The Sucking Sound is the Economy: Spending vs. Saving, Credit, and the "Detroit Bailout"
There are a few things you've undoubtedly read in the paper or seen on the talking head shows that are wrong, and I'm here this morning to point out how I see things...

Consumers aren't spending; they've discovered savings again.

The above is the today's favorite line by the financial analysts seen on TV. Look, let's be honest here - they've got it completely and totally wrong - Consumers aren't spending because they are saving; consumers aren't spending because they don't have the money to spend. Americans have been living on expanding credit for more than 15 years, living as they say "beyond their means". So when the credit markets came to a screeching halt three months ago, many Americans began losing the opportunity to open new credit card accounts or take out new car loans (or other types of loans). With no new credit, they couldn't - and largely, still can't - expand their personal credit sinkhole. This absolutely doesn't mean people have suddenly discovered how to save; rather, they are making payments on what they already owe. (And paying a credit card company or the bank or your loan guy doesn't seem to mean you are "spending" since you've already done that.)

Paulson announces hundreds of billions of dollars to institutions to allow them to start lending to consumers again.

Yesterday, the Treasury Secretary said upwards of $100 billion will be used to allow banks to start lending again to consumers.

Aren't bad lending practices part of what got us into this mess in the first place? The reality is that, by and large (with the exception of student loans), those with good credit ratings can still get the credit they want. And the rest of us? The problem doesn't come down to credit, it comes down to cash.

The American people don't necessarily need more credit, they need better wages. For damned near 8 years now, the numbers have been pretty clear that the average American's purchasing power has steadily diminished because wage averages have stagnated. As prices rose disproportionately to wages, the credit available to each of us expanded dramatically. It isn't hard to see how such a situation would end up putting many people in a financially untenable circumstance.

I believe the bottomline here is that two things need to happen: the stagnation of wages must end, and if the government is going to send out hundreds of billions of dollars to free up credit, the money should be sent to people, not to banks or credit card companies. At least by doling out to the public, the money eventually makes its way through the credit markets a step or two further down the line.

Let the Big Three go under

I can't agree with this argument either (EXCEPT under one condition) because the consequences are so broad and so deep, that it's difficult to comprehend exactly how bad things could get.

There is no doubt that GM, Ford, and Chrysler are three of the most irresponsible corporations in the country. They have brought their troubles completely upon themselves. Unfortunately, much like places like Citi and AIG, the ramifications allowing them to file bankruptcy would send the economy is a real tailspin.

Hyperbole? Not really. Consider that each of these corporations have hundreds of thousands of employees, tens upon tens of thousands of retirees and beneficiaries collecting pensions and health benefits, and upwards of 3 million jobs nationally that are connected to them in the form of independent dealerships and parts manufacturers. For all of these people to lose their jobs would be catastrophic. When corporations with defined pension benefits fail, those pensions are picked up by? You guessed it - the American taxpayer (through the PBGC).

If - and it's a worrisome if - a $25 billion or $50 billion loan (and yes, the auto bailout would be a loan) could help potentially keep upwards of $200 billion of eventual pension benefits being transferred to taxpayers, it's something seriously worth considering.

Oh, and it's not as though the Treasury hasn't done this kind of thing before. In the late '70s, a similar loan helped keep Chrysler afloat long enough to move back into profitability (and to pay back the loan). And in 2002, Congress doled out over $15 billion to the airlines to keep them above water. (Of course in the case of the airlines, they had, ahem, 9/11 to use an excuse for requesting money they were going to have to request whether the attacks on that day had happened or not.)

Naturally, if such loans are to be approved for the auto-makers, there must be serious strings attached. And the very first should be the ouster of their management teams. Rick Wagoner, of GM, can go before Congress and say he's worried what not getting billions in a loan would do to his company... ok, Rick, prove it - if you are truly concerned about the working men and women of GM, you should see that falling on your sword is the honorable thing to do. (But that isn't likely to happen, the arrogance and hubris of the guys who run these companies is mind-numbing.) The approval of loans to the auto companies should also be contingent on the restructuring of union contracts. In fact, I think an independent board - made up of former federal IGs approved by the Senate - should have oversight and approval authority over renegotiated contracts. Lastly, the Big Three should not be allowed to spend a single dime on lobbying efforts until every penny, plus interest, of the loans is repaid. A lobbying restriction should ease the way for Congress to do what the Big Three's congressional lackeys (that is, the Michigan delegation) have stymied for decades: substantial increases in CAFE standards. Because, as we know, only through federal mandates will Detroit come kicking and screaming into the 21st century.

And you know, I hope - after all that - that they make it and succeed. Unfortunately for them, I'm probably still buying a Toyota.