This post by Hilzoy illustrates a bizarre meme that seems oddly pervasive in parts of the blogosphere:
* The financial executives helped cause the present meltdown. Auto workers did not.
* The financial executives run their firms, and are responsible for their troubles. Auto workers and their union, by contrast, just got themselves a good deal by bargaining with management. That's their prerogative. I don't see that they're any more to blame for the problems of the Big Three than people who accept unduly large cash back bonuses on their new cars would be, had the Big Three miscalculated and given away more in cash-back bonuses than they could afford.
* Financial executives have just destroyed a tremendous amount of value and ruined the global economy. Auto workers have been busy creating useful things.
* In exchange for destroying value, financial executives get paid a whole lot more than auto workers. Orders of magnitude more. They even get multi-million dollar performance bonuses when their firms lose money! And their benefits are a lot more cushy: not just good health care but private jets and chauffeurs!
* Punishing financial executives helps reduce moral hazard. Punishing auto workers does not.
She forgot to add: financial executives have been fired in large numbers and taking pay cuts that reduced their income to a fraction of what was expected six months ago. Auto workers have not. Financial firms are in the process of laying off hundreds of thousands of their best paid workers (50,000 at Citibank alone); auto firms are not.
The shrinkage of the financial industry, and the vastly reduced pay prospects of its workers, seem entirely reasonable to me, though of course extremely sad for people who put themselves through expensive rounds of schooling in order to secure luxe jobs on Wall Street which have now disappeared leaving them broke and trying to sell the houses and cars they can no longer afford into a panicked local market. But I am fairly sure that the auto workers do not want the deal, as a class, that those rapacious financial executives have been given, which includes horrifying job insecurity, massive paycuts at the discretion of their managers, and for many or most of them, the knowledge that they will almost certainly never again earn a tenth of what they had set their lives up to expect. Believe it or not, having your life ripped up in front of you and your industry destroyed, and all the plans you made fifteen years ago to build a secure future evaporate, doesn't get magically more fun because you've got an MBA.
The majority of people who are getting canned right now didn't even, as the UAW workers had, get some small vote on how they would effect the shape of their industry. Structured finance and investment funds are only a small part of what investment banks do. Strufin and the mortgage desk are out on their ass, of course--but so are lots of people in M&A; and various investment banking groups that specialized in equity and corporate bonds and wouldn't have known a CDO if it bit them on the ass; corporate and muni bond traders; cap markets guys, and so forth. All their markets dried up because of a credit crisis that they cannot even arguably be credited with creating. It's no more fair that they have to sell their house, move in with the in-laws, and try to figure out what the hell they're qualified for, than that autoworkers have to. Less, maybe, because the autoworkers have had a lot of warning that their companies are on shaky ground. What sort of moral hazard are we reducing by destroying their lives?
That'll teach them to play by the rules all their lives, get a lot of education, and go to work for a bank!
Apparently the message we want to send is "Don't go look for a high-paying job; get a picturesque one."
No one in the financial industry declared that their salaries and perks weren't on the table until some vague and unspecified date in the future, as the UAW has. Actually, from what I understand, the CEO of Lehman tried to, and he was rightly told to go piss up a rope. The executives of the failed banks had a huge portion of their net worth tied up in said banks, and have now lost most of their assets.
That is not to say that we should feel excess sorrow for them, or try to preserve their jobs, or the gargantuan sums that they were paid five years ago. The financial industry was bloated, the salaries out-of-whack with any possible real economic value they could be argued to have provided to anyone, and that will have to change--but we don't need the government to ensure that, because the industry is contracting rapidly, and the worst-hit parts are exactly the places that were most out of line with economic reality. We might like to go back and seize everything they made over the last five years, but for various practical and legal reasons (and arguably even moral ones), we can't, so the pointless fantasizing isn't getting us much of anywhere.
Any CEOs who tried to pay themselves bonuses out of TARP are cretins who should not have been permitted to do so. But aside from John Thain, who didn't create the mess at Merrill--he took over in December 2007 to clean up the destruction, and lost his job less than a year later when he had to merge the bank with BofA to save it--I'm not aware of any CEOs who have been paid any bonuses out of TARP. That's not to say that there aren't any. But the AP's infamous report on outrageous compensation mostly seems to be 2007 funds that we can't claw back because, er, they lost it all in the collapse, or stock options that will only pay off if the firm does well.
In short, if the Detroit were given the deal that the financial industry has actually gotten, rather than the deal that they got in the pervasive blogger fantasy world where everyone in the industry is using government funds to continue exactly as they were before, Ron Gettlefinger would hardly be a happy man. And I think that most of the people who Hilzoy thinks of as picking on the auto workers would be willing to accept a deal in which the Big Three got some funds in order to put its balance sheet back together, then started firing people at will until they were small enough to make a profit again.
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