by Steven Jonas, MD, MPH – December 17, 2008
Remember the original bailout package? Yes, the one put
together some years ago for some hedge fund or funds. The Republicans were all
for that one. Several billions. Then there was the bailout/buyout package for
Bear Stearns.
Billions more. Lehman
Bros. wasn't so lucky (but then again it's primarily
Goldman Sachs folks who populate this Treasury Dept., not Lehman folks. Apparently Treasury Secretary Paulson,
who came from Goldman Sachs and is likely to go back there, just didn’t like Fuld, who ran Lehman --- into the ground.) Then came the
broader financial sector $700 billion bailout, the first draft of which was
essentially written on the back of a paper napkin. (OK, that's an exaggeration.
It was actually two-and-a-half typed pages long.) That package eventually got
into a very long bill. It was eventually passed to help the investment
banking sector recover from its excesses of greed in the process of
securitizing mortgage loans.
That “securitization” process was enabled, courtesy of McCain's Treasury
Secretary-designate Phil Gramm and the repeal of the New Deal Era Glass-Steagal Act. (To be fair, Larry Summers, who was almost Obama’s Treasury Secretary but who is a senior economics advisor, also thought that
that repeal was a great idea.) Glass-Steagal had separated investment and
commercial banking in order to forestall exactly the kind of financial meltdown
that has occurred over the past six months.
This meltdown has been at the courtesy of the investment
banks. With the repeal of Glass-Steagal they were able to invest in mortgages, formerly the
province of just the commercial banks. But by some oversight or other they were not required to have the
reserves to back up mortgage loans just in case they went sour at anywhere near
the level commercial banks were still required to hold. Also, they were able to buy the fancy “securitized”
mortgage packages they fancied with borrowed money. This kind of “on margin”
borrowing is otherwise known by the polite term “leveraging,” as in “leveraged
buyout.” For them, to compound the
situation, the margin requirements, that is the actual
cash they had to have invested in the securities they bought, were extremely
low. So the big boys are in big
trouble and they are running through government funds at a great rate, even as
some of them still aim to provide year-end bonuses to their top execs. Still, no problem
there for the Republicans.
And so comes along the U.S. auto industry, especially General
Motors. As a result of really bad management, for many years focusing on
stock-price driven immediate profitability and not caring much about the long
run until very recently, this industry is in a very bad way. Both GM and Chrysler face possible near-term
bankruptcy without Federal government assistance. AIG, an insurance company, mind you, that made some very bad
decisions on what to insure, gets $150 billion. The U.S. auto industry, which
directly and indirectly employs an estimated 3 million people wanted an extra
(and paltry) $25 billion beyond the loan it was to already get to help it
retool for fuel-efficient cars, that is $25 billion more to help it get to the
time when it can start producing modern cars in significant numbers. At the time of this writing the amount
had been reduced to an even paltrier (sic) $15 billion.
The Republicans were digging in their heels against even
minimal assistance. But then they
appeared to be on their way to saying “yes” for the paltry sum, for near-term
political reasons. But even if
they get it (or got it) this will not be the end of it for the auto makers. The $15 billion, if they have gotten it by the time you read this, will
just, hopefully, tide them over until the new, heavily Democratic Congress
comes in on January 3 and Obama is sworn in on
January 20. However, when
the new government comes in, with a long-range plan for rescuing the US auto
industry high on its agenda, in my view the Republicans are going to do
everything they can in the Congress to prevent meaningful legislation from
passing. They will do this in
order to force the companies into bankruptcy. “Structured” (a nice fiction) or not, this will likely mean
the end of the US auto industry and the three million people it employs all
over the country. You think
that things are bad for the economy now? Just wait.
The answer to the question “why” they would want to this does
not, in my view, lie in the standard reasons given. For example, many U.S. automaker workers
live in Ohio, Indiana, and Michigan and those states seem to be gone from the
red group to the blue for quite some time to come, the racist messages that the
Republicans used to win over those "Reagan Democrats" for the last 30
years to the contrary notwithstanding. That may be true in part, but there are
U.S. automaker plants in other parts of the country, and certainly the
suppliers and especially the dealers are all over the country. So that one
doesn't hold much water.
The Republicans' own answer is, well if you bail out one industry, how do you
pick and choose among the others that might/will start lining up. So let's just
let the auto industry go. Anyway, the free market should just be allowed to
work, and the companies, well actually just Chrysler and GM apparently, should
just be allowed to go bankrupt and they will come out of it just fine. Well,
the Republicans, in Congress and in the Bush Administration, picked and chose
among the financial sector companies, so that one doesn't hold much water
either.
Thus I think that it goes rather deeper than those three. There are three other
reasons that are likely more significant. Two are ideological and one is
political, but at a much broader level than just the red state/blue state
thing. First, and this one has been mentioned a bit, bankruptcy would permit
the companies to break their union contracts, both for current employees and
for their "legacy" beneficiaries who depend on the U.S. automakers
for their pensions and health care coverage. Forgetting about what that would
do to those workers, such actions would break the United Auto Workers, one of
the last U.S. industrial unions that has any real
power. That would be a real achievement for the Republicans.
Second, over the last 30 years, as we all know the U.S. manufacturing sector
has declined very significantly, primarily as the result of the export of U.S.
capital to countries such as China where wages are much lower. So-called
"free trade" has had little to do with increasing trade going both
ways (U.S. trade deficits have been on the increase every year for many years
now) but rather with the free export of such capital. This development is in
line with the historical development of modern capitalism since it was invented
in the 17th century.
The first form was mercantile capitalism, in which money was made by organized trading at a level much higher than
anything previously seen. The second form was industrial capitalism,
still going strong in many countries around the world, especially those with
cheap labor, where money is made by making and selling things in large numbers.
The third form is finance capital, in which money is made from the business of
selling and trading various financial instruments, for example, home mortgages,
and most recently, their "securitized" form. That is the form which more and more is taking over American capitalism. Modern Republicans, having had their hands on many or all of
the major levers of governmental power since the election of Reagan, are
closely associated with finance capitalism, much less with industrial
capitalism. Thus their strong interest in helping out the former while being
perfectly willing to let the latter die on the vine, especially if that death
can bring down one of the few remaining major unions.
Finally there is an overarching political reason, well beyond red state/blue
state voting patterns and anti-unionism. The Republicans in their gut realize
that if Obama even half-succeeds in bringing the
country through the recession/Depression, especially if it is identified in
peoples' minds as Limbaugh would everso falsely have
it be, as the "Obama Recession," they will
be in the political wilderness for a long time. They realize that the only
pathway they have back to power is if things get so bad that the Obama Administration is rendered powerless to deal with the
situation and, possibly, there are an increasing number of public protests
around the country that eventually turn violent, and possibly increasingly
violent.
Then they would become the "law and order" types,
and you know to where that scenario would lead. And so, in my view the
overriding reason the Republicans do not want to help GM over the hump is
precisely that they want to make things as bad as possible before Obama has the chance to step in and begin dealing
positively with the situation. If
they can accomplish this end, they will significantly decrease his chances of
success. Indeed, it is the obverse of the old Trotskyite mantra in referring to
the conditions that could lead to a communist revolution: the worse the
better. In this case of course,
the worse the better, if things really do get worse, much worse, would be
opening the door to a possible fascist takeover, not socialist revolution. Do
you think that CheneyBush and the sector of the power
elite they represent are gone from the scene forever? Think again. They have just begun to fight. 
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This column is based in part on “Dr. J.'s Commentary: Why the Republicans Want to Kill GM,” that appeared on BuzzFlash.com, Nov.
19, 2008.