Obama in the Driver's Seat

[CSpec]

Original article here: http://www.economist.com/blogs/freeexchang...rivers_seat.cfm

I ABSOLUTELY hate the idea of comparing the administration's response to the collapse of the big carmakers to the administration's response to the collapse of the financial system. They're superficially alike, yet different enough in substance to make analogy misleading.

And yet, I can't avoid it. Barack Obama's comments today, as he rolled out the administration's plan for handling the all-but-certain failure of General Motors and Chrysler just demand to be held in constrast to his administration's poor roll out of its banking plan. The first and most notable difference is the messenger. Tim Geithner may be brilliant, but his speeches have not inspired confidence. Mr Obama, on the other hand, radiates it. No one in politics is better and hitting the right tone in any given speech.

The administration's plans may seem stingy relative to the terms given to banks, but by any other measure they are exceedingly generous, and yet Mr Obama's comments came across as appropriately stern and commanding. He is not going to allow the carmakers to sink without his assistance, but he is going to get something for the government's money—in Chrysler's case, a more stable partner; in GM's a more aggressive restructuring and a corporate head. Where the banking system is concerned, by contrast, the administration has been excessively accommodating, and it has also seemed excessively accommodating. The root of public anger isn't in the details of the bail-out plans, which are poorly understood, but in the optics of it.

There are other factors worth considering, of course. As big and important as America's auto industry is, the dollar amounts at issue are dwarfed by the bets being made on banking rescue, and the economic downside to a failed carmaker bail-out is significant but nothing like the cost to getting the banking rescue wrong. Partially for that reason, the carmakers have a poorer hand with which to gamble, and it shows. Already today Chrysler and Fiat have agreed to an alliance, and GM's bondholders are on board with the plan. And for what it's worth, markets are off some 3% on the day.

But if nothing else, the administration's approach here oozes competence and toughness, even as the government prepares to extend billions in taxpayer dollars. That's a pose it has yet to strike on the banking issue, where the appearance of a tough line is more crucial, even if Mr Obama's economic officials have determined that actual hardball would be counterproductive.

Finally, an aside: Mr Obama's carmaker rescue seems likely to include support for economist Alan Blinder's "Cash for Clunkers" programme, in which incentives are provided to owners of old, dirty automobiles to trade them in and buy newer, cleaner models. It creates demand for cars while greening the automobile fleet. The policy frequently came up in stimulus discussions but failed to make it in; maybe this time its luck will be better.

[Z-06]

While he is doing a brilliant job. In broader perspective the entire strategy is penny wise pound foolish.

The same if not higher standards should be applied to Banks and Financial Institutions who not only destroyed their investors' wealth but the wealth of the entire country and now need even more wealth. Automobile industry actually creates wealth. No matter how sophisticated models financial institutions may use they DO NOT and WILL NEVER create wealth. Their job is to efficiently manage wealth to make sure the wealth creating industries and consumers are not short of the media - money when the wealth is distributed.

Castles cannot be built in air. The entire financial system forgot that basic and went to create complex models.

[loki]

Original article here: http://www.economist.com/blogs/freeexchang...rivers_seat.cfm

Finally, an aside: Mr Obama's carmaker rescue seems likely to include support for economist Alan Blinder's "Cash for Clunkers" programme, in which incentives are provided to owners of old, dirty automobiles to trade them in and buy newer, cleaner models. It creates demand for cars while greening the automobile fleet. The policy frequently came up in stimulus discussions but failed to make it in; maybe this time its luck will be better.

the only good thing about that would be all the 80's and 90's chryslers i see that need a ring job or something... along with some others like a few acura legends, older crown vics and the like....

but i don't want to subsidize other's car purchases....

[loki]

The same if not higher standards should be applied to Banks and Financial Institutions who not only destroyed their investors' wealth but the wealth of the entire country and now need even more wealth. Automobile industry actually creates wealth. No matter how sophisticated models financial institutions may use they DO NOT and WILL NEVER create wealth. Their job is to efficiently manage wealth to make sure the wealth creating industries and consumers are not short of the media - money when the wealth is distributed.

Castles cannot be built in air. The entire financial system forgot that basic and went to create complex models.

it's not really the banks' fault for trying to compete while using fractional reserve banking...it's a very old idea, but it's basically loaning out more money than one has in physical "money"

“By this means (fractional reserve banking) government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.”

- John Maynard Keynes, The Economic Consequences of the Peace (1920)

except the FED isn't the government.

[Z-06]

it's not really the banks' fault for trying to compete while using fractional reserve banking...it's a very old idea, but it's basically loaning out more money than one has in physical "money"

"By this means (fractional reserve banking) government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft."

- John Maynard Keynes, The Economic Consequences of the Peace (1920)

except the FED isn't the government.

True that they were betting on bets! But the point is by publicly condoning them by saying they did everything according to the law is a moral defeat against these institutions. Well they might have done everything by law, but when you think it is not right morally/ethically, at least do not give money again so that they will play again. Or change the law before giving the money. What is preventing them now from doing the same CDS fiasco again? This goes to Congress in general not Obama or any specific person. One thing game theoretically speaking government has which those financial institutions don't is the capability of changing the rules of the game. But sitting put is destroying their stranglehold in this game while strangling the country.

It is like let us say GM sells you a lemon, and does everything by law to let you know that you do not have a lemon, will you buy again from GM? Not by this country's standards, otherwise Toyota will not have established a strong presence. Yet we pour money into these financial institutions because AIG has Congressional retirement pensions locked in their CDS bets. We keep pardoning them because they are the best we have. Fear will not improve this country. Bandaid fixes are not going to do any justice.

Will you live in a country which has murdering legal? It then becomes moral and ethical issue. No criminal is made until a law is formed. It is time to make a law and make these guys criminals.

[daves87rs]

I'm just waiting for a fallout boys and girls, just waiting for the fallout...

Oh, you'll see..*evil laugh*

[loki]

ideally, current fraud laws should have prevented such things... even if the FED was a legal entity.

supposedly some guy in the 50's or 60's got out of his mortgage because the bank's collateral, according to the contract for the mortgage, was shown in court to be nothing more than ink in a ledger, and the guy kept his house since the bank reneged on the mortgage.

small chevy.. ... i think it should be noted, your post is kinda hard to read. lol

Edited March 31, 2009 by loki

[Teh Ricer Civic!]

Why again are we entrusting the rescue of, well everything, to the very people that enabled and furthered this disaster in the first place again?

[ShadowDog]

Because without them and the government to assist, loans for things like buying a home and starting a business would be nearly impossible to get. You can't exactly start from scratch by cutting off the limb, but you can stop the bleeding, bandaid and heal.

[Teh Ricer Civic!]

Because without them and the government to assist, loans for things like buying a home and starting a business would be nearly impossible to get. You can't exactly start from scratch by cutting off the limb, but you can stop the bleeding, bandaid and heal.

So, your telling me we need the government to keep meddling in bigger ways to correct their own errors from meddling in the economy in the first place?

No, we need the Feds to remember their place in this Federal Republic and the Federal Reserve to be abolished, or severely hamstringed in their powers. A Gold Standard will help ensure our government wont go printing up money like its nothing and hopefully help convince our loving congress to be a bit more frugal in their endeavors - whatever they may be.

Its the only way we can protect ourselves from the government creating more crap like this and then convincing everyone that THEY the government are your friends and will make everything better all while just grabbing more power. And i accuse both parties of doing this crap.

And shadow. You are forgetting that a market will always come back. You can one day just cut off all government spending completely and the economy will suck eggs for a while. But you know what? It will come back with a vengeance stronger than ever after a while.

They say necessity is the mother of invention, and last time i checked, if the government has to make do with less money, they will find ways to provide the services people demand in a far more frugal and efficient manner than they do today.

[loki]

Because without them and the government to assist, loans for things like buying a home and starting a business would be nearly impossible to get. You can't exactly start from scratch by cutting off the limb, but you can stop the bleeding, bandaid and heal.

..unless it's gang green... then the limb has to be cut off.

[gm4life]

Goverment should not have this much power. After the current generation G8, CTS, Corvette, Camaro, Solstice we can kiss goodbye any fun RWD cars. After 2015 the industry will look very different. Make no mistake goverment won't make choices on whats out now but ahead. I seriously don't care anymore, if I can't buy cars I want to drive then I'll become 68. All of this is part of the reason I have not been around as much lately, I so feed up with it. File CHAPTER 11 Fritz mentioned it again as a VIABLE option and the goal would be to come out stronger than ever! JUST DO IT. I predict it will happen like this... Obama won't like GM's plans in 60 days, GM files chapter 11, GM kills the UNION all of it, lets 'em strike and hires the people back with fair wages like Honda or Toyota in America. That is what needs to happen... I hope Fritz can do it.

[Croc]

[Camino LS6]

In reference to what?

[Lamar]

Croc, was that from the movie Signs?

[loki]

No, we need the Feds to remember their place in this Federal Republic and the Federal Reserve to be abolished, or severely hamstringed in their powers. A Gold Standard will help ensure our government wont go printing up money like its nothing and hopefully help convince our loving congress to be a bit more frugal in their endeavors - whatever they may be.

there is an article on Digg.com now under world and business that supposedly russia, and china, are thinking of re-adopting a semi gold standard.... i didn't read it yet.

[loki]

Croc, was that from the movie Signs?

i'm pretty sure, haven't seen it but once.

[Croc]

Croc, was that from the movie Signs?

I found it on the internet, I have no clue on the source.

[Croc]

In reference to what?

Several of the preceding posts.