Sympathy for the Car Guys
New York City - Watching the spectacle of auto CEOs seeking aid on Capital Hill, it is interesting to contrast their reception with that of their better heeled Wall Street counterparts. Though--or perhaps because the auto guys--compared by the New York Post this morning to Moe, Larry and Curley--are the poor men among recent corporate CEOs seeking money, they have been treated far more contemptuously. They have had to travel hat in hand to Washington. In contrast, bankers for the most part have stayed in New York, while the G -men, like borrowers calling on the Morgan Bank in days of yore, have made the trip to see them. Many Americans cannot resist gloating over the plight of the auto CEOs. Indeed the headline of today's Post was Rust in Peace.
Are people really more angry about their cars breaking down and high paid auto workers than about 30% interest on credit cards, bait and switch mortgages and fee-based banking? I don't think so. Reflecting on the different treatment, I think the answer is that neither group has sympathy among the public but bankers have sympathy among those in power. This has spared them the humiliating treatment of publicly asking for money at hearing after hearing.
Outside of Detroit, hardly anyone in government even knows a car guy. In contrast, bankers and financiers are densely intertwined with the political class in Washington. Washington routinely taps people from the financial industry to work in government and countless Schedule C employees not to mention cabinet officials go to Wall Street upon leaving government. Most policy wonks know dozens of people in the financial sector. There lies the difference in how the two sectors, both suffering in the current downturn, have been received. (There also lies the risk of crony capitalism.)
It also helps the financial sector that a large group of government organizations, from Treasury to the SEC to the Fed to the CFTC are devoted to its well being. The auto industry though regulated with respect to safety and emissions has no similar agencies with a stake in its ongoing health.
However, if policy makers were to put aside the cultural and career affinity they may have for finance as opposed to manufacturing, they would find that the auto industry is every bit as important to America's future.
Finance is a great way to make money. However, you don't have to believe with Kevin Phillips that finance becomes an outsized part of countries in decline to acknowledge that financial business gravitates to sectors and regions that are putting money to productive use. Strong industry in a country makes for strong financial opportunities. Silicon valley was a driver of Wall Street wealth building in the 1990s. American firms, not British or Japanese ones, took most of the business.
However in the last decade, as the center of productive uses for capital has moved to China, US financial institutions have had to chase business there and eventually, they will find themselves outmaneuvered by Chinese banks. And markets recognize this fact. If the Big Three go under, the stock market and US financials may decline in value as well. The irony is that if that happens, the financials stand a good chance of getting more billions from TARP or the FED. The result in that scenario would be that we lost not only the money but the car companies, too. It makes more sense to put together a real plan to get our auto industry back on track.
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