Was thinking today why the US government is so cruel wrt needs of the auto sector whereas it was very tolerant wrt needs of the banking sector.I came to conclusion that injection of 'free' money into auto sector will induce broad inflation while injection of cash into banking sector won't probably produce inflation in that extent. Another explanation could be the capitalist conspiracy against auto workers' rights Does anyone want to share his/her opinion about this issue?

Obama Says Auto Makers Not Moving Fast Enough - Washington Post March 30

banking industry is the heart of the economy...once the credit transmission is not working the whole economy stops working.and the banking system has a solution....it will cost a lot of money but it is starting to work.....the auction of toxic assets will help the banks to clean it balances sheets and it will became again to work etc etc etc...the auto industry has a lot of union agreements and some problems that are almost impossible to solve....the best solution is to let it fail and restart of the beggining....and they receveid a lot of money already.....well, this is a very interest issue that has not a unique answer....

Perhaps the government thinks the economy runs on debt more than it runs on cars. Whereas 97% of Americans can survive without the big-3 automakers, that same 97% probably can't survive without financial services (banks, credit cards, mortgages, insurance, pensions, etc.) And if the government did start bailing out every industry hit by this downturn, it would be forced to bailout the entire country.

Will wait for other interesting suggestions for a while and then explain my understanding why one measure is harshly inflationary whereas another one is mildly inflationary

it's a typical example of class division, existence of which is being denied by ruling class. the only thing that has changed since KM is that there's quite sizable - 1% of population? - middle class, which struck some kind of a deal with ruling class in exchange for illusory benefits

QuoteOriginally posted by: torontosimpleguyWas thinking today why the US government is so cruel wrt needs of the auto sector whereas it was very tolerant wrt needs of the banking sector.I've asked this before.The conspiracy theory is that they'll give trillions to AIG but won't give billions to the Detroit 3 because AIG owes GoldmanSachs money but the Detroit 3 don't.Perhaps if Goldman rather than Cerberus had bought Chrysler, the outcome would be different.There is a definite double standard:obama had Rick Wagoner (former head of GM) canned, and the detroit media are up in arms over this.Auto workers are supposed to take drastic paycuts and lose retirement benefits.Yet the chowderheads who led their banks (and AIG) to ruin were left in place and workers were given bonuses.The auto execs were excoriated for using private jets to fly from DTW to DC, yet no one criticized the bank execs for flying private jets to DC from NYC (and reportedly some banks receiving bailout funds) have even bought new private jets).QuoteI came to conclusion that injection of 'free' money into auto sector will induce broad inflation while injection of cash into banking sector won't probably produce inflation in that extentpart of the problem with the auto sector is the credit markets are frozen: folks who were able to get leases/loans a couple of years ago are being turned down today, even though nothing in their credit file has changed.Perhaps if the Fed started buying auto loans ?Add to that the government heaping unnecessary costs on the auto industry such as emissions mandates which mean that we all pay more for autos than we need to.

QuoteOriginally posted by: Traden4Alpha Whereas 97% of Americans can survive without the big-3 automakers, that same 97% probably can't survive without financial services (banks, credit cards, mortgages, insurance, pensions, etc.) why not more fully open the market to foreign competition like the auto market is.If Citi/Bank of America/etc fail, let Deutsche Bank or Credit Lyonnaise or Barclays offer retail banking in the US without the need to buy a US bank, we could let the domestic sector fail if it's unable to compete.The Chi-Comms already have all our money: why not just hand the banking sector over to them and save the US taxpayer trillions ?

QuoteOriginally posted by: ppauperQuoteOriginally posted by: Traden4Alpha Whereas 97% of Americans can survive without the big-3 automakers, that same 97% probably can't survive without financial services (banks, credit cards, mortgages, insurance, pensions, etc.) why not more fully open the market to foreign competition like the auto market is.If Citi/Bank of America/etc fail, let Deutsche Bank or Credit Lyonnaise or Barclays offer retail banking in the US without the need to buy a US bank, we could let the domestic sector fail if it's unable to compete.I think the market is relatively open. UBS, RBS, HSBC, BBVA, Barclays, et al have/had branches or units in the US. The problem is that just about every bank in the world drank the ABS koolaid and now has a bad case of math-poisoning. QuoteOriginally posted by: ppauperThe Chi-Comms already have all our money: why not just hand the banking sector over to them and save the US taxpayer trillions ?Actually, the Chi-Comms have all our debt, which is the opposite of having all our money.

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: ppauperQuoteOriginally posted by: Traden4Alpha Whereas 97% of Americans can survive without the big-3 automakers, that same 97% probably can't survive without financial services (banks, credit cards, mortgages, insurance, pensions, etc.) why not more fully open the market to foreign competition like the auto market is.If Citi/Bank of America/etc fail, let Deutsche Bank or Credit Lyonnaise or Barclays offer retail banking in the US without the need to buy a US bank, we could let the domestic sector fail if it's unable to compete.I think the market is relatively open. UBS, RBS, HSBC, BBVA, Barclays, et al have/had branches or units in the US. we disagree.don't they need to set up US subsidaries and get a banking licence ?

QuoteOriginally posted by: torontosimpleguyWill wait for other interesting suggestions for a while and then explain my understanding why one measure is harshly inflationary whereas another one is mildly inflationary OK, here is my explanation: it's a monetary phenomenon.If you put money into auto sector they will go directly into economy (suppliers, workers etc.). So, the amount of money in circulation sharply increases. It would produce the inflationary effect.If you put money into banks in order to recapitalize them you wouldn't get similar effects. It's because banks don't give money away, they give them only temporary (lend money). So, first the primary inflationary effect here is restricted in time. Second, the secondary inflationary effect is also contained by Obama's administration by putting restrictions on banks' bonuses (so, one can't say that it's only a populist measure).Thus, recapitalization of banks doesn't produce harsh inflationary effect because banks don't give money away for "free."And I guess it's Larry Summers' hand behind this. He is the only person among the US policymakers who has real insight into interactions between real and financial sectors. Bernanke and Geithner had not made impression of sharp insights into monetary phenomena talking in front of Congress. Even Krugman and Greenspan are pushing into nationalization of banks in order to clean them from "toxic assets." But it doesn't matter where these assets are as long as banks are recapitalized. And recapitalization of banks can be achieved almost without detrimental effect.Plus, Obama promised Chinese to keep the value of dollar intact.

QuoteOriginally posted by: ppauperQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: ppauperQuoteOriginally posted by: Traden4Alpha Whereas 97% of Americans can survive without the big-3 automakers, that same 97% probably can't survive without financial services (banks, credit cards, mortgages, insurance, pensions, etc.) why not more fully open the market to foreign competition like the auto market is.If Citi/Bank of America/etc fail, let Deutsche Bank or Credit Lyonnaise or Barclays offer retail banking in the US without the need to buy a US bank, we could let the domestic sector fail if it's unable to compete.I think the market is relatively open. UBS, RBS, HSBC, BBVA, Barclays, et al have/had branches or units in the US. we disagree.don't they need to set up US subsidaries and get a banking licence ?Actually, I'm fairly certain that all 5 of the firms I mentioned have or had FDIC-insured US units (some by acquistion such as RBS Citizens).

QuoteOriginally posted by: torontosimpleguyQuoteOriginally posted by: torontosimpleguyWill wait for other interesting suggestions for a while and then explain my understanding why one measure is harshly inflationary whereas another one is mildly inflationary OK, here is my explanation: it's a monetary phenomenon.Interesting theory. I think you may be right, but it depends on the multiplier effects for auto spending vs. bank fractional reserve lending. It's not obvious to me which has the higher multiplier in this environment. What is clear is that the Fed has much more power to pull liquidity from the banking system than from the automakers if needed. If/when inflation does appear, the Fed can't call the loans to automakers but can call loans to banks.

QuoteOriginally posted by: Traden4AlphaI think you may be right, but it depends on the multiplier effects for auto spending vs. bank fractional reserve lending.These two are rather irrelevant here. Don't know why you mentioned about them.The multiplier effect is rather a fiscal phenomenon than a monetary one.The fractional reserve effect is a monetary one but it is not inflationary one in the sense that it doesn't directly and irreversibly destroy the currency value.So, I don't think that either one relates to inflation.QuoteIt's not obvious to me which has the higher multiplier in this environment.These two effects are prolonged ones. No immediate results. One needed instantaneous impact.QuoteWhat is clear is that the Fed has much more power to pull liquidity from the banking system than from the automakers if needed. If/when inflation does appear, the Fed can't call the loans to automakers but can call loans to banks.Money given to auto sector is not really a loan but an aid (with a hope to get it back sometime). If auto sector could afford a loan it would get it from commercial banks.

Actually, the Bush Administration allowed both Bear Stearns and Lehman Brothers to fail in 2008. When they put money into AIG, then-CEO Robert Willumstad was let go. And public (Congressional) pressure forced then-Treasury Secretary Hank Paulson to abandon the toxic assets plan, and instead employed the recapitalization plan that everyone (Soros) demanded.Now the heat is on Bank of America CEO Ken Lewis.To be fair, most banks have been profitable until now, while GM has not. Just look at their stock charts. Also, banks are more cut-throat, and also a lot smarter, so they manage to avoid bad publicity .... for example, Chuck Prince was let go, Stan O'Neal was let go, Franklin Raines at Fannie Mae was let go, Robert Rubin resigned .... I don't think the government plays favoritism here.