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Tilting at Windmills

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November 21, 2008

AUTOWORKER WAGES.... To help explain the crisis facing the U.S. automotive industry, a growing number of conservatives have begun blaming the Big Three's workers for the companies' financial difficulties. Sen. Jon Kyl (R-Ariz.), for example, recently argued on Fox News, "For years [the companies have] been sick. They have a bad business model. They have contracts negotiated with the United Auto Workers that impose huge costs. The average hourly cost per worker in this country is about $28.48. For these auto makers, it's $73."

Jonathan Cohn explained today that the conservative talking points are "wildly misleading."

Let's start with the fact that it's not $70 per hour in wages. According to Kristin Dziczek of the Center for Automative Research -- who was my primary source for the figures you are about to read -- average wages for workers at Chrysler, Ford, and General Motors were just $28 per hour as of 2007. That works out to a little less than $60,000 a year in gross income -- hardly outrageous, particularly when you consider the physical demands of automobile assembly work and the skills most workers must acquire over the course of their careers. [...]

[T]hen what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits -- namely, health insurance and pensions -- and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages -- again, $24 per hour -- and you get the $70 figure. Voila.

Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that -- probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees -- in other words, the cost of benefits for other people. [...]

Make no mistake: The argument over a proposed rescue package is complicated, in no small part because over the years both management and labor made some truly awful decisions while postponing the inevitable reckoning with economic reality. And even if the government does provide money, it's a tough call whether restructuring should proceed with or without a formal bankruptcy filing. Either way, yet more downsizing is inevitable.

But the next time you hear somebody say the unions have to make serious salary and benefit concessions, keep in mind that they already have -- enough to keep the companies competitive, if only they can survive this crisis.

Something to keep in mind as the debate continues on what to do with Detroit.

Steve Benen 11:31 AM Permalink | Trackbacks | Comments (46)

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Comments

Given the benefit a national healthcare system would have for US business, I wonder why they push so hard against it.

Can you imagine how much better these auto companies would be if they weren't covering the healthcare costs of retirees?

I certainly hope that isn't something that is negotiated away though, give that many members of my family are retired auto workers, all with persistent health issues.

Posted by: doubtful on November 21, 2008 at 11:40 AM | PERMALINK

Question to anyone who knows: How do wages and benefits of workers of the US auto industry compare with the wages and benefits of workers of European and Japanese auto companies?
____________________________________________

Posted by: Aris on November 21, 2008 at 11:49 AM | PERMALINK

Just so you have the "fact" at hand, at $73.00/hr union auto workers make $151,840.00/year in wages and benefits. If that's the case, why did I go to college? I'm moving to Detroit - you can get a house there for next to nothing!

On a somewhat related note, my wife works for a certain large bank based in NC that recently acquired a once august brokerage company with two names. They had a conference call yesterday giving details on the beginnings of the reorganization made necessary by the general economic downturn and the acquiring of said brokerage firm with two names. The only lay-offs at this time will be upper-middle management. These people probably make more than $200K/year. Not a good thing for the people losing their positions, but it is a good sign that the bank is not yet going after the peons at the branch level, most of whom make less than $40K/year and would be, most likely, in worse shape losing their jobs than someone in the top 5% income bracket.

This certain large bank based in NC was not heavily leveraged by CDOs or other junk financial instruments.

Posted by: Jeff II on November 21, 2008 at 11:50 AM | PERMALINK

god forbid workers get to make a living wage and have good benefits, no, that is only for the paper pushers who never get their hands dirty or calloused.

But people hear $70 an hour, echoed by right wing media and radio and that's that. Will our lazy MSM point out the real numbers? don't hold your breath.

Posted by: lilybart on November 21, 2008 at 11:52 AM | PERMALINK

That's something I've had trouble understanding. Something like half of what I cost my employer comes from benefits, according to a statement I get every year. Now, part of that is just goofy. They consider things like military leave as a cost. I'm not in the military, nor am I in the reserves, but 160 hours at my pay rate is included as a cost. However, I can definitely see what they pay for health, vision and dental being a cost. So why aren't more businesses pushing harder for a single payer system? It would instantly drop their costs by something like 25%, it would lower the costs of health care by making all bargaining go a single insurer (thus reducing admin costs for hospitals and doctors).

The only real losers are big pharma (who loose some of the really fatty profits they've been raking in) and pig insurance companies (who are already in trouble due to the current financial crash). Are those two industries really so vital that we're willing to sacrifice everyone else?

Posted by: Diogenes on November 21, 2008 at 11:53 AM | PERMALINK

Do you think that the execs don't lead on universal healthcare, because they might personally have to pay more in taxes?? Bet so.

Posted by: lilybart on November 21, 2008 at 11:54 AM | PERMALINK
The average hourly cost per worker in this country is about $28.48. For these auto makers, it's $73." - John Kyl

So, I'm wondering, what's the average hourly cost per US senator?

Make sure you include all the mailings, the airfare to everywhere, and whatever bennie's Ted Stevens is still getting, including legal aid etc.

Posted by: Racer X on November 21, 2008 at 11:57 AM | PERMALINK

While you're doing some calculating, care to figure out the hourly wage of these "workers"

http://online.wsj.com/public/resources/documents/st_ceos_20081111.html

Posted by: martin on November 21, 2008 at 11:57 AM | PERMALINK
Are those two industries really so vital that we're willing to sacrifice everyone else?
I guess we'll find out next year, won't we. Rahm already challenged the business elite to step up and see where their self-interest really lies, so we'll see whether they come through. Posted by: Steve LaBonne on November 21, 2008 at 12:00 PM | PERMALINK

In both the private and public sector managers will tend to batch together all labor costs. The fact that each of those costs may not be incurred by every employee is less important than you've got to budget a certain amount to make sure that you don't get caught short. Dividing total cost by number of employees is a handy if simple way of measuring one's labor costs.

Posted by: Dr Lemming on November 21, 2008 at 12:01 PM | PERMALINK

So, I'm wondering, what's the average hourly cost per US senator? -RacerX

I tried to figure it out in Excel, but I kept getting an error because I can't divide by zero.

As soon as one of them actually does some work, though, I'll figure it out.

Posted by: doubtful on November 21, 2008 at 12:02 PM | PERMALINK

You write: "a growing number of conservatives have begun blaming the Big Three's workers for the companies' financial difficulties."

Just like poor minority borrowers are responsible for the mortgage/financial system meltdown.

And the poor of New Orleans are to blame for Katrina.

And a few lowly soldiers were to blame for Abu Ghraib.

Being conservative means always being able to blame those at the bottom.

Posted by: CMcC on November 21, 2008 at 12:06 PM | PERMALINK

doubtful asks: "Given the benefit a national healthcare system would have for US business, I wonder why they push so hard against it."

Because the major players are ALL run by "conservatives" and they all understand how popular a national healthcare system would be, and how much they depend on keeping people afraid of losing their benefits if they left their present jobs.

Steve did a great post on how the right-wing pundits admitted that "conservatives" are actually forced to oppose national health care on political grounds:

"the right will resist universal healthcare with all its might because, as a matter of electoral strategy, conservatives don’t have a choice."

http://www.thecarpetbaggerreport.com/archives/13790.html

Krugman put it well: "And there you have the core of Mr. Bush’s philosophy. He wants the public to believe that government is always the problem, never the solution. But it’s hard to convince people that government is always bad when they see it doing good things. So his philosophy says that the government must be prevented from solving problems, even if it can. In fact, the more good a proposed government program would do, the more fiercely it must be opposed."

Posted by: Racer X on November 21, 2008 at 12:13 PM | PERMALINK

This reminds me of the "it costs $800 million to bring a new drug to market" meme that big pharma was so successful at planting. A study of the study that produced that figure found that the methodology of what was a "cost" for pharma was completely bogus: deduct the cost of advertising and "what the companies WOULD HAVE MADE in interest" on the research money if they hadn't spent it (yup!), and the real figure is less than half of what they claimed.
It worked so well for big pharma (how many times did you hear that fiqure tossed out as a fact in news and comment shows?)
that the Big Three is hoping to duplicate its success.

Posted by: Stan on November 21, 2008 at 12:17 PM | PERMALINK

Why not an auto-industry bailout with the US gov't taking the costs of employee (and retiree) health insurance off the companys' hands? We hear that these benefits add $1,500 to $2,000 to the price of every car. Removing that drag wd be a huge boost to the industry's competitiveness.

Posted by: helmling on November 21, 2008 at 12:18 PM | PERMALINK

lilybart 11:54 a.m. has nailed it, as to why employers (meaning the fat cats who run them) are opposed to single payer national health insurance. It's because their personal taxes would be raised to pay for it. Right now, employer based health care benefits are tacked on to the cost of goods or services, so they act as a sales tax, a regressive tax on us chumps, the consumers. But if we switched, you can be sure the taxes to pay for the health insurance would be progressive in nature. And that's just not going to happen, when the fat cats are drawing only a measly 500 times what their workers make.

Posted by: hark on November 21, 2008 at 12:21 PM | PERMALINK

When people argue for reason taxpayers should not bail out the car makers, or that they should go into bankruptcy instead, remember that the taxpayer will be on the hook for much of the retirement benefits, as well as a lot of unemployment, with far fewer opportunities for the unemployed.

Over the long term, I don't know how the two equasions balance out, but it sure isn't 25 billion versus nothing.

Posted by: Danp on November 21, 2008 at 12:33 PM | PERMALINK

Aris - I don't know the figures but the two key differences with British firms, at least, are:

1. The NHS - hence, no employer private healthcare costs
2. The pension arrangements. I don't think there are any FTSE-100 companies left which allow new entrants to their defined benefit pension schemes; everything now is defined contribution.

The notion of paying the healthcare costs of retirees is, frankly, horrifying. No wonder Detroit's a shambles.

Posted by: ally on November 21, 2008 at 12:42 PM | PERMALINK

Why not an auto-industry bailout with the US gov't taking the costs of employee (and retiree) health insurance off the companys' hands? We hear that these benefits add $1,500 to $2,000 to the price of every car. Removing that drag wd be a huge boost to the industry's competitiveness.
Posted by: helmling

First, I think the figure claimed by the auto companies about what legacy benefits add to the price of a new car is a factoid or a distortion like the one Sen. Kyl is using with the $73/hr for autoworker wages.

Second, and more important, there has been excess capacity in the auto industry world wide for quite some time. So saving the Big Three (Chrysler for the second time) is going to be a temporary fix at best.

I understand that putting hundreds of thousands of people out of work is going to be devastating to the economy. But their industry is dead. If congress grants the "bridge loan" (now there's a bridge to nowhere) without completely reorganizing and downsizing these companies, it will be money wasted postponing the inevitable.

Also, why is no one mentioning that much of the last round of truck and auto sales in the middle part of this decade was done with "0% financing." And they wonder why GMAC is bankrupt as well.

Posted by: Jeff II on November 21, 2008 at 12:44 PM | PERMALINK

Aris,

Domestic workers at Japanese plants pull $50 in wages and benefits.

Thank you, Mr. Benen.
This article was very useful in isolating the problem to crippling retiree costs.

Before the 40 billion bailout will do any good, the retiree anchor around Detroit's neck needs to be addressed.

(Not to mention the dearth of vision in the management. Hand over their factories to Tasla and Romm Motors, maybe?)

Posted by: toowearyforoutrage on November 21, 2008 at 12:51 PM | PERMALINK

Germany has the highest manufacturing wages in the whole world. What several people have pointed out is the key - the Detroit three have thousands and thousands of retirees and dependents for whom they are paying health care and pension benefits. The health care was changed by ending health care benefits for retired salaried workers over 65 (who qualify for Medicare), and for hourly workers it will get better in 2010 with the VEBA. Having all those retirees hit the PBGC in the event of a bankruptcy could put that whole system at risk, and would likely be much more expensive than any amount considered for loan to the companies.

Toyota a few years ago sited a new plant in Canada, because of the savings on healthcare, and the better educated workers available. If the US resolved our healthcare and education issues, our industry would be much, much more competitive.

Posted by: foreigner on November 21, 2008 at 12:52 PM | PERMALINK

Here's a thought... if they're going to include retiree benefits in the "average," don't they also have to divide the total by ALL the workers - past and present? Bet that would lead to a remakably lower figure.

Posted by: KarenJG on November 21, 2008 at 12:52 PM | PERMALINK

The simple truth is that nobody wants to give $25 billion dollars to poorly managed companies who are almost certain to squander it. Do we want to protect the workers? Yes. Do we want to protect the companies themselves. Probably not.

We'd probably get a lot better value for money if we gave that $25 billion dollars directly to workers and let the companies restructure in bankruptcy.

Posted by: mfw13 on November 21, 2008 at 12:55 PM | PERMALINK

Bet that would lead to a remakably lower figure. - KarenJG

More importantly, laying off more workers would raise that number, while doing little to improve the bottom line.

Posted by: Danp on November 21, 2008 at 12:58 PM | PERMALINK

Look, the auto execs are losing money on healthcare and, in the last year or so, have come out in support of universal healthcare (or something close to it).

In fact, IIRC, one of them flat out said something like "We're building cars in Ontario, Canada now because we don't have to pay for healthcare so it's cheaper." This is despite the fact that the taxes in Canada are much higher (after all, they have to pay for the coverage!).

And while it's easy to hate car companies (and the people who support them), I don't want to think what would happen to our economy here if even one of the car companies collapsed. We already have the worst unemployment rate in the country but many other states could join us if you consider the secondary and tertiary suppliers as well as the number of other states that have car plants in them now.

Now in regard to the drug companies. This is an industry I work in and you still don't have the $800M figure right to bring a drug to market. The lion's share of that figure is not the interest, it is what's called the "opportunity cost of money." That is, the cost of what you could have done with the money instead of investing it in developing a new drug. But this is standard accounting in business and rightly so. The thing to remember is that at best 1 in 6 drugs make it to market - which means that 5 out of 6 times, you flush your money. The successful drugs have to support the failed drugs and the large amount of capital that could have made more by just sitting in the bank.

Now, this is not to say that drug companies are great and do everything right. Pfizer was able to spend $1B in research a few years ago and get no drugs to market that year that came from their labs. Questions like whether they are efficiently run, whether they should be allowed to advertise, and what they should be allowed to say in those advertisements are quite reasonable. As are questions about their corporate behavior in potentially skewing clinical trial results or hiding negative reports. We can also reasonably ask about what are reasonable profit margins (Note: they don't lack for money despite crying about the high cost of developing drugs).

But the facts are, it is a very expensive and very chancy business creating drugs. Many, many, small companies fail trying to create a drug that they can sell to a big company (that's where most of the R&D is done these days).

Posted by: MichMan on November 21, 2008 at 12:59 PM | PERMALINK


I think that issue isn't why auto workers are so well paid, but why the rest of us aren't.....

Being an "old guy" living through the 40's, 50's and 60's, I am pleased that I got to live through the best that this country has to offer.

Ronald Reagan and his "legacy" really distroyed the American Dream!

Posted by: Bob-O on November 21, 2008 at 1:01 PM | PERMALINK

"The average hourly cost per worker in this country is about $28.48"

Dunno where the Republican got this number. Works out to about 50k/year, which is above the median wage for hourly employees in the US. Since hourly workers are generally paid less than salary (generally!) we'd expect the average hourly wage to be less than the median income.

Maybe it is much less, say 18.00/hr., and then they add in costs of benefits and retiree costs (averaged over the current workers). So the numbers could be comparing apples to apples - they could be right. Of course, it could be considered a misleading comparison, because most companies paying hourly wages don't have pensions (use 401k instead), and many don't have extensive benefits.

But since the point of the comparison, for the odious Republican, is to show how difficult it is for GM and Ford to compete with these legacy retiree costs and current benefits, it might be a fair point.

I'm all for unions, but ya gotta admit that when their net effect is higher wages for employees, it does accelerate the movement of these kinds of jobs to Mexico, China, and elsewhere. With service employees, there wouldn't be this effect.

Posted by: flubber on November 21, 2008 at 1:11 PM | PERMALINK

We'd probably get a lot better value for money if we gave that $25 billion dollars directly to workers and let the companies restructure in bankruptcy.
Posted by: mfw13 on November 21, 2008 at 12:55 PM

Short-term thinking. Yes, we could give the money directly to the workers, and they'd be better off, but this is as much about future jobs as it is about current jobs. It's the old "give a man a fish..." scenario.

Once the money's gone, there will be no jobs for those workers or future workers, because restucturing in bankruptcy requires credit, and nobody can get that kind of credit right now. Bankruptcy means oblivion, in today's economy.

We need a manufacturing base in this country. Not just for today, but for tomorrow too. I agree the auto companies need serious restructuring and long-term planning to create a path to sustainability. I simply think that their continued existence is important for the country's sustainability.

Posted by: KarenJG on November 21, 2008 at 1:11 PM | PERMALINK

Before the 40 billion bailout will do any good, the retiree anchor around Detroit's neck needs to be addressed.

And by "addressed" you mean "taxpayers take over," correct? Because you're not going to be able to cut off pensions and healthcare from hundreds of thousands of people without tanking the economy even further.

Posted by: Mnemosyne on November 21, 2008 at 1:12 PM | PERMALINK

I'm all for unions, but ya gotta admit that when their net effect is higher wages for employees, it does accelerate the movement of these kinds of jobs to Mexico, China, and elsewhere. With service employees, there wouldn't be this effect.

Depends on your definition of "service employees." How many companies have moved their call centers to places like India where they only have to pay $2 or $3 an hour for educated, English-speaking workers?

Sorry, but when we already have ridiculously low minimum wage and no healthcare, it worries me when people start complaining that hourly employees are making too much money and that's why jobs are going away. Sure, if employers could get away with paying American workers $3 an hour, there probably would still be jobs here, but there would also be massive poverty as people work 2 or 3 jobs to try and keep food on the table and a roof over their heads. Not exactly a plus for anyone.

Posted by: Mnemosyne on November 21, 2008 at 1:16 PM | PERMALINK

I am curious. Did the $70/hour include ALL benefits divided by only hourly workers? If upper management pensions are included - wouldn't that skew the figures even more? Inquiring minds want to know!

Bob

Posted by: Bob on November 21, 2008 at 1:39 PM | PERMALINK

I'm curious as to why nobody goes bankrupt when workers strike. A strike seems to be an extreme condition that companies are willing to endure where the keep paying overhead and management and pensions but don't have much revenue coming in.

Boeing just concluded a two month strike which shut down plants in three states. The machinists got a 15% wage increase over four years and security that jobs would not be contracted out.

The difference appears to be that Boeing has a huge backlog of orders, the company is healthy.

Posted by: tomj on November 21, 2008 at 1:41 PM | PERMALINK

The simple truth is that nobody wants to give $25 billion dollars to poorly managed companies who are almost certain to squander it. -mfw13

We just bent over backwards to give $700 billion to banks and insurance companies who were equally, if not more poorly managed. Why is acceptable to congress to get on their knees for the white collars and give them a strings-free gift 28 times larger than the loan the auto companies requested?

One only needs to listen to the contempt with which congress holds the auto CEOs as compared to the bankers to see there is a double standard in Washington that is harmful to America.

Posted by: doubtful on November 21, 2008 at 1:49 PM | PERMALINK

I'm curious as to why nobody goes bankrupt when workers strike. -tomj

The dramatic decrease in payroll when people aren't punching the clock helps.

Posted by: doubtful on November 21, 2008 at 1:53 PM | PERMALINK

The difference appears to be that Boeing has a huge backlog of orders, the company is healthy.
Posted by: tomj

No. Boeing's in trouble. Ironically, they just announced some lay-offs this week.

The 787, the plane of the future, may be the plane that kills the commercial airplane division. It is about a year overdue and still not ready for production. They are now receiving order delay notices from customers because air travel is down and fuel costs are declining. On tap that, a whole passel of 737s were riveted incorrectly. They have to be disassembled to find these fault fasteners.

Posted by: Jeff II on November 21, 2008 at 2:12 PM | PERMALINK

The difference between the financial companies and the auto companies are twofold.

First, the financial companies are so integrated into the system that it cannot function without them. That is why they needed to be bailed out. This is not the case with the auto companies.

Second, while the financial companies have business models which work, the auto companies do not. The financial companies got into trouble because they got greedy and made bad decisions, not because their business model does not work. Auto companies, on the other hand, do not have a business model that works. Even when the economy was doing well they struggled to make a profit. The only way forward for the auto companies to try and change their business model by restructuring in a Chapter 11 bankruptcy.

Otherwise you are just throwing money at a business model which does not work in an effort to protect jobs, in which case you would be better off giving the money directly to workers to tide them over through the restructuring process.

Don't forget that no matter what happens, those jobs are not going to permanently disappear. Demand for cars made by GM, Ford, and Chrysler may decrease, but demand for cars in general will continue to grow over the long term. Other auto maunfacturers will step in and buy some of the brands and plants from the Big Three during restructuring and workers will get new jobs with different employers.

Posted by: mfw13 on November 21, 2008 at 3:18 PM | PERMALINK

Steve Benen did an excellent job of explaining why active auto workers do not make $73 and hour as critics often claim. I have been blogging about this same issue and writing to MSNBC about this issue for the last several days. Congressmen who oppose helping the auto companies get through this economic downturn and the resulting crisis that the auto firms face are using that inflated wage figure like a club to attack the UAW. It is time to expose the truth. Thank you very much, Steve.

I am a retiree from GM and I have actually been writing and talking about this type of financial reporting for a very long time. I will forward this link to the local business writer at the Kansas City Star where the inflated number often shows up in news stories.

Posted by: Gene W. DeVaux on November 21, 2008 at 3:39 PM | PERMALINK

Kevin is mostly right, but even the present UAW contract entails the carmaker paying a lot of money to the workers if they close a plant, and is a plant suspends production the workers are paid 95%.

Considering the fact that the carmakers have to shrink and suspend production because demand is tanking, these particular benefits need to be re-negotiated. The carmakers just don't have the dough right now.

Posted by: tomtom on November 21, 2008 at 3:53 PM | PERMALINK

Second, while the financial companies have business models which work... -mfw13

Are you joking? There really is no rebuttal necessary to such an absolutely absurd statement. Subprime loans, credit default swaps, and hundreds of billions of dollars of debt are not indicative of working business models. Have you been paying attention at all?

Don't forget that no matter what happens, those jobs are not going to permanently disappear. -mfw13

No, but the UAW probably will, and then people will be paid minimum or slightly more than minimum wage to do the same jobs they did before for a living wage.

I think the fundamental thing many people are overlooking is that the auto companies need this money because of the collapse in the credit market. The credit market was suppose to improve with the bailout, but it isn't. The banks are pocketing the money or using it to leverage mergers (is this part of that successful business model you were talking about?), and average people can't qualify for car loans.

If those banks and their oh so successful business models hadn't fucked up so royally, the auto companies wouldn't be there begging. I'm not saying they'd be in great shape, but to act like the banks are well ran and more integral to the economy than the auto industry is naive. I hope you enjoy your depression.

Posted by: doubtful on November 21, 2008 at 4:02 PM | PERMALINK

The argument over a proposed rescue package is complicated, in no small part because over the years both management and labor made some truly awful decisions while postponing the inevitable reckoning with economic reality.

Can someone please tell me what mistakes labor made beyond trusting management to honor their commitments? They didn't storm the gates asking for retirement health benefits. Management offered them in order to reduce the current costs. Labor didn't make them under fund the pensions they were promised in return for reduced hourly wages in negotiations.

This is another case of socializing the losses. Management made deals to increase the return to shareholders and the salaries of management that they have not held up. Now, workers have lost those wages, AND are in danger of losing the compensating benefits OR pushing them onto the general public.

When a homeowner goes to his banker and says, "oops, sorry, didn't have the 30 year income stream I expected," the bank doesn't say "Oh, okay. No problem." OR does the government say "Oh, that's too bad. We'll make it up."

The idea that contractual obligations are binding only between people and corporations, but not the other way around is appalling. 40 million dollar corporate jets or no.

Posted by: jayackroyd on November 21, 2008 at 4:32 PM | PERMALINK

Doubtful:

Everything you mention in criticizing my post represents bad financial decision-making, not a flaw in the business model. The business model of a bank, i.e. lending money out at a higher interest rate than you pay to acquire money via deposits, is fundamentally sound. Getting other people to pay you fees to manage their assets for them is fundamentally sound. Getting other people to pay you to arrange mergers and IPO's for them is fundamentally sound. Every aspect of a properly-run bank business model is fundamentally sound, something that cannot be said about the Big Three auto companies, who are saddled by huge dealer networks that duplicate each other and pensions and healthcare obligations that they do not have the money to fund.

Did financial companies made some horrendously bad decisions? Yes. Does that mean that their business model is flawed? No.

Posted by: mfw13 on November 21, 2008 at 4:55 PM | PERMALINK

I'm no expert, but didn't the unions take on the retiree benefits after the last union contract?

I thought the auto companies supplied the union with a lump sum of several hundred million so that the companies are no longer responsible for them?

Posted by: snds4x4 on November 21, 2008 at 5:17 PM | PERMALINK

The business model of a bank, i.e. lending money out at a higher interest rate than you pay to acquire money via deposits... -mfw13

Boiling it down into unrealistically simple terms like that means absolutely nothing.

The same could be said of the auto industry. They want to sell people automobiles for more money than they cost to make, but they've just made some bad decisions along the way.

According to you bad decisions in the banking industry are not indicative of a flawed business model, but they are in the auto industry.

You absolve the banking industry of the poor decisions which led to their burdening obligations, but hold up flawed policy by the auto industry up as examples of a flawed business model.

In other words, you comparison is not intellectually consistent.

Don't get me wrong, I'm not arguing that the auto industry is fundamentally sound. My argument is neither is the banking industry, and while both are critical at this current time to a healthy economy, only one got a strings free hand out from the Federal Government.

And selling insurance against borrowed money while simultaneously relaxing borrowing standards is not a fundamentally sound business model.

Posted by: doubtful on November 21, 2008 at 5:20 PM | PERMALINK

it seems a lot of people forgot that it was the goverment that allowed the automobile makers to only partially fund the pension plan and benefits that were promised to workers. people like senitor kyl should research the facts befre opening thier mouth.

Posted by: bill on November 21, 2008 at 5:40 PM | PERMALINK

The primary effect of free trade is wage equilibration, so to be competitive in the long run US wages must approach the world average of $5000/ year. There is a lot of inertia in the decline, but health care and pensions are already extinct. More and more Chinese drive cars, and more and more Americans ride bicycles and motor scooters and walk around in flip-flops as we transfer wealth to low wage countries.

Posted by: Luther on November 21, 2008 at 9:43 PM | PERMALINK
Before the 40 billion bailout will do any good, the retiree anchor around Detroit's neck needs to be addressed.

And by "addressed" you mean "taxpayers take over," correct? Because you're not going to be able to cut off pensions and healthcare from hundreds of thousands of people without tanking the economy even further.
Posted by: Mnemosyne on November 21, 2008

It seems to me that in an economy where workers haven't been treated like dirt for 30 years that the tax rate could be relatively low. But, after what we've been through, up to say 2000, it needs to be higher for wealthier people to re-establish some balance.

Now, after the Dubya era things have changed.
Now, after the Enronization of America the Rich have a much larger bill to pay.

Posted by: MarkH on November 22, 2008 at 1:17 AM | PERMALINK




 

 

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