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Lending an ear, and more

June 13, 2011
As we proceed into an era defined by global finance and commerce, the value of equal justice will grow greater than most of us have ever imagined.

Lending an ear, and more

Robert Brooks

A few months ago I took a call from a foundry owner seeking my advice. Imagine that: someone with obvious intelligence, a certain expertise, the valuable experience of industry and life in general, wanted my advice about a particular financial dilemma. It was as though I was being asked to help a friend, and I appreciated the consideration that showed to me. The assumption was that I have dealt with such things before and have more exposure and access than this business owner, never minding any comparison of our respective accomplishments.

I was touched by the sincerity of the approach, flattered by the confidence extended to me, and perplexed by the question. It involved banks’ lending practices for businesses of different sizes, and how to coordinate those regulations with the equally ungenerous credit standards used by supplier companies and customers: Suppliers want payment on demand; buyers assume a 90-day payment cycle. Obviously, businesses will take every advantage they can find, but where is the advantage for a metalcaster trapped between the different credit schedules of suppliers and buyers? Ultimately, I offered the best advice I could think of and managed to make some recommendations about other contacts that might help, and I left the situation wondering if I’d done all that I could do and hoping I’d have a chance to learn everything worked out fine.

All of that came back to my mind recently upon reading reports on the “success” of the automotive bailouts that have roiled U.S. manufacturing for the past two years or so. “The (auto) industry is back on its feet,” President Obama said during a visit to a Chrysler Group LLC plant, “repaying its debt, gaining ground.” Meanwhile, the administration released a report, The Resurgence of the American Automotive Industry, in which it admits that the federal government (i.e., you, me, everyone) could lose $14 billion as a consequence of rescuing General Motors and Chrysler. The report concludes that $80 billion has been supplied to the entire industry (some supplier companies received capital in addition to GM and Chrysler), and the current estimate on the expected loss is down from some of the initial forecasts in 2009, which had taxpayers losing up to 60% of the capital invested.

Now, because these are all relative values some readers will think it was a worthy accomplishment to rescue GM and Chrysler, and some will not. This is a debate that will never be settled, I suspect.

I’m not basing any judgment on the cost involved, though it has been considerable. Defenders of the bailout will add that two valuable industrial entities have been saved from demise, though that will never be proven and there is a persuasive case that standard bankruptcy reorganization of the two automakers would have been more just and more effective than the coordinated asset transfers that took place.

Defenders of the bailout also rely on the evidence that both GM and Chrysler have returned to profitability and that’s obviously a good thing, though it’s rather immaterial to justifying the extraordinary effort made on behalf of U.S. citizens to benefit these private entities.

I am just as glad to have GM and Chrysler successful again as I am to have the bailouts behind us, and I hope that their example remains behind us, too. I cannot imagine changing my mind about the justice of it, but I don’t object to their current success.

I wince at the realization that there is no possible intervention on behalf of the foundry owner who called me out of the blue seeking financial advice. The banks don’t have any obligation to help. Suppliers can very likely sell scrap metal or chemicals or sand to other industrial customers, and buyers will not have to try very hard to locate another source of cast products, so they’re unlikely to make any difference. There will be no assistance for the foundry owner I spoke with — which is fine, I suppose, because none is expected. We help our friends when we can, but the notion that we are obliged to absorb their losses ought to remain beyond debate.

As we leave the bailout controversy behind what remains troubling is this: the federal government has a responsibility to treat all its citizens equally under the law. That does not mean ensuring we are prosperous or successful. As we proceed into an era defined by global finance and commerce, the value of equal justice will grow greater than most of us have ever imagined, and it’s troubling to see the administrators of justice handle it so lightly.