Bailout

Somebody at Sodom-on-the-Potomac has lost their pea-picking mind! Or perhaps I should say a whole lot of somebody’s have lost their collective minds! Hank Paulson demanded $700 billion to haul away the trash of JP Morgan Chase and Goldman Sachs, (being certain to inform us that we could hold a garage sale of the junk). According to their website, JP Morgan Chase has assets of $2.3 trillion, and as of December 1st will pay a dividend of 8.625% ($239.58) per share of preferred stock! Now I’ll be the first to admit that I don’t know very much about investment banking, but that hardly seems “nearly broke” or bankrupt to me! When I checked, the Goldman Sachs website didn’t say anything about current dividends, but with a few billion dollars in assets they don’t seem broke either! Interestingly enough, Paulson was the Chairman and Chief Executive Officer of Goldman Sachs just two years ago, and now as Secretary of the Treasury he wants to bail his old crony’s out of an apparently embarrassing situation.

When the subject of the investment banking bailout was first brought up, congressional conservatives rebelled. They acted as the American people demanded (at a ratio of about a hundred to one) and promptly killed the Wall Street bailout. With that, the Dow sank another 1,000 points. Then, charged with “irresponsibility” by the Wall Street elites, the GOP backed down, reversed themselves, and rescued the bailout plan. The Republican rank and file were left seething, most of the countries Democrats were understandably upset, and a lot of GOP candidates were pretty well wiped out on Nov. 4. That’s the first time I ever heard of anyone committing voluntary political suicide just to save their rich buddies from loosing a few bucks! Now we hear from Mr. Paulson that the $700 billion bailout will not be used to buy all that bad paper. Instead, some banks are using their cut of the loot to buy other banks! The American voters are quite right to be upset as we’re victims of what is probably the biggest bait-and-switch scam in political history!

Now we have yet another bailout situation playing in the aisles of Congress. The “Big Three” automakers are presently asking for something like twenty-five billion dollars in bailout funds as well, over and above the $700 billion banking bailout and the $300 and something billion in pork barrel bribes already promised. With GM, Ford, and Chrysler teetering on the brink of bankruptcy, Congress is turning a more or less cold shoulder to the pleas of Detroit. 55 percent of Americans favor federal loans to save the auto industry, 64 percent back President-elect Obama's resolve not to let the U.S. auto industry go under, 78 percent believe the U.S. auto industry is highly or extremely important, and 90 percent of Americans believe the death of the U.S. auto industry would do great damage to our economic future. So now the GOP is playing cute with this potential economic disaster! If they block these loans and the industry dies, they can forget about Ohio, Michigan and the industrial Midwest in the next election!

We bailed out the New York and D.C. city governments. We bailed out Mexico. We bailed out public schools that have been failing us for 40 years. We bailed out (thru the IMF and World Bank) assorted Third World regimes. We bail out Wall Street elites and big banks. But now the GOP “questions” the value of saving the US auto industry, the showpiece of American industrial capability and the envy of the world?! If we consider all the workers, execs, engineers, dealers, salesmen and suppliers, the Big Three employ 3 million people who contribute $21 billion a year to Social Security and Medicare, and another $25 billion in federal income taxes. Include all the nations businesses that are auto industry dependant, and we’re talking about one-tenth of the U.S. labor force (roughly another 20 million people), potentially out of work. There are another 850,000 retirees and their families depending on pensions and health care plans from the Big Three. We’re already in the ballpark of having 7 to 8 percent of our working population unemployed, and if those three companies go under we could expect to see nearly twenty percent of our nation’s workers unemployed. The monetary burden of that would fall on our shoulders, and our already strained pocketbooks. It’s not a pretty picture.

Harvard economics Professor Martin Feldstein says that bankruptcy might be needed for GM to get out of its present union contracts and become more competitive. Making U.S. automakers competitive again “is going to require restructuring the wages and benefits they pay to auto workers,” he claims, “Whether that happens in bankruptcy or it’s done in another managed program, that has to happen.” Understandable I think, but I can just imagine what the United Auto Workers will have to say about that! For years, wages (and prices) have skyrocketed in this country or so it seems, and union demands have borne the brunt of the blame for that problem. But are we being fair in blaming the unions? Obviously American workers want the best deal they can get, and can hardly be faulted for that. Of course if they get a pay raise it will be passed along to the consumer in the form of increased prices, and John Q. Consumer, not getting a comparable pay raise, can be expected to be just a bit upset with the union. But don’t overlook executives’ paychecks and perks, the middleman, and the salesman’s commission either. Jumping into all this is government who promptly increased the income tax on the workers wages and the sales tax on the product as well.

A recession is defined as "a significant decline in economic activity spread across the economy, lasting more than a few months. A sustained recession may become a “depression” which is defined as a period of diminished economic output with at least one year where output is 20% below the trend. An economic collapse is a devastating breakdown of a national, regional, or territorial economy, and is essentially a severe depression often quickly followed by months, years, or even decades of depression, social breakdown and civil unrest. That’s what happened to the USSR in 1990. Recessions and depressions fall soonest (and hardest) on rural areas where farming, mining, and logging are the primary occupations. By the time a collapse occures the ruralites really aren’t effected very much, as they’re already destitute. (Sound familiar?) Proponents of letting the Big Three go bankrupt are using the line "If our guys can't hack it, let 'em go." They are prepared to write America off as a major industrial nation, allowing globalization to make us little more than a consumer of Asian industrial products, mid-eastern oil, and probably South American agricultural products. Of course they don’t mention how we’re going to pay for those products we’re supposed to consume, particularly if Americans are out of work. By that time we wouldn’t even qualify as a forth world country, and Americans would be immigrating to Africa in the hopes of finding a better life!

Talk about redistributing the wealth!