1Johnny Goodman

Hey Noah,

First off, nice post. A truly undecided mind. I think we should rush you off to CERN and present you as the rarest element. They'll give up on the atom smashing business completely. :)

I support letting them go under. Here's my logic:

1. If not now, when?

That's it. Just 1.

Cheers and thank you for providing hours and hours of things worth reading.

Johnny

November 18, 2008

2Noah Brier

In reponse to Charles comment (which he left on another post): "I've got a clear vision for the auto industry. Support it but on proviso that it becomes a 21st century industry. i.e. It retools over 5 years to meet stated environmental travel methods/criteria. Hybrid, electric, new and whatever else DARPA are hiding. The auto industry could use an incentive to drag it's ass into the third Milennium. Give it a bigger challenge than just fossil fuel cars."

@Charles Yeah, sounds like if the bailout goes through that will be the provision (or at least in theory it will be). The problem is (at least as I understand it), if they don't go bankrupt it will be very difficult to change some of the core structures of the business which ultimately could pull them back to the same place they're at now. Certainly a conundrum.

November 18, 2008

3Noah Brier

@Johnny

:) Thanks for the kind words.

Re: The auto industry - That seems to be the question, but the problem is that the now just happens to be the worst possible timing imaginable. So I guess I ask you back, if the damage done to the economy as a result of letting them go now is greater than the cost to keeping them of life support do you still do it?

(Again, I don't know the answer to this stuff, just like asking the questions.)

November 18, 2008

4Jay Mata

It's interesting. I'm undecided as well.

When you read that GM has over 7,000 dealers and is(was) selling less than Toyota with 1,500, it makes one wonder... something has to be done.

But I wonder if someone is really willing to leave some 200,000 union workers without a job. And then there's the cascade effect in the automobile value chain, which is everywhere in this economy, so why add this element to the general hurting?

I have never willingly bought an American car - I might have had to, because some are the only practical solution to specific needs-. Even with the retooling they are going through, which I think it's sincere, I still find them uninspired, underpowered, and a bore to drive.

And that I think is the biggest problem of all.

November 18, 2008

5Noah Brier

@Jay I think you hit the nail on the head, Jay. The problem is that no one likes them and everyone would say don't bother, but ultimately we need to pull away our own emotions and make a rational decision about what's best for the economy (or at least that's what I think we need to do).

November 18, 2008

6Josh Klein

I feel the same way as you. It's fair to say -- no matter what -- we're in uncharted territories and no one knows the absolute right answer.

Fundamentally, I believe you can't only support free market economics when times are good if you believe it at all.

And I also fundamentally agree that having that large a portion of our population suddenly struggling to make ends meet -- not to mention the ripple effect -- is a problem even if you're purely self-interested.

Even though we're a civilized nation, wealthy people need to be as afraid of income inequality as the poor. Even if you ignore the moral imperative, you can't ignore the bloody history of populist revolutions.

The best argument on the topic was something I read or watched, the source of which is slipping my mind.

The point was this: you HAVE to do something, but the two "fundamentalist" positions (abandonment or bailout) are both ... well... fundamentally flawed (go figure).

We need to dismantle non-competitive American companies that have grown "too big to fail", because that means "too big to exist" (damn, what was the source of that one too?). It has become clear that the big 3 automakers are untenable as companies.

We need to let them "fail" while easing the transition for a displaced workforce as they are retrained. This is unattractive for everyone, but the alternatives are worse.

We are in the position we are in today because so many of our industries are welfare industries. Saving automakers today means bailing them out again later. Instead of spending their money to modernize and make cars people want, they spent it lobbying for tariffs against foreign cars.

It's a tragedy and scandal on the level of Enron, just without breaking any laws.

Paul Krugman, whom I highly respect, suggested this position is not nearly liberal enough, that we need massive public works projects (the new New Deal). I'm not sure what I really think of that yet.

It's hard to call this all a symptom of free market economics, because no one can intelligently reject that there are "market failures" that must be addressed... but by regulation, or freer markets (i.e. a better "market" for lobbying for public needs that lack a focused interest group)?

Is our free market too free, or not free enough?

November 18, 2008

7Michael Raisanen

Interesting conversation. Here are some questions that are in my head:

1: Is it fundamentally politically motivated? (Congress bailed out the suits at Wall Street so now they have to bail out the working classes?)

2: Why does a non bailout necessarily mean that the auto industry will go under? (they can file for chapter 11 and keep going (Congress has already provided this safety net))

3: Should banks be given preferential treatment? (in my rational mind, yes, in my moral world, no)

November 18, 2008

8Johnny Goodman

"I still find them uninspired, underpowered, and a bore to drive. And that I think is the biggest problem of all." -Jay Mata

Exactly so. Until this changes - and it can't so long as you mix unions and congress into the auto pudding - the situation will remain one of bailing them out now and bailing them out later.

"Even though we're a civilized nation, wealthy people need to be as afraid of income inequality as the poor. Even if you ignore the moral imperative, you can't ignore the bloody history of populist revolutions." -Josh Klein

This is an interesting topic because we're not talking about cars, we're talking about what kind of America rises from the ashes of this melt down.

Putting off near term macroeconomic pain today means expanding the number of corporate welfare sectors for years to come or perhaps even as long as America remains a going concern. From what I've seen of the defense and airline sectors, I fear this trend.

"Why does a non bailout necessarily mean that the auto industry will go under? (they can file for chapter 11 and keep going (Congress has already provided this safety net))" -Michael Raisanen

I don't think it does, but the airlines have turned going bankrupt into a competitive advantage. Instead of the money coming out of tax payers pockets to bail out, it comes out of suppliers pockets who are stiffed on all outstanding invoices and any stock holder who can't convert to bonds.

This means the next time around, prices from suppliers are higher as a hedge against another inevitable bankruptcy, and that gets passed to the customer eventually.

I started this post thinking I'd say its a choice between short term pain with recovery and a long term drag on every American tax payer. Really though, its a long term drag either way. The choice is if we want our judges or our politicians setting the terms under which our "to big to fails" limp along.

Sorry for the depressing post. Who wants ice cream? :)

November 18, 2008

9Josh Klein

@Michael - I think regardless of political motivations (there are always those), both sides have compelling arguments. But I'm not sure anyone disputes that banks are very different than automakers. Banks serve a national purpose, have national defense implications, have a hand in every single business and sector in America.

Anyway, some banks were bad, but some were [okay] and suffered liquidity and solvency problems anyway. The automakers are just flat out bad and have no possible future of profitability.

@Johnny - Ice cream please :)

November 18, 2008

10thoughtbasket

I agree that it's a tough call. I just posted a blog entry on it today, and I think that I come down on the side of some bailout, because a massive job loss will kind of crush our economy, but it should be a pretty punitive bailout. Execs, shareholders, dealers, unions...they are all going to have to give something up. I disagree with Jonathan Cohn though; Detroit has shown no signs of fundamentally fixing itself, success of the Ford Focus and Chevy Malibu notwithstanding.

November 18, 2008

11barbara

Ah, finally, someone mentioned unions. As a lifelong liberal and a firm believer in the reasons unions were necessary, it is painful for me to say that the unions have contributed mightily to the downfall of the auto industry, as they did to the American apparel and steel industries years ago. They also bear a lot of responsibility for the failure of inner city schools and at least some for the declines in the newspaper industry. I'm sure there are other examples, but these are the ones with which I am personally familiar. I think this may lie at the heart of the connundrum and I have no idea how to change it without toppling the economy once and for all. I'd love to hear ideas.

November 20, 2008

12ted

Yeah I'm undecided as well, but I think that's in part because i don't want to admit i'm actually for it, but against bailouts in general, leaving me in a contradictory and uncomfortable place. i'm not for it, as much as i think they need it. if that makes sense.

I don't think this country can afford not to be in the auto industry, not only domestically but globally as India and China come on-stream. But we can't be in the old American car business. That's why maybe chapter 11, followed by funding a new, eco-focused US auto industry makes more sense than bailing out the current one.

December 4, 2008

13ted

one interesting case in point, to my previous comment, is the story abut Saturn in today's times. Detroit actually did re-invent at least part of itself previously, they just were predictably incompetent and got fat and happy on SUVs instead.

December 4, 2008