About 50 years ago Charles Wilson, the chief executive of the world's largest car maker, said "what's good for General Motors is good for the country", and few Americans demurred. General Motors was riding high, producing beautiful cars that roared along the highways, pleasing the poets and epitomising the American dream. It was the biggest manufacturer of cars by a country mile, with Japan's Toyota and Honda still struggling to create a domestic platform, and not even contemplating sending their vehicles to all parts of the world.
Those days are now a distant memory: Toyota is the world's largest car maker, while GM has just emerged from the world's second-largest industrial bankruptcy as a shadow of its former self, its brands cut in half and its workforce decimated. Not so long ago, car unions claimed that the industry collectively employed three million people. Not any more. GM recently told more than 1,000 of its "underperforming" dealers - representing nearly one in five of its US dealers - that their franchise agreements would not be renewed in October next year. Thirteen of its 20 North American plants will be idle for up to nine weeks this summer. Chrysler is also closing nearly 800 dealerships - nearly a third of all its dealers. Unemployment in the US is close to 10 per cent, but much higher in Michigan. Detroit, the motor city, is turning into a ghost town, with shuttered shops and abandoned bars. Few people see GM as any more than a headache.
On Wall Street, which after all caused the global recession by lending money to people who could not afford to repay it and reselling those loans around the world, the mood is altogether more optimistic. Investment banks are booming, led by their talisman, Goldman Sachs. Nobody would dream of saying that "what is good for Goldman Sachs is good for the country", but just eight months after a US taxpayer bailout and emergency loans of US$10 billion (Dh36.73bn), the firm has reported record second-quarter earnings. How can this be possible? And should it be allowed to continue?
Goldman Sachs is at the cutting edge of capitalism, able to deliver profits to its shareholders and workers whether the markets are going up or down. But US taxpayers, possibly worried about their own job prospects, must wonder how it is possible for such a thing to happen in what was apparently the worst economic conditions since the Great Depression. Surely, bankers should be queuing at soup kitchens rather than fighting over tables at the Oak Room at the Waldorf Astoria?
The answer is relatively simple. The financial crisis put some firms out of business, such as Lehman Brothers. This allowed Goldman to grab a larger slice of the cake, as well as creating the environment to allow it to increase its fees. The US government badly needs to borrow more; Goldman Sachs is there to help. Could one argue that what is bad for the country is good for Goldman Sachs? Felix Salmon, a blogger who writes for Reuters, suggested recently that no legislation in the past 50 years has been introduced that restricts the efforts of investment bankers. More likely, it has encouraged its excesses, notably by repealing the Glass-Steagall Act, which allowed commercial and investment bankers to merge. Goldman certainly has its friends in high places. It has become something of a conveyor belt for its top executives to head from its Wall Street offices straight to the US Treasury in Washington.
The result is an environment that favours bankers and discourages investment in industry. There are enormous challenges for GM and other US car makers, particularly in the face of foreign competition and new emissions constraints. It was Lord Mandelson, the UK business secretary, who said recently that what was needed was "less financial engineering and more real engineering". It now looks as though the "masters of the universe" will escape further legislation. The argument that there is sufficient regulation, but it just was not applied judiciously, is rapidly gaining credence in the US. (The British have still not made up their minds, with Alistair Darling, the chancellor of the exchequer, cooking up some good old-fashioned fudge, while the Europeans are always keen on more legislation, just as children like more ice cream in the summer.)
But without more regulation, more government intervention appears inevitable. According to a special inspector general overseeing the US banking bailout, total support could reach $23.7 trillion. In prepared testimony for a hearing of the House committee on oversight and government reform, special inspector general Neil Barofsky said the figure included spending and commitments for several agencies that have implemented programmes aimed at supporting the economy and the US financial system.
"TARP does not function in a vacuum," he said, referring to the government's $700bn Troubled Asset Relief Programme - its most visible effort to counter the financial meltdown. Darrell Issa, a member of the committee, said the figures were colossal. "If you spent $1 million a day going back to the birth of Christ, that wouldn't even come close to just $1tn - $23.7tn is a staggering figure," he said.
The most direct beneficiaries of such largesse are not hard to spot. Rolling Stone magazine, usually to be found recounting tales of rock star excess and movie mogul madness, devoted a recent cover story to Goldman Sachs. It was not very complimentary, dubbing it "the great American bubble machine" and blaming it for every major market manipulation since the Great Depression, from technology stocks to higher petrol prices.
"The first thing you need to know about Goldman Sachs is that it's everywhere," wrote Matt Taibbi. "The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a who's who of Goldman Sachs graduates."
We might be less inflammatory and congratulate the bankers on their cleverness and good fortune, although they don't really go out of their way to endear themselves. After being salvaged by the taxpayer, they thank us by raising overdraft fees and paying themselves healthy bonuses. At the same time, it would be a shame to do away with their expertise. They should be forced to return to their roots, which was raising capital for businesses. This has been achieved to an extent in Silicon Valley and it has been a boon both for bankers and for consumers. Where would we be without our iPods?
A similar focus should be brought on the car industry. After all, even if it does not employ the three million that the unions claim, it does provide jobs for a lot more than the 25,000 lucky souls fortunate enough to enjoy the spoils at Goldman Sachs. Revitalising the car industry will not be straightforward. There are bound to be problems on the way, particularly with globalisation and millions of Chinese willing to work for a few dollars a day. But if GM were to build a decent car with money and input from the clever people on Wall Street, people would buy it.
They are a smart bunch at Goldmans, and if given enough incentives - either a bonus or the death penalty - I am sure they could figure out a way. rwright@thenational.ae
