The problem is that the Big Three are building exactly what the customer wants

I am still not sure whether I think it is a good idea to bail out the Big Three, probably at the end the choice will be a political one and it will be a yes. However I thought about some points raised during the hearing and I think that the whole issue is at the heart of the changing landscape of the american and world economy.

Rick Wagoner said that because of the credit crisis customers were not able to keep up with the financing rates to purchase a new car. For a non-american this statement seems a bit strange: Wagoner did not say they have not enough cash, he said they cannot keep up with the payments. This means that debt is taken for granted, it is a fact of life. Of course under a financial point of view debt in not necessarily evil, it can make sense if your investment returns more than servicing the debt.

A quote often thrown around is the one by Adam Smith saying that we should often compare the common sense in which we conduct family finances to the one we should apply to managing the finances of a country. All this however should be taken carefully since a family's credit rating can change more dramatically than a country's and it is harder to restore. Of course Europeans do not understand up to which point a car for an American is a necessity almost as much as a house is to us: we would not raise objections to being in debt to purchase a home. However this does not really matter.

The Big Three have been accused during the hearing of building cars that are not suited to the customer. This is not true. The problem is that they have been doing the opposite. They have been building large, comfortable cars that cost a lot less compared to the competition: who does not like to drive a gorgeous SUV, sitting like a king while the Monument Valley rolls in front of one's eyes and petrol is at 2 dollars a gallon? American enjoy what car buyers in Europe only see in commercials. This could not last forever: the problem is with the customer. One cannot have everything, something has to give in this picture, be it the size of the car, the price, the price of petrol ... (fortunately not the landscape). Finance has been deleveraging for a while, the american consumer needs to deleverage his/her expectations and the American manufacturing industry has to follow accordingly.

For a long time America has been the land of plenty and probably few things have represented this (and the contrast to the rest of the rich world) as much as its cars. Things unfortunately have to change. I wish for America's sake, and for all those who look at the United States as an almost magical place to move to one day, that the abundance was not only fruit of the large leverage at which personal finances were in debt. Debt is not evil and a healthy relation to it is a positive thing: it is a matter of size, just like the cars.

Upfront payment for the TARP

These days bankers are wearing cone hats and it is almost impossible to say anything in their defence. Even if you think that something might be said, it is extremely political incorrect to do so. It is far from my intention to defend the excesses and mistakes of the financial industry, but a little calculation could be interesting. Let us assume that the financial industry as a whole paid for the past ten years $ 100bn each year in bonuses. This is a conservative figure considering the Goldman Sachs alone paid $ 16bn last year: since it is conservative we can assume that everyone paid an average 40% income tax on that amount. Compounded at an average interest rate the total amount exceeds $ 500bn. It is not difficult to argue that financial professionals are a very small burden for the state since for many things such as education, health, transportation, welfare, etc. they go private. Even if this number is too large and the actual one is somewhat smaller, it still covers a considerable share of the TARP fund amount. All this is to mitigate the public outrage at the industry making a mess and then asking the taxpayer to bear the burden: a lot of it was paid upfront by the industry members themselves.