It is in fact very difficult to see any policy reason why the Obama administration feels more need to run the auto industry than the financial industry. After all, it was the greed and incompetence of Wall Street that is most immediately responsible for the devastation in Detroit.
The Big Three’s executives have committed many sins over the years, but General Motors and Chrysler would not be facing bankruptcy right now if it were not for this economic collapse. This is important to remember, and in my view provides most of the rationale for the bailout. Even Toyota and Honda, which are generally viewed as the world’s top car companies, have seen their sales drop by more than 30% compared with a year ago.
Because it was the bankers who wrecked the auto industry, it makes it especially difficult to stomach a situation in which Detroit gets micromanaged while the Wall Street crew continues to do business as usual. This is especially galling because pay scales on Wall Street are so vastly out of line with compensation elsewhere in the country.
Many pundits have expressed outrage over the fact that United Auto Workers members get paid $57,000 a year. The top Wall Street brass can earn more than 1,000 times as much.
Even worse, the Obama administration’s latest plan for dealing with toxic assets will reinforce these pay patterns. By subsidizing the purchase of these assets, banks will be able to substantially reduce the losses that they have incurred, in effect having the government directly pick up their bad bets. In addition, some investors will be able to take advantage of the taxpayers’ generosity to make large sums on assets that they might have purchased even without the subsidy. We may see some of the hedge and equity fund folks clear hundreds of millions or even billions at the taxpayers’ expense.
It would be interesting to hear an explanation from the administration for the difference in its treatment of the auto industry and the banks other than the fact that the banks have more political power. It is not clear what such an explanation would look like.
– This article was published on April 2, 2009.