Thursday, December 4, 2008

Blame Game Rhetoric

One cannot envy the position of Christopher Dodd, Chairman of the Senate Banking Committee. When the Administration sent all of its biggest guns to testify that the sky was falling, Dodd tried mightily to maintain the principle that doing the right thing is more important than doing anything quickly. The result was a noble effort to grant Treasury Secretary Henry Paulson his entire $700 billion bailout check with the proviso that there would be scrupulous oversight to guarantee that every one of those dollars was judiciously spent. Today I am sure that Dodd is as aware of the rest of us of the Government Accountability Office report, which has basically concluded that Paulson had his fingers crossed behind his back when he agreed to this proviso. Imagine how Dodd must feel now, facing the chief executives of Ford, General Motors, and Chrysler without even a short break in time for wiping Paulson's egg off of his face!

To Dodd's credit, the last time this unholy trinity came to his committee chamber, he sent them packing under an order to come back with a more substantive argument. However, this morning's BBC NEWS report made it clear that these guys were better at managing style than they were with substance:

The heads of all three companies decided not to use private jets to travel to Washington for their presentations [as they had done the first time] to avoid public criticism.

GM chief executive Rick Wagoner and his counterpart at Ford, Alan Mulally, drove to Detroit in hybrid cars produced by their own respective firms.

The substance, on the other hand, seemed to be little more than a matter of turning out their pockets to show that they were empty:

The so-called Detroit Three of troubled US carmakers have asked for a combined total of $34bn (£22.8bn; 26.8bn euros).

Slashing costs, reducing levels of debt and investing in greener technologies form the centre-piece of each proposal.

The chief executives of Ford and GM have even offered to work for $1 a year if Congress approves the emergency aid.

General Motors asked Congress for a loan of $12bn, with an additional $6bn if necessary, to help it survive.

Ford requested a $9bn bridging loan, which it hopes it will not need.

Chrysler sought $7bn to survive the dramatic slump in sales that has decimated its cash reserves.

Once again, Dodd is in the unpleasant position of being forced to make a decision without giving the matter the deliberation it deserves:

Democrat Christopher Dodd said that letting Chrysler, General Motors or Ford fail would be playing "Russian roulette with the entire economy".

Failure would affect "almost every sector of the economy", he said.

He also severely criticised the US Treasury and financial institutions for their handling of the credit crisis.

"This is not about acting to save individual companies. If it were, I would let them fail," said Sen Dodd, who chairs the Senate Banking Committee.

With "hundreds of billions in outstanding debt obligations", he said the credit crisis would get a lot worse if the carmakers were not able to repay their debts.

Inaction, he said, "is simply not a solution."

In such a situation I can sympathize with Dodd venting his frustration through finger-pointing:

Rounding off his opening salvo, the senator said the US was mired in a deep recession caused by "irresponsible actions in the financial sector", before criticising the Treasury Department for "misusing" its authority by spending the $700bn bail-out package agreed by Congress in an "ad hoc manner".

The authorities had not, he said, attached stringent enough conditions to the package.

Well, at least he is giving himself some time to wipe off that egg. However, he should not be allowed to fall back on the rhetoric of "irresponsible actions" without being more specific about how responsibilities have been abused. Consider the case of the automobile industry. We tend to think of an automobile manufacturer as being responsible to the customer, building a vehicle that is safe, reliable, and responsive to that customer's needs. After decades of Japanese automakers demonstrating that they took this responsibility more seriously than any American corporation and being rewarded for their attentiveness with market share, those "irresponsible Americans" are now crying about the horses stolen from their barns. This is because, ultimately, their responsibility to shareholders trumped their responsibility to customers (or, for that matter, their workers). Product did not matter as long as the price of a share of stock kept rising. This may be the most illustrative consequence of our country's manufacturing economy having been displaced by a "knowledge economy."

The result of this displaced responsibility is that the Senate Banking Committee is now stuck with the problem of a crisis in "the entire economy," which is, for all intents and purposes, being held hostage by our failed domestic automobile industry. Were Dodd given the luxury of holding this entire mess at arm's length, he might recognize the role of addictive consumerism in the big picture and the need for "rehabilitation" by going back to the basics of our underlying political economy. Unfortunately, I doubt that Dodd will ever get that luxury; and, as I have already suggested, I am not sure that Barack Obama's team of economic advisors will be disposed to deliberate over such build-from-the-ground-up thinking. They say that an addict is not ready for rehabilitation until (s)he hits rock-bottom. I just worry about where that rock-bottom is and what it will feel like when we hit it.

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