Sunday, December 21, 2008

Bank Bailouts, Bloated Bonuses, and Common Sense

The federal government's earmarked around $700,000,000,000 dollars, given by American citizens, to pull an assortment of financial institutions out of the hole they dug for themselves. The Big Three automakers are getting a wad of cash, too.

Happily, there do seem to be some conditions attached to Uncle Sam's generosity with other people's money. However, I think that America's leaders, in government and business, have missed vital points of economic theory:

  • A business is supposed to take in more money than it spends
    • Spending more than you make leads to trouble
    • Wasting money leads to trouble
  • Goods and services provided by one business can be provided by another
Enough of Economics 101.

$1,600,000,000 on Executive Perks?!

Never mind Big Three executives flying in individual corporate jets: Executives of banks that are getting bailed out got a tidy little $1,600,000,000 in salaries, bonuses, and other perks in 2007. Okay: salary isn't a "perk," but the numbers are still, well, impressive.

"Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

"The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines." [emphasis mine] (Associated Press (December 21, 2008))

Feeling Good and Doing Good: Not the Same Thing

Although a tiny fraction of the bank bailout was done with my money, I've never personally made it possible for people to keep their jobs for a little while longer. My guess is that it feels good. And, there's probably a sort of warm glow that comes with 'saving the American automotive industry.'

Nice feelings are fine, but to do any practical good all that giving has to come with changes in the way banks and the Big Three do business. Big changes.

Executive Compensation and Bribery

It's not very often that I agree with Barney Frank: my take on how the world works comes through in blogs like Another War-on-Terror Blog and A Catholic Citizen in America.

This time, though, Mr. Frank made a good point about monumental perks that executives get. He said that the billion-bucks-plus bonuses bribed executives " 'to get them to do the jobs for which they are well paid in the first place.

" 'Most of us sign on to do jobs and we do them best we can,' said Frank, a Massachusetts Democrat. 'We're told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!' " (Associated Press (December 21, 2008))

I have nothing against managers and higher-ups getting more than someone at the front desk or on the assembly line. But I have trouble believing that the average bank executive was worth $2,600,000 a year. Particularly when the bank was emulating the Titanic.

The Big Three Automakers and The American Automotive Industry: Not the Same Thing

This isn't 1953, when the president of General Motors said that he "thought what was good for the country was good for General Motors and vice versa." Even then, a moderately garbled version of what Charles Wilson said was used as an example of corporate arrogance.

Today, I think it's time to take a look at GMC, Ford, and Chrysler: and the American automobile industry. And remember: the Big Three are three huge, and now desperate, companies. They've dominated the American automobile industry for a very long time. But, in my opinion, they are not the American automobile industry.

The American automobile industry is that part of the American economy which makes, distributes, maintains, and repairs cars.

I've compared the Big Three to three 800-pound gorillas. Right now, they're sitting on the American automobile industry like it was a pile of bananas. Not surprisingly, it's a little hard for smaller companies to compete.
A Detour, About an 'Un-American' Car
The Big Three aren't the only American companies involved in making cars. Nevada's Hybrid Technologies makes a power plant for the MINI-E, an electric car that does 0-60 in six seconds, with a top speed that exceeds the speed limit here in Minnesota.

The MINI-E isn't a purely American car. The running chassis is made in England. But the rest is assembled in Mooresville, North Carolina, and although I haven't confirmed it, my guess is that most of the people who work at that plant live in America, and buy their groceries in Mooresville.

My point is that a company doesn't have to be in the Big Three to make cars.

Time for Real Change

I don't doubt that if the assets of any or all of the Big Three automakers were sold off, there would be some very real stress. As I wrote before, it's not likely that Americans will stop buying cars, or needing to have them maintained.

And people who worked on an automobile assembly line for one company might be work for another company. They might even be able to learn new procedures.

As for the executives who drove the Big Three into the ground, it might be worth the money to pay them off, let them enjoy an ill-deserved retirement, and let entrepreneurs who know how to build and sell cars take over.

Related post: Background: In the news:
1 Opinions about the American Congress, from Another War-on-Terror Blog:

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revenue said...
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