 |
 |
 |
 |
 |
|
Notes and cases for:
Links: local area political directory
|
Editorial
(11/15/08) "…, the U.S. automotive industry has been on the wrong side of almost every environmental, social and safety issue since the 1960s. The industry objected to the Clean Air Act, publicly opposed fuel economy standards, fought against seat belt and air bag legislation, dragged its feet on alternative-fuel vehicles and lobbied against almost every socially responsible initiative. Exactly why would the public want to bail out an industry that has failed in the market and been so unresponsive to the public good?" Point well taken, on one hand. But on another: did the financial sector undergo examination as to how responsive it had been to "the public good?" Has that ever been a major criterion in any government bailout? The major question has been is it too big to fail. Will the failure of an individual firm or firms result in significant unemployment and will the damage spread to other firms, other geographical areas, etc. The banking industry and the entire finance sector lobbied against regulations passed during the New Deal (and earlier) for decades. This culminated in the passage of Gramm Leach Bliley, which reversed Glass Steagal in 1999 and the passage of the Commodities Futures Modernization Act in 2000. As is by now rather widely understood, this sustained attack on regulation brought speculation back to "the street" big time. Take
credit default swaps, for example. These are a type of derivative
based on a side bet, as to whether a debt will be paid. They have
been little discussed in the media, but were covered in two Sixty
Minutes segments aired on October 5 and October 26 of this year.
After subprime and other mortgages were chopped up and then bundled
into exotic financial instruments, credit default swaps were sold
to the purchasers, as a backup to the supposed value of those instruments.
100 years ago, there were what were known as "bucket shops," where people could go to bet on whether stocks would go up or down, without having to actually own the stocks. These figured in the recession of 1907 and were afterwards outlawed by state governments. They remained illegal until passage of the Commodities Futures Modernization Act of 2000. In the eight years since then, the credit default swap market has grown to the staggering total of $50-60 trillion, thus dwarfing US GDP by a factor of at least four. If
any of this establishes a closer relationship of the financial sector
to the Public Good than the lobbying of the auto industry to avoid
regulation, I'd certainly like to hear about it. The financial titans
gambled away, considering little but their own desire to make loads
of money and the auto titans squeezed what they could from what
they could get the public to buy, having observed way back in the
1920s that the market was saturated at the size it was then, necessitating
the sale of mostly replacements (as opposed to selling to first
time buyers.). What's the difference between auto and finance, on
that score? In
the short run, it is difficult to justify saying no to auto, after
having thrown almost $300 billion out of the allocated $750 billion
finance bailout at the credit crisis. That is, if equity and fairness
have anything to do with it. The critics say that auto will be back
for more inside of two years, and it doesn't look as though the
fix is working on the finance bailout either. And, if auto gets
its bailout, what about steel, and, in fact, what about an entire
range of industries. Certainly, Washington may act at times as though the funds in the treasury were somehow limitless, while borrowing to cover the wars, while other costs are carried ever onward. That, of course, includes even the other costs of the Pentagon, for procurement, maintenance of the armed forces, maintenance of more than 700 bases around the world, etc. The question we need to ask ourselves is simple: how much of all that really has anything to do with our security and how much of it has only to do with already failing military Keynesiansim. Now that the safety net has been shredded beyond recognition and beyond comparison with any other industrial country, where else by the military economy can we cut? The global economy is also in recession. The Eurozone, as of 11/14/08 is officially so. China, Japan, and the rest of the far east are not doing so very well, either. The time is no doubt coming when borrowing from abroad will no longer be possible. Then what? That day will come whether we bail out auto or not. The finance bailout may speed up its arrival some, but the auto bailout by itself will not have much of an effect. The
question of the treasury and how long this world credit line it
keeps resorting to will last will not go away. Nor will certain
other questions we don't seem to be able to answer. When will we
actually do something about climate change, what kind of energy
will we have and how much of it willl we have/need, how can we deal
with conflict without destroying ourselves? There will be a day
of reckoning, and the time to push very hard for a solution to some,
if not all of these questions, has surely already arrived. The sun
set on the day for politicians well back, and it's already past
noon on the day for actual statesmen and for real citizens. Comments and questions should be forwarded to information
|