From GM to AIG

There's an old saying: 'As General Motors goes, so goes America.' This week the share price of General Motors nosedived. In the closing hour of trading on the New York Stock Exchange on Thursday, the iconic US automaker fell by 30% cutting its share price to a level not seen since 1950.

There's now a real danger that one of the biggest companies in America could go bankrupt.. . .

And the pain of the top echelon of AIG was also eased somewhat in September when they repaired to the St Regis resort in southern California to digest the implications of the $85bn government bailout of their firm. It cost $440,000 with $23,000 spent on 'spa' treatments. 

The trouble in which General Motors finds itself and the grotesque greed of the filthy rich who pushed Wall Street over the edge are, in an odd way, connected.

On Wall Street, the deregulation of banks in the final years of the Clinton Administration allowed for nimble investment banks like Lehman Brothers to create un-dreamt of wealth through a dizzying complex web of financial engineering. Risk was a concept that could be squared away using algorithms. Money was not linked to selling things. It was seemingly created out of thin air. 

Somewhere along the line, income distribution became seriously skewed. The rich became incredibly rich. The moderately well paid union jobs at Ford and GM came to be considered a problem and were blamed for making their companies uncompetitive.

In this election year, both US presidential candidates continually tell their audiences their country is at a turning point. Indeed it is. Debt to pay for cars, college tuition and yes, those houses- became a temporary solution to a society and economy enormously out of balance.

The US Treasury has signed an $800bn bailout bill for the financial sector. It has given a $25bn bailout to the 'Big Four' US automakers. Its national debt is headed for over $10 trillion.

The unfortunate irony for either presidential winner who arrives in the White House in January is: He may find the country too broke to fix.

From "Shortt Take: General Motors" by Robert Shortt.