why is capital sacrosanct in america?

Today Robert Reich has a post up at TPM that addresses clearly some economic issues of national interest, that I’ve been framing recently, under the rubric of patriotic duty. While he doesn’t frame these issues as such, he does draw some inferences that might apply, in making a comparison between the prospective bailouts of GM and Citi Group:

Viewed from Wall Street, Citi is too big and important to be allowed to fail while GM is simply a big, clunky old manufacturing company that can go into chapter 11 and reorganize itself. The newly conventional wisdom on the Street is that the failure of the Treasury and the Fed to save Lehman Brothers was a grave mistake because Lehman’s demise caused creditors and investors to panic, which turned the sub-prime loan mess into a financial catastrophe — a mistake that must not occur again. So, by this view, the government must do everything and anything to keep Citi alive. But GM? GM is just … jobs and communities.

Reich goes on to explain that the bailout of the banks and financial institutions, because they are insured by the FDIC, are not directly a threat to the day to day economy, or normal banking activity. While on the other hand letting GM fail, would have a major impact on that economy:

So why save Citi and not GM? It’s not at all clear. In fact, there may be more reason to do the reverse. GM has a far greater impact on jobs and communities. Add parts suppliers and their employees, and the number of middle-class and blue-collar jobs dependent on GM is many multiples that of Citi. And the potential social costs of GM’s demise, or even major shrinkage, is much larger than Citi’s — including everything from unemployment insurance to lost tax revenues to families suddenly without health insurance to entire communities whose infrastructure and housing may become nearly worthless. I’m not arguing that GM should be bailed out; as I’ve noted elsewhere, GM’s creditors, shareholders, executives, and workers should have to make substantial sacrifices before taxpayers should be expected to sacrifice as well.

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. Their job, as they see it, is to keep the financial economy “sound,” by which they mean keeping Wall Street’s own investors and creditors reasonably happy

This is what I’ve been trying to get at.  The auto industry, is arguably, the largest functioning and productive sector of the American economy, employing millions and actually producing tangible wealth, while the financial sector can make no such claim, they produce nothing but paper. Why is it that capital is so sacrosanct in America? And why does capital have no national obligation?

10 Responses to “why is capital sacrosanct in america?”

  1. Loan Banks Says:

    You may not agree with everything Stephen says, but at the very least, you’ll understand that your differing opinion is wrong. Loan Banks

  2. am Says:

    I would delete that as spam, but I like the elevator music.

  3. jdp Says:

    Hi anna,

    First post here. I live in Michigan and have seen the already terrible results of the Bush admin on this state. Unemployment in Michigan is always higher under republicans due to favoring the south and always higher fuel prices. I have relatives that are retired from GM and have friends still working there. Although, I myself live 200 miles north of Detroit.

    This pap that GM, Ford and Chrysler don’t build cars people want is plan bullshit. As I posted at Moon, people want trucks and trucks have utility. Where I live, if you don’t have a truck, you can’t do things and go places you want, like the lakes, rivers and camps.

    The Big Three make great trucks. Toyota is now making a good truck, but Nissan failed. It has taken Toyota years to come close to Big Three quality in large pickups and other even larger trucks, semi tractors, etc are still dominated by US companies. A big three pickup will do 200,000 miles (I’ve seen some at 300,000 miles) and a semi tractor will do 1 million miles or more depending on conditions. Just a note on the car side, I’ve got 180,000 miles on our 30 MPG Oldsmobiles before selling them.

    Those vehicles, trucks, are where the most value added is and they are the big threes bread and butter. Now, everyone thinks about cars, especially persons in inner cities, and persons who don’t need utility, mainly ivory tower people. Farming and the logging industry wouldn’t exist without trucks as we know them today. The US has a truck culture plain and simple. Country music has songs about I love my truck and tractor. Long haul truckers have been glorified in song. Until the country shifts in mindset, this will continue. Bush caused the Big Threes problems by the war in Iraq. Premiums on oil due to war, borrowing to much money out of the economy, crowding out private borrowing.

    Now to Wall Street. They have taken money through the 401K system and concentrated it into few hands. They have talked large companies into 401Ks instead of regular pensions and then used the money to destroy manufacturing and everything else Wall Street sees as prey. Acquiring companies, busting them up and selling them in pieces is more profitable than keeping them alive in the US. Then the equipment can be sold to China and wage arbitrage makes them even richer. As I’ve said many times, Wall Street is the average mans enemy. People must invest in local banks and companies. The 401K system must be reformed where Wall Street is not in control. Until that happens, the US will continually become a shell of its former self. Our priorities are missed up.

    Oh, congrats on the site. jdp

  4. am Says:

    Thanks jdp, as you know I always value your input at the MoA. My own pet wish for the U.S. economic recovery is to rebuild the passenger rail system, with an emphasis on light rail connecting to a regional/national system. There’s simply no reason that a person shouldn’t be able to go anywhere in the country efficiently without owning a car. For example:

    * A trial of a Colorado Railcar double-deck DMU hauling two Bombardier Bi-level coaches found fuel consumption to be 128 US gallons for 144 miles, or 1.125 mpg. The DMU has 92 seats, the coaches typically have 162 seats, for a total of 416 seats. With all seats filled the efficiency would be 468 passenger-mpg, with 70%[citation needed] filled the efficiency would be 328 passenger-mpg.[29]

    This would also be a sensible public works project, and be an interm bridge to dealing with the outmoded 30mile plus suburban ring circling most metro areas. Most of the more difficult work of rebuilding the regional system, right of way and surface grading, is already intact and left over from abandoned lines. Out here, the old Milwaukee Road roadbed, going from Seattle to Chicago, through several mountain ranges is all still intact. All they would need is new track.

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