Weekly Wrap: A few ups, lots of downs
A trader works on the floor of the New York Stock Exchange during early trading on Dec. 5, 2008.
TEXT OF INTERVIEW
Kai Ryssdal: The jobs numbers we talked about up top are probably going to be the most-remembered headline of the week. But there's been a whole lot of other stuff going on. The recession that we are officially now in. Another whip-saw week in the markets. And of course, automakers were on Capitol Hill. We've got Leigh Gallagher from Fortune Magazine and Felix Salmon from Portfolio.com with us for our Weekly Wrap. Nice to talk to you both again.
Leigh Gallagher: Good to talk to you Kai.
Felix Salmon: Hey Kai.
Ryssdal: Felix, in spite of myself, I have to start with cars this week and I'm just going to put it right to you. Do you think this bailout is going to happen or not?
Salmon: Yes, I think it's going to happen. I don't think the government has any choice; they can't face a massive liquidation of the entire auto industry with unemployment doing what it's doing. What's it's going to look like, I have no idea, but everyone's running around in circles panicking, so that doesn't make for good strategic decisions normally.
Ryssdal: Well Leigh, let me ask you the logical follow-up question then, which is what about this pre-packaged bankruptcy that they've been talking about for General Motors, which it says it's going to run out of money by Christmas?
Gallagher: Well you know, that's an interesting concept and a lot of people say that some of the details in the proposals are little more than out-of-court bankruptcy anyway, but you know, that basically puts a nicer spin on it. And as we know, spin has been a lot of the problem here. There's not question that for GM in particular the situation has got a lot more dire, literally by the day. I mean, we saw new vehicle sales come out this week and they just plummeted and they were worse for everyone across the board.
Salmon: GM has been blaming the idea that people think it might go into bankruptcy on the fact that its vehicle sales fell, but clearly that can't be the case.
Ryssdal: You don't buy the theory then that people just won't buy cars from a bankrupt carmaker?
Salmon: Not if the government's standing behind the warranties. Bankruptcy is just a change of ownership, nothing else really changes.
Gallagher: I agree. I think you're seeing a lot of posturing there.
Ryssdal: I want to ask you guys a question that's been bugging me for a week or two now. Why is it that carmakers are getting such a thorough going over for a bailout that is, in the grand scheme of bailouts, a relatively small amount of money? Whereas the financial sector, granted the 700 billion got voted down once in Congress, but since then it's been candy by the door giving them money without much of a second thought. Felix, what do you think?
Salmon: I think that people are regretting the blank check they gave to Hank Paulson for the financial industry; they realized that he hadn't got a clue what he wanted to do with it, he kept on changing his mind. He doesn't quite know who we wants to bail out or how or why and they don't want to make the same mistake twice; they don't want to see this money wasted.
Gallagher: I would also say that there's really a recognition that the car companies have brought so much of this on themselves. I mean, if you look at the value destruction that's happened in Detroit over the past few decades, it's really unbelievable and what's interesting here is that there hasn't been much talk of management changes. And I think the American public has a right to be skeptical; these companies have gotten bailouts before and have ended up in basically the same situation.
Ryssdal: Well Leigh, let me ask you this, why does Rick Wagner, the CEO of General Motors, still have his job?
Gallagher: That's a very good question. I don't have an answer for that. I also don't know why he got in a car and drove to Washington. I mean, you can't make this stuff up. Saturday Night Live did a skit where three CEOs got in the car and drove, and then they got in their car and drove.
Salmon: And now they're driving back.
Ryssdal: That's right. And I'm sure it's a much somberer drive too. There is talk that Henry Paulson, speaking of bailouts and figureheads, Henry Paulson is going to go back to Congress and ask for the second half of his bailout package, that's $350 billion. Leigh, what do you think those hearings are going to look like when he says I need some more money?
Gallagher: I think they're going to be tough. I think we have some bailout fatigue here. And I think that, you know, when you think back it seems like so long ago, but back in mid-September, late-September, the first bailout plan was greeted with hosannas and it seemed like it was going to really get us out of this mess, between then and now it's been switched a few times and I think there's a lot of skepticism about whether we should be doing this.
Ryssdal: Felix, is he going to get the money?
Salmon: I don't know frankly. It's a lame duck Congress and people want a strategic long-term plan and Hank Paulson is not going to give them that because he's going to be out of a job come January 20. So why would you sign this $350 billion blank check without any indication of how it's going to be spent? I think it's going to be hard.
Ryssdal: Leigh Gallagher at Fortune Magazine, Felix Salmon at Porfolio.com. Thank you guys.
Gallagher: Thanks Kai.
Salmon: Thanks Kai.