When H. Gaylord Wilshire sought the Southern California congressional seat in 1890, he ran on a very simple platform: ‘Let the Nation own the trust.’ The part time farmer and full time reformer was responding to economic abuses of his era not unlike those of the current period. Just as the economic grievances of millions of American farmers, workers and small businessmen might have been resolved in the 1890s by nationalization, in 2008 government ownership of financial institutions and giant corporations could end our current economic crisis.
In the 1890s, the largely rural Southern California, like much of the rest of the nation, was under the economic domination of giant corporations called trusts. The nation’s economy was at their mercy.
Today, economic domination takes another form. In Wilshire’s time, the system was controlled by robber barons who actually produced goods. Now the economy is controlled by institutions which only deal in paper. Great banks, some of which are international in scope, have created new paper devices to control the economy. Derivatives, hedge funds, mortgage related securities, and numerous other paper creations now determine the economic fate of America.
Through their control of the credit market, those financial institutions have a life and death dominance over virtually every major American industry, small business, and home owner. Americans cannot buy a car, a home, or goods on credit without the consent of those institutions. The credit crunch caused by the banking giants has driven America to the wall.
When the banks are used to make credit available, the whole economy suffers. The auto industry is the prime example of a failed economic system. Those consumers who would buy a new car find the banks are reluctant to lend the money to do so.
So Congress currently is considering a bail-out deal for General Motors, Ford, and Chrysler. The solution is not to loan the Big Three money. The solution is to take them over.
In 1890, Gaylord Wilshire said, ‘Let the nation own the trust.’ Today, we say let the nation buy the Big Three.
The total value of all the common stock of Chrysler, Ford, and General Motors, is far less than the 25 billion dollars that these corporations are asking for on top of the other 25 billion dollars they have already been loaned. The current market value of the common stock of General Motors is less than two billion dollars. Ford is worth four billion dollars, and Chrysler’s real value is small but currently undetermined. All the government needs to buy is a controlling interest in the common stock, not all the stock. Critics will suggest that if the government steps in to buy the stock of these companies, the value will increase significantly raising the price to a point that we could not afford. Not true.
The alternative to a government purchase would be bankruptcy and liquidation whereby stock holders would receive virtually nothing. Consequently, the government should be able to buy a controlling interest in Ford and GM for a total not exceeding five billion dollars. The key would be long-awaited fresh new management attuned to the real needs of American auto buyers, with coordination that was impossible with three separate companies running the industry. Confidence would be restored to the entire American economy.
While there would be major disagreements within the government over the policies to be followed in running the auto industry, at least the public would have a voice in the determination of what those policies would be. This move would represent ‘change’ which has been the popular national theme throughout the recent presidential campaigns.
If Gaylord Wilshire were still among us, we are sure that would have been his platform in the 2008 congressional election.
Let the nation own the Big Three
Ralph E. Shaffer is professor emeritus Cal Poly Pomona and Norma Jeanne Strobel is professor retired Santa Ana College.