America has two auto industries. The one represented by GM, Ford and Chrysler is Midwestern, unionized, burdened with massive obligations to retirees, and shackled to marketing and product strategies that have roots reaching back to the early 1900s.
The other American auto industry is largely Southern and non-union, owes relatively little to the few retirees it has, and enjoys a variety of advantages because its Japanese, European and Korean owners launched operations in this country relatively recently.
The question isn't whether Washington is willing to offer more public money to help auto companies survive.
There even appears to be a consensus on how much: Up to $50 billion.
The tougher question is: what's Washington's goal?
From the archive:
In July 1968, the Republicans knew they were in trouble, but they didn't know why. Ideas apparently mattered, and words were maybe more important than they had guessed; unfortunately, they didn't have any.
Having exchanged intellectual curiosity for ideological certainty, they had forfeited their powers of observation as well as their senses of humor.
"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."
If today we are shocked by shenanigans like the Enron debacle, insider trading, mutual fund abuses and the prevalence of special interests in politics, we need to get some perspective on our history.
The era that defined Wall Street is finally, officially over.
There’s a long list of people who now say they saw it coming all along but a far shorter one of people who actually did. Of those, even fewer had the nerve to bet on their vision. It’s not easy to stand apart from mass hysteria—to believe that most of what’s in the financial news is wrong or distorted, to believe that most important financial people are either lying or deluded—without actually being insane. A handful of people had been inside the black box, understood how it worked, and bet on it blowing up. At the top of a very short list was Steve Eisman.
The funny thing, looking back on it, is how long it took for even someone who predicted the disaster to grasp its root causes. They were learning about this on the fly, shorting the bonds and then trying to figure out what they had done. Eisman knew subprime lenders could be scumbags. What he underestimated was the total unabashed complicity of the upper class of American capitalism.
From the archive:
We are willingly part of a world designed for the convenience of what Shakespeare called “the visible God”: money. When I say we have jobs, I mean that we find in them our home, our sense of being grounded in the world, grounded in a vast social and economic order. It is a spectacularly complex, even breathtaking, order, and it has two enormous and related problems. First, it seems to be largely responsible for the destruction of the natural world. Second, it has the strong tendency to reduce the human beings inhabiting it to two functions, working and consuming. It tends to hollow us out.
Also:
People say to me, "Whatever it takes." I tell them, It's going to take everything.
This hunt for scapegoats is futile. To understand the downfall of Planet Finance, you need to take several steps back and locate this crisis in the long run of financial history. Only then will you see that we have all played a part.
This crisis is about much more than just the stock market. It needs to be understood as a fundamental breakdown of the entire financial system, extending from the monetary-and-banking system through the bond market, the stock market, the insurance market, and the real-estate market. It affects not only established financial institutions such as investment banks but also relatively novel ones such as hedge funds. It is global in scope and unfathomable in scale.
The key point is to appreciate why the quants were so wrong.
But what about the rest of us, the rank-and-file members of the deluded crowd? Well, we shall now have to question some of our most deeply rooted assumptions—not only about the benefits of paper money but also about the rationale of the property-owning democracy itself.
From one year ago, here is Nassim Nicholas Taleb:
Many hedge fund managers ... are just picking up pennies in front of a steamroller. And sometimes the steamroller accelerates.
"It was one of those things where it pops up on your screen and your jaw drops."
Lawmakers are considering legislation to undo the change, but several aides said they were still torn between their belief that the change is illegal and fear of further destabilizing the economy.
"None of us wants to be blamed for ruining these mergers and creating a new Great Depression," one said.
The Great American Housing Market Nightmare: The Next Phase
Topic: Business
7:34 pm EST, Nov 11, 2008
The end of the decline in home prices will come only when there are no new economic forces driving them down.
When will that be? I'd love to say it's just around the corner. But everything I see tells me that, despite the sharp declines already recorded, a steeper plunge in home values is dead ahead.
Already, in 2008, one in ten American homeowners has defaulted on their mortgage or lost their home in foreclosure. Nearly four in ten owe more than their home is worth.
And all this is before the recession deepens and before we experience the next phase of the Great American Housing Nightmare.
The International Monetary Fund is establishing a new credit facility that allows financially sound periphery countries to borrow without any conditions up to five times their annual quota, but that is too little too late. A much larger pool of money is needed to reassure markets. And if the top tier of periphery countries is saved, what happens to the lower-tier countries? The race to save the international financial system is still ongoing. Even if it is successful, consumers, investors, and businesses are undergoing a traumatic experience whose full impact on global economic activity is yet to be felt. A deep recession is now inevitable and the possibility of a depression cannot be ruled out. When I predicted earlier this year that we were facing the worst financial crisis since the 1930s, I did not anticipate that conditions would deteriorate so badly.
From late September:
A brave man would see catharsis in all this misery; a wise man would not be so hasty.
From January:
There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle.
Two pressing problems face the world: economic meltdown and global warming. Conveniently, a solution presents itself that apparently solves both: governments should invest heavily in green technology, thus boosting demand while transforming the energy business.
Just as military spending at the end of the 1930s defeated both fascism and the Depression, so spending on fighting climate change should both wean mankind off fossil fuels and avert what might otherwise turn into the most serious downturn since the 1930s. Isn’t that neat?
It seems loopy that the cure for a disaster caused by a headlong dash in the direction of ever freer capital markets should be even freer capital markets; but that is part of Robert Shiller’s point. When it comes to the free global movement of capital, there is no plan B.
That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function.
