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By Leo W. Gerard
International President

The economic structure of Jim Henson’s cartoon realm called Fraggle Rock reflects our own. In one HBO episode, the industrious, hard-hatted Doozers prepare to leave the rock, which would have quickly left the Fraggles starving. Somehow, politicians and powerbrokers in this country don’t see the simple parallel. If the U.S. continues to send its manufacturing overseas — with the latest proposal General Motors plants — the result will be hungry U.S. families.

I saw this up close and personal as I toured the U.S. last week on the 11-state, 32-city “Keep it Made in America” bus tour. I talked to unemployed manufacturing workers who are desperate. Through no fault of their own, they’ve lost their jobs, their homes, their health care. These are the people who are the strength of America, who in better times volunteered in New York City after 9-11 and in New Orleans after Katrina. Now, they’re forced to get groceries at their union hall’s food bank. They’re humiliated.

This economic crisis was inflicted on them by recklessness on Wall Street and in Washington. Over the past 40 years, politicians have eroded regulations that could have helped prevent the sub-prime mortgage bubble and bust. And Wall Street banks and investors took full advantages of that rule-free environment to behave capriciously in the market, causing stocks to tank, driving unemployment up to the current 8.9 percent, and contributing to the loss of 5.2 million manufacturing jobs since 2000.

Let me introduce you to four Steelworkers, four hard-hats struck down by the decisions so disastrous to the economy made in Washington and on Wall Street. They are Diana Arends, an aluminum can maker; Matt Dossett, a rubber worker; Andy Nirschl, a papermaker, and Kevin Vest, a copper miner.

Diana Arends’ employer, Ball Corp., shuttered its Kansas City aluminum beer can manufacturing plant March 27. Ball blamed the economy when it announced the closure that cost 150 Steelworkers their jobs. Beer sales are down. As the economy contracted, Americans had fewer coins in their pockets for every little pleasure, including throwing a few back.

Diana Arends

The plant closure was both an economic and emotional shock to Arends. She’s divorced, and supports a daughter and granddaughter. Before the plant mothballing, she routinely worked 12-hour days, with the overtime paying her mortgage and bills. Now she’s only getting unemployment.

Her house in Lees Summit, Mo., on which she has paid for 10 years, already is going to foreclosure. She doesn’t have any credit cards, but she does owe on a used car she bought a couple of years ago.

When she heard the plant was to shut, she immediately dropped her internet and cable TV services, ended trash collection and stopped eating out. She buys food in bulk at a wholesale store. But it’s just not enough.

She’s thinking about taking the remnants of her stock market-ravaged 401K and using it to support herself, her daughter and granddaughter because she has been unable to find another job. No one has called her back for a second interview, although she also has 28 years experience manufacturing grain bins for CTB, Inc. Let’s face it, she points out, who’s going to hire a 59-year-old?

She recollects, a few years ago, “I got to feeling set. I had a 401K and just a few more years to retire.” But now she’s jobless, and soon she may be homeless. “I did nothing to deserve that,” protests Arends, who went the extra mile, serving as president of USW Local 13, a position she loves, but one she’ll be forced to relinquish May 14 because she no longer is employed as a Steelworker.

Diana Arends is concerned about running up federal debt to pay for the bank bailouts and stimulus package, so she doesn’t understand anyone proposing to use one dollar of that money overseas. The stimulus is American tax dollars designated to create American jobs – not Chinese jobs or Korean jobs or Mexican jobs. So when General Motors submitted a bail out plan in which it would get American tax dollars, then use them to build fewer cars here and more cars overseas that would be sent back here to be sold, Arends just couldn’t believe it. “These are middle class jobs lost, the people who go to the grocery store and support food banks and the Little League,” she noted.

And they’re not just GM assembly line jobs. The more jobs GM sends overseas, the more support and supply jobs go overseas too. And that threatens the economic lives of millions more Americans — workers like Matt Dossett.

Matt Dossett

He’s a rubber worker from Fancy Farm, Ky., furloughed with 50 other Steelworkers from the Goodyear Tire plant in Union City on Feb. 28. Dossett, 27, who tried to get a job at the plant since he graduated from high school, had worked there just a year before the lay off. He knew it was a good job because his father and uncles had all worked there. “They had their whole careers there,” he said, “They worked 40 years and retired there. They had good lives from working there. It is one of the best paying jobs in this area.”

He worked on a balance crew in the curing department – cooking tread onto the tires, a place where it could get well over 100 degrees in the summer. Still, he longs for that call back, “I really enjoyed it down there. I enjoyed the people I worked with and the job I was doing,” he said.

But that’s all jeopardized by the sagging economy, unfair trade practices by China in supporting its tire makers which export to the U.S. and GM’s plan to move production offshore – including to China.

When he was working, Dossett paid off his car loans and saved money just in case he got furloughed. But making the mortgage payments is starting to get tough. His wife works, so that’s helping them pay the bills. And they’ve cut out all frills. They don’t visit her family in Chicago anymore. They don’t go out to eat. They don’t visit Nashville for weekends. Dossett has a credit card, but no debt because he only uses it in emergencies. “I worked hard for everything I’ve got,” he explained, “I’m trying not to lose it all now.”

He sees a clear connection between GM building cars here and his job.  Because billions of American tax dollars have already gone into bailing out GM, they shouldn’t be talking about moving jobs overseas, he says. “We gave them money to build here, to create jobs here. Let the Chinese pay if they want a plant in China,” he said.

Like Dossett, Andy Nirschl worked for an industry damaged by unfair trade. He was a process operator, controlling pulp, for the NewPage Corp. Kimberly mill in Wisconsin. It made the kind of glossy paper used in magazines and new car catalogues. The mill had operated in the town of 5,000 since 1889 and was the largest employer. Kimberly was NewPage’s largest producer, but the Ohio corporation closed it after a defeat in a trade case with China under the Bush administration.

Andy Nirschl

That was Sept. 30, 2008. Nirschl, president of USW Local 2-9, knows all the gory details: 475 Steelworkers lost their jobs, and 125 salaried guys got thrown out of theirs. When NewPage refused to sell or re-open the plant, the town considered renaming its high school teams. They are called the papermakers.

Nirschl’s wife, who had worked at home, had to switch jobs so the family could get health insurance. He’d married late in life, so he had a good start paying off his mortgage. He isn’t behind yet but knows lots of fellow Steelworkers who are. He has only one credit card and no debt on it or on his cars, so he’s in better shape than many of his friends. Still, his family has cut out vacations and eating at restaurants.

Nirschl got a new job earlier this month, a good union job with the state helping the unemployed find work. It doesn’t pay as much as the mill did but has good benefits. The pay comes from the $700 billion stimulus package, and he’s hoping the position is renewed in the state’s next budget year in June.

He says he hopes Congress gets on board to save the American auto industry. He says his friends understand that to have a strong, solid economy, America must manufacture. It’s not clear to them why politicians are willing to back struggling banks with billions but balk at supporting industry.

Like Nirschl, Kevin Vest talks about a cycle of industrial life. It’s obvious to him. The haul truck driver furloughed with 600 fellow Steelworkers Feb. 13 from Freeport McMoRan’s Chino mine in New Mexico, where they extracted copper and molybdenum, a steel hardener, offers this story:

He read in a newspaper about a $100 million wind farm to be built near his daughter’s house in Arizona. The 30 wind turbines are to be manufactured by a company from India and the huge towers are to be constructed in Mexico. Vest wants to know why GE can’t make those turbines. If the American company did the work, they’d probably buy the copper wire for the turbines from an American company. And that company might buy the ore to make the wire from his mine – or some other downed U.S. copper mine, putting some Steelworker back to work. If there’s one cent of tax breaks or stimulus money in this wind farm, then it’s doubly outrageous to employ Indian and Mexican workers.

For the same reason, Vest always buys American cars. There’s copper wire in engines and molybdenum (molly) in other steel car parts. Buying that car keeps him employed, but also fellow Americans who make the glass and axles and all the other parts.

And he’s got news for people who deride the quality of American cars. He’s owned a series of them and driven them more than 150,000 miles with no problems. Now he has a 1997 Chevy Silverado with 160,000 miles on it that he’s planning to drive 1,400 miles to Iowa to visit relatives. His father has owned nothing but American cars, and when his brother bought a Nissan, told him to park it down the street. “When I got out of the service,” Vest said, “my dad tried a Toyota Celica GT. . . He looked at me and said he felt bad to have even test driven it. He bought a Ford Ranger pick up.”

At 54, Vest is without health insurance and behind on his credit card payments. He owes $2,000, and the collector is hounding him. He is hoping to get a job at a mine in Arizona, close to where his daughter lives. But that may not be possible until copper prices rise.

Workers like Vest, Nirschl, Dossett, Arends and me are taking the message to Washington D.C. this week for a teach-in to explain how crucial manufacturing is to the economy of this country and how essential manufacturing is to construction of automobiles in this country, not just the final product, but also all those products leading up to the final car — from glass for windshields to glossy paper for brochures. We are going to try to explain that 7.2 million paychecks are dependent on U.S. autos, including health care, education, service and other jobs, so that the politicians and policy makers understand clearly that the very idea that General Motors would ask for taxpayer dollars to ship more car manufacturing overseas – and then import the cars – is an insult and an affront to American workers – as well as an economic threat to the country. We are not going to allow American manufacturing to starve for support. But that support cannot go to pay for manufacturing overseas, or ever more American families will end up stretched like Arends, Dossett, Nirschl and Vest.

Leo W. Gerard: The likes of Alabama Sen. Richard C. Shelby and other “Toyota Republicans,” as I call them, contend that GM and its partners in the Big Three American auto makers are antiquated and irrelevant and should be euthanized. You’ve written a book, “Why GM  Matters” that refutes Shelby’s premise by establishing that GM has remade itself as a company and is crucial to the American economy. I believe you. Why do so few others?

William J. Holstein: One major problem is that so many attitudes were formed five, 10, 20 years ago-long before GM began its transformation in earnest. These people, out of ignorance of the facts, are recycling old myths like these: GM can’t design cars that Americans want to drive. GM can’t innovate. GM hasn’t been willing to reduce its cost structure to compete internationally. And so on.
Then there are other people who are consciously trying to destroy or further cripple GM by recycling those arguments. One is U.S. Sen. Richard Shelby, who has four transplant factories in his home state of Alabama. It turns out that the Southern Republicans are working on behalf of their home states, and their home states have given hundreds of millions of dollars in incentives to Toyota, Nissan, Honda, Hyundai, BMW, Mercedes and others.
There is another lobby, which I call the “Bankruptcy Lobby,” that is trying to push GM into Chapter 11 because these bankruptcy lawyers and their law school allies would profit handsomely from it.

Gerard: So, to quote the book, here’s what you actually say:
“Free marketers had felt obliged to go along with the $700 billion {bailout} for Wall Street because Treasury Secretary Henry Paulson (the CEO of Goldman Sachs at the very moment that it had become embroiled in Wall Street’s love affair with mega-leverage) had convinced them the entire financial system would shut down if they did not.
“But when it came to the auto industry and the UAW, they wanted to slam the brakes on. Part of it also was sheer spite: Republicans were reeling after one of their most devastating electoral losses in history. The auto industry, and particularly, the United Auto Workers, had helped get the Democratic vote out and deliver the crucial swing states of Michigan and Ohio to Barack Obama.”
Are you actually saying that Republicans were willing to vote against the good of the country out of spite?

Holstein: Sad to say, but true. They are not acting in the national interest. They are playing for their home states. They have the right to do that. But everyone should be able to understand what they’re doing, and why. I blame the media for picking up comments from Shelby and others (“GM is a dinosaur”) and printing them, without subjecting them to critical scrutiny.

Gerard: Then you go on to say that the presence of “transplant” factories, or manufacturers like Honda and Toyota from foreign countries located in states like Shelby’s Alabama made a difference for some of these senators. And you cite Shelby as an example, noting that Honda, Hyundai, Mercedes and Toyota all located plants in Alabama with the help of state funds, but then he refused to provide federal funds for an American company. So are you saying that these senators were willing to vote for something that was bad for the U.S. – the bankruptcy of the Big Three – because it might provide more business for their home states?

Holstein: As I’ve said, I think that’s exactly what they’re trying to do.

Gerard: Oddly, considering the treatment of the UAW in the press, you manage not to lay blame for GM’s situation on the union. In fact, you say that by last spring, “The Harbour Report,” which you call the bible of car-making statistics, said Toyota factories needed 30 hours to assemble a vehicle while GM required 32. So what does that mean in productivity and difference in labor cost per vehicle?

Holstein: GM and the UAW have made dramatic progress in improving the way the company’s cars are manufactured. They’ve done that by absorbing the Toyota lean production method. And by altering their own relationship, by transferring health care costs to the union’s VEBA and by implementing a two-tier wage system. It is estimated that GM will have stripped out $5,000 from the cost of each vehicle by 2010. The relationship between GM and the UAW is by no means perfect, but they have made big progress in helping the company begin to approach the cost structure that Toyota has at its Georgetown, Kentucky plant. This is truly an historic response to Toyota.

Gerard: You cite a fascinating statistic in your third chapter. You say that although the transplants like Honda and Toyota located factories in the U.S. and American manufacturers make some cars overseas and import some parts, GM’s chief economist estimates that Toyota’s U.S. content is 50 percent while GM’s is 75 percent. What does that mean in the long run to Americans, in terms of jobs and the economy, for each GM car made?

Holstein: I don’t think it’s too dramatic to say that we are in the process of defining what kind of economy we want to have as Americans. Do we want to have an economy where we have many higher-paying jobs in finance, design, engineering, management, marketing (and in GM’s case, those jobs all depend on the folks working on the line) or do we want to send our kids to work in foreign-owned factories where a majority of the higher-value added functions are performed in Japan or Korea or Germany? You have heard it said, no doubt, that it doesn’t make a difference whether it’s a GM job in Michigan or Ohio or a Hyundai job in Alabama. The impact is the same for the American economy, so they say. But that statement is based on a very superficial understanding of auto manufacturing. In fact, it’s plain stupid.

Gerard: What I found striking about your book is that it took a hard look at Toyota as well. Here is a company that the Republicans glorified all through those hearings. Some said let the Big Three fail and Toyota can pick up the slack. And yet, Toyota’s sales fell off dramatically last year, and it posted a loss too. Wasn’t it simply affected by the same market forces that GM was? And if so, why does it retain an aura of perfection?

Holstein: Yes, Toyota has almost had a Teflon coating. The media and political leaders who are so critical of GM seem to turn a blind eye to what Toyota is doing. They glorified its Prius hybrids, which were undeniably a good thing, but ignored the fact that Toyota’s much more important push was into full-sized pickup trucks, which hasn’t worked. Toyota’s design also has fallen behind GM’s. Their cars aren’t as sexy or as fun to drive. They’re like appliances on wheels. Toyota’s reputation for quality is even suffering, as they launch recalls in the United States and Japan. Consumer’s Reports no longer issues an automatic recommendation for every Toyota car. So yes, things are changing at Toyota. I think we’re seeing them go through a period of consolidation or doubt. No company can avoid making mistakes forever.

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William J. Holstein is an author, writer and magazine editor. Before “Why GM Matters: Inside the Race to Transform an American Icon,” (Walker and Co.), he wrote two other books, “Manage the Media” and “The Japanese Power Game.” He has written for “United Press International,” “Business Week,” “The New York Times” and “Fortune” magazine and served as an editor for a decade for “Business Week,” managing the magazine’s Asian coverage.  He covered the American economy and the auto industry for “U.S. News.”

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In a related matter, U.S. Rep. Tim Ryan, D-Niles, spoke with passion in Congress on March 10 about how crucial it is to sustain the U.S. auto industry. Watch him here:
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Leo W. Gerard

By Leo W. Gerard
International President

President Bush took to the TV Friday to announce that he wouldn’t walk past the financial crash of America’s Big Three automakers and do nothing to save their lives.

Refusing resuscitation, Bush said, would be irresponsible during the worst economic crisis since the Great Depression.

A week earlier, 31 GOP Senators, mostly from Southern states, voted to avert their eyes and allow American auto companies to die. They opposed $14 billion in federal loans for GM and Chrysler, revealing that their loyalty lies not with America, not even with their own states, but with South Korea and Germany and Japan.

They are Toyota Republicans.

Toyota has non-union manufacturing plants in Alabama, Kentucky, Mississippi and Texas – states whose senators led the GOP quest to slay the Big Three American auto manufacturers – Richard Shelby, R-Ala.; Mitch McConnell, R-Ky, and John Cornyn, R-Tx. Here’s the Republican from Mississippi, Sen. Thad Cochran, explaining why he’d vote against the loans, “Things have changed. It’s not just the Big Three anymore,” he said, pointing out that Nissan and Toyota employ more Mississippians than General Motors, Ford and Chrysler. But, he said, the foreign companies would not share “in the benefits of that automobile bailout program.”

No. But Mississippi did give Nissan and Toyota more than $650 million to entice them to locate in the state. GM, Ford and Chrysler didn’t share in those benefits, Sen. Cochran.

The Toyota Republicans are all for helping the rich with tax breaks and shelters, and they’re all for aiding foreign auto manufacturers with billions worth of tax forgiveness and government-paid infrastructure improvements.

But their disdain for the working class couldn’t be clearer as they organized defeat of loans to the Big Three under this command: “Republicans should stand firm and take their first shot against organized labor.”

They haven’t gotten the message sent out by the electorate in November. Voters rejected politicians prolonging the same old policy of protecting themselves and the rich. The nation’s voters want selfless leaders who will perform in the best interests of the entire country. They want change.

Clearly the allegiance of the 31 Republicans who opposed the loan to save GM and Chrysler is not with the United States of America, which would lose 900,000 jobs if just GM closed, and more than 2.1 million if the Big Three did. Those job losses would occur during the worst economic downturn since the Great Depression. In November, the 11th consecutive month of job losses, another 533,000 people were thrown out of work, swelling the pool of unemployed to 10.3 million. The Toyota Republicans were willing to increase that.

They voted against the interests of their own states as well. Consider what would happen in a few of those Southern States whose senators led the charge against preserving the Big Three. If just GM collapsed, Kentucky would lose 20,000 jobs; Alabama, 21,000; Georgia, 23,000, and Tennessee, 29,400, according to calculations by the Economic Policy Institute.

Sen. Cochran just didn’t think it was right for the U.S. government to aid its auto industry. But apparently he’s fine with foreign governments providing subsidies to the transplant automakers in his state. And, apparently, he’s okay with spending state and federal money to help foreign automakers locate manufacturing plants in the U.S.

Korean and Japanese automakers – including Nissan and Toyota with plants in Cochran’s Mississippi – benefit from manipulation of currencies by their governments, a factor that, according to EPI estimates, reduces their costs by between 10 and 20 percent. In addition, nationalized health care in countries such as Japan and Germany serves as a subsidy.

Also, the Toyota Republican opposed federal money for American companies but supported state and federal money for foreign auto makers estimated at $3.6 billion.
Shelby, for example, got $3 million in federal funds to improve roads near the Hyundai plant in Alabama after the state gave $250 million to the Korean automaker.

Shelby opposed loaning one federal cent to the U.S. automakers, though, telling “Face the Nation” that they should die: “Companies fail every day and others take their place. . . There’s not a bank in this country that would loan a dollar to these companies.”

But for foreign auto companies, his home state of Alabama couldn’t provide enough taxpayer cash – more than three quarters of a billion. In addition to the quarter billion it gave the Korean automaker, it handed another quarter billion to German Daimler for a Mercedes-Benz plant, nearly a quarter billion to Japanese Honda and $29 million to Japanese Toyota.

Similarly, Jim DeMint, another senator who led the Toyota Repubicans’ rebellion against the loans to GM and Chrysler, told the “National Review” recently, “Government should not be in the auto industry.” Yet, his state, South Carolina, got into the auto industry with nearly a quarter billion — $230 million – in gifts to a German auto company – BMW.

The same is true in Kentucky, home of Sen. Mitch McConnell, who said of loans for the Big Three, “Government help is not the only option. It’s not even the best option.” But government help was fine when Kentucky was providing grants for Toyota, which got $371 million from taxpayers since 1986.

It’s clear that the real problem was not a philosophical one. All of these lawmakers were willing to flick free market capitalism out the car window like a cigarette butt if their states could use taxpayer dollars to buy a foreign auto plant. No, what really gags them about the Big Three is that they pay good, middle class wages and benefits as a result of contracts with the United Autoworkers.

Repeatedly, the Toyota Republicans insisted that UAW members bear the brunt of the cost of the bailout. The senators insisted that UAW wages be lowered to match those of non-union auto workers at foreign-owned manufacturers. Toyota Republican Sen. Bob Corker of Tennessee, wrote an amendment to the bailout bill that would have required UAW members to accept pay cuts by a specific date in 2009. When Republicans defeated the bailout, DeMint blamed that on the union, saying, “It sounds like the UAW blew up the deal.”

The Toyota Republicans then conferred the American auto industry to bankruptcy. They said they favored bankruptcy because it would enable the Big Three to break pledges made in labor contracts and promises for health care and pensions made to retirees. The Toyota Republicans want the wages of American workers pulled down. To them, UAW members making an average of $28 an hour, accounting for less than 10 percent of the cost of a car, are earning just too much money.

The Toyota Republicans did not, however, make that claim about the white collar workers on Wall Street who got this country into the financial fiasco that led to the dire circumstances for automakers. And not just for American ones. Domestic car sales declined by 40 percent last month, but Asian producers’ sales dropped too – by 35 percent.

The average salary of white collar, Wall Street employees — workers in “securities, commodity contracts and investments” — is four times that of those laboring in the rest of the economy. Remember, these are the guys who are so smart that they took down Bear Stearns, Fannie Mae, Freddie Mac, Washington Mutual, AIG and Lehman Brothers – in less than a year – and ultimately required $700 billion from taxpayers to bail them out.

The top executives of Wall Street banks receive billions of dollars in year-end bonuses. The New York Times detailed those at Merrill Lynch in a story Dec. 17 entitled “On Wall Street, Bonuses, Not Profits Were Real.” In 2006, the firm gave its top executives between $5 billion and $6 billion in bonuses, which means, for example, a trader earning $180,000 a year got a $5 million bonus.

Merrill’s $7.6 billion earnings that year turned out to be bogus. The company’s losses now have exceeded all of the profits it earned over the previous 20 years. To prevent collapse, it sold itself to Bank of America in September. But then, Bank of America took $15 billion of that $700 billion in bailout money. Despite the gift of taxpayer dollars, the CEO of Bank of American has not publicly announced that he will decline a bonus, and Bank of America plans to tell Merrill Lynch workers the amounts of their bonuses beginning Friday, the New York Times reported Thursday.

When those Toyota Republicans voted in favor of providing $700 billion for Wall Street — including both of Tennessee’s senators, Bob Corker and Lamar Alexander; Kentucky’s Mitch McConnell; Georgia’s Saxby Chambliss and Johnny Isakson; South Carolina’s Lindsey Graham, and Texas’ Kay Bailey Hutchinson and John Cornyn – none asked for high-paid white collar workers to take pay cuts or give up their million dollar bonuses. There was a feeble attempt to limit the pay of chief executives, but that applied only to firms that received federal money under one particular method, and the treasury decided not to hand out the $700 billion that way.

And no lawmaker asked white collar workers or executives who got billions in bonuses based on false profits to return them.

But those Toyota Republicans want middle class, blue collar workers who don’t get year end bonuses, who don’t celebrate with five-figure dinners, to take wage cuts. They want autoworker pensioners to lose the monthly benefits they earned with a lifetime of labor.

And at no time did those Toyota Republicans suggest that they should cut their own salary or top-notch, government-paid health benefits or pensions. Like the reckless speculators on Wall Street, Congress bears responsibility for the crisis condition of the American economy because it deregulated financial markets.

In 2002, during a downturn in Japan, the House of Councillors reduced the pay of Diet lawmakers by 10 percent, and ended the transportation allowance, portrait-painting and  pension given senior lawmakers.

If the Toyota Republicans believe the Japanese way of pay is so great for autoworkers, they should first impose it on themselves.

Leo W. Gerard

By Leo W. Gerard

International President

Congress drove the Big Three CEOs out of Washington, D.C. last week, ordering them not to return with their tin cups until they could guarantee their companies would be viable after a $25 billion bailout.

Just days later, Citigroup, a bank that had already received a $25 billion bailout in October, held its hands out for more. Within 48 hours, federal officials approved giving the bank another $20 billion and providing backing for $306 billion in its risky loans and securities. Even though Citigroup was failing just weeks after getting its first government bailout, Congress didn’t subject its CEO to the public lecturing and demands for business plans that it did the Big Three.

The message here could not be more clear: Washington will bailout out those who shower before work but not those who shower afterwards.

Washington, D.C. is a white collar town. President Bush and members of Congress understand their suited counterparts on Wall Street. In fact, several prominent figures in the banking industry – including Citigroup’s Robert Rubin, a former Secretary of the Treasury, and UBS Investment Bank’s Phil Gramm, a former Texas Senator, – worked in Washington first, aiding and abetting the current crisis by de-regulating the financial markets and everything else they could.

Detroit, by contrast, is a blue collar town. It’s a place where workers at the Big Three earn thousands of dollars — the average production employee making $67,480 last year — not hundreds of thousands, and certainly not Wall Street’s millions. The Citigroup CEO credited with overseeing the bank’s ill-fated investments, Charles O. Prince III, was forced out a year ago as the bank’s massive sub-prime losses began mounting but the board of directors still gave him a $12.5 million bonus, $68 million in salary and accumulated stockholdings, a $1.7 million pension, an office, and a car and driver for up to five years. Heading the board executive committee at that time was Rubin, who would briefly serve as chairman and receive $17 million in compensation as the bank declined further into financial ruin.

Detroit is a place where workers are unionized; Wall Street is not. And right-wing Republicans and conservative pundits have made it clear they want the union workers to suffer. They want federal aid denied to the Big Three so that the firms go bankrupt. Then the companies can renege on pensions they guaranteed to retirees and can break salary and benefit promises to workers in current contracts.

Senate Minority Whip Jon Kyl writes on his web site that Chapter 11 bankruptcy would be best for the Big Three because it would enable them to break their pledges to retirees receiving health care and other benefits earned over decades of service, what he calls “legacy debts”: “Like many other industries, including the airlines, the goal under Chapter 11 is to gain temporary protection, reorganize in a way to reduce legacy debts, and emerge as a more viable and competitive company.”

Conservative columnist George Will, similarly, wrote: “Do nothing that will delay bankrupt companies from filing for bankruptcy protection, so that improvident labor contracts can be unraveled. . .” Will’s fellow Washington Post Columnist Martin Feldstein blamed all of Detroit’s problems on the unions, writing that the basic reason the Big Three can’t compete: “is labor costs imposed by union contracts.” He said if Congress gives the Big Three a loan, it must require “that the unions accept reductions in wages and benefits to levels that allow the firms to compete with imports and with non-union U.S. auto firms. The trustees of retiree benefits should be required to accept reductions in those benefits.”

They want the unions broken. They want retirees’ benefits slashed and union workers’ wages and benefits cut, which, of course, will enable the foreign auto makers – whose U.S. plants are non-union – to reduce their wages. It’ll be an all-American race to the bottom, rather than the preferable opposite, where workers and retirees are treated with dignity and respect for their hard labor.

None of those conservatives, however, is calling for Citigroup’s Charles O. Prince III, who took down Citigroup at a cost of untold billions to taxpayers, to return his $1.7 million pension, office and car and driver.

Unlike Citigroup and the other Wall Street banks, which have their very own inside-the-beltway apologists in the form of Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson to argue their case before Congress, the Big Three CEOs had to appear before Congress to plead for themselves.

There, legitimately, lawmakers grilled them about flying to the hearings in expensive private jets and about their multi-million dollar compensation packages. Still, none of the lawmakers has asked Citigroup’s CEO, Vikram S. Pandit, to take $1 for next year’s compensation, as they did the auto executives. Nor have they asked any of the CEOs from the nine banks that shared $125 billion in bailout money in October to sell their private jets, as they did the auto executives.

Conservatives also argued that the Big Three should be left to die because in a free market, that’s what happens to poorly operated companies offering inferior products.

Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, said, for example, “I do not support the use of U.S. taxpayer dollars to reward the mismanagement of Detroit-based auto manufacturers.”

Shelby made this accusation while part of the Congress that ran up the largest federal deficits known to man and allowed Paulson to broker a deal to sell troubled Wachovia bank to troubled Citigroup – a bank that so far got two bailouts, the first of which arriving within weeks of the failed Wachovia marriage.

Shelby, of course, has a lot to lose if Michigan does well. His home state of Alabama gave tax breaks to foreign car companies Mercedes-Benz, Honda and Hyundai to locate factories there – hardly a free market approach.

So, like many conservatives, he twists reality to suit his circumstances. He’s right that American car companies made mistakes. In October, GM’s sales were off 45 percent from the year before, Chrysler 35 percent and Ford 30. But he’s wrong about that being a result of mismanagement alone, well, unless he thinks his precious foreign car companies made the same mistakes. Toyota was down 23 percent, Honda 25 and Nissan 33 for the same month.

And if aid denial is based on bad products, Wall Street definitely should be the first refused. Its firms built and sold what are now being called “toxic securities,” products so defective that they took down banks, the U.S. economy and international financial stability – creating the deepest economic crisis since the Great Depression. Now that’s mismanagement for you!

When the representatives of blue collars went to Congress hat in hand, lawmakers insisted that to get loans automakers would have to present viable business plans. Congress didn’t impose similar conditions, however, when Bernanke and Paulson went to Congress seeking grants for reckless white collar firms.

In fact, they gave $125 billion to nine big Wall Street banks in October, contending the direct infusion of money would melt frozen credit. It didn’t. The firms apparently didn’t lend the money, and the deal didn’t require them to. There’s a viable business plan for you!

Paulson and Bernanke gave insurance giant AIG $85 billion. And when that didn’t work, they forked over more until it all added up to $150 billion. Now, it’s not clear that will be enough to resolve AIG’s problems. Sen. Jon Kyl, the Republican from Arizona who voted for the Wall Street bailout, didn’t demand a viable business plan for AIG or Citigroup, yet said this about the auto industry request: “There’s no reason to throw money at a problem that’s not going to get solved.”

This year, as Wall Street’s recklessness destroyed the American economy, a million Americans lost their jobs. It’s no wonder no one is buying cars. It’s not just that they can’t get credit. It’s also that they don’t have money to spend or they’re afraid to spend the money they have.

Some of those furloughed had been on Wall Street. Citigroup announced recently it would cut 52,000 jobs by early next year. But of the million jobs lost so far, 100,000, or one in ten, have been auto workers or employees of auto suppliers. Unemployment in Michigan is 9.3 percent – while in the rest of the nation it is 6.5.

Just like Paulson who couldn’t see that Citigroup was too weak to buy Wachovia, the conservatives intent on denying the Big Three loans are shortsighted. They don’t see that 2.3 million jobs in and dependent on the auto industry could be lost. They don’t see the effect of slashing the wages and benefits of people who get their hands dirty for a living.

It would mean even more mortgage foreclosures and even more credit card debt unpaid to those struggling banks. It would mean the Big Three defaulting on the $100 billion they owe to those weak banks and bondholders, some of which is secured, some not.

It’s the big circle of economic life. If Congress spits on the autoworkers and the millions whose jobs depend on the Big Three, the lawmakers may find themselves using more and more taxpayer dollars to scrub new blood off Wall Street.

Dean Baker

By Dean Baker
Co-Director, Center for Economic and Policy Research

Henry Paulson’s main claim to fame is getting just about everything wrong in his tenure as Treasury secretary. However, he now stands to gain lasting notoriety as the person who destroyed the domestic U.S. auto industry, and the economies of the Michigan, Ohio, and Indiana along with them.

The story is that the big three automakers are struggling with record sales declines. This collapse in car sales in turn is the fallout from the collapse of the Greenspan-Bernanke housing bubble. While the domestic automakers have been hit hardest, all manufacturers have seen sharp drops in sales. Toyota’s sales were down 23.0 percent compared with its year ago levels. Honda’s sales were down 25.2 percent, and Nissan’s sales fell 33.0 percent.

These huge plunges in year over year sales by the world’s top car manufacturers can’t be blamed on the industry. Responsibility for this plunge lies with Mr. Paulson and other economic policy makers, and their Wall Street friends.

The basic arithmetic is simple. General Motors saw its sales fall by 45 percent compared to its year ago levels. That means its revenue has been cut nearly in half. While it has made some reductions in employment and can ease back its production, there is no way it can reduce its expenses by the same amount. Many of its expenses, like interest costs, property taxes, and health insurance for retirees are largely fixed independent of short-term fluctuations in output.

As a result General Motors is now losing close to $2 billion a month. At this rate, it will burn through its capital in around 2 months and be forced into bankruptcy. Chrysler and Ford are in somewhat better shape, but the basic story is the same. Furthermore, the fallout from a GM bankruptcy could sink Chrysler and Ford as well, as common suppliers shut down and credit for the industry vanishes and customers flee to manufacturers with longer life expectancies.

There have been analysts, presumably including Henry Paulson, who think that bankruptcy is a reasonable solution for the auto industry. This is yet another of Mr. Paulson’s famous mistakes. (Remember, this guy missed the housing bubble completely, thought its impact would be small when it burst, didn’t see a problem with letting Lehman Brothers fail, and thought the TARP [RIP] was a good idea.)

Bankruptcy would allow GM, Ford and Chrysler to more quickly cut back their bloated dealer networks and adjust their car lines with current market demand, as its proponents claim. Bankruptcy would also void union contracts, which will thrill the millionaire bankers by forcing workers earning $57,000 a year to take pay cuts. And, all those lazy retirees will see the health care benefits that they worked for taken away.

That’s the good part. Realistically, bankruptcy is likely to kill all three manufacturers, taking down much of the region’s economy with them.

First, some folks may recall the credit crunch. Lenders are extremely reluctant to take risks. In the absence of government guarantees, it is unlikely that any banks will step forward to provide GM and the others the money they need to keep operating in bankruptcy. In other words, bankruptcy is very likely to mean a complete shutdown of the Big Three.

Let’s say that the anti-bailout crowd suddenly gets a soft spot and decides to guarantee loans to the firms operating under bankruptcy protection. There is still the problem of selling cars. Customers will be very reluctant to buy cars produced by a manufacturer in bankruptcy, since they won’t know if a dealer and supplier network will exist in 3 or 4 years so that they can get their car serviced and buy replacement parts.

While people don’t mind flying an airline in bankruptcy, buying a car is to some extent an investment in the company. Many fewer customers will be willing to invest in a bankrupt car company.

But let’s assume that the investment financing is arranged and that customers are still willing to come through the doors. The bankruptcy itself is still likely to be devastating to the economies of Michigan, Ohio, and Indiana, the three states where Big Three employment is concentrated.

Bankruptcy protects the firm from its creditors. The creditors of these firms are thousands of suppliers who are heavily concentrated in the same states. In most cases, the Big Three manufacturers were their major customers. These suppliers have already been squeezed by falling demand and lower product prices. If they cannot collect the money owed them by the Big Three, there will be a whole chain of secondary bankruptcies.

The impact in these states is potentially huge. According to the Center for Automotive Research, auto related employment accounts for almost 7 percent of total employment in Michigan, 6 percent in Indiana, and 5 percent in Ohio. Losing 7 percent of total employment in Michigan would be equivalent to losing more than 9 million jobs nationwide.

That is Mr. Paulson’s latest plan for the auto industry and these three states. This will be quite a legacy.

There is one last point that should really gall just about everyone. Mr. Paulson has argued that he does not have the legal authority to use the money appropriated for TARP for bailing out the auto industry.

This claim is outrageous for two reasons. As many of us who opposed the TARP argued, it gave Paulson a virtual blank check, and that is pretty much how he has interpreted it, using the money to bail out a wide range of non-bank institutions.

The other reason why this is so galling is that this is an administration that has taken pride in claiming virtually unlimited powers in a wide range of areas, including the conduct of war and holding of prisoners without charges or trial. It would be incredible if they allow Detroit to sink because they claim that they don’t have the legal authority to save it.