[sohmer]

I have a problem, and rather than continue to wrestle with it within the confines of my own mind, I thought it best to lay it out on the table for all of us to discuss.

The US Economy Bailout, I simply can’t decide whether or not I support it.

Intellectually, I can understand the urgent need to help banks through the crisis. If lending stops, so does business growth. However, it’s the unregulated financial system and its million dollar salaries that got themselves into this mess, so why are taxpayers forced to fund their restructuring. At the same time, these executives, who thought it was it was a good idea to give 500,000$ mortgages to people earning minimum wage face no repercussions for their actions.

Here we are again, this time with the big 3 American auto companies, seeking a handout for the government. Yes, the auto industry employs 1.6 million Americans and another 2 million indirectly, and a good portion of these people would lose their jobs should these companies file for bankruptcy, either chapter 7 or 11. However, no one forced these companies to push gas guzzling SUVs for the past 10 years. No one forced GM to cancel its electric car program. These well educated executives showed no foresight, no planning and no vision.

And the taxpayers are paying the price.

The question I keep dancing around: Is the bailout a good idea or should we let companies and industries sink, letting the economy right itself with time?

- Because I can.

Quote of the Day

“We've been through too much
Time for us to group up
Come on and lets stand up now for us
This is our battle cry
Promise you that I'm certified
All we gotta do is stand up now for us
This is our battle cry”
-Battle Cry, by Shontelle

[Chi]

Personally, I think the big 3 bailout is a bad idea. The unions need to be broken and the $75 per hour employee that screw 10 bolts on the left tires and the employee on the right side of the vehicle that screw on the other 10 need to have their salaries re-adjusted. I know several people in Oklahoma that are qualified to drive those nuts on and will do it for around $12 an hour.

The non-union US workers for Toyota and other former import companies make 1/2 of what the big 3 unionized companies make and produce a better vehicle, lower fuel consumption and alternative fuel sources for the same price range. I just feel that there needs to be some major pay restructuring if these guys are losing millions a day by staying open.

Well that's all from my soapbox.

/dons firesuit
//grabs popcorn...this thread should be stellar

[Queen of Hearts]

I'm also at odds.

If the bail out doesn't happen, my state of Michigan will be in even worse trouble that it already is. Everyone around here works for the big 3. From my house to my boyfriends house I pass 3 plants. From my house to another friends house I pass 2 office buildings for them. Motor city is not doing so good

In my parents neighbor hood, just on the one block, 7 houses have at least one spouse that works for the big 3.

My boyfriend doesn't work in the big 3 but could lose his job if they go under. He does engineering work for Denso, they supply parts to the big 3. In his department they are his main account.

I'm torn between the goverment should stop giving money they don't have and how will the people of michigan survive with out their jobs.

[Akoi Meexx]

Personally, I think the big 3 bailout is a bad idea. The unions need to be broken and the $75 per hour employee that screw 10 bolts on the left tires and the employee on the right side of the vehicle that screw on the other 10 need to have their salaries re-adjusted. I know several people in Oklahoma that are qualified to drive those nuts on and will do it for around $12 an hour.

I'm also at odds.

If the bail out doesn't happen, my state of Michigan will be in even worse trouble that it already is. Everyone around here works for the big 3. From my house to my boyfriends house I pass 3 plants. From my house to another friends house I pass 2 office buildings for them. Motor city is not doing so good

Also from Michigan, and I'm tired of seeing money hemorrhaging from my pocket to pay for businesses that do not know how to play ball economically. Unions were fine when laborers were being taken advantage of. Now it's turned the other way around and we end up footing the bill.

If other companies, or better still other individuals have to learn from their mistakes, I see no reason that the big three should get to shirk theirs. Regardless of the result, life will go on.


Edit: Because I didn't feel like adding another post to further the same point here:

All those workless people will need to be paid by the state (Unemployment benefits). This would be a huge drain for gov money. Moreover, because it is generally a meagre sum, those workless will cut back heavily on consumer spending, causing that segment of the economy to all but collapse. I don't even want to think about the effect it will have on the tormented financial market. How many of those to-be-workless people have loans or mortgages? They won't be able to pay those. Might even cause one or two banks to go broke. It almost definitely will, because the big 3 and those delivering to the big 3 combined have enormous loans. Loans they can't pay.

A meagre sum, yet it affects our government finances drastically? Frankly, it cuts about even as far as the money being spent. Unemployment doesn't get paid indefinitely until a job is found; you have to file for extensions and continue looking for work.

The workless should cut back on spending; to spend what you can't afford is folly. It's what got us in this mess in the first place. They should not have gone through with enormous loans or mortgages that were in reality well beyond their cost-of-living.

So you can choose. Giving out a loan that won't affect the tax payer as much as you think (you already have a huge state debt, those extra billions aren't going to do much), reducing your dependency on foreign oil and getting a great deal of influence over the Detroit 3... or ... do not give out the loan, cause massive unemployment, cost the state an insane amount of money (more than if they gave out the loan) due to unemployment benefits, cause several banks to collapse, causing even more unemployment, costing the state more money and live through years of big economic fallback (depression instead of recession) and make a lot of people live on the verge of poverty.

Surprise, a lot of people are already there [on the verge of poverty]. "Unemployment benefits" is a joke here in Michigan. That loan DOES affect taxpayers significantly. I average roughly $1800 monthly, after having over a third of my pay ripped from me in taxes. In addition to that, the company I work for doesn't cover prescription bills so I pay for my own heart medication. It averages around $650 a month (Before you even start with 'some companies give out necessary prescription drugs for uninsured individuals', that's based on the drug. Low blood pressure isn't covered). Add on rent, utilities, food, car insurance, and gas for transportation (Thank God it dropped to $1.79/gal. the other day); and I'm lucky to have $230 a month to sock away for savings. No, I don't feel like paying out more in taxes to help out irresponsible individuals, or irresponsible companies.

Getting rid of our dependence on foreign oil is all well and good. We should. Better yet would be developing a half-decent alternative fuel that's cheap enough to be viable for everyone. Pipe dreams, but it'd be nice. I'd love to know how you figure we'd have this influence over automakers for this loan. What's going to happen? If they don't do right by the government the loan is going to be called in? Back to square one. Or is the government going to seize control of the companies if that's the case? What's going to happen to the employees? People are going to be laid off. Which will mean less spending, et. al.

I didn't like the first bail out, but it had its valid merits. There isn't any reason for this one.

This post has been edited by Akoi Meexx: 18 November 2008 - 04:32 PM

[Mortron]

My opinion:

If the bailout doesn't happen, there will be rampant political and economical repercussions, thus it isn't so much a matter of will they do it, since they pretty much have to to keep the system working, and no matter how much we discuss it, our opinion doesn't count all that much and they're going to keep the system going whether we like it or not. Thus the bailout is bound to happen.

Do I think it should happen?

No. Completely not. It's like giving a poor employee a bonus from an increase in price to the customers while ignoring the better employees. Import cars are better, they're cleaner, and there is far more of an effort by their companies to push for what the consumer is wanting more and more: Clean, Hybrid, eventually electric. Why don't we take the bailout money and give it to them instead so they can actually achieve something instead of giving it to the big three to try and catch up?

Also, and I know that some of the execs have started something like this, wouldn't it make sense to cut their pay instead of cutting a bunch of jobs?

How about making the auto workers invest in their own industry by taking a big pay cut to fund the bailout? If you're not willing to believe in what you're doing, should be paid to do it? A pay cut after all would be much better then unemployment.

Mortron

This post has been edited by Mortron: 18 November 2008 - 02:53 PM

[InThane]

Right now, the companies in question (big three automakers) aren't being killed by bad decisions, although they have made quite a few. What they're being killed by is the same thing that is strangling our economy:

The financial industry.

The short version is that they just can't get credit because nobody can, and they need credit to order parts that would be made into cars eventually somewhere down the line. Yes, they do indeed have structural issues that need to be addressed, and they might have eventually gone into bankruptcy anyways, but it would be the restructuring kind of bankruptcy as opposed to the liquidation-style bankruptcy where Chinese automakers would come in and scoop up our companies (and their technologies - despite canceling the electric car, GM still has critical patents on many of the key concepts, do we want to be paying China for access to our own research?) for pennies on the pound.

So yes, at this point we need to scoop in and rescue these companies. We also need to pass sweeping reform of the financial industries, and stop electing freaking idiots who worship the stock market like it's the second coming.

For more reading about how we ended up here, I cannot highly recommend enough Kevin Phillips's books "Wealth and Democracy" and "Bad Money". "Wealth and Democracy" lays down the framework of why great nations fail (in each, financial speculation overinflated a bubble and made it inefficient for people to actually produce physical goods instead of create financial instruments that grew wealth, leading to economic bubbles, inflation, social unrest, collapse of the empire, and eventual civil war) and shows how that ties into our current situation. Before people start saying "OMG SOCIALISM" or compare him to Noam Chomsky, Mr. Phillips was an economist for the Nixon administration, and I consider him a true conservative, as opposed to Reagan and the two Bushes, whose policies have been extremely destructive for our country.

[maximillion]

Had to finally register to these forums to jump in on this one.

I think the major dilemma here is that big business finally made the mistake we all wanted to see it make, and is at the point of sink or swim. No one is on big business's team, because there is no reason to be. Big business is that fat, arrogant kid that pushed everone around, and gloated over all its shiny toys. All those footstepping executives with their multimillion dollar paychecks finally are about to pay for making unethical decisions, and I personally would like nothing more than to see them fall flat on their faces.

That being said, the economical ramifications of watching said face plant are way too high to let them them do it, and its just a matter of time before we all begrudgingly watch our cold hard cash drift into the pockets of the people who have enough money to buy and sell us and our dogs. In my opinion, the bailout is a necessary evil, because the jobs that will be saved are worth every penny.

I think that the only way that I would accept the bailout with open arms is if it was a completely conditional bailout. In the case of the big 3, we will give you X dollars as long as Y% of it goes directly into modifying factories to accomadate making something that gets MORE than 12 mpg(what a concept), and Z% goes into researching alternative fuels and renewable sources.

Even more ideally, though I realise it will never happen, would be to make it a bailout loan. We the taxpayers are the ones who are forking over the cash to pull you out, in ten years, lets see a rebate, plus interest. It wouldnt be much, but it at least make me feel a little better about giving up my cash that I worked for, and would at least make it seem like these corporations will have learned a lesson.

[daclown]

I like this conditional bailout idea.

But i have to said, i am in the "no" group here so to accept this conditional bailout, i would ask that those companies also cut fat at the top. All those [insert here titles similar to president, dg, etc.] really need to cut their salaries. The same with banks.

At the personal level, everybody whose having money trouble start by cutting the fat (restaurants, junk food, extra activities, etc.) before asking for help. If we don't, the "helping hands" will ask us before they loan us money. Why not apply this to a big scale?

[Danferno]

The government is not "giving" the big 3 cash. They are lending it to them. For quite an interesting interest in fact. I don't know about this one, but in Holland, "Aegon" has a 3 billion euro loan from the Dutch state, with a 8.5% interest rate. That's good. The loans come with a heap of conditions as well. The state finally has a tool to force the big 3 to produce fuel-efficient cars, reducing America's dependency on foreign oil, making everyone happy.

There is simply no alternative. Unless we want to go back to the days of the Great Depression.
Don't forget it goes further than factory workers and people delivering mats to the factories. All those workless people will need to be paid by the state (Unemployment benefits). This would be a huge drain for gov money. Moreover, because it is generally a meagre sum, those workless will cut back heavily on consumer spending, causing that segment of the economy to all but collapse. I don't even want to think about the effect it will have on the tormented financial market. How many of those to-be-workless people have loans or mortgages? They won't be able to pay those. Might even cause one or two banks to go broke. It almost definitely will, because the big 3 and those delivering to the big 3 combined have enormous loans. Loans they can't pay.

So you can choose. Giving out a loan that won't affect the tax payer as much as you think (you already have a huge state debt, those extra billions aren't going to do much), reducing your dependency on foreign oil and getting a great deal of influence over the Detroit 3... or ... do not give out the loan, cause massive unemployment, cost the state an insane amount of money (more than if they gave out the loan) due to unemployment benefits, cause several banks to collapse, causing even more unemployment, costing the state more money and live through years of big economic fallback (depression instead of recession) and make a lot of people live on the verge of poverty.

I'd go for the first, personally.

[runnerofbears]

It seems reasonable to want the bailout because of the trouble and pain that would occur if the big 3 were to go under and fail. However, thats like the 3 year old saying they don't want to remove a band aid because it will hurt. Yes not giving the big 3 more money may cause problems and people will lose their jobs. States like Michigan will be significantly hurt. However, time has shown that when large companies go under or move, the first five years or so their is are heavy consequences, but after that usually those people who worked for the company start their own companies and the void is filled by lots of smaller companies.

The best example of this is Pfizers move from Michigan in the 90s. Many people lost their jobs but 10 years later those people started their own drug research companies and the void that was left from Pfizers has been filled.

It may not be good for the next few years, but in the long run it will be better.

[Tar Palantir]

Personally, I believe our current economic system is like a gangrenous leg. Sure, it used to be great, but by this point, the only thing you can do is lop it off to save the rest of the body. In this extended metaphor, this means collapse. Let the big 3 cave, let the tremors shake our society to its very core, let all of the corporate executives in their comfy chairs go diving for cover. When the dust settles, it will be possible to rebuild. If we save these corporations from the consequences of their actions, then the driving force behind our economy is gone. If there is no chance of failure, then people won't be cautious when they play the game. That's how we get an idiotic, bureaucracy-bloated system like the one we have now. Instead, let us follow the attitude of the knife: cutting off that which is incomplete and imperfect and saying, it is complete because it ends here.

[Elithrion]

Basically, the financial bail-outs make sense for the reasons Sohmer mentioned. The one thing he neglected to point out and that everyone loves to ignore is that the crisis is not so much derived from greed (the horror!), negligence, corruption, or whathaveyou in the financial industry as from rampant vote-buying by the politicians (the Democrats, especially). They were the ones who practically forced all these companies to make subprime loans, which, as you may have noticed, is basically what lies at the core of this crisis. That mini-rant aside, it made sense to bail out the financial industry because if it goes into bankruptcy everything goes down with it (and this coming from someone who's philosophically opposed to the notion). There's no such case to be made for the car manufacturers.

If the big three go bankrupt, they'll go into chapter 11 protection. This basically means they'll be forced to actually restructure quickly, lay off workers as needed (because that is the only way they may end up profitable) and, overall, not suffer unnecessarily. Most US airlines have been there for a large part of the last decade and the sky hasn't fallen just yet. If you bail them out, however, you're making a bottomless commitment - did you see what GM and Ford (Chrysler is being quiet) reported last quarter? $7 billion in losses for each of them. And while the financial industry is responsible for part of this, specifically by making it harder for consumers to get loans to buy cars, the rest is their own fault for being clobbered by the trend to shift towards lighter vehicles and away from SUVs and pick-ups. Bail them out and you're pouring money into a black hole from which nothing will ever come out. Hell, bail them out and GM will just go bankrupt next summer, or something, instead of this winter... would you like to then bail it out again?

Oh, and this is not even getting into the "moral hazard" issue of why are you bailing out the car firms and not the long queue of other firms that you're going to see forming if you pull this stunt. That is, unless of course you'd like to also throw your money at the airplane manufacturers, airlines, consumer electronics firms, and god know who else who's been hard hit by the crisis. The case for bailing out the financial sector was pretty clear; the case for bailing out the big three barely exists.

[InThane]

Basically, the financial bail-outs make sense for the reasons Sohmer mentioned. The one thing he neglected to point out and that everyone loves to ignore is that the crisis is not so much derived from greed (the horror!), negligence, corruption, or whathaveyou in the financial industry as from rampant vote-buying by the politicians (the Democrats, especially). They were the ones who practically forced all these companies to make subprime loans, which, as you may have noticed, is basically what lies at the core of this crisis.

Bullshit.

http://economistsvie...again-it-w.html

There was another one that blew that bullshit completely out of the water, but I can't find it now. The gist is that while the government did play some small role in the meltdown, it was mainly the unbridled greed of the financial industry run amok combined with extremely lax regulation and the Fed basically saying "go to town!" that created the current situation.

Seriously, read the books I mentioned above. It doesn't matter, Democrat or Republican, for the past 28 years since Reagan coasted into office our country has been looted by the financial services at an ever-increasing rate. Now we're finally seeing the part where we get screwed.

[gunsou]

I always hesitate getting into forum-based politics. The average user tends to be pretty far from my political leanings--especially true here based on what I've read so far. So, here's to Internet anonymity!

(Steps onto homemade soapbox)

Some people have got some scary "solutions" to the problems we face. I am fairly conservative, so I'm not a big fan of handouts to honest people, much less big business, but I've not seen a viable alternative to the course we're committed to. To abandon the "gangrenous leg" that is the economic system is a stunningly bad idea. Others have proposed similar ideas boiling down to seeing if CEOs bounce after they fall from their once-lofty-but-now-collapsing towers. I'll concede that very few people really need tens of millions of dollars for making all the major decisions upon which companies are built and placing their personal and professional reputations on the line with every one, but take it they do. I think there's a certain moral imperative for those with power to help those without, but morality is a moving target and cannot be applied to everyone, everywhere. Sad, but true.

The US auto industry has been shooting itself in the foot for years, but that, like everything else, is a complicated issue. We are (or try to be) a free-market society. What the public wants, it gets. As it happens, SUVs were kinda popular for a long time. But why didn't they foresee the coming fuel crisis and invest in alternative energies? Because it wouldn't make any damn sense then. Gas was cheap. Research was not. Publicly-traded companies have a responsibility to their stockholders to turn the largest profit possible and any move they make that may harm that bottom line must be packaged and pursued very carefully. One could argue that this is a flaw in the system, and it may be, but it doesn't warrant the implication that the "CEOs" or whoever else are the cause of anything but doing exactly what their job requires.

There's no defending the idiocy of giving 100% financing to those earning minimum wage, but that wasn't the banks' idea. Nope, the government, in its infinite wisdom, wanted everyone to be able to own a home...regardless of their ability to actually afford one. The market was strong and most people were paying their mortgages, so the enormous risk was offset by the people who paid their bills. The trouble starts when the government fines the banks for not giving out enough of these handouts. So the banks start to run at a loss, but there's always the chance that the money will come back with time. Inevitably, the minimum-wage families couldn't make the payments and were able to simply walk away from the house that they were, for all intents and purposes, renting. They had no real investment in it, no risk--the banks absorbed all of that. Once the Recession ball got rolling, more and more people defaulted on their mortgage payments, saddling the banks with immense debt. This was a debt that could be paid off eventually (because anything's possible) but not with so many high-risk loans mucking up everything.

Does this point to a flawed system? Perhaps. Do we need to move past these antiquated systems? Almost certainly. Should we let these things simply die off? Absolutely not.

Should either of these industries collapse, the fallout would reach far beyond the apparently-reviled CEOs and their associated bureaucracy. These are huge pieces of our economy and I can't imagine the rest of the puzzle accommodating a sudden vacuum. What this means is that if the best way to solve the problem is to excise the affected areas, so be it, but it must be done carefully, over time, and hopefully with a more stable economic base to support everything.

Change for change's sake, especially at this level, is dangerous at best. It seems a serious revamp of the system is coming soon; I just hope that the powers-that-be have the patience to wait for a solid plan and the right moment to implement it.

(Steps away from soapbox and braces to flee into the woods)

[nick_sydney]

Well, the US isn't the only one hurting, here in Australia, the government has offered 6 Billion to the Auto companies to help keep them open, and to be honest, if they had simply offered 1 Billion to anyone who could bring a cheap electric / alternate fuel vehicle to the marketplace would have made a MUCH bigger impact.

And I am disgusted that an 'executive' can earn the same as twenty lower level workers, and when it comes to cutting costs, the twenty lower level workers get fired whilst the executive stays on at the same or higher level of pay.

The economy will right itself in time, regardless of what the governments do, but there should be some review of how we got here in the first place, and to have it corrected so it can't happen again.

I have been telling friends and family for years that the only things to invest in are shotguns and canned goods. It certainly hasn't gotten THAT bad, and probably never will. But, who knows...

Fingers crossed that something is done, rather than spending more tax money on companies that made stupid decisions. I for one, don't want to lose even more in taxes.

Nick.

[DrOats]

The big 3 and the airline industries have been complaining about losing profits for years now. There is no good reason to prop them up, because they will fail, later rather than sooner with government intervention, eventually. GM made an electric car that people went crazy for. There were people on waiting lists for vehicles that wouldn't be available for 2 years, on the flip side, dealers were selling of the remainder of gas models for barely over factory prices. You know what they did? They took back all their leased electric cars and scrapped them. The most demanded vehicle in several decades and they canceled it! If you think the industry is failing because they are the consequence of economic instability, you seriously need to give your head a shake.

McDonald's isn't hurting because of the recent financial crisis, and that's because they give us, the people, what we want, not what they want us to take. I am by no means at all a supporter of McDonald's but when the people demanded healthier food, they put out salads and other 'healthier options' and advertised the crap out of it.

If the government gives money to companies that won't respond to consumers, then we are simply submitting ourselves financial slavery and the execs who were, and are, making ridiculously unrealistic salaries will continue to peddle their unwanted crap.

If the government does bail the auto makers out, there will be a huge rush of corporations to line up for handouts, who are 'suffering from the economic crisis'.

"So, wise guy, what's the solution?"

Fire the managers of these companies. There are plenty of people who know how to run a company, but are not the nephew/grandson/son-in-law/etc of someone important. Disband the corrupt unions that are sucking the life out these companies. Unions were great when people were working in unsafe conditions and being under-payed. If you think we still need safer working conditions and more pay for employees, go to China for your next vacation.

This post has been edited by DrOats: 18 November 2008 - 05:13 PM

[DrOats]

Alternately, I will be starting a money shuffling company sometime soon. We will spend billions on something shiny and when the bank comes around to collect, we will file for bankruptcy.

GOVERNMENT, come bail us out, we are a victim of the economic crisis!

[Sheti-Phian]

I think the bailout is a bad idea, you give it to those who ask now and everyone will want one at some point.

What happens when we overspend? we have to pay for it.
So why when a big company over spends should others bail them out? I say let those over paid "well educated executives" cover the cost for their mistakes & greed.

One of the dumbest bailouts I've heard was Visa. (or maybe it was Mastercard)
They want tax payers to bail them out, yet the taxpayers will still have to pay their credit card bills.
Why don't they just call it even? (You bail us out, we'll cancel all debts)

[Arram]

I'd just like to provide some real life perspective on this situation from my perspective.

In industry there are fixed costs and variable costs. Fixed costs are things that can't change. If I make 100 cars or 1000 cars, I still need a building so the cost of that building is a fixed cost. Variable costs are ones that fluctuate with production levels. If I make 100 cars, I need X workers while if i make 1000 I need 10X. While we can compete with foreign automakers on fixed costs, we are currently getting slaughtered on variable costs, specifically labor.

The unions need to go. Let me say it again. The labor agreements are destroying the auto industry.

I shall give an example in which I have personal knowledge. Approximately eight months ago, at a company (that shall remain anonymous) that provides parts to the big three and some other manufacturers and has workers in the UAW. This company happens to employ my best friend's older sister. She is a college graduate engineer and the median salary for her profession is somewhere around 55,000 straight out of college. The UAW workers decided to strike because they weren't getting paid enough. In order to fulfill some of the contracts, the company had the white collar work force working the line. Now here is the messed up part. The company was saving money by having college graduate engineers working the line. Yes, that's right it is cheaper to hire college graduates than to use unskilled labor that has a high school degree.

While I am not saying that these people don't have a right to a nice life, I think the salary and hourly rates is vastly out of proportion with the challenge of their job.

So, I am stuck. I want my friend's sister to stay employed, but at the same time feel the desire for the useless leeches who are being overpaid to do grunt, unskilled labor should be unemployed!

[lambert31]

I prefer the Crash and Burn strategy. I mean it's been proven to work time and time again and it seems that it's pretty much the only thing that makes large groups of people change. Yes it will make the majority of people broke and all that but honestly that sounds more fun than working in a god awful job to maintain a life style that you don't actually want (face it, you actually want to be a superstar or something, not an employ of sunlife or wherever you work). So forget stability, it's boring and doesn't work cause people are greedy. Let it all come crashing down and don't worry about it. It'll figure itself out.