Well it’s going to be another exciting week or two. Something has to be done with GM and Chrysler, not to mention a couple of banks that have more assets than many countries.
Barry Ritholtz applauds the option of exploring a prepackaged bankruptcy for autos and asks why not for banks?
Yves Smith counters that bankruptcy for autos won’t be pretty and could unravel beyond government projections. She doesn’t give an opinion about whether she favors it or not (I personally favor bankruptcy even while expecting it to go horribly awry and requiring programs to help affected workers).
Yves also talks about something very important, which is that the rebranding attempt to treat nationalization like FDIC takeovers isn’t accurate. While I agree with Michael that nationalization has a needlessly dirty connotation considering that we do it already, Citi and BOA are completely different beasts.
Also I want to toot my horn a little bit and point back to three posts I wrote back in the fall before I was officially signed on. My take on the root of the crisis, what I think the challenges in responding are and what to do on a personal level. So far I have to say that the events since then have basically reaffirmed my general outlook (although deflationary forces have been stronger than I anticipated) and I re-read them with sad bemusement that officialdom is still so far behind. Anyway it lays out the general hypothesis I hold and gives my day to day posts context plus envisions what may happen if the government intervention actually starts working.
Fact Check: America does still make stuff, and is #1 in manufacturing. I’ve seen people point to this over the last year or so but I have a devil’s advocate position. Yes we have the most value, but look at what we make: weapons, planes, manufacturing equipment, agricultural industrial products and design (not a product itself but still very important). In essence those are primarily things that we make and sell to other countries so they can make stuff to sell back to us. Now that we aren’t buying, they don’t need to buy our stuff either. So what looks like a good counter argument to the “we don’t make stuff” line, actually doesn’t address the real concern which is “we don’t make products to be self sustainable.” Indeed, as the article mentions: “Thirty years ago, U.S. producers made 80 percent of what the country consumed, according to the Manufacturers Alliance/MAPI, an industry trade group. Now it is about 65 percent.”” This specialization of trade and creation of manufacturing hubs is what has led to much of the worldwide increase in living standards, but also is what has made the world more interconnected (this work is what won Paul Krugman the Nobel Prize by the way) and more vulnerable to shock. In essence, I believe that free trade simultaneously increase living standards and the risk of economic collapse…but that’s a systems theorist point of view that hasn’t been explored by economists.
The economic crisis is fueling graffiti. I find it interesting how stuff enters popular consciousness at extremes and can be good contrary indicators during cyclical cycles. However when things don’t change they can presage the start of a secular cycle that changes mood for decades.