Sometimes (just sometimes) we cannot help but watch Andrew Ross Sorkin videos. This particular round, while watching the ARSE’s Charlie Rose interview with automotive industry shill David Cole, something occurred to us: the United States has become the world’s leading authority on creating inoperable, metastasized industrial tumors. Not only this, but the creation of, maintenance of and discussion surrounding these tumors has become so integrated in the economic fabric and incentives system of the United States, that it doesn’t even occur to participants that their behavior is part of a highly developed, multi-generationally optimized, metastasized tumor growth system.
Paul Kedrosky’s Infectious Greed is the first place we saw the “too metastasized to fail” concept spelled out. It was inevitable, we suppose, that it would rear its ugly head in spades during this ARSE’s video (focused as it is on the automotive industry). But it was not Sorkin this time, but rather listening to the absolutely and utterly myopic class of denial that David Cole continued to dribble out all over himself whenever Sorkin would let him get a word in, that really drove it home: The United States is geared to reward massive, horizontally integrated firms with extensive and varied moral hazard properties and, moreover, this has become so automatic that these market participants, the David Coles of the world, don’t even realize they are trained this way. Automotive is just the industry up in the rotation at present, but airlines, investment banking and insurance all fit the bill nicely.
The formula is easy once you learn it. You build an entity with large money, employment or political influence multiples, leverage it as heavily as possible, be that with unfunded, pyramid contribution structured pension plans, long term and excessive labor rate contracts, pure leverage, or ballooning health care liabilities, and make sure it touches as many middle class hub points as possible. (This is the metastasized aspect). “Too big to fail” was no longer a viable option once billions of dollars of private equity and hedge fund money in conjunction with cash-rich investment banks could buy up LTCM or Amaranth without much of a hiccup. To enjoy the protections of that kind of systemic failure risk you have to aim your losses at the heart(land) of America now. Homes. Cars. Retirement accounts. Insurance. Annuities.
Listening to the bejowled heads of the big three recite over and over again the multiplier effect they had on jobs from parts manufacturers to car washes made it clear. That is the business they are in. Siphoning cash to their constituents by daring anyone to let them implode. No one even pretends the cars are worth anything at all anymore. It is the jobs, the tax revenue, the health care and the community infrastructure that are the central issue here. They are professional industrial oncologists, not CEOs. They sagely scare the wits out of you so you will sign the consent form and start radiation and chemo (and pay them handsomely for the privilege to do so). Until we sit through a few chemo serious sessions and spend several weeks puking our guts out, we are doomed to find tumor after tumor after tumor one at a time, and pouring a lot of money into the bank accounts of industrial oncologists.
(Oh, as an aside: Hey, airlines, you better get your act together. So far as we know there is no “American Dream Of Coach Class Travel.”)
Video: Sorkin on Rescuing the Automakers [Dealbook]