General Motors should get bailout, too
TEXT OF COMMENTARY
Scott Jagow: Because of the financial crisis fallout, the bailouts keep coming. AIG got one. Citigroup just got one. But the car makers are still waiting. Commentator Robert Reich asks: Why?
Robert Reich: Citigroup was once the biggest U.S. bank. General Motors was once the biggest auto maker in the world. Now, both are on the brink. Yet Citigroup got a $25 billion government rescue last weekend without anyone batting an eye. General Motors may not be rescued at all.
This makes no sense. Of course, it's important to avoid runs on banks by panicked depositors, as occurred in the 1930's. But the current run on Wall Street is coming from the banks' own creditors and investors, who are paid to take risks.
Citigroup had a market value of $274 billion at the end of 2006. Now, its value is about $21 billion. That's awful news for Citi's executives, shareholders, and creditors. But if Citi were to go into Chapter 11, it wouldn't be economic Armageddon. Mutual funds, pension funds, and deposits overseen by Citi would be safe; fund managers would move them to other banks.
In other words, Citigroup is not much different from General Motors. It's a company that once made lots of money but, through a series of management blunders, is now losing it big time.
Yet General Motors has a far greater impact on jobs and communities than Citigroup. Add parts suppliers and their employees, and the number of middle-class and blue-collar jobs dependent on GM is many multiples of Citi. And the potential social cost of GM's demise, or even major shrinkage, is much larger -- including entire communities whose infrastructure and housing may become nearly worthless.
Now, I'm not arguing GM should be given a blank check. Its creditors, shareholders, executives, and workers should have to make substantial sacrifices before taxpayers are expected to sacrifice as well.
I'm just suggesting government priorities are backwards right now. Wall Street is getting up to $700 billion of taxpayer money, and so far $500 of subsidized loans from the Fed, which are bailing out investors and creditors of every major bank, including Citi. But American jobs and communities are more endangered than ever.
Jagow: Robert Reich is a professor of public policy at the University of California, Berkeley. His latest book is "Supercapitalism."