The American Freedom Network

The Chevy and the Derivative

(Yes, that’s a play on Flat-Earth Friedman’s, “The Olive Tree and the Lexus” of late-1990s fame.)  I’m writing to contrast the bailouts given to Bear Stearns, AIG, Fannei, Freddie, and now CitiBank, along with others we don’t even know about, versus the loan guarantees sought by GM and Chrysler.  (Ford, for the record, only asked for a line of credit, not an actual loan.)
I oppose, in principle, any government intervention in the marketplace, and I don’t support subsidizing failure.  But I must ask, if we are going to give aid to private industry, which is worse – to co-sign loans for car companies that make actual things, like the Chevy in my garage, or to give money away to hedge-fund mavens, junk bond traders, and the whole raft of Masters of the Universe whose companies made a killing playing with what Warren Buffet called “Weapons of mass financial destruction”?  (The locked-up credit markets are the last straw for the Detroit automakers, who already labored under a heavy yoke of their own making.)  The auto companies employ blue-collar Joes and Janes, paid the best wages in  the world for the kind of work they do; the banks employ people who went to Ivy league schools and who pull down many times more than those Joes and Janes make.  CEO pay is much higher on Wall Street than in the Motor City, too.  Yet, when the banks go down, they’re ‘too big to fail,’ and their ex-employees at treasury and the Fed rescue them; when the auto execs come, hat in hand, for a loan, they get dissed and lectured on good business practices by spendthrift Senators, who enabled the financial meltdown by loosening oversight rules, encouraging subprime loans, and who had their palms greased by those same institutions they were supposed to be watching – Fannie and Freddie, government monopolies, both – most of all.
Mind you, I oppose bailouts.  My beef is with saving investment bankers while simultaneously telling automakers to drop dead.  They make things.  Things that hold their value better than junk bonds.  GM helped save the economy after 9/11 with 0% financing (“Keep America Rolling”).  I don’t recall Citibank offering 0% Visa cards (“Keep America Charging”?)  They get saved from their own mistakes.  GM doesn’t.  Go figure.  At least when an auto company did get loans – not gifts, just loaned – back in 1979, the taxpayer made money, as Chrysler stayed in business, and Lee Iacocca had the loans paid off early.  we could use him again, along with some common sense in Washington.
Don’t get into bailouts in the first place.  But, if you’re going to anyway, the folks who make things are at least as deserving as those who peddle bad debt.