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Some Bailouts Are Big Gifts. Some Bailouts Are Bad Loans.

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financialindustry1Maybe it’s the rise of the Internet that did it, but there are an awful lot of lemmings in the fourth estate these days. Once the zeitgeist gets hold of a word it’s everywhere fast. That’s especially true of catch-all terms that lose their meaning the moment anyone begins to dig even a tiny bit deeper into a story.

Take the term “Bailout”.

In economic terms it means ‘assistance to a financial or other institution in distress’. But assistance can mean anything from a loan that nobody else will give with very stringent terms to a total and utter gift.

There have been a ton of bailouts in the last few months. We don’t have to list them all, we’re just going to focus on two ‘institutions’, Citigroup and the Big Three Auto manufacturers.

Let’s look at what these two have in common. Both of them are vast with global reach and influence.  Both of them made awful business decisions in the short, medium and long term that led them to the brink of collapse.

Now let’s look at what people perceive they have in common, namely that both are “too big to fail”, another term of limited meaning. Citigroup is too big to fail because of the depth of its interconnected interests throughout the financial world. The Auto Industry is too big to fail because whole regions of the country depend on it for their economic welfare.

Finally let’s examine where they are different. Citigroup is a financial institution that buys and sells assets with client and depositor funds. It employs in the region 300,000 people worldwide. The Auto industry makes cars and trucks, is the backbone of US manufacturing and directly and indirectly employs around three million Americans.

It’s a tribute to how well the Finance, Insurance, Real Estate or FIRE sector has sold itself over the last twenty years of the Reagan Revolution that a bloated, shapeless and rudderless behemoth of a bank should be regarded so highly, while the jewel of America’s industrial crown should be treated as if it’s already on the scrapheap.

That contrast is perfectly reflected in the way that the United States Congress and the Administration has handled the ‘bailouts’ to Citigroup and the Auto Industry. Read the rest of this entry »

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