If you were born after the Viet Nam era you might not be familiar with the "Domino Theory", however for purposes of this diary I am modifying it a bit. The sad thing is that in this domino theory things could come out much worse. In economics whether you take a micro or macro view, all things are related and in many cases, interdependent. This is more a macro view, but no matter which approach you may consider more accurate, one cannot exist without the other.
This was originally published in idealthoughts.
However, it seems our government is doing it's best to cut it's own throats and ours too. I am of course talking about Congress which remains the biggest group able to self power their own hot air balloons. Before I go further, this is a must see from last night's Rachel Maddow Show. Watch and we'll resume after the story.
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Although a bit lax here in my postings, I have been active over on the DailyKosweb site under the pen name utopia. I have consistently raised issues regarding all of the bail outs and though I make no claims to being a financial expert, I do understand finances. I understand the complexity of our economy and how things are inter related. The future of the Big 3 illustrates this, hence my title asking if you dear reader remember the "Domino Theory"? Never fear if you don't, Wikipedia offers a good explanation and the link is just previous. How does that relate to finances? Well in writing a comment to an article this morning on the DailyKos, I realized a progressive domino effect has been occurring in this country and of course the CEO's of the Big 3 who are on Capitol Hill today, hands out stretched have offered a progressive domino like collapse in the economy should they be allowed to fail. In my scenario though, the end result becomes much bleaker.
First of all, our auto makers have pretty much done most of the damage to themselves. Yes, the current economic state that is not their fault has contributed, and probably hastened the inevitable, at least for GM. Ford and Chrysler may have started along the path of recovery, GMC brands were continuing as if there was no fuel shortage and things were just peachy. Don't believe me? Look at their advertising. What cars did they market? Let's see, Cadillac’s, Hummers, and various SUV's. This is the very marketing strategy that brought them to this point of bankruptcy. Ford and Chrysler had started to turn around with the Escort and Neon, and actually had pulled in a good market share. GM made 48 different models for their assorted brands and the only car coming close to a reliable mid sized to compact fuel efficient vehicle was the Saturn. Frankly IMHO Rick Wakeman, CEO of GMC needs to go, and in the hearings yesterday he showed the least amount of contrition of the three.
This aside we need to look at what is being asked of us as taxpayers. To give the Big 3 which as Rachel points out manufactures something, that's right kiddies their is a product producing industry right here at home. Yet we are basically crucifying both the auto makers and their unions over the poultry some of $34 billion compared to the total lack of discussion, over sight or questioning of the banking industry who Treasury Secretary Paulson (former CEO of Goldman Sachs, one of the firms that helped create this economic collapse) came to Congress saying they needed $700 billion or the world would stand still and fade away. As noted in the clip above the folks who "showered before work" got their goodies as if they were entitled to them, while those who "showered after work" are undergoing similar interrogations to those detainees in Gitmo. And the word is out that there aren't the votes to give the Big 3 one dime. Of course Congress has yet to stand up to the Bush Administration, so rebuffed by the voters this last November, and say, "well ya know Georgie Boy, your banker and insurance buddies don't need all that money so give the Big 3 a couple of drops". Bush and Paulson in unison cry "no way". Congress, so far being to scared or lazy to do their thing hasn't considered passing a bill requiring the Treasury Secretary to give the auto folks their $34 billion from that fund. They do have the power to do that.
What is wrong with this whole picture? In short it is a lack of accountability, and a dying Republican Party's attempt to destroy the middle class. The start of this financial crisis was caused by the banks, brokerages and insurance companies by their greed and corruption. What they essentially did was sell packaged and repackaged loan bundles by artificially inflating their worth. Loans that were for say $5,000 were bundled with other loans to make them appear they were worth $10,000. At the same time to assist this illusion real estate values mysteriously began rising at rates that hit as high as 40%. In good times real estate may hit a growth rate of 12% but hey, builders, investors all got into this with banks breaking all the rules regarding credit eligibility, and lent money to people unable to afford these homes based on a promise of increased value and growth that would eventually take care of their debt. (For an excellent explanation on this scam read this article). Well illusions last only so long and as the old saying goes "what goes up must come down", happened so here we are. To compound the hypocrisy the very person given so much power (and money, ours) to correct this mess is one of the players that got us into this mess. After terrifying us all with horrible images of financial ruin and getting $700 billion of tax payer money to reinvest with his banker buddies. Oh yeah, they were supposed to reinvest our money to us (with a profit of course) so we could buy things again. Only they aren't and no one seems to know what the banks have done with the they have been given. This is according to the GAO.
We know how many manufacturing jobs have been lost to out sourcing and buy outs of industries such as textiles, clothing, even a large chunk of the steel industry. Over time, under the NeoCon ideal corporate takeovers were good for all [sic] except the workers who lost out. With decreased competition came decreased quality oversight (where else ya going to go since only we make it). Increased prices, while wages declined in proportion to the cost of living. Also with many losing their jobs and often having to work two or more temp jobs the ability to consume decreased for all those goods. At the same time America's ability to stand on her own shrank as well. Hell military uniforms are made in China now days! So the equation now shifts to where we are dependent on other countries for what are our basic necessities. The argument given by corporations, and I'll pick on Niki here that the exporting of jobs to places like Indonesia reduces cost is bogus. Let me ask you this; when have you seen the price of any Niki product drop, even though it is now produced by people earning $5 a week? I thought so. Bonuses for executives have increased, shareholder dividends have increased, workers pay......wait a minute sorry there are no more workers here in the States.
So now there is a cry from many is to let the automakers sink if they can't hold their own. after all it's just another domino right? No, we now have a big problem. In many ways the auto industry is the last major manufacturing industry we have, unless you count what bankers and brokerage houses manufacture, and we all are now seeing the quality of their product now aren't we? Since we aren't producing, but only consuming what happens to this little thing called the balance of trade? That's right it increases. What happens when it increases? Well there is this thing called debt, inflation, and taxes, all of which increase too. Next thing you know we are selling huge amounts of Treasury bonds to other countries to help us pay the current debt, but that just increases our future debt. What do we offer as collateral? The only thing I see is the deed to this country.
Now wait a minute you say, we must make an export other things right? Yes, we do. One other thing that is in high demand all over the world, food. Yes folks there is a good reason for the mid west. To be fair I'll toss in Microsoft as well. So what happens then why worry that can handle the debt right? Welllll........ let's say we increase our exports of wheat and grain elsewhere to pay off our debt and equal out that balance of trade thingie, what happens to the food supply here that we've always had an abundance of? Do you hear that last domino falling?
The end point of all this is we cannot afford to lose the Big 3. There is no reason that the $34 billion can't come out of that super fund set aside for the banks, except Paulson and Lame Duck Bush. That can be easily by passed, however Congress needs a swift kick in the arse. At the same time 43 though still residing at 1600 Pennsylvania Ave. seems to be MIA. So it is time for Obama to step up and show support for American industry, rather then his weak statement of supporting the Big 3. He's not yet the President, but he is the leader of the Democratic Party and as such he needs to demand action from Democrats in Congress. This is a time we truly need to look within our borders and do some major damage control. Eventually the cascade of falling dominos will reach an end point.