In September of the current year, the Secretary of the Treasury came to believe that the American economy and its banking system were on the verge of complete failure. Secretary Paulson persuaded other members of the current administration and the Congress that indeed the sky was falling on the American economy. There are any number of reasons why this has happened but it seems that, finally, profligate spending, our tax cuts of several years ago, and the wars in Iraq and Afghanistan have finally caught up with us. But no matter how you cut it, it appears that the American banking system and its economy were ready to fall off the cliff.
At that moment, the Bush administration decided that the way to fix this enormous problem was to throw money at it. I am not an economist but if they said that was the way to fix it, I said, “Let’s have at it.” Brighter minds than mine, such as Barney Frank and Chris Dodd, said that the problem was dire and maybe throwing money at it was our only hope. And so trainloads of money poured from the American Treasury and were distributed with very little oversight.
First came Wall Street with Lehman Brothers leading the way. Unfortunately, Paulson had not gotten there in time, and as a result, they went bankrupt. Next came another investment house called Bear Sterns, which asked to be saved, and the United States Treasury made an accommodation with some banks to buy out Bear Sterns. Then we were told that the giant insurance company, AIG, had to be saved or, if it failed, the results would be catastrophic to the American economy and the world’s economy. And so trainloads of cash were unloaded on AIG, which it used among other things to sponsor a trip by its executives to a spa where they lolled in pleasure for several days at the taxpayers’ expense.
The AIG disaster was followed by nine banks, which Secretary Paulson specified the leading banks in the country. He loaded a trainload of cash to take to the nine favored banks and insisted that they take $25 billion each, with the hope that they would use it to lend to other banks. Unfortunately the banks, including Chase the one that I patronize, simply did not lend the money to other banks, but rather used it to acquire failing banks in the neighborhood. And so at this point we were in the same pickle financially that we had started out from.
Then came the case of Citibank. Citibank also contended that, if it failed, other banks would also fail and the American banking system would be shot to pieces. And so Mr. Paulson made arrangements for Citibank to get large infusions of capital. When there was an inquiry about why Citibank still wanted to pay the New York Mets $400 million to have their name on the new stadium, we were told that the name would remain the same and the financial condition would not be altered. All of the foregoing deficiencies were alleviated by throwing taxpayer cash at the problem but there was no insistence that the United States government would have a deciding vote in the way the banks were to operate in the future. In effect, the investment houses and the banks and the insurance companies took the money and the taxpayers were left to hold the bag.
All of the foregoing took place in September, October, and early November. In late November and early December, 2008, it developed that the three American manufacturers of automobiles were about to drown in debt. In the case of General Motors it was believed by most people, including the United Automobile Workers, that their money would run out before the end of 2008 and that unless they received some help from the government, bankruptcy would follow. When an automobile company goes bankrupt, it will take a long string of suppliers with it into indebtedness. There are the dealers and the people who manufacture parts for the automobiles. Beyond that, if a company intends to pursue bankruptcy as a means of solving its financial difficulties, the problem that comes to the fore is that no one will buy a car from a bankrupt company.
Whereas Bear Sterns, AIG, the nine favored banks, and Citibank seemed to get their infusion of billions of dollars without problems, the automobile companies were subjected to the fires of Hell from the administration and the Congress. We are told by such stalwarts as Richard Shelby, the Senator from Alabama, and Bob Corker, the new Senator from Tennessee, that the only way to solve GM’s problem was bankruptcy. Their advice comes with a high suspicion of self-interest. In one case, Shelby from Alabama has one of the Japanese auto companies manufacturing in Alabama, which is non-union. Apparently Corker from Tennessee seems to revile unionism in all of its sizes and shapes. A cynic such as myself is only led to conclude that southern Republican Senators like Shelby and Corker are interested in having GM go into bankruptcy because that will take their union, the UAW, with them.
The fact that if the automobile companies go bankrupt, there might be as many as three million jobs lost, seems not to have entered their consciousness. What they are concerned about is their life-long effort to stamp out unionism wherever it pokes its head. I know that I am a cynic with respect to whatever those such as Corker and Shelby have in mind, but it seems to me that it is clear that bankruptcy would take the unions down with such a filing and that would please them endlessly. If I may say so, I would contend that people with that viewpoint have learned nothing. They are also the same people who have opposed granting civil rights to the descendants of slaves. When Lyndon Johnson signed the order that permitted black students to attend classes with white students and did away with segregation in eating facilities and other forms of civic accommodation, Mr. Shelby was among those who deserted the Democratic Party and became a Republican. If you want this country to return to its state prior to 1865 when Lincoln signed the Emancipation Proclamation, following in the footsteps of Richard Shelby and Corker is the way to go.
I own no stock whatsoever in any of the automobile companies, but it seems to me that they are as entitled to fair treatment as the people who run AIG, Citibank, or Bear Stearns and the rest of the people who profited from the largesse of the American government that has taken place this fall. My argument is that if there is an industry that is too big to allow to fail, it is the automobile industry of this country. When World War II loomed on the horizon, it was the automobile companies that converted their facilities to produce tanks, jeeps, weapons of all sorts, and the bombers that we flew in that war. If the automobile companies go under, that ability to defend ourselves will be lost and all of us will be the poorer therefore.
It seems to me that all the automobile companies are asking for is elementary fairness. If we can not provide elementary fairness for all of our citizens, then it must be concluded that the people who run this government should be replaced by those who share a sense of fairness for everyone.
E. E. CARR
December 7, 2008
Essay 352
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Kevin’s commentary: Part of me wishes that we’d just pulled an Iceland with the banking situation. “Sorry you made bad loans, but that’s not really our problem” would just be so satisfying. Protect savings and checking accounts and let institutions fail when they make bad decisions.