Monday Note

Fair or not, we Silicon Valley types maintain a low opinion of ‘Washington’, as in Congress and the Executive, the Federal Government.  The Bush years haven’t helped with a long list of offenses against liberties, science, fiscal prudence and just plain decency.  And, just when we thought we’d hit bottom, we reach a new nadir.  I’m referring to the shameful spectacle of our solons, civil (self-) servants and Detroit executives all haggling over the why, how much, when and how of the US auto industry bailout.
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But, as we say in America, Wait, There Is More! There is added indignity in a glaring difference, in the way the auto industry is singled out.  For months, we’ve seen Detroit left twisting in the recession’s ill winds.  Contrast this with the expedited Wall Street bailout – bailouts, actually, as we’ve seen one trillion after another injected into the financial system as the initial hit failed to revive the patient.
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Why the double standard?
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The simplest explanation is “nuisance power”, the speed and scope of potential damage. If Wall Street freezes up, if there is a “run on the bank”, as opposed to stocks and bonds going down in price but staying liquid, finding willing buyers and sellers, the country is thrown into chaos.  Hence the urgency, the few questions asked before forking over the trillions.  A sub-explanation of sorts is Wall Street’s presence at the heart of the Executive, Treasury Secretary Paulson is a Goldman Sachs alum, it helps.  Detroit has no such inside track.
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It wasn’t always the case.  Once upon a time, in 1953, GM’s CEO, Charles Erwin Wilson could say: “For years I thought what was good for the country was good for General Motors and vice versa”. This came after World War II, when GM produced an astonishing variety and volume of armament, vehicles and aircraft for the country.  In that context, the CEO wasn’t arrogant, he merely stated the obvious.  Then, GM was the largest corporation in the world and represented technical, managerial and financial excellence.  (Less excellent was GM’s history of Nazi sympathies and its unsavory relationship with its on-again, off-again German subsidiary, Opel, see the WW II section in Wikipedia’s GM History article.)
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Half a century later, GM is a disgraced giant, threatened and threatening with insolvency. The is a well-documented story of insularity, of running the company for shareholders instead of customers, of replacing “car guys” with accountants, of the classical incumbent’s curse, of successfully making Congress an accomplice, playing the loopholes game instead of the product game, of mild xenophobia and bad taste buds.  A recent unfortunate incident summarized GM’s (and its Detroit siblings’) lost touch: called by Congress to come to Washington and explain themselves, the CEO’s promptly jumped aboard their private jets, one each, to come and beg for billions to stay afloat.  A few weeks ago, Ford’s CEO, Alan Mulally, asked about his compensation ($21.7 million for 2007 as Ford lost $2.7 billion) calmly responded: “I think I’m OK where I am.”  Last week, things changed, the CEO’s drove up in politically correct cars and the idea of taking a symbolic $1/year salary looked really patriotic.
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But, wait a minute.  Did Detroit cause the current financial catastrophe?  No. For all its missteps, the auto industry is the victim not the cause.  Yes, GM lost its number one spot.  The company started by Kiichirō Toyoda in 1933 is now the world’s largest automaker, and a solvent one.  But all car makers saw their sales collapse, somewhere between 30% and 40% down in November.
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Going back to the “nuisance power”: other than ideologues living in their mother’s basement, or never leaving the confines of a right-wing think tank, who wants to see Detroit go bankrupt?  The economic and social disruption would be unbearable.  How many downstream job losses would a bankruptcy cause?  And, to get to the point, is Congress ready to stand accused of having stood in the way of rescue?
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We know the answer. Just as it did for Wall Street, Congress will sacrifice taxpayers’ funds in order to avoid even deeper taxpayers’ losses.  The whole charade is a disgraceful exercise in demagoguery, inflicting unnecessary pain, not upon the execs, they can take it, but on the workers, suppliers and families who, unlike Wall Street or mortgage brokers have not taken part in dirty financial games.
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As Congress passes the problem to the new administration, we’ll see if Obama’s economic team indulges in such show trials or if they display a better combination of honesty, clear-eyed pragmatism, empathy and longer-term thinking.  It’s been a while since we’ve see such a combination in Washington. –JLG
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