Matt Yglesias

31 Responses to “Mo’ Money”

1. Petey Says:
   November 10th, 2008 at 2:15 am

   “AIG is getting more bailout. This doesn’t make a bailout for automakers a good idea, but in political economy terms I think it certainly makes the calls harder to resist. Next thing you know broader-and-broader swathes of the world economy will resemble the airline industry where successive rescues means nobody ever goes out of business and the whole sector becomes dysfunctional and dominated by unprofitable and terrible zombie firms. Just saying.”

   But what are you saying?

   Keeping AIG functioning makes perfect sense to me. I’m agnostic on automakers, as the merits would depend on the details, but I think there is an easy case to be made that preserving some domestic auto production through the current downturn makes eminent sense.

   And airlines are actually a good example of when industry bailouts can make sense. You don’t want a situation where all the airlines simultaneously go under because of a bad business cycle. That really tends not to help matters.

2. TH Says:
   November 10th, 2008 at 3:24 am

   Only thing to say about AIG is that the public equity should be worth $0 right now, not $6 billion. I’m fine keeping the company alive with government money, as long as it aggressively trims down and winds down its CDS exposure. But the public equity holders should get wiped out and the existing debtholders should only get 50 cents on the dollar at this point, tops. There has to be some downside to investors from a fuck-up this monumental.

3. max Says:
   November 10th, 2008 at 4:24 am

   where successive rescues means nobody ever goes out of business and the whole sector becomes dysfunctional and dominated by unprofitable and terrible zombie firms. Just saying.

   We should have carved the rotten part (a few hundred employees) out of AIG and let the rest fly free. Wasteful, but a working insurance company is better than a non-function one that always comes back to the trough. And besides, the CDSs are insuring stuff we’ve already guaranteed, so we should just put an end to that little joke.

   As for the automobile industry – we aren’t getting enough for our bailout money (just like the airlines). If we bail out GM and Chrysler, we should restructure them into a couple or four much smaller automotive companies, preferably regionally-based. In the meantime we can fire a bunch of stupid executives.

   max
   ['I mean, if you're trying to keep an industry going even if the individual companies die.']

4. Frank Says:
   November 10th, 2008 at 4:42 am

   A world in which MY never again made an ideological appeal to let the auto companies fold during an economic crisis would be a good one.

   A world in which MY wrote a post in which he addressed the question of letting this happen now of all possible moments, would be a better one.

   Somehow, I can’t get all of MY’s train-philic posts out of my mind when I hear him make this case. Not a good combination, methinks.

5. right Says:
   November 10th, 2008 at 6:45 am

   AIG is completely irrelevant when considering an auto bailout. AIG is a hugely successful business with one tiny unit that made massive, massive mistakes that need to be back-stopped. Once those mistakes are out the door, their business model has no problems.

   Automakers are screwed no matter how much money we pour down the rathole.

6. nihil Says:
   November 10th, 2008 at 7:30 am

   How about we impove a 30% VAT and put GM and Ford through involuntary Chapter 11. Then Toyota could pickup GM and Honda could pick up Ford and manufacture hybrids in the US.

7. Craig Says:
   November 10th, 2008 at 7:44 am

   I’m always baffled by the idea that the airline industry in this country isn’t doing a pretty fair job. “Unprofitable” may or may not be fair, but, as I don’t own any airlines, is not really my most immediate concern. All I know is that I can travel anywhere I want to go, on a pretty convenient schedule, at a price that is still quite affordable–and downright modest, compared to fares in the days before deregulation.

   We love to gripe about never getting meals (almost as much as we love to gripe about how bad the meals are), or paying for baggage, but we, as a people, have clearly voted with our wallets on this question, and we want the cheapest travel possible, even if that makes the flight itself an unpleasant experience.

   If American carriers lag European ones in innovation, it is precisely in the area of not nickle-and-diming us _enough_ to get the fares shaved to an absolute minimum. Consider those discount Euro carriers that all but charge you for each article of clothing you wear on the plane. _That’s_ the future of innovation. If you want the “Come Fly With Me” glamor of a bygone age, I suppose there’s always First Class. You don’t want to pay more for First Class? Well, there ya go.

8. bdbd Says:
   November 10th, 2008 at 8:41 am

   I too question Matt’s analogy to the US airline industry (and even more strongly question Matt’s conflation of “airline industry” with the Alitalia example in the samefacts link. (and I agree with Craig about the airline industry actually doing a pretty good job, given the circumstances and the state of passenger demand and what people are willing to pay, expectations aside.) With the exception of the 9/11 aftermath, weirdnesses in the airline industry have to do with the quirks of US bankruptcy law, which allow airlines in Chapter 11 to continue operating in ways that distort the national market. These effects are compounded by the fact that airliens (pun) are subject to the Railroad Labor Act, which complicates airline labor relationships and abilities to adjust.

   Also note that the glamour “Come fly with me” days are usually a residue of the times pre-1978, before airline deregulation, when airlines really were on the public teat as a fully protected industry with little need to compete on price.

   Petey above worries about all the airlines going bust at the same time (this nearly happened in 2002-2003, with the exception of Southwest, by the way) — he shouldn’t worry so much, since Chapter 11 will keep them flying while they reorganize, and in any case, the aircraft and flight crew/cabin crew/ground crew skills continue to exist even if the corporations curl up.

9. Freddie Says:
   November 10th, 2008 at 9:21 am

   What bothers me about your and others’ resistance to the automaker bailout is that it seems as if people are acting like the bailouts of the financial companies are somehow more legitimate, or that the banks aren’t as insolvent as the car companies or something. But that’s bogus. The banks, and their management, failed to keep their businesses at even a minimum threshold of solvency. Just because they do glamorous things with fake money doesn’t make them somehow less failing than the automakers.

10. Tim Says:
    November 10th, 2008 at 9:59 am

    What? $30 billion for three crappy car companies seems like a great deal compared to $125 billion for bank executive bonuses.

11. JRoth Says:
    November 10th, 2008 at 10:25 am

    Somehow, I can’t get all of MY’s train-philic posts out of my mind when I hear him make this case. Not a good combination, methinks.

    I think Matt’s all wet on the automaker situation, but I don’t think it has a blessed thing to do with his train-philia. Matt’s socio-cultural milieu consists almost exclusively of people for whom the notion of an American car is taken as seriously as American cheese.

    That’s a nasty bit of personalizing that I’m uncomfortable with, but it’s true – both he and Ezra have made clueless comments about the build quality of American cars that show an understanding of cars frozen somewhere around 1988. The fact that a typical 2008 Chrysler (!) is better-built than a 1995 Lexus doesn’t register with them – American cars are all lemons, and so why should we support companies that can’t produce minimally competent cars?

    The truth is that Big 3 management was criminally stupid to treat the SUV Years as a righting of the World Order (with them naturally on top), rather than an opportunity to retool for the inevitable small car/alternate fuel future. But Matt, Ezra, etc. like to throw around phrases like “can’t make cars that people want to buy” as if these companies weren’t selling cars as fast as they could make them just 2 years ago. The fact that Toyota – a company that, presumably, does make cars that people want to buy – is getting its ass kicked right now. It’s not Detroit, it’s the economy, stupid. As someone said on the other thread, better to spend $30B to keep hundreds of thousands of Americans working good jobs for car companies (that should face conditions for taking the $$, obvs.) than to have to put them all on the dole.

12. Lori Says:
    November 10th, 2008 at 12:20 pm

    Heh. Zombies.

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