Bailouts, Bridge-Loans and Blue Collar Workers

Let’s face it, folks. We are in the Second Great Depression – or at least at the start of it. The last Great Depression was fueled by highly irresponsible lending, irresponsible playing with the stock market and large central banks calling in loans and then draining massive amounts of capital out of the system. This Great Bush Depression was fueled by almost identical forces, only this time our economy is more dependent upon credit than last time, and the potential is for massive collapse of our entire economic system.

The neo-conservatives who have been dismantling our economy since the era of Reganomics, deregulating financial systems, destroying any government agencies that were put in place during the last Great Depression to prevent economic collapse, and systematically vilifying and disempowering unionized labor have come to the end of a 30 year reign where trickle-down economics have proven once again to be less about economics and more about being “trickled on”. When their “free market” system ran amok and they ended up losing billions of dollars, what did they do? They attempted to nationalize the debt of failed irresponsible corporations, but privatize the profits thereof. (Can we say national-socialism, a.k.a. corporatism, a.k.a. FASCISM!?!)

Bailouts for Buddies

The biggest bailout (i.e. chunk of federal tax-payer money thrown at an industry with no accountability on how it is spent) went to the investment banks and debt insurance companies – the largest being AIG. The Federal Government gave AIG (a bank that insures other banks’ loans and lines of credit) $85 BILLION dollars for a 79.9% equity stake in the form of warrants called equity participation notes. The two year loan carries an interest rate of the London interbank offered rate +8.5%. (source) Effectively, if AIG does well, the taxpayers will regain what was given to AIG and more. Seeing how the housing market is continuing to collapse and foreclosures are still growing around the nation, AIG will have to payout on the loans they promised to back – many of which were highly unethical subprime mortgages with variable interest rates that homeowners are finding themselves unable to keep up with as their home values plummet and the economy worstens. Instead of forcing banks to restructure mortgage loans for consumers, or offering direct support for homeowners (helping Main Street as well as Wall Street – as President Elect Obama likes to say) these Neo-Cons who are in bed with these large bankers and investment corporations padded their buddies’ accounts and managed to further monopolize the banking industry by letting other large banks (like Leighman Brothers) collapse or be bought up by pennies on the dollar (Washington Mutual being bought by Chase – one of the original architects of the first Great Depression).

The infuriating thing about the bank bailouts is that they continue to go on with little to no oversight, no prerequisites, and essentially put the burden of financial liability on the backs of taxpayers, but don’t really put any profits in our pockets in the end – or rather, promises us profits at the end of a very bad gamble that’s highly in favor of the house. You can see a graph of what financial institutions received federal bailout money on the New York Times site here. These companies do not create any tangible products. They don’t keep their business in this country – often financing foreign countries’ debts or backing them in the case of debt insurer. And they received carte blanche bailouts from the goverment.

Bridge-Loans for Auto Manufacturers

In light of the economic depression, the big three auto manufacturers in the U.S. came to Washington in order to seek economic assistance to survive. In contrast to the above mentioned financial executives and their begging for money, these executives and their companies have been receiving extraordinary criticism, negative press and mocking from the media in general. This time around, the auto manufacturers wanted a loan to bridge the bad financial times. These loans were a fraction of the $700 billion that congress has given the green light to give to financial institutions without oversight, but suddenly, they are being held to a different standard. Congress is insisting that they make fundamental changes to the way they do business. They are being forced to retool their plants, dedicate their efforts to making fuel efficient and low-emission vehicles, or to give up executive wages, etc. The image of the “big three” executives coming to Washington on private jets was the culmination of their apparent lack of financial prudence; flushing money down the toilet while asking for more. (No one mentioned that the investment bank executives probably took private jets to Washington as well.)

Now, don’t get me wrong. I think American car manufacturers are way behind in the times, they are out of touch with what consumers want, and they are VERY hesitant to innovate or change. At the same time, they are one of the largest employers in the country and their work force is unionized, guaranteeing living wages and a pension for the dedication of their workers – one of the oldest parts of the “American Dream.”

Most recently, these loans were approved by the House of Representatives, but they failed in the Senate (source) mainly due to Republicans from the South who are hellbent on two things. 1) Destroying organized labor – something Republicans have been trying to do ever since it came about and 2) Destroying competition for the foreign automobile plants that have been built in their home states that run with non-unionized labor (source) and were subsidized with tax incentives at a per-capita burden higher than the current proposed auto bridge-loans for U.S. Manufacturers. Basically they are covering their more expensive investments to bring business to their states at the expense of the greater U.S. economic well-being.

Another force being vilified in this fray is unionized labor. The Republican talking-point distribution network of radio talk shows and televised opinion shows have already begun to spout the propaganda that the reason the U.S. auto manufacturers are failing is due to the United Auto Workers and their high demands in terms of wages and benefits. (source) Senate Republicans are demanding that the U.A.W. make concessions and cut back on their wages and benefits to fall in line with foreign auto manufacturers. Union workers are not the cause of these companies having problems. U.A.W. workers have a two-tier pay structure (something normally unheard of in unions) where longer-time employees receive (as of 2006) $32.32 per hour for straight-time labor, where newer employees would receive $27.81 per hour of straight-time labor. These are good paying jobs – not extraordinarily over-paid positions. Additionally, the labor costs per vehicle come out to approximately 8.5% the price of a vehicle. (source) This is not a bank-breaking operation, and U.A.W. workers are already making concessions (like reducing health coverage as part of their contract, etc.) as they don’t want the auto manufacturers to go out of business either.

When I hear every-day Americans blaming the unions for bad business or in other ways vilifying unions, I always remind them that they aught not complain about someone having a better wage than they do, when they too could unionize and fight for a fair wage for the work they do. And let us not forget that the unions were what helped build up the Middle Class in the 50’s, one of the most prosperous times in our nation’s history. The more that organized labor gets beat down or disempowered the more of a decay of the middle class this country experiences, and the separation between the richest and the poorest grows wider and wider.

Additionally, there’s one thing these Republicans never mention: foreign auto manufacturers are intimately tied to their own governments and are seen as a nationalized or partially nationalized industry, and their workers have benefits given to them (like nationlized health care) that American workers are not, thus driving up the costs of labor in the “Free American Market”. Make no mistake about it, where Hyundai goes, South Korea goes, likewise, Toyota and Honda are intimately intertwined with the Japanese government and receive subsidies, tax breaks and more to assist in their success – these are things the U.S. car manufacturers don’t get. And the huge burden of health care, should it be nationlized like ever other social democracy in the modern world, would be a big economic boon to business in the states.

What to do?

Where I stand on this issue is that I think the bridge loans should be approved for the auto industry, but with caps on executive pay and with a requirement for worker positions and wages to be protected and maintained. Additionally I support the requirement for them to invest a certain percentage of the money into fuel efficiency and alternatives. But in doing so, I think we should nationalize the auto companies and use them as a way of revitalizing our economy. Reinvent the car, build plants across the nation wherever the unemployment figures are worst, and drive up demand for these newly engineered vehicles. By nationalizing the industry, we can better support organized labor, steer progress in automobile ingenuinty and also make real and effective change in vehicle emissions, carbon dioxide emissions and tie the industry into effective environmental reform as well. If you’re going to nationalize the liability, then nationlize the profit as well.

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3 Responses to “Bailouts, Bridge-Loans and Blue Collar Workers”

  1. I was just getting ready to write an article about this, but no need to be repetitive. There is, however, some new information coming to light that I would like to add by way of commenting on your article.

    First of all I agree that it is dispicable that the financial market is getting hundreds of billions in unchecked, no oversight loans and the auto industry can’t get a dime. Republicans are more than willing to vote on bailouts for their rich buddies, but who gives a fuck about poor people, right?

    If even possible, Republicans are proving themselves even more dispicable when it comes to the union issue. It was reported yesterday by the L.A. Times that a memo on the bailout went through the Republican Senate that basically urged Republicans to vote against the bailout as a means of “…tak(ing) their first shot against organized labor, instead of taking their first blow from it.” It has nothing to do with economic philosophy or the ideal of limited government intervention. This is about union busting and the Republican Senate, by circulating this memo, is making no secret of that fact. They are playing games with people’s jobs. They would rather see the US manufacturing core disappear and see millions of jobs lost so they can do away with unions than they would protect their own nations economy. Why? Because they are bought and sold by the white collars within corporate America. Just like with the financial bailout, they are looking out for their rich buddies. What a victory for corporate America to be able to crush the sector of our economy with the largest segment of collective bargaining power. They are in essense trying to finish the job of the creation of massive income disparity in this nation. We have unions to thank for minimum wage, eight hour work days, in essense, for the creation of a large, strong, and relatively wealthy middle class and they are trying to kill that. They are attempting to bring us back to the early industrial revolution when you had essentially two social classes, the filthy rich and the filthy poor.

    Further more, it is being reported that in fact, union factory workers do not make more than their non-union counterparts in Red states. In fact, as far as hourly wage is concerned, the average foregin plant worker makes a few cents MORE per hour on average. The only way the numbers work out the way Republican America is reporting it is if you add in union workers health care benefits. As Rachel Maddow so justifiably said on her show last night, that is not unions fault. This is the fault of our own government, particularly its Republican segment, for refusing to provide an adequate universal healthcare system in this country. Union workers should not have to give up quality health care coverage as a prerequisite to keeping their jobs and they certainly should not have to take additional pay cuts when they already, on average, make less per hour than their non-union counterparts!

    Part of me is glad that the Republican Senate voted this bailout down for a few reasons. It is exposing Republicans for what they really are, people who do not care about America, but only their own benefit and upper-class ideology at the expense of American workers. Furthermore, if the American worker really wakes up, it should kill Republican support in the Midwest manufacturing belt for good, having proven themselves so anti-worker, so anti-union. The fact that Republicans are willing to let a whole industry die because they don’t like unions, because they don’t want average workers to have the power to bargain for a better standard of living. What happened to the American dream? The idea that by working hard you can get ahead and move up the social ladder? The Republican leadership of this nation is making no secret of the fact that they not only do not believe in this dream, but they would like to crush it!

  2. And now it seems that Bush will actually do something good before he leaves office, something that may allow us to look back and say, “Maybe it wasn’t the absolute lamest of lame duck months.” If he steps up and uses TARP money to help the auto industry he will have at least one thing that I can agree with him on when he goes around trying to tote himself as a succesfull president (something he is working very hard on lately, harder than he is working on trying to save our economy).

  3. I didn’t have some of those facts, Thanks.

    I would have to say I agree completely with you in terms of Bush finally doing something productive in office.

    Excellent piece.

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