The Big 3

[MrRain422]

Yep.

[Analogman]

Link to article source

 

7 myths about Detroit automakers

 

BY MARK PHELAN

[mfwahl]

Thanks A-man. That's a good read.

[Guest Jules]

So, remind me again why the financial execs weren't put through the ringer like the Big 3?

 

It's embarrasingly transparent.

[MattZ]

So, remind me again why the financial execs weren't put through the ringer like the Big 3?

 

It's embarrasingly transparent.

 

The industries are being treated differently because:

 

1. The implosion of the finanical system would have brought down everything else with it -- including the Big 3 and everyone else. In the world.

 

2. The financial system is more complicated and intertwined, and frankly, harder to understand by laymen (including pols). When those in the know advise on a bailout, those not in the know, listen. You think the distinguished Rep from the 12th district of [insert state] knows what a credit default swap is? No, but he knows what "the entire economy will crumble" means. That's what Bernanke and Paulson told members of Congress.

 

3. People don't like the auto industry. Rightly or wrongly, it is perceived as an industry that refused to innovate. It has been bailed out before. People understand cars. People also want assurances that the banks with their money will still have it when they want to get it.

 

4. The financial system bailout occurred before the elections. Politicians had to tread carefully then. Now, they don't. Arguably, McCain lost the election for bungling the situation.

 

Not sure which of the above is embarrassingly transparent other than maybe #4. Is that what you were getting at?

 

EDIT: this is not an example of the haves vs the have nots. As I have said on here many times, rooting for the rich i-bankers to get their come uppance was frightfully short-sighted. If the banks went under, the have-nots would have suffered much worse than the haves in the end anyway.

[Duck-Billed Catechist]

Jules might be referring to the fact that the investment banks donated a lot more (to both parties) this last cycle than the auto companies, IIRC.

[Guest Jules]

The industries are being treated differently because:

 

1. The implosion of the finanical system would have brought down everything else with it -- including the Big 3 and everyone else. In the world.

 

2. The financial system is more complicated and intertwined, and frankly, harder to understand by laymen (including pols). When those in the know advise on a bailout, those not in the know, listen. You think the distinguished Rep from the 12th district of [insert state] knows what a credit default swap is? No, but he knows what "the entire economy will crumble" means. That's what Bernanke and Paulson told members of Congress.

 

3. People don't like the auto industry. Rightly or wrongly, it is perceived as an industry that refused to innovate. It has been bailed out before. People understand cars. People also want assurances that the banks with their money will still have it when they want to get it.

 

4. The financial system bailout occurred before the elections. Politicians had to tread carefully then. Now, they don't. Arguably, McCain lost the election for bungling the situation.

 

Not sure which of the above is embarrassingly transparent other than maybe #4. Is that what you were getting at?

I don't buy it. Congress (or the laymen, as you say) doesn't understand the auto industry any more than the financial industry. Paulson came from Goldman Sachs, right? Makes me wonder, that's all. My transparent comment was simply referring to how obviously and strikingly different they are handling the two situations, and I don't agree that one is that much more complicated than the other.

 

The Big 3 dudes deserve to get grilled, don't get me wrong. I just don't get the disparity in the processes.

[MattZ]

I don't buy it. Congress (or the laymen, as you say) doesn't understand the auto industry any more than the financial industry. Paulson came from Goldman Sachs, right? Makes me wonder, that's all.

 

The vast and interconnected nature of the financial industry, and the fallout that would result in places unimaginable if it were to implode, are not understood by anyone. Certainly not Bernanke and Paulson. So, I think, to be safe, the folks that took Paulson and Bernanke at their word did so in a tip of the cap to our collective ignorance. Anything and everything that could be done needed to be done.

 

I think there should also be a careful and well-planned (and limited) bailout of the auto industry. But the collateral damage from the Big 3 going under would be very very painful, but we'd survive. It's apples and oranges. I see the double standard that you refer to, but it seems warranted to me.

[MattZ]

Jules might be referring to the fact that the investment banks donated a lot more (to both parties) this last cycle than the auto companies, IIRC.

 

I'm as much of a critic of campaign finance issues as anyone, but I dont think this is why the banks got bailed out.

 

Imagine what would happen in this country if you went to the bank and they didn't have your money? Or banks stopped lending? It sounds hyperbolic, and it is, but I think the Paulsons/Bernankes of the world viewed this as a real possibility.

 

EDIT: not to mention, I bolded your reference to investment banks above -- there are no more investment banks. Lehman went under. Bear went under. Morgan and Goldman converted to mortar and brick banks. In other words, if investment banks donated more to the parties, they certainly didn't see the benefits from it. They are extinct now.

 

EDIT2: haha, sorry (another edit). Let's also remember that many people think that allowing Lehman to fail is what pushed us over the edge... So there is evidence here of what would/could happen if banks were allowed to fail.

[moxiebean]

I don't buy it. Congress (or the laymen, as you say) doesn't understand the auto industry any more than the financial industry. Paulson came from Goldman Sachs, right? Makes me wonder, that's all. My transparent comment was simply referring to how obviously and strikingly different they are handling the two situations, and I don't agree that one is that much more complicated than the other.

 

The Big 3 dudes deserve to get grilled, don't get me wrong. I just don't get the disparity in the processes.

Also, due to lack of oversight it could be argued that Congress had a role in the failure of the financial sector - I can see why they wouldn't want to throw stones at the banking industry when they're partly to blame.

[Edie]

It looks like they will get a limited bridge plan to, at minimum, see them through to the Obama administration. YAY.

 

Seriously, YAY.

[Good Old Neon]

In the,

[Duck-Billed Catechist]

EDIT: not to mention, I bolded your reference to investment banks above -- there are no more investment banks. Lehman went under. Bear went under. Morgan and Goldman converted to mortar and brick banks. In other words, if investment banks donated more to the parties, they certainly didn't see the benefits from it. They are extinct now.

 

EDIT2: haha, sorry (another edit). Let's also remember that many people think that allowing Lehman to fail is what pushed us over the edge... So there is evidence here of what would/could happen if banks were allowed to fail.

I wasn't so much advancing the idea that the campaign donations were the true reason, only that they could be what Jules was referring to. Really, I don't think it's hard to make the argument that the banks are more politically connected than the automakers at this point.

 

Also, I think the bolded part of your statement (especially about Goldman) is really disingenuous. I know next to nothing about banking, but my understanding is that the rules were changed in order to allows the i-banks to also be regular banks so that they could raise capital. Goldman, so far as I know, will still continue to operate as an investment bank, but will also have a brick and mortar branch.

[bjorn_skurj]

In the, "this guy should be strung up by his pearls and fed upon by fire ants" department:

 

 

Cuomo: Merrill CEO bonus is 'shocking'

 

New York Attorney General lashes out at potential $10 million bonus for the battered investment firm's chief executive.

 

NEW YORK (CNNMoney.com) -- New York Attorney General Andrew Cuomo said Monday that the $10 million bonus reportedly being considered for Merrill Lynch's chief executive John Thain is "nothing less than shocking."

In a strongly worded letter sent to members of Merrill's board of directors, Cuomo points out that the brokerage reported losses for every quarter this year and has lost more than $11 billion in 2008.

 

He added that Bank of America's (BAC, Fortune 500) takeover of Merrill, which was formally approved by shareholders Friday, "seems to have been the only thing that saved Merrill from collapse."

 

"Clearly, the performance of Merrill's top executives throughout Merrill's abysmal year in no way justifies significant bonuses for its top executives, including the CEO," Cuomo said in the letter.

 

A spokeswoman for Merrill Lynch (MER, Fortune 500) declined to comment.

 

Merrill Lynch's Thain, who joined the ailing brokerage last December, is reportedly requesting a year-end bonus of $10 million, according to the Wall Street Journal. But Merrill's compensation committee is resisting his request, the Journal said, citing people familiar with the situation.

 

Cuomo has been a vocal critic of the "outsized" bonuses Wall Street's top executives have received, which he says are even more unjustified in light of the current economic crisis and the billions of taxpayer dollars that have been injected into the banking system.

 

"It is imperative that Merrill's Board prevent wasteful expenditures of corporate funds on outsized executive bonuses and other unjustified compensation," Cuomo said.

 

linky poo - http://money.cnn.com/2008/12/08/news/econo...dex.htm?cnn=yes

I got CC'd on that letter.

[cryptique]

Thain was paid $83.1 million in 2007. It's not like he needs more money.

[ZenLunatic]

Looks to be a 15-17 billion for the auto industry to tie them over for a few months. What a waste of money.

[Guest Jules]

What's that guy supposed to do? Turn it down?

[caliber66]

What's that guy supposed to do? Turn it down?

At the very least, he shouldn't be asking for an additional $10M.

[Guest Jules]

At the very least, he shouldn't be asking for an additional $10M.

He asked for it?

[bjorn_skurj]

What's that guy supposed to do? Turn it down?

The guy Cuomo wrote me about? Yes, he should, as should any CEO of any company which is now on the public teat.

[caliber66]

From the posted article:

 

Merrill Lynch's Thain, who joined the ailing brokerage last December, is reportedly requesting a year-end bonus of $10 million, according to the Wall Street Journal. But Merrill's compensation committee is resisting his request, the Journal said, citing people familiar with the situation.

[bjorn_skurj]

Fuck that dude, then.

[Guest Jules]

Well then he's a fucking dick.

 

Edit: and what Bjorn said.

[MattZ]

Also, I think the bolded part of your statement (especially about Goldman) is really disingenuous. I know next to nothing about banking, but my understanding is that the rules were changed in order to allows the i-banks to also be regular banks so that they could raise capital. Goldman, so far as I know, will still continue to operate as an investment bank, but will also have a brick and mortar branch.

 

Well, I wasn't trying to be disingenuous, for sure. And let's just say that I will certainly meet you halfway on the "I know next to nothing about banking" point. But that being said, I dont think any rules were changed for Morgan and Godman. I think Morgan and Goldman were faced with a crisis of confidence in the market that caused a run that forced them to convert to traditional banks. So far as I know, by converting to a traditional bank, both Morgan and Goldman are required to comply with more stringent reserve requirements (as well as other requirements) to limit their profitability (among other things) and in exchange were able to get access to the bailout funds as a result. And the others, like Lehman, Bear and Merrill Lynch don't exist any more.

 

Whether Goldman has found a loophole so that it can operate as an i-bank on the side, I don't know. I don't think it is doing that. But even if it did, that's hardly the best example for i-banks getting off easily in this mess when the other 4 are gone.

[Duck-Billed Catechist]

I mean, for instance, American Express is becoming a bank holding company to firm up its bottom line--I don't think they're getting out of the credit card business. Goldman Sachs is looking into offering online savings accounts--I don't think that will be the bulk of their business.

 

http://topics.nytimes.com/top/news/busines...?inline=nyt-org

Yet not everyone concluded that the Goldman money machine was going to be entirely constrained. Days after the firm's shift to commercial-bank status, Berkshire Hathaway, the conglomerate led by Warren E. Buffett, made a $5 billion investment in the firm, and Goldman raised another $5 billion in a separate stock offering. What the new Goldman Sachs will look like, however, remains to be seen. (Oct. 12, 2008)

I guess it's not yet clear--you could be right.