Former Labor Secretary Bob Reich wonders who, exactly, benefits here:
This is not a particularly good deal for American taxpayers, but it is a marvelous deal for Citi. In return for all the cash and guarantees they are giving away, taxpayers will get only $27 billion of preferred shares paying an 8 percent dividend. No other strings are attached. The senior executives of Citi, including those who have served at the highest levels in the US government, have done their jobs exceedingly well. The American public, including the media, have not the slightest clue what just happened.
Meanwhile, more than a million workers in the automobile industry, along with six million homeowners in danger of losing their homes, and a millions of Americans who depend on small businesses and retailers for paychecks, are getting nothing at all.
(And commenter/guestblogger Cliff notes that this arrangement is being brought to us by the same folks who assured us just last week the banking system had been stabilized.)
UPDATE: Meanwhile, Justin Fox tries to explain why we are nice to banks, and mean to car companies:
There’s one valid reason why we’ve done so: Banks are different. Their health affects every sector of the economy, and there’s now widespread, if not universal, agreement among economists that a breakdown of financial intermediation–a.k.a. banking–was the main cause of the Great Depression. Also, banks are susceptible to panics in a way that other corporations are not. If everybody gets freaked out enough, they can fail even if they are profitable. That’s why we have a long history of government involvement in and regulation of the financial industry. None of these special conditions holds for automakers, so their aid requests should be held to a different standard.
Still, I wonder if there aren’t also some other factors at work in the relatively hostile reaction to the Detroit Three. Most Americans simply no longer identify with the domestic auto industry (or with the states of Michigan and Ohio). To the Southerners who now make up the core constituency of the Republican Party, it’s a bunch of coddled, unionized workers trying to get handouts that the South’s auto industry (Toyota, Hyundai, Nissan, Mercedes, BMW …) doesn’t need. To the coastal urbanites and suburbanites who now make up the core constituency of the Democratic Party, it’s an industry that makes crappy big cars and fights against higher fuel efficiency standards. And to the business press it’s the worst thing of all: a trio of companies that are neither exciting nor financially successful.