First prediction for 2009: A widening gap between the public’s view of the bailouts of Wall Street and Detroit, and the views of the direct beneficiaries. The public believes the bailouts will permanently change these industries, but industry insiders don’t really want to change.
Exhibit one is Goldman Sach’s CEO Lloyd Blankfein, who says the firm’s business strategy doesn’t need to change.
What? Goldman got $10 billion of taxpayer money precisely because it and other big banks were so over-leveraged they threatened the whole financial system. I can understand why Blankfein doesn’t want to change. He took home $54 million last year. (He has foregone a bonus this year and is taking home a piddling $600,000.) But the public expects real reform for its $10 billion at Goldman and tens of billions more in other major banks.
Blankfein isn’t alone. I’ve heard the same thing from CEOs and directors all over the Street. They see the problem as cyclical, not structural. “The economy stinks,” they tell me, “but it’ll turn around in 18 months, and then we’re back to the same business.”
Or take the Big Three. They’ve agreed to become far more fuel efficient, as a condition for their bailout. But they promised this before — during the oil crisis of the 1970s, when Congress threatened higher fuel-economy standards. But after the crisis passed, they never delivered. Why? Because their biggest profits were in gas guzzlers that consumers wanted to buy as soon as the first oil crisis was over.
Will history repeat itself? Now that gas prices are half what they were six months ago, consumers who can afford it are suddenly less interested in fuel efficiency. They’re buying fewer hybrids and showing renewed interest in SUVs. So why should we think Detroit will revolutionize itself?
I’m not so cynical as to accuse anyone of bad faith. It’s just that both Wall Street and Detroit earned big bucks from their old strategies, before the bottom fell out of the economy. So it’s natural they’d view the bailouts as ways to hold on until the economy rebounds. And it’s clear they see their problem as cyclical, not structural.
Right now, Wall Street and Detroit are willing to say whatever they need to say to keep the taxpayer money coming. But when the economy begins turning up, my betting is that their Washington lobbyists will push back hard against any major restructurings the government wants to impose on them. New regulations of Wall Street will be watered down and circumvented; new requirements on the Big Three for green technologies will be resisted.
Yet the bailouts have been sold to the public as means toward fundamental change in finance and autos. If the bailouts are to do what they’re supposed to – stop Wall Street from wild risk-taking with piles of borrowed money, and push the auto industry into making fundamentally new products that conserve energy — Washington will not only have to set strict standards now and in the months ahead when the bailout money flows, but also hang tough when the economy begins to revive.
The emerging debate over Wall Street’s and the Big Three’s ongoing obligations to reform themselves is but one part of a much larger national debate we’ll be entering upon in 2009 and beyond — whether the economic crisis we’re experiencing is basically cyclical (in which case, nothing really needs to change over the long term, after the economy gets back on track) or structural (in which case, many aspects of our economy and society will needs to change permanently).
Originally published at Robert Reich’s Blog and reproduced here with the author’s permission.