Henry Paulson, Bailouts and Payback

Bill Gallagher

Some not-so-random thoughts on the state of the economy:

WHAT'S HENRY PAULSON SMOKING?

The Treasury Secretary just held a press conference to announce that instead of dumping another 350 billion big ones into the banking industry he'll see that billions go to "support household and business spending".

To do that he wants to get lending going again. He's apparently not pleased that the banks that have been recipients of the billions of taxpayer dollars redistributed by the government have been spending too much on executive compensation and dividends for stockholders.

Does he really think that the problem with the economy is that we're all just dying to borrow more money so we can buy stuff? Granted, a number of businesses need credit to survive. And that should be addressed. But consumers are, IMHO, more worried about keeping what they've got - a job, a house - than they are about buying things.

Remember when "simplifying your life" was a trend? Now it's a necessity.

Didin't Paulson learn anything from last spring's stimulus program? What did most people do with that money? Buy a flat screen television to keep Circuit City from going under? No. Most people did the wise thing and used it to pay down debt.

(I like the suggestion from somewhere that the next President pick his Tresury Secretary now and the current President appoint him immediately so we can just move on.)

DO THE BIG THREE DESERVE A BAIL OUT?

President-elect Obama urged President Bush to act now to throw a financial lifeline to GM, Ford and Chrysler.

The current President says he'll only do so if Congress passes the trade pact with Colombia he so covets.

The soon-to-be President isn't ready to cut that deal. Organized labor hates the idea of another NAFTA. Plus there's the issue of human rights. Colombia apparently deals with union folks the way the old regime in El Salvador dealt with nuns and priests it didn't like.

Looks like the Big Three will have to wait until January 20th. At that point the automakers will also have to decide if they're willing to get greener to get the billions they say they need to survive. Here's where it gets sticky. The United Auto Workers want the bailout without any preconditions like raising mileage standards or building more efficient vehicles.

Something's going to have to give. Will the UAW see the forest for the trees?

SPEAKING OF ORGANIZED LABOR

Over the weekend the head of the U.S. Chamber of Commerce, Thomas Donahue, provided me with some much-needed comic relief. He told the NY Times that Congressional support for the Employe Free Choice Act is "payback" that unions are hoping to get in return for supporting Democrats. The Act would make it easier for workers to force an election on union representation.

Was Donahue serious? The Chamber doesn't play the "payback" game? Big business doesn't support the aspirations of certain politicians to assure some "payback"? Like defeating the Employe Free Choice Act?

Meanwhile here in Oregon, the President of Stimson Lumber, Andrew Miller, tells the Oregonian, "If you want a depression, pass that act."

Wait a minute. Let's complete the circle here. Paulson wants to support household spending to kick-start the economy. Household spending has been depressed by the growing wage inequality between most households and households like those being enriched by the first blast of bailout billions - banking executives and bank shareholders. Wouldn't union representation have a strong positive impact on wages and thus support household spending? Since when is "earn and spend" rather than "borrow and spend" such a bad idea?

Personally, I will continue spending my time figuring out what NOT to spend money on. Especially borrowed money. It's called discipline.

Comments

  • (Show?)

    The big automakers labor costs, particularly in pensions, may be the deal-breaker. They clearly want to get out of past obligations. I've even seen the claim that they only make the big gas guzzlers and high-priced cars instead of cars people want to buy because their labor costs, especially pension payments, make them actually lose money on sales of small cars. (I don't know if that's true, but it's on the table.)

    Any government bail-out of the auto industry is going to have to tackle mileage and size issues, and that is probably going to open the whole Pandora's box of wages, benefits, and especially pensions. A quick infusion of cash without reforming the whole industry seems likely only to put off collapse for another few years at best.

    Labor, as usual, is going to be asked to give the most. The new team in Washington needs to use the powers of the purse at their disposal to ensure that saving the industry doesn't mean screwing current and former factory workers. Ultimately nobody is going to walk away happy from this one.

  • joel dan walls (unverified)
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    The Big Three are going to be a footnote in history if they don't do something about building high-efficiency cars, electric cars, etc. I'm uninterested in bailouts that do not have strings attached, and my fondness for organized labor notwithstanding, I'd say the UAW is being obstructionist and dumb. The issue is not some sort of simplistic rah-rah about keeping jobs in the US; it's about turning the jobs involved in building Cadillacs, big pickup trucks and Hummers into jobs involved in building sensible vehicles. I guarantee that if the Big Three, the UAW, and Uncle Sam cannot work out how to do this, the Japanese automakers will.

  • Buckman Res (unverified)
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    DO THE BIG THREE DESERVE A BAIL OUT?

    Here’s a radical idea. Let them fail and reorganize under existing bankruptcy laws.

    Handing yet another business a multi-billion $ blank check would be criminal, particularly in light of the latest “restructuring” Paulson proposed today of last month’s $700 billion bailout plan, a plan which has solved nothing.

    Rep DeFazio and the others who voted against the original plan are looking more and more like the smart kids in class who should be consulted first about any further solutions.

  • (Show?)

    Does he really think that the problem with the economy is that we're all just dying to borrow more money so we can buy stuff? Granted, a number of businesses need credit to survive. And that should be addressed. But consumers are, IMHO, more worried about keeping what they've got - a job, a house - than they are about buying things.

    Actually, Bill, it is commercial lending that Paulsen is talking about, not consumer lending. Credit cards are still being issued and consumers are still free to spend But unless banks make commercial credit available, things are going to get much worse.

    The [Employee Free Choice] Act would make it easier for workers to force an election on union representation.

    Actually, it allows unions to force representation on workers without a vote if they get enough signatures (collected without privacy and without the opportunity to hear arguments on the other side).

    It is tantamount to providing that if Bill Sizemore or Kevin Mannix collect enough signatures on an initiative petition, the measure will become law without the nasty inconvenience of a vote.

  • (Show?)

    "Actually, it allows unions to force representation on workers without a vote if they get enough signatures"

    ...otherwise known as a vote?

    That's like saying if a majority of people elect Obama the President, the rest of the country will have to accept him as the President. The horror!

  • Law-n-Order D (unverified)
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    Longtime Liberal Democrat George McGovern said:

    “ To my friends supporting EFCA I say this: We cannot be a party that strips working Americans of the right to a secret-ballot election. We are the party that has always defended the rights of the working class. To fail to ensure the right to vote free of intimidation and coercion from all sides would be a betrayal of what we have always championed "

    I Obama has the guts to veto this bill.

  • (Show?)

    "Actually, it allows unions to force representation on workers without a vote if they get enough signatures"

    ...otherwise known as a vote?

    No, TJ, having a co-worker hand you a card and stand over you while you sign it is not a vote. Any more than allowing the employer come by and stand over you while you sign a card saying you don't want to belong a union would be a vote.

    People elected Obama by a secret ballot. Workers should continue to have that same right when choosing whether or not to have form a union.

  • LT (unverified)
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    Has anyone actually read the language of the bill? Or are they just placing their trust in ads run by the Chamber of Commerce?

    I've heard the actual legislation is more complex than "sign a card, join a union".

    Now that a Democratic president has the right to appoint members of the NLRB, maybe that would be a better idea.

    And Jack, what do you think of employers telling their workers how to vote?

    Wasn't there some fuss this year because some employer had "staff meetings" telling employees that the company would be in a lot of trouble if the "wrong" candidate was elected?

  • (Show?)

    It is estimated that 10% of jobs are tied to the auto industry.

    Those of you who want them to just go bankrupt, are you ready for a 5-10 point hike in unemployment?

    And Bill, Jack R. is right, you really do misunderstand the fundamentals of what Paulson is suggesting. This has very little to do with consumer debt. But if we are speaking of individual level debt, this is not about your credit card.

    This is about your inability to finance a car, to get a mortgage, or if you are a business, to fund needed improvements. Credit has seized up and yes, we run on a credit economy. We don't barter any more and most people don't deal in cash transactions.

  • (Show?)

    I confess I haven't read the legislation.

    But I know there's a long history of sophisticated and violent efforts to defeat organizing efforts in the workplace.

    Gallagher family lore has it that my paternal grandfather was roughed up by Pinkertons and sent packing from Philadelphia for trying to organize transit workers early in the last century.

    Some labor leaders will concede that there should be secret balloting. They may go for a compromise that allows a vote but within days - rather than weeks or months - of enough cards being signed by workers.

    Some labor leaders will concede that a secret ballot is desirable. They just don't like the fact that once enough workers sign the card to have a vote on union representation the employers delay the vote long enough to undercut the organizing effort with expensive, sophisticated and sometimes not-so-subtle campaigns.

  • (Show?)

    DOH!

    Either of those last two redundant paragraphs will work.

  • (Show?)

    There are many ways to find out more about the Employee Free Choice Act, from the AFL-CIO site onwards. And many progressives have written compelling reasons why it's so important, from former Labor Secretary Robert Reich to Progressive States Network's Nathan Newman.

  • Urban Planning Overlord (unverified)
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    Gallagher's analysis is undermined by the following ignorant statements:

    Organized labor hates the idea of another NAFTA. Plus there's the issue of human rights. Colombia apparently deals with union folks the way the old regime in El Salvador dealt with nuns and priests it didn't like.

    Organized Labor is run by economic illiterates. And Colombia is a prospering democracy whose citizens, believe it or not, are among the five happiest national citizenries in the world.

    Until their economy tanks because the U.S. coddles economically illiterate union bosses.

  • (Show?)

    To the contrary: Amnesty International last month released reports documenting an increase in human rights abuses in Colombia:

    The Colombian government is painting a false picture of the state of human rights in Colombia, when in fact the situation is deteriorating, including increasing reports of forced internal displacement, attacks against social and human rights activists, and killings by security forces.
  • (Show?)

    I have read the legislation. It requires union representation if a majority of employees sign cards saying they want a union, unless 30% of the employees sign cards wanting a secret ballot.

    The problem, of course, is that neither the original signatures nor the signatures of those wanting an election is private. This measure responds to allegations of intimidation by employers by creating an invitation for intimidation (not to mention disruption in the workplace) by unions.

    Bill, I'm afraid your family anecdotes about the Pinkertons is ancient history and of no relevance today. There have been complaints about overreaching by employers and frankly I think LT's comment about a new president appointing members to the NLRB may address some of these circumstances.

    I think that is a far better approach to dealing with this issue than taking away workers' rights to a secret ballot.

    Finally, last session the Oregon legislature passed a similar measure for public employee unions in Oregon. Does anyone have stories of public employer intimidation in Oregon (by use of the Pinkertons or otherwise) to prohibit unionization that would justify this bill?

  • (Show?)

    Jefferson Smith could give you a good example of employer intimidation... if I remember correctly it was at Circuit City.

    There are also plenty of confirmed incidents of such intimidation by employers all over the country every single year.

  • Joanne Rigutto (unverified)
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    I think that the importance of having a vote by secret ballot is so that neither side - employer or union - will know how a person voted. Intimidation doesn't come only from an employer, it can come, just as easily from the union organizers.

    I was in Las Vegas one time and came out the front doors of a casino. For some reason, the casino was being picketed by a union. To this day I don't know what their beef was with the casino or which union(s) was picketting, and I don't really care. At the time I was a member of the Bricklayers and Allied Crafts union, Local #1 in Portland, and proud to be so. I had come in the back doors of the casino from the parking lot and had no idea that the casino was being picketted, otherwise I wouldn't have gone in in the first place. When I came out things were thrown at me, I was harrassed, cussed out, called a scab, and the only reason I didn't take a swing at one of the people was because I was in Las Vegas and not home in Portland. Had this happened in Portland there would have been one helluva fight.

    Personally, as far as I'm concerned, it's nobody's damn business how I vote and if a union is so weak that it can't stand passing a vote by secret ballot it's not worth joining.

    To toridjoe's comment - That's like saying if a majority of people elect Obama the President, the rest of the country will have to accept him as the President. The horror!

    It would be more like everyone signing their ballot so that the political parties could know if you voted for Barak Obama or John McCain.

    As to the credit situation, especially business credit, the Capital Press had an article a few weeks ago about ag commodities begining to stack up at the ports because the buyers' letters of credit weren't being accepted by the banks and so those buyers couldn't take delivery for export. The same thing's happening in Europe and elsewhere in the world. I think in the Capital Press article it said that actuall export shipments leaving from the US were down around 9% at the time. That's a lot of wheat and beef, etc. stacking up at the ports. And considering how the populations of the various countries around the world, including here in the US, are becoming more and more dependant on imports to feed themselves, that's potentially a lot of hungry people.

    In ag, so much runs on business credit, an awful lot of large farms selling into the national and international commodities markets don't save/clean seed for planting the next year, and with pattented seed it's not legal to do that anyway. And then the equipment to run a large farm costs a lot, so there are more loans. Even people engaged in animal ag take out loans to buy feed and hay. Everything runs on credit anymore.... Only the small outfits like mine run on cash it seems.

  • Ted (unverified)
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    Actually, Bill, it is commercial lending that Paulsen is talking about, not consumer lending. Credit cards are still being issued and consumers are still free to spend But unless banks make commercial credit available, things are going to get much worse.

    That's not really true. Revolving credit is contracting as well. There are still millions of credit card offers going out, but all banks are raising credit scores while at the same time average credit scores of applicants are decreasing. It's a lot like the commercial fishing industry chasing depleting fishing stocks. The nets and hooks are just as big, but fewer "keepers" get caught.

    The other aspect is that private label and store credit programs are being cut industry wide by about 50%. That is exactly what caused Circuit City to renounce its restructuring and unexpectedly declare bankruptcy. They got cut off by their bank who actually lends on those sales and buys the receivable for a fee. Stores like CC rely on their branded credit programs for as much as 50% of their total revenue. This same effect is hitting Mervyns and a lot of other stores and the full effect of these reductions in exposure to the U.S. credit market won't be felt in the macroeconomy until Q1-Q2 2009.

    As for the Big Three, all those who think nationalization is such a great idea should recall history. Great Britain did that with British Leyland Company after WWII with Triumph, Jaguar (?), and some others. The results were disasterous, though the brands did survive for awhile and some long enough to go private again.

  • (Show?)

    If the Big Three or any of them go through Chapter 11, a key thing that will happen is that they will default on their pension obligations which will then be turned over to an already strained federal pension guarantee fund. Just a different route to a different kind of government bailout.

    EFCA is driven by a widespread pattern of abuses of current labor law by private employers that has gone on for decades, including "captive audience" coercive meetings by management and firings of workers who get involved in union organizing. The penalties for these violations have only partly and slowly been enforced under Republican administrations and not so much better under Clinton; in any case they are small enough compared to the strength of management's rabid anti-union ideology that many firms are willing to violate the law and pay small penalties as a cost of doing business. This violates workers' human right under international law to form and join trade unions.

    As noted, delays in elections form part of this pattern. So too does failure to bargain first contracts in good faith, and dragging out unfair labor practice decisions and appeals (often with NLRB collusion under Republican administrations).

    These are not just allegations, but well-documented, widely occurring facts.

    In the 1950s the U.S. and Canada had roughly comparable union density (proportion of workers who were union members). Canada's has remained roughly stable. This has not caused the collapse of the Canadian economy. Much the same could be said of other highly industrialized countries whose living standards in many cases exceed those of the United States.

    One difference that has a bearing on the question of competitiveness of U.S. firms is interestingly reflected in the pension issue. Most of those other countries have a much higher "social wage" than does the U.S., e.g. universal government-funded health care in one form or another, and government-organized pension systems more robust than U.S. Social Security.

    In the 1950s U.S. capitalists in their wisdom decided that they wanted to avoid such means to provide for key elements of human needs and combined political opposition with bargaining with unions to provide "fringe benefits" rather than wage increases. When roughly 1/3 of workers were unionized in a manufacturing-centered economy those union negotiations to a substantial degree set standards for non-union workers as well, although this was not true in areas such as agricultural and domestic labor (excluded from the NLRA substantially for racist reasons) and was geographically variable, with unions weaker in the Southeast.

    Now with changing age demographics and a decline in corporate community ethos leading to export of production, the chickens are coming home to roost in the private obligations that corporations negotiated to avoid public social wages, and they want out of those obligations. If they are to be allowed to do that, the whole "big deal" should be renegotiated, and the U.S. should institute a proper social wage regarding publicly provided health care and pension security.

    The justification for a great many of the pro-corporate, anti-worker elements of our social system is that owners of capital take risks. The history of the last several decades show that workers do too. Both the level of risk that workers undertake, and the pattern of government actions in securing companies against failure, point to the falseness of the basic ideology about risk and point to a need to fundamentally rethink how we as a society handle risk and reward, in favor of greater common security against certain risks in basic human needs.

  • Varun Verma (unverified)
    (Show?)

    It is common sense that unless a problem is addressed at root, it would resurface later and relapse could be more severe. I have tried to present a root cause analysis of the financial crisis and practical solutions for short term as well as long term in the article on link below. The title of the article is "Henry Paulson's Approach is Bass Ackwards":

    http://commonsensetopics.blogspot.com/2008/11/henry-paulsons-approach-is-bass.html

  • Varun Verma (unverified)
    (Show?)

    It is common sense that unless a problem is addressed at root, it would resurface later and relapse could be more severe. I have tried to present a root cause analysis of the financial crisis and practical solutions for short term as well as long term in the article on link below. The title of the article is "Henry Paulson's Approach is Bass Ackwards":

    http://commonsensetopics.blogspot.com/2008/11/henry-paulsons-approach-is-bass.html

  • Varun Verma (unverified)
    (Show?)

    It is common sense that unless a problem is addressed at root, it would resurface later and relapse could be more severe. I have tried to present a root cause analysis of the financial crisis and practical solutions for short term as well as long term in the article on link below. The title of the article is "Henry Paulson's Approach is Bass Ackwards":

    http://commonsensetopics.blogspot.com/2008/11/henry-paulsons-approach-is-bass.html

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