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Posted by on Dec 12, 2008 in Politics | 18 comments

The Real Failure of the Auto Bailout That Wasn’t

I turned 40 in 2005. The resulting ‘midlife crisis’ was remarkably subdued. I didn’t buy a fancy sports car. I didn’t cheat on my wife. I didn’t join a rock band. I didn’t start drinking more or visiting casinos every night.

I did, however, attempt to write a book. In fact, I completed a draft of 200-some-odd pages; a treatise on re-imagining the practice of public relations, my profession of 20 years. In those pages, I proposed a transformation of public relations, moving the trade away from its manipulative origins (reference Larry Tye’s biography of Edward Bernays, “The Father of Spin”) toward a new focus on the careful, studied, substantive improvement of public relationships.

After a couple months shopping the manuscript, I gave up on it and wrote an essay, summarizing the premise, with the intent of serializing the book. That first essay was eventually published online by the Public Relations Society of America. But by that point, I had tired of the exercise and started to think more about something a friend and colleague suggested after he read the book’s manuscript. He said the ideas in that manuscript might have less to do with the PR profession, more to do with the range of human conduct in the public square.

His suggestion intrigued me and led me, in early 2006, to revisit my abiding interest in politics — right around the time a majority of the electorate decided to stop its six-year habit of hitting the snooze button on our national alarm clock and wake up. By April 2006, I attempted to give voice to this post-slumber consciousness in an op-ed in our hometown paper, wherein, among other things, I confessed the following:

… I’ve joined an expanding universe of stranded souls, a disenchanted majority that our nation’s leaders might better appreciate if they stopped lecturing professional ballplayers and tapped into the blogosphere or tuned into a few radio talk shows.

What drives this disenchanted majority? Our distaste for both parties’ collective pandering to the far ends of the ideological spectrum. We stand at neither end of that spectrum. We are not entirely for, nor are we entirely against, the war in Iraq or immigration reform or warrantless wiretapping or any of the other issues that dominate political discourse.

Instead, we stand for reasonable dialogue about productive solutions to a complex world; solutions that, if history teaches us anything, will require compromise between the extreme right and extreme left.

While I’ve broken-record repeated those themes ever since, I was still mildly surprised this morning to realize that — despite often feeling lost and alienated and politically indecisive; despite a constant sense of vertigo caused by incessant flips and flops on various issues — at least one fundamental conviction has endured for two-plus years, namely: The answers to our challenges will consistently be discovered in a smart blend of ideas from left and right, north and south.

In turn, that conviction led to anger, later in the morning, as I read about the Senate’s failure to reach an agreement on how to save the jobs threatened by the potentially imminent collapse of GM and Chrysler.

Like many Americans, I’m opposed to a blank-check approach to this conundrum. But there are (at least) a million-and-one alternatives between a blank-check approach and doing nothing — which is precisely why I find reports like this one infuriating:

Minority Leader Mitch McConnell (R-Ky.), who has auto plants in his state, has been torn between the warring factions of his party. He had waited until Thursday to announce his opposition to the bill, then later embraced a proposal by Sen. Bob Corker (R-Tenn.) to beef up the administration bill by setting out specific steps for bondholders and labor to take to slash General Motors’ debt and operating costs by the end of March or see the company go into bankruptcy.

Republicans had hoped to use the Corker proposal to deflect blame that they had no viable alternative …

But Republicans failed to rally around the Corker plan until late Thursday, preventing them from properly explaining it to the public. McConnell dispatched Corker to find a bipartisan solution with Democrats, but the talks stretched through the night, and Corker ultimately failed to sell a revised plan to the GOP caucus.

Now, read that excerpt again.

On the one hand, Corker’s proposal — “to beef up the administration bill by setting out specific steps for bondholders and labor to take to slash General Motors’ debt and operating costs by the end of March or see the company go into bankruptcy” — seems damn smart; one of those million-and-one alternatives between blank-check or nothing. But then, we learn that: McConnell “waited until Thursday to announce his opposition to the [bailout] bill” and back Corker’s proposal. The GOP “failed to rally around the Corker plan until late Thursday.” McConnell sent Corker in to the Democratic Caucus, apparently alone and at the last minute, “to find a bipartisan solution.” Corker subsequently “failed to sell a revised plan to the GOP caucus.”

If accurate, this snapshot makes it clear that the real failure behind the larger failure was not a failure of proposals or principles or imagination, but of negligence, which no amount of rhetoric about bipartisan compromise can defeat.

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Copyright 2008 The Moderate Voice
  • Kathryn

    With the passing of the election, I have become a CNBC junkie. It isn’t perfect, but far preferable to the inanity on political cable. The disconnect between Washington and the real world is completely mind-boggling. If it was a simple case of McConnell, Corker and the other Southern Republicans wanting to protect Toyota and Honda, I would be upset, but I could understand. But Toyota and Honda are going to take a huge hit as well. In some ways, this is beyond negligence but almost a case of sabotage.

  • DLS

    ??? Pete, are you actually upset because there was no bailout, the last thing people should be conceiving, much less assuming ever would happen? I would not describe this as negligence, but indeed, politics, and perhaps ascribe the pettiness of some Republicans’ last-minute stances also to general GOP dysfuncationality. But there is no grand negative conclusion “for failure to bail out Detroit” to be made here. A federal bailout of Detroit should be the last thing on any American’s mind (and that of anyone outside the USA, indeed). About the only thing that can be noted here that casts an honestly negative light on the GOP is the party’s current dysfunctionality, not any sadness to anger over the failure to bail out Detroit (for whom the knowledgeable have no sympathy whatsoever — any bailout is begrudging, not meant to save them but to prevent more problems with the economy in general, instead).

  • jeff_pickens

    Pete, don’t give up on your book. It’s a worthy 40-year-old endeavor!

    I’m reading “The Drunkard’s Walk,” and in it Leonard Mlodinow describes how JK Rowling’s first attempts at publishing Harry Potter were rejected (I think) 9 times.

    Life seems to happen to us serendipitously probably more than we realize.

    When it’s published, let us know!

  • DLS

    “In some ways, this is beyond negligence but almost a case of sabotage.”

    Or deliberate destruction. Detroit deserves nothing from Washington, but either Corker or Shelby was out of line when one or the other said something during Congressional business, something like “They [Detroit Three and UAW] need to die [go bankrupt and reorganize]” or something to that effect. (I’m disappointed the media didn’t seize this issue and do a better job reporting and commenting on it.)

  • DLS

    Also, please consider, for a moment (now that it is _momentarily_ appropriate) the bailout of Wall Street (not that it justifies more improper bailouts — it does _not_ — but to learn from past experience, instead). The first round, some Republicans took the mainstream American and sensible position and rejected the bailout. But the second round, with “sweeteners” added (that is, extra expenses that benefited Republicans and their localities), saw the passage of a bailout bill.

    Wait and see. Even with “bailout fatigue” (normal people have been opposed to all bailouts, all the time, actually), there is a likelihood that something will be done in order to prevent the economy from getting in even worse shape. (Even the Bush administration is willing to accept something being done.)


    “Clearly, it’ll be on their heads … It passed the House, and Democrats in the Senate and the White House are on the same page. They’re [the Senate Republicans are] the odd person out here. It will be on their shoulders if it doesn’t go forward.”

  • Marlowecan

    Okay, to be contrarian, I would ask you: What is in this for the Republicans?


    (1) The UAW is FIERCELY anti-Republican, donates massively to Democratic candidates, and even managed to get election day off in their contracts so they can campaign actively for Democratic candidates.

    (2) The Republicans will be damned either way on this bailout…by folks here…by the Democrats in general.

    “Clearly, it’ll be on their heads … They’re [the Senate Republicans are] the odd person out here”
    Rubbish (and, not surprisingly, the views of a Democrat).

    Recall how, in November, the Democratic Party not only blamed Republicans for delaying the Wall St. bail-out . . . but then individual Democratic candidates (such as liberal darlings like Franken) proceeded to trumpet their own opposition to any bail-out in order to attack GOP candidates.

    Bizarrely, the Democrats managed to have their cake and eat it too — attacking Republicans for not voting for the bail-out…then attacking Republicans for voting for the bail-out.

    Look…if the Republicans bail-out the UAW and ensure their jobs are protected etc. . . . as sure as God made little green apples, in the next election cycle the UAW will be bitterly attacking the Republicans, while numerous Democratic candidates will be claiming in outraged tones that they would NEVER EVER have bailed out the Big Three.

    Democrats will benefit either way. There is no upside for Republicans.

    So why vote against their ideological inclinations, and the views of many if not most of their constituents…so that they can be the UAW and the Democrat’s pinata the next election?

  • Guest

    Marlowecan — Good points, as always. Your constructive input is … helpful and daunting at the same time.

    I don’t disagree — and perhaps this was, after all, a failure of negligence in both parties, not just among the Republicans, an argument I considered when I first authored the post, but didn’t work into the mix because I couldn’t figure out how to make the point both fairly and succinctly. And that, on my part, is a failure of laziness.

    • Marlowecan

      PeteAbel said: “helpful and daunting”

      Daunting?! Hahahahaha…

      You know, Pete, I actually suspect most of the population…right and left…is on the same side.

      People (if not the politicians) want to take care of the workers, who are facing hardship, and often through no fault of their own.
      And they somehow want the people in the big chairs with the big compensation…who have made many of the bad decisions that have brought things to this end…punished.

      Personally, I don’t think either will happen.

      I am a devotee of the cult British show “Top Gear” and note how American cars are routinely, even fervently, dismissed by Clarkson and his compatriots. . .for shoddy design, bad workmanship, worse performance etc.
      One sees some of the models rolling out in the Auto Shows, and one reflects: “What were they thinking?”

      If no one is punished, how will anyone learn?

      • mikkel

        Yes if there’s anything that is becoming obvious, it is that the common wisdom is way out of line. I’m reading a lot of conservatives that are for letting large companies fail and that the government should take on the pension plans and extend unemployment insurance and provide retraining. Their point is that demand is going to stay depressed so it is better to cut off companies now and repurpose workers.

        Now I have to say that I am skeptical if it’s that easy, but at least they are making macroeconomic sense. I don’t know why that line of thought isn’t reaching up into the Republican party.

        On the flip side, I don’t understand why Democrats are going on and on about helping to save the worker when all that the bailouts are doing is providing cover for massive layoffs. You would think that the conservative position I just mentioned would be very much embraced by them…and the only reason why a lot of self described liberals aren’t for letting things fail is that they are convinced that politicians won’t help all the workers facing hardship.

        Really I see very little difference between the positions of “the people” for the most part.

    • mikkel

      No Pete, for the content of the post it is definitely just on the Republicans…even if the outcome is correct. If you actually read the negotiations that were going on the Republicans look extremely petty and putting politics against the national good. After all, Marlowe’s points are all political in nature and not about what is “best for the country.” I mean the professed reason for not voting on the bill is because they wanted the union to cut salary within a year, not two. What kind of messed up reason is that for “destroying the country.”

      The problem is that the Republican party is in shambles because they have been reduced to just ideological truisms and offer no vision. The problem with the Democrats is that their vision doesn’t really help address the real problems. That’s why I say most of this is on Republicans, because they aren’t providing a good sparring partner at all.

      The problem with both is that they are still looking at everything in terms of politics.

      This is why Paulson is basically King who decides singlehandedly who lives and dies. I’m glad that from what I’ve read about Obama’s team, they recognize that there is no magical savior plan and are just looking into transitional programs that recognize this fact.

  • Marlowecan

    Also, how does the bail-out hope to correct the appalling management problems at the Big Three?

    The workers benefits may be higher than those at Toyota etc. … but it is senior management, particularly at GM, that have really screwed the pooch.
    In effect, workers will take cuts in pay, but the lunatics will still be in charge of the asylum in their corporate jets.

    I notice today how AIG has cancelled its year-end bonuses…but plans on spending staggering sums on “retention” payments.
    In effect…taking taxpayers’ money…then going: SUCKERS!

    And people wonder why there is opposition to more bail-outs?!

  • Kathryn

    Top Gear (I’m a huge fan of it as well) has been spot on about the lack of quality coming out of Detroit, however, in the past year there has been some quiet improvements, I believe that the JP Power awards went to some domestic models. The timing of the financial crisis seems to have hit them while they have be trying to turn things around. So it looks like Wall Street, who got us into this mess gets buckets of money without any oversight while Detroit burns. I can understand the moral hazard argument against Detroit, but it would then apply to Wall Street as well.

  • Guest

    Kathryn wrote: “… it looks like Wall Street, who got us into this mess gets buckets of money without any oversight while Detroit burns. I can understand the moral hazard argument against Detroit, but it would then apply to Wall Street as well.”

    An excellent point on a terribly cruel irony.

  • Marlowecan

    Kathryn said: “So it looks like Wall Street, who got us into this mess gets buckets of money without any oversight while Detroit burns. I can understand the moral hazard argument against Detroit, but it would then apply to Wall Street as well.”

    Very true. Plus, of course, Wall Street got a lot more money than the Big Three will get.
    Of course, the hangover from the Wall Street bail-out is poisoning the public well for this bail-out.

    Mikkel, you are right that my “points are all political in nature and not about what is “best for the country.” ”
    But then, that is how the Republicans are seeing it, after the hammering they took in November…having done what was “best for the country” and then gotten nailed by Franken and other Democrats for it.
    There is something of the “Fool me once, shame on you. Fool me twice, shame on me.” in their foot-dragging here.

    I truly wish President-elect Obama and his team all the best in the next year in cleaning up this economic disaster area.

    In this regard: I have not seen anyone else comment on this here (though perhaps they have) but: Where is the money coming from?

    The debt is bad as it is. The bail-outs will add to it. The Democrats will want to pass some of their social program. But the Chinese are no longer willing, or able, to support the US debt.

    Where will all the money come from?

    • mikkel

      That is a complicated answer. A lot of it is still coming from the Chinese and increasingly even domestic demand for bonds, however a lot of it is just being created from nothing.

      Essentially since our currency is debt backed, then they can simply replace destroyed debt with new money and things even out. The problem I see is what happens when the spiral has stopped going down. Due to fractional reserve lending, all money can be leveraged up to 10-12x when making loans (if you’re just talking about traditional banking). Right now there is $55 trillion of debt built on $5 trillion of “money.” If say 20% of that debt goes bad and is replaced with money, then there will be $15 trillion of money, and that will support $150 trillion of debt. This would cause rampant inflation and collapse of the currency.

      So the Fed’s plan is to decide when it is safe to take the money back and disappear it by selling banks treasuries. But if they do it too early it will just cause deflation again, so they are more likely to wait…increasing the risk of an inflation meltdown.

      Also, something that the monetarist view overlooks is that just creating money doesn’t create credit worthy borrowers…so that’s why even though they are rapidly creating money out of thin air we are still seeing deflation. I’m not sure they have an answer for that except for massive government spending.

      The way that Paul Krugman describes it is that in a deflationary environment the government can get a “free lunch” by just making money to replace malinvestment and investing it in good things. I am skeptical that this will actually work in practice and the bigger problem is actually the trade imbalances. We can do as much magical manipulation as we want but as long as consumption is greater than production things will fail. Even Krugman is starting to accept the possibility that things will get worse faster than the government could hope to intervene because Germany and China won’t play ball (and Japan doesn’t know how)…China just devalued their currency to try and keep exports up. In effect without massive coordination we are going to have another depression and so far that coordination is failing because no one wants to accept a decrease in lifestyle….even though the whole problem is a result of unsustainable lifestyle.

      • Marlowecan


        An interesting…if rather bleak…assessment.

        Just one point that struck me: I noticed you did not mention increased taxation at all in your analysis.

        This would seem to be a logical avenue to address the debt issue facing the United States.
        (I note that Barney Frank floated the idea that there would have to be increased taxes, if not next year, in the year following).

        Is there a reason why you did not reference taxation as a potential, if partial, solution?

        • mikkel

          Increased taxation drives down demand. In a deflationary environment where there is a glut of goods and people are rushing to save cash, this is the very last thing you want to do. In 1936-1937 there was a major recession because FDR raised tax rates trying to pay off some of the debt.

          That said, it really comes down to how capital is utilized. The problem definitely isn’t lack of investment, so there is little theoretical reason to keeps rates on the upper tax brackets low. It would be better to tax the rich at a much higher rate and then use it to pay down debt or stimulate the economy than it is to let it build up where it is going to get stored away somewhere.

          Of course there are two caveats on that: first of all, like Kathryn points out they are storing it away in treasury bonds, so in effect that still allows stimulus. Secondly, most wealth of the upper class is from investments and not wages, and it’s investments that tank in deflation the most. Increasing taxes isn’t a solution because there is going to be very little revenue from them. In fact large swaths of million/billionaires will become bankrupt and lose everything because they are as leveraged as everyone else. It’s already starting to pop up here and there. This is why the Great Depression was a great equalizer. The wealth disparity we have now was only matched by the late 20s, but when there was deflation most of the wealthy lost everything as well and at the end of the depression we had the lowest disparity in our country’s history. I’m one of those that takes the view that this was a major factor in the 50s-60s “middle class paradise” phenomenon.

          To take a more cynical view, leaders prefer inflation because in an inflationary environment investments gain value faster than wages and thus it causes more concentration among the wealthy. The old adage is that in inflation the workers lose, and in deflation everyone loses. Of course I don’t think that’s accurate at all because it assumes everyone is reckless. The reality is that deflation makes people that live within their means and have savings (whether they have $100 million or $30k) much richer while everyone that lived primarily on debt lose everything.

          On the macroeconomic scale though things are a bit reversed. There the major creditor nations have a really hard time if their debts are defaulted, while the debtor nations are OK except for things that are imported. If we could be self sufficient when it came to energy and microchips, then we’d actually suffer relatively little if we did default. This is what happened in Europe (UK, France etc.) during the Depression, but is overlooked because Germany had the exact wrong approach of trying to inflate and that led to the collapse of the Weimar Republic.

          Here is a link that explains how building up domestic infrastructure is key and why tariffs are going to be reinstated.
          Here is a link about the general problem.

          Of course as the second link points out: “The beggar-my-neighbour policy is for countries with huge external surpluses to allow a collapse in domestic demand.” which is where the US was in the 1930s. Where we are NOW, raising taxes in an effort to decrease consumption is not necessarily bad macroeconomic policy, but it would cause massive damage to the domestic economy and I’m not sure that it is politically feasible. This is why it’s so important to develop a cohesive strategy: what is “good” if you’re trying to avoid a huge recession is the opposite of what is good if you’re trying to rebalance trade, but if you don’t rebalance trade it guarantees mass calamity. The question is then: are we just in a period where the problems aren’t that big and stimulating domestic demand is enough to reboot the economy and then we could “tackle trade” (somehow) or shall we accept failure of the current trade regime and work on paying off/renegotiating the debt so we don’t become like the Weimar Republic?

  • Kathryn

    Mikkel and Marlowecan, you are bringing up important points that underscore just how difficult this issue will be to solve, one very small silver lining however, I believe T-bills are at 0 right now due to the massive flight to safety. While this shows an appalling lack of confidence, it does mean we (the government) is borrowing money at no cost. Is this a drop in the bucket, most likely, still it’s better then nothing.

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