to be fixed between the auto makers and the banks then OK. To me and to the gov and most Americans the differences are as clear as night and day. I'm sorry you refuse to see the differences.

    Parent
    What most Americans are you (5.00 / 2) (#30)
    by Militarytracy on Mon Mar 30, 2009 at 12:44:26 PM EST
    talking about?  Is this a Country Club thing?

    Parent
    Oh Lordy (none / 0) (#32)
    by dallas on Mon Mar 30, 2009 at 01:07:48 PM EST
    He haw. Yeah you must belong to a country club to tell the difference between smoke stacks and sheet metal and a bank lobby. And yes you must belong to a country club to tell the difference between raw materials you owe money on and bad assets you own. My goodness.

    Parent
    Well there's something (5.00 / 1) (#34)
    by Militarytracy on Mon Mar 30, 2009 at 01:13:42 PM EST
    blurring your view of "Most Americans" and what details they consider important in the big picture.  Most Americans are mad as hell about the free ride Wall Street/Bank bailouts, they are spitting livid and the damned thing that really tops it off is that it is unlikely to work in any meaningful way for "Most Americans".  If this isn't a country club thing challenging your view of most of America then I hope that whatever you have been smoking gets legalized soon.

    Parent
    That's not the issue (5.00 / 2) (#33)
    by vicndabx on Mon Mar 30, 2009 at 01:11:31 PM EST
    recognize the differences between the business models and the problems that need to be fixed between the auto makers and the banks

    The issue is accountability.  No one disputes the fixes are entirely different (nor, in the case of the auto-industry, unavoidable at this point.)  What shouldn't be different however are the consequences w/regard to bad choices.  If the auto-industry bosses can be told to tell their "creditors to recognize that they cannot hold out for the prospect of endless government bailouts," Wall Street should be doing the same thing.  Accountability to me means owning up to mistakes and recognizing/preparing for the fallout of those mistakes - and taking a loss if need be.

    Parent

    Thank you for your clarification (none / 0) (#35)
    by Militarytracy on Mon Mar 30, 2009 at 01:16:38 PM EST
    because it speaks for me too.  I do dispute that one fix is more needed than the other is as the poster dallas seems to be implying.  I dispute that one fix deserves our full attention and measure and the other does not.

    Parent
    I said the fixes (none / 0) (#38)
    by dallas on Mon Mar 30, 2009 at 01:59:13 PM EST
    were different. I didn't say one is more needed than the other. Thought I'd just set that straight bud.

    Parent
    Can I be a budette? (none / 0) (#39)
    by Militarytracy on Mon Mar 30, 2009 at 02:19:48 PM EST


    Parent
    Well bud (none / 0) (#37)
    by dallas on Mon Mar 30, 2009 at 01:56:12 PM EST
    I'm glad you realize that the fixes are entirely different. Another poster said that wasn't true. So with you I can discuss facts.

    Now you say there has to be accountability. I agree. And right now there is some accountability with both industries and more accountability coming for both.

    Now as for creditors I covered that already in my post up above. I don't believe that other than bonds and depositors money that the banks have a whole lot of creditors. If you can come up with a list of substantial creditors with substantial debt owed to them other than the bonds and depositors I'd like to see take a look at it. If substantial creditors with substantial debt owed to them do not exist then your argument would not hold much weight. If they do then you may have an argument. But to argue blindly without having those facts makes no sense unless the goal is just to argue, facts aside.

    Now keep in mind bud any other creditors the bank in question has may be other banks because they do borrow from one another. In that case if the gov were to force one bank to take less money than what is owed to them then you are fixing nothing. You are helping one bank while hurting the other. Trading one problem for another. I don't know if that is the case because I don't know what banks you are talking about. Most folks around her talk in generalities. Each banks individual problem and solution is somewhat different even though their are broad similarities with the assets themselves. Those differences must be taken into account. These broad anger strokes are just about anger and do nothing really to suggest real solutions or to have fact based conversation.

    Parent

    Well bud, let me address your points: (none / 0) (#40)
    by vicndabx on Mon Mar 30, 2009 at 03:37:20 PM EST
    right now there is some accountability with both industries and more accountability coming for both.

    I would posit that most Americans don't see it occurring on Wall Street.

    You say

    If substantial creditors with substantial debt owed to them do not exist then your argument would not hold much weight.

    and then you say

    Now keep in mind bud any other creditors the bank in question has may be other banks because they do borrow from one another. In that case if the gov were to force one bank to take less money than what is owed to them then you are fixing nothing.

    ?!?

    First off, I never mentioned creditors.  I would think truth about each bank's financial status would actually help those managers in charge who need to implement all these specific, but different solutions you seem to imply are needed.  Furthermore, isn't the whole crux of this meltdown the apparent holes in the entire financial system?  Banks need not owe any one specific creditor (which obviously they do.)  What's at issue is the lack of confidence in the financial system because of monies that may not be available when needed.  Thus the "creditor" is the system itself.  The "creditor" needs to prepare itself for some loss, that doesn't appear to be happening.

    These broad anger strokes are just about anger and do nothing really to suggest real solutions or to have fact based conversation.

    The first step needs to be the financial industry saying "we as an industry screwed up big time and are going to have to adjust expectations downward substantially."  Accountability isn't just a word to be bandied about w/o some actual consequences.  Everybody knows losses are coming.  Wall Street is BS'ing about it while simultaneously taking in substantial tax-payer dollars and making entities w/in the financial system whole.  People see all this and that's where the anger is coming from.  They don't see a "fact-based conversation" occurring.

    Parent

    The government can't "fix" the auto (none / 0) (#36)
    by esmense on Mon Mar 30, 2009 at 01:49:26 PM EST
    market. Which, like the retail industry and consumer markets in general over the last several decades, has been affected by the consequences of increasing income disparity. In retail, the big department stores that once serviced a broad middle class with a broad selection of products and price points have for the most part given way to a divided market in which a large number of specialized upscale retailers compete for a relatively small number of affluent customers while a small number of large, price sensitive (Walmart, Target) retailers serve everyone else.

    In terms of automobiles, the broad mass market has given way to a divided market in which a large number or brands are competing for the business of a relatively small number of upscale new car buyers while everyone else is buying used.

    The problem isn't that Detroit hasn't been producing the fuel efficient cars that new car buyers demand, the problem is that the new car buyer market is an increasingly upscale and narrow market that 1.) isn't sensitive to fluctuations in fuel prices or concerned about fuel efficiency 2.) isn't large enough to support an ever larger number of brands and producers competing for its business. The majority of new foreign cars sold in the US, for instance, are larger luxury models. It isn't fuel efficiency that is the most important competitive advantage these foreign cars offer, it is status -- in a market that is more status driven than price and efficiency sensitive.

    Not only is Detroit competing with foreign auto makers for the relatively affluent new car buyer, it is competing with itself in the used car market -- the majority of cars sold in the US each year are used. For these buyers, the initial purchase price is more important than operating cost over the long haul.

    Today, new car buyers, whether buying domestic or foreign, tend to be fleet buyers (trucks, vans, etc.) and/or upscale individual buyers whose major concerns are status, comfort and safety, not fuel efficiency.

    Will producing smaller more fuel efficient cars help Detroit be more competitive in a market in which there are too many producers and too few buyers for whom fuel efficiency is the major factor in their buying decision? I don't think so -- unless those cars can be sold cheaply enough to compete with the used car market. The fact is, there are too many producers chasing too few customers who can afford the products they produce. That means some producers are going to fail. There's nothing in what the government is demanding from Detroit that encourages me to think that American car brands won't be among those failures.

    Parent

    Not my point (none / 0) (#6)
    by Big Tent Democrat on Mon Mar 30, 2009 at 11:11:04 AM EST
    In case anyone was wondering.

    Parent
    What's the dif? (none / 0) (#8)
    by jbindc on Mon Mar 30, 2009 at 11:12:44 AM EST
    When these car companies go belly-up and take around a million jobs with them, who is going to pay to pay to provide food and health care to these people? (Answer:  the government).

    Who is going to give the banks more money when all those people default on mortgages, credit cards, auto loans, etc? (Answer:  see above).

    Pay now or pay later in greater amounts.

    Parent

    Well, how quickly could we find (none / 0) (#16)
    by andgarden on Mon Mar 30, 2009 at 11:20:48 AM EST
    other jobs for the displaced workers? Presumably someone has done the math on this, but I know there's still lots of uncertainty.

    In any case, we're apparently off topic.  

    Parent

    Except the gov't doesn't have any money of (none / 0) (#31)
    by Inspector Gadget on Mon Mar 30, 2009 at 12:49:40 PM EST
    its own. They get their money from the working people and there won't be enough of them left to help feed and house the unemployed.

    Parent
    I'll give it my shot: (5.00 / 1) (#4)
    by steviez314 on Mon Mar 30, 2009 at 11:05:56 AM EST
    He believes (as do I) that most banks are balance sheet solvent.  GM is not even close.

    Banks are definitely cash flow solvent and make money from continuing operations.  Even in the best year in automotive history, 2006, GM lost money.

    GM's debt maturities are coming up fast, unlike banks', so something needs to be done quicker.  That's why I say that most banks can earn their way out of bad loan markdowns.

    Then why do they need bailouts? (5.00 / 3) (#5)
    by Big Tent Democrat on Mon Mar 30, 2009 at 11:10:37 AM EST
    If you are right, then cancel the Geithner Plan.

    Parent
    I believe the reason for the Geithner plan (5.00 / 1) (#12)
    by steviez314 on Mon Mar 30, 2009 at 11:18:06 AM EST
    is to free up capital for NEW lending.  With $1T of assets of the books, that creates new lending capacity of the banks of $1T.

    While I believe the banks can earn their way out of this, that takes time.  We clearly want new lending to take place in the meantime.  New capital won't come in, and without those assets off the books, new lending can't happen.

    Now, of course, new banks, well-capitalized would create new lending, but the infrastructure of deposit taking branches, loan officers, etc. is hard to replicate in the time we need to see new lending.

    Parent

    A trillion dollars to Wall Street (5.00 / 2) (#14)
    by Big Tent Democrat on Mon Mar 30, 2009 at 11:19:32 AM EST
    for new lending? What an absurd plan.

    How about a trillion dollars for a new bank?

    Parent

    Hell take one of thr banks (5.00 / 1) (#15)
    by Big Tent Democrat on Mon Mar 30, 2009 at 11:20:20 AM EST
    going into receivership and make it the vehicle for that.

    Parent
    And how exactly would you get the (5.00 / 1) (#18)
    by steviez314 on Mon Mar 30, 2009 at 11:23:32 AM EST
    Silver Star Bank of Henderson NV to lend a trillion dollars with their probably 10 loan officers?

    I mean, you can be p-o'ed at Citi and BoA all you want, but they have hundereds of loan officers who (besides doing nothing wrong) know their customers' finances and operations better than anyone, and they can make loans quickly.

    Parent

    I understand (5.00 / 1) (#19)
    by Big Tent Democrat on Mon Mar 30, 2009 at 11:25:21 AM EST
    that there is some talent available.

    Hire.

    but frankly, I was thinking more about one of the bigger banks that are insolvent.

    How about Citibank?

    Parent

    Because Wall Street is his crowd (5.00 / 6) (#10)
    by Dadler on Mon Mar 30, 2009 at 11:15:59 AM EST
    When you become part of a group, when you become one of the wealthy, when you work long and hard to get into that clique, it is too difficult and out of character for most people to want to get themselves expelled from that crowd.  Once you're in, you become it.  Obviously he has or he wouldn't be spouting nonsense about shared sacrifice, when he knows and we all know that the only people who genuinely give up anything are workers and those who don't have much to start with.  

    I do not think he has it in him to do as FDR did and proclaim that he welcomes the hatred and disdain of the wealthy and spoiled classes.  FDR was born in that group, didn't have to struggle to get into it, and as such had a much easier time telling them to take a hike.

    Bankruptcy to shed "old liabilities" (5.00 / 4) (#11)
    by lambert on Mon Mar 30, 2009 at 11:18:05 AM EST
    http://www.detnews.com/article/20090330/AUTO01/903300361/1148/rss25

    Gosh, I wonder what those "old liabilities" could be?

    Pensions, and health care? Nah. Never happen. Contracts are sacred!

    Besides, that could only give the impression that cuts to Medicare and Social Security are most definitely still on the table, and the optics of that would be just awful. There are many dimensions, perhaps as many as 11, to this chess game!

    So, I say let's calm down and wait 'til he does something. There's no story here.

    Hey! (5.00 / 6) (#17)
    by jbindc on Mon Mar 30, 2009 at 11:21:59 AM EST
    He's only been in office 67 days!  And besides, those autoworkers will be able to cling to their guns and religion to get them through the tough times.

    Parent
    Heh (none / 0) (#13)
    by Big Tent Democrat on Mon Mar 30, 2009 at 11:18:37 AM EST


    Parent
    Politics, baby (5.00 / 2) (#24)
    by jbindc on Mon Mar 30, 2009 at 11:52:49 AM EST
    Link

    Obama has been banged around the last couple of weeks because of the bonus scandal at AIG. His administration, with the help of Congress, botched the aid package to the failed insurance giant, allowing the indefensible bonuses to be paid and triggering public outrage that is increasingly focused on the White House.

    Dumping Wagoner lets Obama deflect attention away from Wall Street, where his Treasury Department is still moving through quicksand, and turn it on Detroit.

    He can portray himself as being tough on the corporate executives who are ruining America, without having to draw blood from the bankers.



    What the trillion dollar giveaway (5.00 / 4) (#25)
    by NYShooter on Mon Mar 30, 2009 at 11:53:13 AM EST
    has done is give the green light for banks to kick in the afterburners on collections and foreclosures.

    I'm a member of our city newspaper's editorial board, and the economic developement committee. There was a slowdown in collection and foreclosure activity while the bankers were coming, hat-in-hand, to Congress for the bail-out money. Now that they're getting it, they've decided to "flush out" the system and crush anyone in trouble. Now that they don't have to make money the old fashioned way, lend money, they can clear the table, re-write the rules, and re-establish themselves as "the Masters of the Universe."

    The suffering to come with continued layoffs will doom any chance for a Democratic victory in 2012, and with the mandate the Republicans will get, they'll finish the destruction of our middle class for generations to come.

    And don't be surprised if the long dormant civil unrest flairs up as quickly as did the bank's debacle.

    I think you should (none / 0) (#1)
    by TeresaInSnow2 on Mon Mar 30, 2009 at 11:00:44 AM EST
    speculate about the answer to your own last question.

    Mindset (5.00 / 1) (#7)
    by Big Tent Democrat on Mon Mar 30, 2009 at 11:11:26 AM EST
    They believe this Masters of the Universe BS.

    Parent
    Obama is an enemy of the working class (none / 0) (#20)
    by Andreas on Mon Mar 30, 2009 at 11:31:25 AM EST
    Again one can see that Talkleft does not object to the "painful concessions" demanded by Obama and the Democratic Party from workers.
    Because there are no union workers to f*ck (none / 0) (#21)
    by masslib on Mon Mar 30, 2009 at 11:38:26 AM EST
    over on Wall Street?  He wants to help GM shed those "old liabilities"?  My goodness.

    Obama Tough On Detroit, Easy On Wall Street, Part 2 | 40 comments (40 topical)

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