The Capital For 11/23/08: Bailing Out Fall Street Instead Of Main Street, Again

Gut-wrenching stuff to read from Berkeley professor Robert Reich, the former Secretary of Labor under Bill Clinton, along with being an economic adviser for Barack Obama.

Once again, it shows how Paulsen and Bernake have sold out this country for their friends once again. Especially the auto industry's workers who have been hurting for years, and look to receive the ultimate blow to their stomachs.

Citigroup was once the biggest U.S. bank. General Motors was once the biggest automaker in the world. Now, both are on the brink. Yet Citigroup is likely to be rescued within days. General Motors may not be rescued at all. Why the difference?

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.

The Street's view of the world is fundamentally flawed. Banks are important to the economy because they're financial "intermediaries." They connect savers with investors and borrowers. This is a vital function, but there's nothing magical about it. At any given time the world contains a vast pool of money that can be put to all sorts of uses. Financial intermediaries simply link the pool to the uses.

They just don't care about the heart of this country, at all.

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.

The auto industry's big wigs have made some brutal mistakes over the years, primarily with creating cars that are just inferior to their European counterparts in every shape of form. They drink, and drink, and drink more gas, and the GM's, Chrysler's, and Ford's of the world failed to make those alternative energy cars. Instead, they focused more on this ridiculous Hummer's and SUV's, and have paid the price.

But Detroit is angry about this, and the diligence those workers in the manufacturing industry have shown over the years makes this even harder to bear witness to. They are slapping the face of Main Street once again for the greedy fools on Fall Street who only focus on themselves.