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GM and Wall Street

The Michigan Citizen, News Report, Shea Howell Posted: Apr 09, 2009

Another chill passed through Michigan as the Obama administration rejected the GM and Chrysler plans for additional aid.

We, as a nation, cannot afford to shirk responsibility any longer, President Obama said. Now is the time to confront our problems head-on and do whats necessary to solve them. He added, We cannot continue to excuse poor decisions. We cannot make the survival of our auto industry dependent on an unending flow of taxpayer dollars.

One condition for receiving additional support was the resignation of Rick Wagoner, Jr., as chairman and chief executive of GM. His leaving was a sign of the serious kind of restructuring demanded by the administration.

Even with this symbolic resignation, Obama said neither companys restructuring plan goes far enough to warrant the substantial new investments that these companies are requesting.

For companies that have already laid off thousands of people, cut wages, renegotiated contracts, cut product lines and reduced benefits, the idea of a leaner business plan is grim news to the families and communities that depend on these businesses for survival.

At the same time, Obama seems to recognize that the same old thinking that got us into this mess is not going to get us out of it.

Curiously, this insight into the auto industry is not one he has when he looks at the economic crisis as a whole.

It is hard to understand how Obama can be clear that old thinking is bad for the auto industry, but fine for the banks. It was, after all, the collapse of the financial sector, not the auto industry, that led to this disaster. While U.S. automakers can be held accountable for any number of bad decisions, creating a finance market built on air is not one of them.

Yet Obama has not made the kind of rigorous demands on the finance sector that he has on autos. Why? Because his financial planners are all products of the thinking of Wall Street. Most notably Lawrence Summers, head of the National Economic Council and Tim Geithner, the Treasury Secretary, still believe the financial system, with some additional federal dollars, will return to normal and start lending again. Then, they think, all will be well.

To be fair, they want a little more regulation, but they clearly believe that increasing domestic credit through private banks is the key to restarting the economy. Obamas men are trapped within the Wall Street worldview. Thats why every proposal they come up with is a revised version of the failed Paulsen attempt to let the bankers work it out.

This is a little like thinking that producing more Hummers and SUVs will save GM.

Over the last year and a half the Wall Street way of thinking has produced colossal failures. The government has spent $2.2 trillion and committed another $7.7 trillion to bolster Americas struggling financial system; $7 trillion of shareholders wealth was lost in the stock market in 2008; over 4.2 million jobs have been lost in the last 14 months; 2.3 million houses were foreclosed in 2008, with another 121,756 foreclosures last month alone.

We are facing something much deeper than a credit crisis. For the first time since the 1930s vast numbers of Americans are facing financial ruin, through no fault of their own.

The unfairness is not that auto industry is being forced to rethink its role. That is long overdue. It is that Wall Street thinking, in spite of clear evidence to the contrary, is still seen as Truth. This level of denial is a sure road to continued disaster. Summers, Geithner and their Wall Street men need to follow Wagoner to the door. We cannot continue to excuse poor decisions.

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