Big Three Battlegrounds

Why can't we all just get along? The prospect of of having to intervene in another sector of the economy, the auto industry, has created a defacto battle ground of sorts. The attention being paid to the sad state of affairs at GM, Chrysler and Ford has exposed harsh divisions along policy, ideological and societal lines. What could have been a straight forward debate about loaning money to the Big Three has become a struggle along multiple fronts. You thought the people in Washington just wanted to entertain a new bailout package but there are more layers to this onion than meets eye.

The Fight For Stability in a Crisis
The guys in charge of the automakers will tell you that their companies are fighting to stay alive and the dysfunctional state of the credit markets is making things hard. They'd love to turn to the credit markets to borrow money and replace the cash they are burning through but there's a financial crisis in full swing so that's not an option. Considering all that is being done for the financial sector a loan to save or stabilize the U.S. automakers and the thousands of jobs that are at risk doesn't seem out of bounds.

Remember that $150 billion bailout of AIG (originally set at $87 billion) was deemed necessary because of their omnipresent status in the global financial system. The Treasury coughed up $150 billion to stave off excessive counter party risk. Surely a loan to car makers to bridge the economic crisis caused by the likes of AIG is in the realm of the possible. I think it's safe to say that GM workers will not be attending retreats at exclusive resorts during the loan period. That little fit the media is throwing over the use of corporate jets really seems trivial when compared against the massages and other pampering AIG employees received whilst on government sponsored holiday.

Definitional Schism
There's a low level verbal skirmish over the definition of what government action is, a loan or a bailout. The more loathsome someone feels about the Big Three the more emphasis that is placed on the term bailout. So it may sound like BAILout when muttered on cable television. I'll stick with the more accurate title, it's a loan.

The continued seizing of the credit markets would probably make a reorganization under Chapter 11 untenable. There is a consensus developing not a myth that the bankruptcy would quickly back slide into a liquidation. Consider that auto industry jobs have a multiplier of 9 or 10. A liquidation of GM et al means the evaporation of suppliers and other related industries that are supportive to the manufacturing sector. That includes the mom and pop (sorry for the cliche) diners, barbershops, pizza places etc. that will face untimely eradication from the local economies that depend on auto laborers to pump money into there businesses.

A Tipping Point in the Ideological Struggle?
The right wing pundits, columnists, policy makers and disciples of creative destruction see the argument over "bailing out" the Big Three as a tipping point of sorts. A victory would mean shutting the automakers out of receiving any federal loans and force them into a tailspin leading to liquidation or fragmentation into smaller entities. This scenario may sound detrimental to the U.S. economy as a whole but theses guys know the survival of their ideology is at stake. They have picked this debate, not the $700 billion one, as the final showdown in eradicating the perceived cancers of the free market system they crave.

Mitt Romney, Fox News, the WSJ Opinion page, George Will and others have weighed like an angry mob from the Roman Coliseum with a collective thumbs down. They may arrive at the prognosis using a different methodology but the conclusion is the same. Let them fail and we will be stronger is a common chant from the market worshipers.

The dialectic we are witnessing is actually a full assault on the soft underbelly of the nemesis of free market acolytes. Namely the economic safety net provided by organized labor over the years. You know, luxuries like living wages, health care, pensions and safe working environments. There's blood in the water and the antagonists are waging a proxy war against one the largest remaining strongholds of organized labor. Consider this, one of the graphics run on Fox News today read, "Is this a bailout of the union!". Bailing out shameful greed on Wall Street okay, providing loans to the Big Three (union workers), bad.

If a fatal blow can be dealt to the Big Three surely they think a significant remnant of industrial labor movement could be neutralized in one stroke. Attacking organized labor vis a vis the demonization of the individual worker is one more tactic utilized by the "on your own" crowd. This type of assault on the structure of union employment had been going on before the Big Three Battle of 2008. George Will wrote a celebrated column on the decline of GM in 2006 where he referred to the health care and pensions offered to GM employees as "welfare". He penned a reprise to that column in this week's Post.

Yes, the beloved Joe Six pack that the GOP crowed about during the 2008 election busted his ass on the GM assembly line for 25 years to become a welfare recipient, he in no way earned those benefits. Funny how propping up AIG artificially with unlimited billions doesn't draw the same animus from these guys.

You would think that the crumbling of one of the pillars of free markets ideology, unregulated markets, would have discouraged the protraction of the ideological war. Of course the abysmal attempt of the past few years to embrace free market dogma has been a train wreck all together but that hasn't abated the trumpeting from the sons of Friedman.

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Flush Your Free Lunch Down the Toilet

Mayor Plusquellic's Sewers for College plan has evolved into a lease of the Akron sewer system rather than sale. After looking at other lease deals on infrastructure around the Country the original plan to sell the system outright has been modified to be a lease deal. Leases comes with the same caveats as sales. The system would almost certainly be leased by a foreign entity and that foreign corporation would have to raise user fees in due time to cover operations. A spokesperson from one firm is quoted in today's ABJ article:

''Generally, it means more efficient operations and lower-cost pricing,
even taking into account profit for dividends and reinvestment into the
system,'' Henning said. ''It also means that customers are paying 'real
cost' pricing, rather than a subsidized price based off the use of
government bonds to finance infrastructure improvements.''

You see public works are actually subsidized because capital improvements are financed with government issued bonds. Oh wait a minute, I thought local governments pay debt service with revenue collected from user fees and taxes. So the subsidy actually flows from citizens that use the infrastrucure. We are subsidizing ourselves, that has to stop.

Call it a lease, a sale, creative financing, it's all the same. Privatization will come with more costs in the form of increased fees. This deal can't create money out of thin air and fund universal college scholarships at the same time.