Monday, March 30, 2009

Good capitalism, bad capitalism

"Industrial capitalism" refers to the manufacture of stuff -- cars, shoes, toothbrushes, condoms, TVs, pig iron. Stuff.

"Finance capitalism" refers to stocks, bonds, financial instruments. Numbers. Concepts. Abstract intangibles. Anti-stuff, if you will.

Financial capitalists got us into our current mess. You can't blame the industrial capitalists, and you can't blame labor (unless you've been programmed by ideology to do so).

Obama, like Bush, clearly loves the financial capitalist and hates the industrial capitalist. How do I know? Because he is taking a hard-nosed attitude toward what remains of the U.S. auto industry, as proven by the O-team's request for the removal of GM head Rick Wagoner:
GM had been seeking as much as $16.6 billion in new U.S. loans after an initial installment of $13.4 billion.

“It’s very hard for the government to write a big check without giving some evidence of change,” said John Casesa, managing partner at New York-based consulting firm Casesa Shapiro Group. “This will also give the government moral authority with the other stakeholders to make them sacrifice.”
The Obama administration autos task force on Monday rejected the turnaround plans of General Motors Corp (GM.N) and Chrysler LLC and warned both could be put through bankruptcy to slash debts.
Ah, but in the world of finance capitalism, things are very diffo. Obama and Geithner demand no "evidence of change." They do not ask for any resignations. Edward Liddy, the CEO of AIG, still has a gig, and he probably will keep that gig as long as he pleases.

Ian Welsh gets it right: Barack Obama would rather chew razor blades than re-organize and regulate financial capitalism. He will not reinstitute Glass/Steagall, he won't break up the big banks, he won't investigate fraud, he won't limit leverage, he won't reinstitute Reagan-era progressive tax rates.

GM lost $82 billion over the past four years. That's a lot of money -- until you look at Wall Street. The financial "industry" has blown right through the $700 billion TARP funds in mere months. And what did we get? Are we better off?

Joan Walsh of Salon is starting -- just starting -- to wake up:
I think Krugman is alarmingly right on the key issue at hand: Treasury Secretary Timothy Geithner's subsidizing private investors to take can't-lose "risks" and buy up the banks' "legacy assets." (Don't call them toxic!)

Krugman has colorfully labeled the plan "cash for trash"...
On Wall Street, no "asset" is so toxic as to be unworthy of American taxpayer support. Meanwhile, in Detroit, those working within the American car industry are being treated the way the Waffen SS treated Russian Jews: They have been ordered to dig their own graves and hop in.

How long will Wall Street be able to play its silly games if America no longer makes anything?

In the 20s, fascist economic theorists such as Gottfried Feder posited a simple argument: Industrial capital is good, finance capital is bad. Today, Obama and Geithner argue the exact reverse: Finance capital is good, industrial capital is bad. Both ideologies are dangerous because neither seeks balance.

Fascism could not destroy this country. Obamaism might just manage the trick.

Update: Have you noticed that progs spend an awful lot of time blaming the repeal of Glass-Steagall on Bill Clinton yet they refuse to spend ten consecutive seconds pressuring Obama to restore the old regulations? Why is that, I wonder?


Vincent said...

I cannot really follow you there Joseph. GM produces stuff, but it is bad stuff. The US and the world don't need another boatload of SUV. There are massive overcapacities in the auto industry, and unless we want to drown in a sea of shiny, big metal monsters, the automobile industry has to shrink. Yes, it will be painful. Yes, there will be job losses. But there would also be job losses if we banned GMOs and cluster bombs.

The real scandal here is that the banks and AIG didn't get the GM treatment. All those managers should be rounded up and tried, Moscow process-style. I wonder if they should even have the right to defend themselves. That's where Obama is really at fault.

Joseph Cannon said...

GM produced SUVs because people bought them. And I say that the auto industry has to grow, not shrink, if our economy is to thrive again.

Compare a 2006 Yukon Denali by GM to a 2006 CDO by Lehman Brothers. Which product served a need? Which product reflected well on the United States? Which product was something to be proud of?

toronto realtor said...

I have to agree with Vincent: it's not about producing, as if producing just about anything. It's about producing something that somebody have a desire to buy. Cars, especially those produced by GM, are certainly not desirable any more, since the company is such a bad shape.

The company has to come up with a product that will be highly popular in order to get some financial help. But of course the same should go for the financial sector.

Take care,

Anonymous said...

The double standard is as plain as the nose of your face. The automakers need intervention in many areas but to make them the whipping boy for Wall St is so obviously unfair I think this will backfire. Michigan is already on its' knees and this high handed Imperial decree from the person who manipulated their primary votes is going to flip this state to Republicans. This is a tragedy in the making.

Anonymous said...

Toronto realtor, people are not buying autos because of the imploding economy caused by the bubbles of Wall St. Most people on the entire planet are hoarding cash and not buy anything including autos. Automakers just like retailers are suffering because of Wall St and not the other way around. No automakers are selling not just the Big 3.

Perry Logan said...

I agree with Joseph. In favoring financial capitalism over industrial capitalism, Obama betrays which side he's on in the class war.

Gary McGowan said...

No reason the US auto industry couldn't retool and produce high speed rail or Modular High-Temperature Reactors. Tool and die union folks say it's very doable. What's lacking is leadership.

Anonymous said...

Unless the investment banking industry is strongly re-regulated, what products will they produce that people will want to buy?

Anonymous said...

On one hand, you're right. It is strange the way they throw money at the financial side of things, yet are being so very relentless for the domestic auto companies.

On the other hand, Wagoneer and Cereberus have nothing but contempt for their customers and ignorance for their product portfolios and neither actually deserve a dime of MY money to prop them up. All of Detroit has done a fantastic job of proffering craptastic cars with hideous build quality for the last 30-40 years, and I'm glad to see them shaken up. Removing Wagooner forcibly is about one of the finest things I could think that might happen to GM, however they need to appoint someone more akin to Ford's Mulally and not another GM beancounter to the top position.

I'm glad to see GM and Chrysler fail, and I'm glad to see the UAW might be forced to wakeup from their stupour and actually self-address the cancers that are eating them alive. I'm not glad to see the lineworkers (even the ones who hide behind UAW excesses) punished.

Still, like in all things there is always collarateral damage. Hoepfully, the line workers can escape the brunt of it.

Bob Harrison said...

As the owner of two (out of three) gas hogs-- I made my choices based on my needs. Try living in a rural area with no trash service without a truck. Detroit built what we wanted to buy. That's our fault, not theirs. No one really wanted to buy the financial crap-- I just wanted reasonable compound interest and that's what I bought-- if you bought anything else, you bought vaporware.Though some of financial cons were creative, anyone who could see through the Iraq invasion could see another load of bullshit lurking behind that suitcase.

DancingOpossum said...

What are these "UAW excesses" of which you speak?

Another reason people were buying SUVs was that El Geniuso Bush decided to give them a big tax break for doing so. And at the time gas was cheap. So were the automakers wrong to respond to public demand?

Another thing about auto companies and other manufacturers: They actually employ people, and in good-paying jobs (if they're unionized so their workers can get all those "excesses" like a living wage and health insurance). The geniuses selling CDOs pretty much just employ, and enrich, each other.

About the only thing we make anymore that's profitable and in high demand is porno, so maybe the smut peddlers deserve a helping hand. After all, unlike the financial whiz kids, what they produce does some actual good.

Anonymous said...

Who will speak for the unemployed prisoners in states where prisoners make license plates?

Anonymous said...

What are these "UAW excesses" of which you speak?

Exactly. It was the union workers who made all the concessions. Pardon them for actually wanting to make a living wage.

If we had universal health care (and not health insurance, like Obama wants to give us), the cost of manufacturing would be greatly reduced.

Still, like in all things there is always collarateral damage. Hoepfully, the line workers can escape the brunt of it.

Exactly how do you think auto workers can "escape the brunt of it"?

Pardon me if I sound angry but I damn well am (not at any commenters, but at the administration and at all the other Vichy Democrats).

old dem

Hoarseface said...

You remind me of Animal Farm, but the line would be "Industrial Capitalism good, Financial Capitalism BETTER!"

I think the problem here is wider than simply Obama. A lot of people noticed the double standard when the domestic automakers first went to Congress last fall - Wall Street gets a blank check, while Detroit gets to serve as whipping-boy. It is truly a shame that an industry which has played so vital a role in the creation of a middle class in this country get the high hat while Wall Street gets kow-towed to. But really, this practice continuing shouldn't be a surprise - there are a multitude of political dynamics at play that make it almost a sadly foregone conclusion. The two biggest reasons for the discrepancy, in my eyes, are

1. My (unsubstantiated) guess is that, outside of Michigan and maybe Ohio, campaign contributions from Wall Street dwarf those made by the automakers when it comes to national political figures, and

2. the UAW makes for very convenient demonization as the cause for Detroit's failings when your ideology is anti-union to start with, regardless of the merits of the argument itself in this case.

On a side note, re: GM makes bad products..(from a comment to Joe's post).. wasn't there a Keynesian argument for the value of having worker A dig a hole on Monday and worker B fill it back up on Tuesday as being being "better" than simply paying workers A & B to stay at home and collect checks?

And as a side-side note, I seem to remember a post on CalculatedRisk that indicated the american "fleet" was of an average(?) age of 26 years old, and which concluded that while auto sales had been down recently, it was inevitable that they would rebound due to transportation needs. Given that, what might be most important is that Detroit be properly poised to capitalize on the anticipated auto sales which are inevitable, and actually have a chance to turn their recent fortunes around - provided they have a forward-looking business plan which incorporates the changing demands rearing their heads these days.

P.S. - As Joe and comments readers may have noticed, I am no Obamaton. With that said, I have to say that while I have found many central issues addressed by the Obama adminstration lacking or troubling (particularly their response to the Wall Street FUBAR, the approach to Afghanistan, Israel/Palestine or even, for fuck's sake, Obama's condescending dismissal of limited drug decriminalization - WTF, ya schmuck?) I have to say that it is still a bit early in the game to try to start predicting the upcoming plays. I have no illusions of Obama becoming a modern-day FDR (and Kee-rist, what I wouldn't give that he was), but I need a few more months before I can call this administration "Progressively D.O.A." (or, as some might prefer, "Democratically D.O.A.") The seed is there, certainly, but it's too soon for me to feel comfortable making a call on it's maturity. I haven't yet forsaken the hope that I *MAY*, come 2012, be able to vote for a Democrat for President with a clear conscience. But as of this writing.. No.
Hey, Barry - change my mind.

Anonymous said...

When Lehman Brothers was allowed to collapse without aid, the market tanked 2,000 points, as various unpaid and unpayable counterparties scrambled to liquidate their holdings to cover THEIR losses from not being paid by Lehman.

The problem in the financial sector absolutely beggars the problems in other areas, because of the unregulated compounding of leverage to the level of insanity (20-1, 30-1 are common). There are unrealized losses of about $50 trillion dollars on the books of the international banks, maybe half here and half in Europe, which is the size of the world gdp.

Sorry, but there simply must be financial triage here. Losing the (formerly) Big (now small) Three is a blow to the economy, but nothing compared to the meltdown looming that would burn the financial underpinnings of the world economy to the ground. The auto industry isn't leveraged like the banking system, so its losses are relatively contained. Not so in the banking world.


Peter of Lone Tree said...

Mish's Global Economic Analysis:
America's Abandoned Cities
(Short quote):
Property abandonment is getting so bad in Flint (MI) that some in government are talking about an extreme measure that was once unthinkable -- shutting down portions of the city, officially abandoning them and cutting off police and fire service.

Anonymous said...

Kevin Philips calls it "financial mercantilism".

Anonymous said...

It's looking like some kind of transition similar to the transition from cash to credit, and from coin to paper, and from barter to money. Looks like Phase One didn't pan out. Something about Stanford University's data-mining culture, Poindexter's spyware, NSA proofs-of-concept should tell us that money no longer has anyplace to hide. It's like in Stalag 17 when Cookie asks Sefton who the snitch is, and Sefton tells him it's not important who it is, but what do you do with him? The fraud is too big to prosecute. The biggest funds, the ones that dwarf all the banks combined, are legit and honest, and still well endowed. They are the adults. Hamsher at FDL has been writing about them.

Anne said...

Update: Have you noticed that progs spend an awful lot of time blaming the repeal of Glass-Steagall on Bill Clinton yet they refuse to spend ten consecutive seconds pressuring Obama to restore the old regulations? Why is that, I wonder?

Excellent point. I think the answer is, they know it would be pointless.

Zee said...

Wow, Joseph...this post brought in a lot of brand new, wordy, paid, newcomers.

All I have to say to them is I'm gleefully buying the Newsweek with the cover story: PULITZER prizewinner Krugman to ZERObama:

You're WRONG.

Anonymous said...

I doubt that Krugman thinks the new Obama policy toward the auto makers is wrong. I read him nearly daily and I haven't seen him make that point.

His public disagreement is over the Obama policy on the financial companies.

I think Krugman is saying to stop bailing out the banks, to let them fail, take them over, nationalize them, and do an orderly asset sale.

So it seems that critics of the Obama auto industry policy do not ally themselves with Krugman, for this Obama policy for the auto makers is what he wishes Obama would implement for the banks.

Please try arguing out of one side of the mouth only. Thank you.