Too big to fuel and too big to fail.
Let them both reorganize and start over with new management.

I heard your piece on Marketplace the other night, Mr. Reich. Thanks for the breath of sanity. I have been wondering if I'm going crazy lately, or if we're just seeing the results of a very corrupt, spoiled and amoral policy by very corrupt, spoiled and amoral people play out to it's logical conclusion.

I sincerely hope that these institutions that are "too big to fail" will be under scrutiny by Obama appointed anti-trust lawyers. They need to be broken apart into digestible bits so they can no longer be a threat to the 90% of us who are their unwitting victims.

Enough. Let's help those who aren't motivated solely by greed and their misplaced sense of superiority and entitlement. One thing that's been missing from all this is a sense of shame, or any real humanity from those who have proven to be such epic failures by any and all measures. Our society and future will be better off without them leading us over the cliff of their narrow self-interest.

I was very glad to see 'our own' Elizabeth Warren on Obama's transition team, and I appreciate your speaking out, too. We need smart and principled—not ignorant and unethical—leaders now.

But what about this? If GM fails, it goes out of business, & maybe I won't be able to get parts for my Chevy Venture. If Citibank fails -- to the extent it has no cash it has supposedly been holding in trust for bank customers -- the taxpayer-funded FDIC has to cover $$ billions of its bad debt. Isn't that a distinction that IS a difference?

The Constant Weader at www.RealityChex.com

Could someone clarify how many employees Citibank and GM have, respectively? And how many folks total would be affected by the demise of each?

(One can get overwhelmed by the constant stream of big numbers.)

A few months ago I re-read an old radical novel from the 1930's, a piece of left social realism from the period, based substantially in fact, Ruth McKenney's "Industrial Valley". It is the story behind the story of the organization of the United Rubber Workers in Akron Ohio during the bottom of the Great Depression, a scene which would be repeated at GM's Fischer Body in Cleveland, and then in the famous Flint Sit-down strike. Essentially she was asking the question of how much pain otherwise passive working class folk can take before they either pick up a pitchfork and go after the Sheriff's deputies, (as they did in Akron), or, more productively, hold massive organizing meetings and make concrete demands. But I didn't re-read primarily for that action, instead, I had just finished Jeff Sharlet's "The Family" -- his study of the evangelical/political organization so powerful these days in DC and elsewhere, because I wanted to refresh my memory as to how "The Oxford Movement" -- what later became Moral Re-Armament was used during the 30's to distract from efforts by workers to organize and lay demands. The Oxford Movement and many of its spin off's are the Roots of what is today, The Family.

I am not convinced the public is yet ready to become less passive in the face of the onesidedness of the Bail-out efforts. I think too much of the residual notion that the "Market" is somehow the divine decider still persists, and until people realize, and internalize the reality that Markets can be and have been manipulated in the interests of the few -- all too many people will remain essentially passive, and in strange ways continue to believe their condition is the will of the divine. And until those beliefs and the response they engender are openly questioned, the political response will continue to focus on the few -- the Wall Street Crowd, the Financial structures, and all -- and not on how the ordinary Joe and Josephine earn a living, feed their families, pay their debts, and hopefully get a little enjoyment out of life.

What will be the spark that will defeat the passive response? Any ideas?

"Nonetheless, Citi is about to be bailed out while GM is allowed to languish. That's because Wall Street's self-serving view of the unique role of financial institutions is mirrored in the two agencies that run the American economy -- the Treasury and the Fed."

Mr. Reich, I agree with you completely but then I think you're pointing out the obvious. That is, things and conditions that have become obvious over the last 15 plus years or even as far back as Ronald Reagan. What you're not pointing out is the other group that belongs with the Treasury and the Fed in the self-serving view of financial institutions as compared to millions of average working Americans - the Senate and specifically the Democrat party.

That's right. I didn't mention the Republican party, which needs no pointer to indicate its complete lack of concern for average working stiffs (unless they make totally bogus "JOe the Plumber" arguments about dream jumping to the unreachable heights of the upper class and then, and only then, not wanting to pay taxes). It's the Democrat party and the House of Lords that is the U.S. Senate.

I didn't need digby at Hullabaloo to point out that Harry Reid's argument - that he and the Senate Democrats can't put the auto industry rescue up for a vote because the votes aren't there and the rescue would fail - is a slap in the face to working Americans everywhere - including Alabama where non-union auto workers might get a temporary advantage from a big three collapse. Check that. The workers wouldn't get zip. The owners and the politicians they finance would benefit. The workers would likely see their jobs gone in a few years to foreign factories. But I'm getting off track.

Digby points out that Reid should be calling for repeat votes on the matter, making Republicans own the collapse of the American job market and production base that the auto industry represents. Reid and Democrats should be calling for vote after vote on the issue and if there is a filibuster screaming "UP OR DOWN VOTE!!" like the Republicans did when they were pushing an issue like extremist right wing judges for the federal court. Republicans even threatened to end the filibuster over that issue. But Reid doesn't want to allow a vote. Wouldn't want to make a scene. Not for average American working stiffs.

Upchuck Schumer "gulped" when the Wall Street collapse was announced by the Treasury and he, other senate Democrats and Barack Obama went scurrying around trying to find the best way to give the self same treasury and fed as free and unfettered as hand as possible to hand out hundreds of billions of dollars (with only fig leaf protections for the public) to Wall Street thieves - for their thievery. Schumer even has a history of fighting to keep Wall Street fat cats from paying the same high tax rate that average American workers pay. According to the Schumeresque logic the Wall Street people are somehow champions of structural support for America while average workers do little to drive the car that is "America."

This should be a golden political opportunity to point out how uncaring and class war conscious the Republicans are. Democrats should be forcing them to own the disaster that is the American economy they've created - or rather destroyed. ... with Reaganomics no less. Ronald Reagan did this to America. Amazingly instead, the Republicans are being allowed to tell the public it was FDR's fault.

The problem is that far too many of the Democrats are as unconcerned about average Americans as the Republicans are. They're trying to work out another set of fig leaves like those for the Wall Street bailout, that seem to suggest they're working for Americans, but couldn't overcome the difficulties, leaving the collapse of America's production base to something on the level of an act of God. Neat that. A trial from the ulmighty.

Reid, Schumer, Obama and the other senate Democrats don't want repeated votes because they don't want to be on record looking out for unions and workers. That might hurt their campaign cash flow. They don't have to worry about the unions and workers. Where are they going to go?

We don't have a representative democracy in America. The senate truly is a House of Lords. It isn't just the lame duck constitutional abomination that's glaringly unrepresentative. We have a one dollar one vote democracy and the Democrats, Upchuck Schumer a paradigm, feed off that system every bit as much as the Republicans.

Never mentioning class war isn't just a Republican axiom.

So how many years into this mini-Depression do we have to be until someone figures out that we'll need to bust up all these "too big to fail" monopoly banks?

Erica:

I can't accurately answer your question, except to say that the loss of any or all of the Big 3 would affect an overwhelmingly greater - I mean like HUGELY GREATER - number of people than the loss of Citibank. This is an undeniable fact.

The reason why this is so is easy to understand:

1) The act of making money off of money - trading in assets like equities, currencies, and commodities - only benefits the entities who are directly involved in the trade - and their usually not very well paid staff. These entities don't do much of anything except reinvest the profits they make back into the same instruments. They don't create anything. They only facilitate the flow of money from one account to another in the end.

2) The act of making money off of manufacturing benefits an entire supply chain - from the raw resource extractors who mine iron ore, etc. to the manufacturers of the machines that the labor pool uses to build the finished products to the aftermarket manufacturers who make and sell furry foam dice for the rear view mirror, etc. We're talking about thousands of businesses that serve the supply chain for automobile manufacturing. The Big 3 supports many millions of workers and retirees who serve this industry, while usually making a profit for it's shareholders.

RE: "Because the public doesn't understand the intricacies of finance, it's easily persuaded" to support a bailout of Wall Street firms.

No, the public was against the bailout.

Thousands upon thousands of us called and emailed Congress to vote against the bailout.

Only a tiny percentage of calls and emails to Congress on this subject were in favor of the bailout.

Maybe members of Congress are "easily persuaded" to give public money to Wall Street firms. The public isn't.

With people as arrogant and self-involved as Paulson and the other masters of the (now imploding) universe, the question of "good faith" simply doesn't make sense. It's like asking whether Ted Bundy thought he had a good reason for killing his victims.

Seriously. I'm not sure that we've seen a bunch of people so thoroughly practiced at self-delusion since "What's good for GM is good for the United States" -- and probably not even then.

But I think that there's one thing Robert Reich may be wrong about: we know that the pool of savings represented by shares in Citigroup and the others are gone for good, but it's not at all clear that the money represented by shares in other companies and other assets the financial industry administers are safe. (That is to say, it's clear by law, but public confidence that these guys have done what the law requires of them and will continue to do so is at a tsunami-style ebb...)

I have said it before and will say it until I am blue...liberal dems and their elites have a HUGE blindspot

On Market St. I noticed a new addition to the REPENT NOW signs...THE FED IS A FRAUD..another guy standing next with the Don't Tread on Me Flag

This is the worst economic disaster AND political dysfunction of our lives
d

We are in for a Giant Sh*t Sandwich..Left right and mushy middle

The anger out there is palpable and it is building
It is going to get scary bad and esp fearsome is Right Wing Populism, now that culture wars are on life support if not DOA, leaderless and demon deprived ...

They aren't even going for Stop the Japs, Buy American like they used to (though they're hot for "illegal" immigrants)

Another bailout..Citigroup first then GM..will unleash a torrent of anger and political instability

If the GOP was remotely close to having their head out of their butts, their ticket to ride back into power is right in front of their faces

Danger Will Robinson Danger

The next bailout had better be part of an omnibus recovery package..the Politics of Disintegration is here

The past 8yrs the dems have given Bush and the Publicans nearly everything they demanded. Now, just before they leave power they are taking our treasury with them by giving it out to those who are making sure Obama will not have enough funds to implement his promised social programs...especially when there is now an increased need for those programs. The CEO and management staff of the organizations being bailed out are all millionaires. Many have gained excessively by causing their businesses to tank. Yet I hear no one calling for seizing the holdings of these people. The bailout is not taking back the resources taken by these people which caused the collapse. One person getting $18 million while is company asks for $345 million is why we need to enact laws that would seize their holdings.
Removing the tax cuts on the wealthy is another means of coming up with the "bailout" money. But so far all the tax payer is doing is protecting the wealth and holdings of a small group of individuals who are so selfish they would let our entire economy collapse rather than give back a single penny they've gained at our expense.

Ia could give a shit about the big three auto makers except for the jobs lost. Same with the financial sector except for the havoc it produces on retirees and pensions of the working class. This is class warfare now. Auto makers bailout protects jobs...financial industry bail out protects the wealthy 1st.

The title of this article is "Why We're Rescuing Wall Street and Not the Auto Industry." In answering this question, this was very unhelpful and frankly uninformative.

Mr. Reich,

If Citi goes, then another primary dealer bites the dust. The list of market makers in Treasuries is shrinking fast. Are there any contingency plans to abandon the Primary Dealer system, maybe expand TreasuryDirect.gov with an exchange where open market Treasuries/Agencies can be bought and sold. Seems like doing that would free the Fed and Treasury from the noose that a shrinking pool of counterparties is tightening around their necks.

Just wondering.

Emma

None of this comes as a surprise. I'm glad that someone like Reich is making the point though. All the flurry of activity the past month or so has been for one purpose only: to protect the wealth and continuing profits of the rich. The average American is a footnore at best (despite the fact that the average American will have to pay for it all). It is sickening to watch all of it going down under the banner of keeping our national economy afloat when, in fact, all of us who live out here in American know that our economy has been barely hanging on for years.

The "crisis" of late is only a result of the relatively minor discomfort the rich have suffered as a result of the plummeting prices of their stocks. Ya know what? I say: fuck em! Let those bastards feel a bit of the pain they have been causing the average American for nigh on 40 years now.

Let's stop focusing on finding ways to keep the wealthy fat, happy and comfortable and instead let's focus all our efforts stricly on those areas that will directly benefit the average American today and in the years to come. For decades now the mantra of the rich and powerful has been to tell the average people to just deal with the economicy adversity they have experienced (so the rich could gorge themselves even more) and they kept telling us that we would have to adjust to the realities of the new economic times and so forth.

Well, I pray that bullshit has come to an end and it's time for the wealthy to have to deal with it too. It just kills me how they squeal, not because they are suffering, but because they aren't able to feast on the profits made possible by the sweat and labor of others. To hell with em!

Keeping the car makers afloat for a few more years and saving all those jobs is certainly attractive from a humanitarian point of view -- the jobs, pensions, and health insurance payments should be saved. But we are in a time of crisis, which is the only time that the great ship of democracy can fundamentally change its course.

Imagine $25 to 250 billion paid to partially compensate the workers who will loose those jobs and benefits, and to the rest of us to buy electric and pluggable hybrid cars. That money would enter the economy in the form of purchases of goods and services. Companies that produce those cars and their components would need loans to ramp up production, but in ten years we could have everyone driving 100 mpg vehicles, and those loans would be paid off with interest. Given the technological progress that could be achieved in those ten years, and those that follow, we could probably fuel our economy on our diminishing domestic resources and still have plenty left over to be kept in reserve.

We are told that the next few years will be really difficult, so why not make our sacrifice pay off.

Our country would be safer and more independent. We wouldn't need to go to war to protect our "freedom." After all, what is freedom, really if it isn't independence?

As I've often pointed out in the course of adding to Reich-ian threads, here, Robert ain't an economist and certainly, ain't an expert in banking and finance (I doubt he's ever authored a paper which could get published in a professional journal in any area of economics).

That said the difference in the government's (Treasury and Federal Reserve) response to problems in the banking and industrial parts of the economy is an important issue.

It isn't a question of whose ox is being gored or who's friends with whom. It's a matter of conventional wisdom -- that is, that there are certain financial institutions -- AIG, Citi, Goldman Sachs, etc. -- whose existence is integral to the functioning of the "banking" system. That due to the depth and breadth of their interparty relationships their failures would "crash" the money/banking/financial system.

The issue for us, especially those of us on the left watching Wall Street being favored over Main Street, is whether that conventional wisdom is correct.

Unfortunately, Robert Reich has nothing much to offer in the way of answering that question.

There is a much darker purpose going on here. Republicans (the predominate species on Wall Street) believe that management has been obstructed at every turn by the unions, therefore they prefer the option of bankruptcy. In bankruptcy, the needless cost of unions and pensions and healthcare can be cast aside and the top heavy bureaucracy can return to its proper role of producing profits for management and investors. Dealerships throughout the country, in town after town can be replaced with Mega-Mart auto centers, for more efficient distribution.

The question is more correctly, do the automakers serve a function for the nation that CitiCorp does not? The loss of Citi, with numerous alternatives, provides no consequence other than to financial sector investors. The loss of the big three would have adverse consequences in national defense, and on a scale dwarfing Citi (three to five million jobs). Liquidating Citi might cost 25 billion. Liquidating the big three would cost 150B x 3, + 5 million x 60k$, roughly a trillion dollars and the execution of five million citizens in the resulting riots.

Republicans destroyed my country.

In calculating the effect of a bankruptcy of either my guess is that GM's would have a greater effect because it would trigger the failure of a number of its suppliers.

And of course a GM failure would also have a more strictly financial effect since it owes approx. $50Bn counting both Payables and Debt.

But as I've blogged repeatedly this comparison is simply beside the point if you listen to Samuel Brittan, Brad Delong, Paul Krugman and Martin Wolf whose uniform position is that the US Govt should be spending trillions- right now but is immobilized by a shortage of things on which to spend it at this very moment when the effect of spending would would be a multiple of doing it later.

"It is ridiculous to conserve ammunition until after the battle is lost."

Martin Wolf in today's FT.

Mr Reich you wrote, “To be sure, savers need to believe that intermediaries are trustworthy; otherwise, savers will prefer the underside of their mattresses. That's why governments regulate intermediaries, insure deposits, and do whatever else needs to be done to make savers feel safe.”

The people didn’t bury it under their mattresses, they put it in Real Estate, and now the Government is allowing it to bury the people.

Small investors figured out years back, the fraud perpetrated by Large Corporations who took the shareholders money and gave themselves Golden parachutes, suckering the middle class to invest.
Invest for what? To give the CEO’S more money? Share holders had no transparency. LACK OF TRUST, YOU BETCHA

There is a jealousy between the classes. Stocks are taxed on the Capital gains unless their held for a period of time.

But Mortgages were given a privileges that the other instrument couldn’t.

Thousands of Dollars are exempt on a Primary Residence, upon sale. It also has the benefits of Tax deductibility.

Stocks on the other hand are taxed on every dollar.

So Wall Street is getting revenge. Convincing Congress to let housing go under.

When and as we see now occurring WHAT financial instrument is left for the people, who want a nest egg when they retire? It won’t be Real Estate will it?

Lo and behold, I’m sure the banks would be more than willing to give you something, all the while ripping the Savers off, having destroyed the competitive advantage of Real Estate.

It's so heartening to hear venerable Republicans like James Baker tell us that the answer to our manufacturing problem is lower pensions and lower wages. Any second I expect to hear them tell us that Great Depression II is Putting Country First.

Of course that should have occurred thirty years ago. I don't think that Jimmy Carter's malaise speech would go over any better today than it did then. Telling people that the next frontier is within us is going to be a hard sell as long as the people at the top have so many cool toys and freedom means accumulating power and stuff. Still, I've got my fingers crossed.

Simple thing we ought to do going forward: If you're "too big and important to fail" then you're too big and important to exist. (An idea stolen from Bernie Sanders who appears to be one of the few Washington DC types who remembers this thing called The Sherman Anti-Trust Act)

Informative piece.

A question I've never heard answered was the identity of the investors in London and Dubai that engaged in the short-selling of Lehman cerca Sept. 19th that drove Lehman's price / ratings / investment / into a tailspin? I'm sure it was nothing personal, but isn't that the proverbial Mrs. O'Leary's cow?

Given: The financial markets were brittle with flammable material and dry undergrowth.

Government takes in huge swaths of the financial sector is the greatest income redistribution I've ever seen so concentrated in a relatively small number of institutions.

This adds credence to Prof. Dye's (Who's Running America) longstanding study of power in the US.

Sorry Robert but I think the public understood exactly what was going on in the 700 billion dollar bailout for Wall Street that is why most people were against it.

They were against it because it had very little if any justification. It was just a handout of money with no corresponding concrete benefit just the hope that banks would start lending again. That is not enough to put 700 billion on the line with the compaines and people that got us into this mess.

On the other hand I think people understand that fundamentally a domestic auto industry has a great deal of benefit but they also understand that the auto industry has a lot of problems, some of which are their own fault and some are not. So I think the public would get behind a bailout of the US auto industry that has a promise of success.

How do you have success throwing money at banks who have made big mistakes but have nothing changed except a big bailout check from the government? There has been no change in leadership, no change in mission, no change in the regulatory framework for these banks. So were in the same position we were before but we are out billion upon billions of dollars that can't be used to stimulate the real economy right now. We have not even gotten voting shares for all of our trouble.

The bank bailout stinks to high heaven and the American people know it.