Please support this
holiday season!

Make Wall Street Take The Same Deal The Autoworkers Get

[ Posted Monday, December 22nd, 2008 – 19:02 UTC ]

Comparison shopping is big this time of year. As a consumer, you want the best value for your money, so you tend to compare different businesses and see where your dollar will go further. I'd like to apply this commonsense notion to the two most recent bailouts that all of us -- the American taxpayers -- have just "purchased" with our tax dollars.

The first was the bailout of Wall Street (known to wonks as "TARP"), which will cost $700 billion, half of which has been allocated by Congress and subsequently spent. The second is the bailout of the auto industry, which could wind up costing a little over $17 billion for the next few months.

I've been waiting for someone to intelligently compare the two, and finally read the article I've been looking for this weekend. It was written by Bruce Raynor for the Los Angeles Times. Raynor is the head of a union, and is also the chairman of the board of the only union-owned bank in America (according to the Wall Street Journal). So I would assume he'd have a pretty good perspective on both bailouts.

They [Republican Senators McConnell, Corker, and Shelby] claimed that they couldn't support the bill without specifics about how wages would be "restructured." They didn't, however, require such specificity when it came to bailing out the financial sector. Their grandstanding, and the government's generally lackluster response to the auto crisis, highlight many of the problems that have caused our current economic mess: the lack of concern about manufacturing, the privileged way our government treats the financial sector, and political support given to companies that attempt to slash worker's wages.

He goes on to provide some statistics.

When one compares how the auto industry and the financial sector are being treated by Congress, the double standard is staggering. In the financial sector, employee compensation makes up a huge percentage of costs. According to the New York state comptroller, it accounted for more than 60% of 2007 revenues for the seven largest financial firms in New York.

At Goldman Sachs, for example, employee compensation made up 71% of total operating expenses in 2007. In the auto industry, by contrast, autoworker compensation makes up less than 10% of the cost of manufacturing a car. Hundreds of billions were given to the financial-services industry with barely a question about compensation; the auto bailout, however, was sunk on this issue alone.

OK, comparison shoppers, let's pull out the trusty pocket calculator and do some math. The first thing we notice is that $17.5 billion is a miniscule two-and-a-half percent of $700 billion. That's right. When we talk about the Detroit bailout, it's always good to keep it in perspective -- 2.5% or one-fortieth of what the Wall Street bailout cost. I will even bend over backwards to be fair about it: since this is likely to be only the first installment for Detroit, I will only compare it to the money actually spent on Wall Street ($350 billion), making it five percent of the first payments to both.

Five percent. It's important to keep this in mind, to put it all in perspective.

The next math problem we have is figuring out the employee compensation for each. Now, ten percent of $17.5 billion is $1.75 billion. That's what the autoworkers are "costing" us from our taxpayer money. As for Wall Street, 60% of $350 billion is $210 billion. For employee expenses.

So which do you think Republicans are angry about, the part that is under $2 billion, or the part that is more than one hundred times as big, at $210 billion?

And remember, they've got another $210 billion lined up, unless Congress shows some backbone.

But Chris (you say), maybe those numbers aren't right. Maybe you should check the facts. Well, I'd like to. But I can't. Because even Fox News is suing the White House to get some information about how that $350 billion was spent, and George Bush is refusing to release any details. From the other side of the spectrum is Huffington Post blogger Gail Vida Hamburg, with the wonderful headline: "You Morons, What Have You Done With Our Money?" The Associated Press just ran a story that states the 600 top executives at the banks we just bailed out got over $1.6 billion just for their own compensation.

But the financial companies ain't talking, the Treasury or the White House ain't talking, so basically we have no idea what happened to that $350 billion. Or, to put it another way, we just gave twenty times what we're going to give the car companies, and we forgot to ask for a receipt.

Paul Krugman, who incidentally just won the Nobel Prize in Economics, had some choice words for what happened:

The financial services industry has claimed an ever-growing share of the nation's income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it's not just a matter of money: the vast riches achieved by those who managed other people's money have had a corrupting effect on our society as a whole.

Let's start with those paychecks. Last year, the average salary of employees in "securities, commodity contracts, and investments" was more than four times the average salary in the rest of the economy. Earning a million dollars was nothing special, and even incomes of $20 million or more were fairly common. The incomes of the richest Americans have exploded over the past generation, even as wages of ordinary workers have stagnated; high pay on Wall Street was a major cause of that divergence.

But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.

Consider the hypothetical example of a money manager who leverages up his clients' money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while -- say, as long as a housing bubble continues to inflate -- he (it's almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big -- but he'll keep those bonuses.

O.K., maybe my example wasn't hypothetical after all.

He also puts some numbers to the scope of the problem:

We're talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America's G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing -- and it probably was -- we're talking about $400 billion a year in waste, fraud and abuse.

But the costs of America's Ponzi era surely went beyond the direct waste of dollars and cents.

At the crudest level, Wall Street's ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven't closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.

Once again, this man just won the Nobel Prize in Economics, so he's no slouch and probably knows what he's talking about.

So what is Congress doing about it all (Senate Republicans in particular)? They are forcing the CEOs of the car companies to give up their private jets, while the Wall Street companies are allowed to keep their fleets of private jets (and the news media doesn't even blink at the rank hypocrisy involved). They are trying to force autoworkers to take a huge pay cut, while at the same time refusing to even talk about the outrageous Wall Street salaries. And the Detroit bailout, remember, is five percent of the Wall Street bailout, so far.

Now, I am not arguing here for the righteousness of either Wall Street or Detroit's cause. American automakers made some horribly bad decisions over the past few decades, and are now paying the price. Wall Street made some horribly bad decisions too, and they are now paying the price.

Or, to put it more accurately, we are all "paying the price." But the debate is one-sided. If we're going to minutely examine autoworkers' wages, and dictate the travel plans of one industry we are bailing out, then it seems eminently reasonable to do the same for the banking industry. Because, as any smart comparison shopper will tell you, when one of these items costs twenty times as much as the other, that's probably where you can save more money. It's only fair, if we're going to micromanage Detroit, that we do the same to Wall Street.

I would suggest that no employee of any Wall Street firm getting taxpayer money can make any more than a union autoworker. That would be a good place to start from.


Cross-posted at The Huffington Post


-- Chris Weigant


9 Comments on “Make Wall Street Take The Same Deal The Autoworkers Get”

  1. [1] 
    Osborne Ink wrote:

    Oh, Chris! Limiting compensation -- the ultimate reversion to Marxism! How COULD you??

    ...Except that you're absolutely right.

    It happens that I had a former business professor praise my work recently at the call center. He had a problem that needed several minutes of fixing, and thanked me for being courteous and professional, etc., at the end. He told me about the career from which he'd retired and wondered aloud why more call service people weren't like me. What had happened to the work ethic? he wondered.

    What I did not say, and could not say, was: "YOU happened to it. YOU taught a generation of young people that it is far, far better to serve one's self with filthy lucre than to serve another human being. YOU devalued work. YOU made sure that wages stagnated while bonuses skyrocketed. When service workers make $7 or $8 an hour, the level of service will be worth $7 or $8 an hour. So get the hell off my line, you're stretching out my call handle time."

    Instead I thanked him and asked if there was anything else I could do for him.

  2. [2] 
    Michale wrote:

    First off, I was on the record as being against BOTH bailouts.. So the debate over why bail out Wall Street and not the Auto Industry is moot.. At least for me..

    Secondly, I am (again) constrained to point out that it is unfair to take Republicans to task over the Wall Street bailout when it was Democrats in collusion with Bush, who pushed the Wall Street bailout..

    Therefore, it's logical (and factual) to construe that Republicans aren't being hypocritical (at least in THIS instance) by opposing the Auto Industry bailout because they, initially, also opposed the Wall Street bailout.

    This doesn't mean that the Republicans are not completely blameless for the Wall Street bailout. Ultimately they succumbed to the bribes of the Democrats and jumped on the bailout bandwagon..

    But it's a fact that, initially, the Republicans opposed the Wall Street bailout.


    (((crossposted to

  3. [3] 
    fstanley wrote:

    It takes two to tango and in this instance everyone in congress and this government are dancing hand in hand. This is what happens when there are few regulations with little to no oversight. I am not seeing any difference between either party in their handling of these problems.

    Government which is supposed to act on behalf of society is disfunctional but this is a consequence of society also being disfunctional.

    The new administration has a very difficult time ahead and the question is will they continue to dance to the same old tune or will they write a new song.


  4. [4] 
    Michale wrote:

    This doesn't mean that the Republicans are not completely blameless for the Wall Street bailout.

    Arrgh... I need a Grammar Checker!!!

    "In the dictionary under 'redundant', it says, 'see redundant' "

    -Robin Williams

    The above should read, "This doesn't mean that the Republicans are completely blameless for the Wall Street bailout."

    My Bust....


  5. [5] 
    akadjian wrote:

    There seems to be a clear double standard from Republicans when it comes to bailouts:

    Financial = good because they are "too big to fail."

    Automotive = bad because union workers are the problem.

    The comparisons really show who is adding more value to society vs. who is simply profiting off of others.

    On the other hand, you've got the Democrats who don't seem to have much of an alternative other than bailout everyone.

    It's a shame that to some extent Republicans are going to come out of this seeming as if they've stuck to principles, even though those principles are what got us into this mess in the first place.

    What isn't clear to me in this gigantic mess is what are the principles of the Democrats when it comes to the economy?

    They should be fighting for:
    - Competition (instead of no-bid contracts and the 'pay-to-play' philosophy of Republicans)
    - A stable economy (remember how well regulations kept us out of some of these disasters?)
    - The middle class(or what's left of it)

    If they don't do this, and do it over and over again, and then market it some more, what will happen is that the only thing anyone will remember is that they voted to give money to these companies and the economy tanked anyways.

    Right now, I'm afraid most people have very little idea why they are doing it other then they feel as if they have to.

    Democrats can't continue to get nothing for these bailouts. That is what they got from the financial bailout. Nothing. No concessions from Wall St. And, they lost again on the automotive bailout. Who is getting what they want - the further destruction of American unions? Republicans.

    At least with Republicans, you know what they're fighting for - corporate rights and the rights of the wealthy.

    I think the Democratic party ought to take $400k - that's four hundred thousand dollars, almost 750 billion less than was spent on the financial sector - and send every single elected member they have to a negotiation course. It also wouldn't hurt to take a couple million dollars and develop an economic stance that has some legs.

  6. [6] 
    Michale wrote:


    (instead of no-bid contracts and the 'pay-to-play' philosophy of Republicans)

    Yer kidding, right??

    One word...



  7. [7] 
    akadjian wrote:

    Heheh. Yeah, he seems kind of sleazy, but if you compare scale, why aren't people more upset about the $750 billion intended to fix our economy that has just gone up in smoke.

    Blagojevich is petty theft when compared to this. So why does the media focus treat the situations accordingly?

    Let's Blago was asking for $1 million dollars, a pretty large bribery sum.

    Wall Street just took us for 750,000 times that amount. Do we hear negative media coverage about them that is 750,000 times as much?

    No, if anything, we hardly hear anything about it. I find that peculiar. But not so peculiar when you start thinking about who owns the media.

    To put this into perspective, it is the difference between a bank robber stealing 750k compared to a child taking $1 in lunch money.

    If you think about if from your tax money, this is less than a penny from each of us. The bank bailout? Cost $3,750 per taxpayer if you assume 200 million taxpayers.

    Blago should go to jail if found guilty. But let's focus on the much bigger robbery.

    - D

  8. [8] 
    akadjian wrote:

    BTW - good lawd, I need an editor tonight. Apologies. Too much to do before Xmas.

    Happy Holidays everyone!

  9. [9] 
    Michale wrote:

    I am amazed (and pleased) to see so much opposition to the Wall Street bailout.

    It's what I like about this site. The people here don't have a problem with castigating their own party when it's deserved..

    I just don't understand why the Democrats, after pushing for this Wall Street bailout that has obviously done NOTHING for this country, were all ready to make the exact same mistake with the auto industry bailout.

    Hammond: "We're not making the same mistakes, that I can tell you!"
    Malcolm: "No, no.. You're making all NEW mistakes"
    -Jurassic Park


Comments for this article are closed.