Wall Street have proven they have the very smartest people, time after time. Markets can go up or down - doesn't matter which - and they'll still get the largest piece of the financial pie when it's all done. Wall Street execs didn't have to prove they were in need of money, they didn't need to prove their companies were going under - the government still championed their cause. Citigroup Inc. (NYSE:C) got $300 Billion, AIG (NYSE:AIG) is at $150 Billion and counting.
Compare that with the Detroit executives, who had to plead their case and face a (largely deserved) humiliation on national t.v. The number of potential jobs lost at the Big Three auto makers is probably comparable to the Wall Street firms, and it certainly exceeds Wall Street once you factor in the ancillary jobs, yet the Big Three auto execs had to beg before Congress while Citi literally got their $300 Billion over the course of a weekend.
In the end, both the automakers and Wall Street will get their bailouts for entirely different reasons. In the case of Citi and their ilk, the off-balance-sheet transactions - including the derivatives (Credit Default Swaps) written without sufficient capital reserves will create havoc within in the markets - so it's imperative they get bailed out.
On the other hand, GM et al. have to be bailed out because there are likely many derivatives written on their debt, and the default can seriously strain the already fragile banks who underwrote the CDSs.
The bank executives, meanwhile, reward themselves with 10s of billions of dollars in bonuses - the auto executives look like paupers by comparison.
Wealth management triumphs over wealth creation yet again.
I welcome your thoughts on this matter.
Thursday, December 11, 2008
The Detroit Bailout vs. the New York Bailout
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2 comments:
Maybe Secretary of the Treasury Henry Paulson favors his own industry over the auto industry?
I wish there was a way to know what would happen if no one got a bailout.
It seems to me that the bailout is aimed at the wrong group of people. And I don't mean the wrong industry. The market has decreed "epic fail" on many companies in the financial services and automobile industries, and those companies should go. Game over for them.
The people we should bailout are the workers who are going to lose their jobs in all of this. With $700 billion, we could offer two- and four-year no-interest loans to all of these laid-off workers to go back to school and learn a new trade in a burgeoning area of the economy, like clean energy and biotechnology. The loans would cover both educational and living expenses.
Let's say three million people lose their jobs next year. That's the estimated number of jobs that will be lost if the auto makers go under. $700 billion would be $230,000 per person, with $10 billion left over (crumbling roads and bridges, anyone?), to learn a trade that will help keep America globally competitive in the years ahead. That's the kind of bailout that I as a taxpayer would be happy to get behind.
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