A plea (on the auto industry bailout)

The Republican senators in the Senate last night blocked the auto bailout under the following pretext: the demands for steep cuts in pay and benefits for the automobile workers were not met. Yes, following textbook style Republican governing, they have again asked the workers to make sacrifices whilst making no attempt to hold the management responsible. They have managed to turn this into a ‘the result of workers getting undue benefits is killing the US auto industry’.
At this point the auto bailout looks like a non starter in the Senate. The White House should act now and act decisively. The government must use the funds from the TARP bill to bailout the auto companies. No, I do not think the management at Ford, GM and Chrysler deserve the bailout, but I think the workers deserve it. There are a million or more that will be affected if this does not happen. Three months back Sec. Paulson managed to convince a doubting Congress to fork over $700 billion to save companies on Wall Street. Companies that make money off other peoples money. Companies that have no real infrastructure save people sitting at terminals and betting on outcomes that they scarcely understand. Companies that do not produce or manufacture tangible products save for pieces of paper whose values depend on other pieces of paper… ad infinitum. Detroit made decisions, pursued bad choices and was led by bad managers. As part of the bailout, the government should go ahead and change the management, restructure management benefits and legislate the closure of brands that make no sense. The government should not punish workers that have done nothing other than follow the bidding of managers who were short sighted. Moreover, from a pragmatic viewpoint, the fallout from a million people losing their jobs as a result of these companies going under could have severe repercussions not just for the economy, but socially and morally as well.


Another major argument laid out by the Republicans in fighting the bailout is a story claiming that an average autoworker rakes in $73 dollars an hour. That is a pile of garbage. A breakdown of how the $73 is divvied up here: (The representative image above has been ripped from the article).

The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.

• The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour.
• The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour.

• The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix — dividing those costs by the total hours of the current work force, to get a figure of $15 or so...

Please do not fall for the $73/hr number!! It is actually closer to $50.

The $4,284,500,000,000.00 bailout

It is common to hear about the bailout costs and the $700 billion number associated with the exercise. However, there are many elements of the taxpayer sponsored bailout quietly gobbling huge sums of money behind the scenes. Fortunately, I managed to stumble upon a website that is keeping a running tab on the total bailout allocations. CNBC estimates that the total amount allocated so far in this taxpayer financed orgy to be $4,284,500,000,000.00. Yes, that is right - we are putting over 4 trillion dollars into this.

Here is a graphical breakdown.

I see very little money allocated to the tasks involved in the government working with homeowners in helping them change their lending terms or mortgage conditions. Helping hurting homeowners (albeit a difficult and arduous task) will help us identify the quantum of wrongful mortgages, their hidden clauses and their knock on effects on the bundled securities that they back up. Of course, such an effort will involve not just the government, but a concerted attempt by the mortgage industry and banks in sitting down at the table with the aggrieved mortgage holders and working this thing though – but then that is hard work and it benefits only the common folks.

Instead, Sec. Paulson writing in an op-ed piece here tells us that the best way to address housing and mortgages which are at the root of our economic difficulties is "more access to lower-cost mortgage lending to slow the decline in the housing market and reduce the number of foreclosures".

What he is telling us is that as soon as lenders (i.e. institutions like banks and mortgage lenders) are bailed out, the economic situation should stabilize. Again he is brandishing the principles behind the failed, trickle down Reaganomics that have led to naught over the last eight years… His idea seems overtly flawed because the solution completely bypasses the segment that is hurting (homeowners) and rewards the segment that caused the hurt in the first place (banks/mortgage lenders who with obfuscated terms and conditions bilked fledging homeowners)... I see a long hard slog ahead…