Bailouts and Bonuses: The Money-Changers Win Again

Among the most perplexing occurrences in this season of bailouts as Treasury Secretary Henry Paulson scrambles to prop up the economy by staggeringly large infusions of cash to banks that apparently have flushed their own money down their gilded toilets is the payment of bonuses to the bankers running these banks.  The New York Times, in an excellent analysis sure to provoke either outrage or something like "yeah, that's about right," reports that "[s]crutinty over pay is intensifying as banks like Merrill prepare to dole out bonuses even after they have had to be propped up with billions of dollars of taxpayers' money."  See "On Wall Street, Bonuses, Not Profits, Were Real."  Say that again: "propped up with billions of dollars of taxpayers' money."  

The explanation I've most seen for this perplexing development is that the banks will not be able to attract or keep top financiers, if they do not pay out bonuses.  And, of course, without top financiers these institutions, which are "propped up with billions of dollars of taxpayers' money," would be imperiled or more endangered of failing and therefore losing billions of dollars of taxpayers' money.  

But my problem is this: aren't we paying these bonuses to the same bankers that ran their banks into the ground requiring that they be "propped up with billions of dollars of taxpayers' money?"  If this is true, it seems that these bankers are not the finance talent that should be attracted and retained to save the banks, the billions of dollars of taxpayers' money, and the good sense that somewhere, someday, somehow grants someone the good sense to say Enough is Enough.   

The Big 3 Show Up With Their Cups Out ...... Again

For years when I think of the Big 3 automakers three thoughts have come to mind. First is resistance to innovative safety measures, because I recall the many years in which these companies successfully delayed and deferred installation of air bags. As a survivor because of air bags of a high-speed, head-on collision, I cannot help but think that there were thousands of needless deaths because of the Big 3's wrongheaded recalcitrance and obstruction.

The second is the loophole in gas mileage standards that exempted SUVs. This allowed the Big 3 to have a business model that was premised on lobbying, not on marketing, product development and innovation but on political influence. Now the utility of the loophole is exhausted, Congress voted them $25 billion earlier in the year for retooling and here they are again with their cups out.

The third thing is management that appears incapable of seeing what is obvious. Elizabeth Kolbert in the New Yorker in a brief piece titled "Car Talk" quotes from a 1980 report by Jimmy Carter's Secretary of Transportation as follows:

The Secretary of Transportation’s report to Congress begins on a dark note. “Over the past year, the domestic auto industry has experienced sharply reduced sales and profitability, large indefinite layoffs, and increased market penetration by imports,” it states. “The shift in consumer preferences towards smaller, more fuel-efficient passenger cars and light trucks . . . appears to be permanent, and the industry will spend massive amounts of money to retool to produce the motor vehicles that the public now wants.” The revenue to pay for this retooling, though, will have to come from sales of just the sort of cars that the public is no longer buying—a situation, the report observes, bound to produce “financial strain.”

“To improve the overall future prospects for the domestic motor vehicle manufacturers, a quality and price competitive motor vehicle must be produced,” the report warns. “If this is not accomplished, the long term outlook for the industry is bleak.”

That was 28 years ago. And I do not see how it can be said that these words were heeded in any substantial way, if at all. Instead, the Big 3 turned to lobbying to create a market niche. And now they show up for more of the same.