On December 8, House Democrats “unveiled a plan ... for propping up the U.S. auto industry” consisting of “about $15 billion in emergency loans if Detroit accepts a federal monitor to oversee operations and restructuring,” as reported by the Los Angeles Times. This proposal came just days after the chief executives of Ford Motor Company, General Motors, and Chrysler appeared before the Senate Banking Committee, as the Detroit Free Press reported, to request “government aid they say they need to survive,” and “warned of the damage that would be wrought by their failure.” This proposed “bailout” of the auto industry follows the passage of the Emergency Economic Stabilization Act, which authorized a $700 billion “bailout” of the financial services industry after several lenders faced collapse as part of the subprime mortgage crisis and its subsequent impact on the credit market. These economic problems were born primarily of the actions (or inaction) of those in positions of power in private industry and in government. However, many conservative media figures have assigned blame to specific groups of less wealthy or less influential people -- the poor, minorities, undocumented immigrants, and union members, among others -- disregarding the facts that belie such assignments of blame.

FINANCIAL CRISIS

When economists, public officials, and journalists address who is at fault for the subprime mortgage collapse and the ensuing financial crisis, a common theme emerges -- people in power failed to act responsibly. On September 17, Nobel Prize-winning economist Joseph Stiglitz wrote that "[t]here is ample blame to be shared," but that “at the center of blame must be the financial institutions themselves.” According to Stiglitz, the financial institutions and their executives “misallocated capital; they mismanaged risk -- they created risk.” Stiglitz also faulted the Federal Reserve and its former chairman Alan Greenspan for failing “both as a regulator and in the conduct of monetary policy.” Indeed, in testimony before Congress on October 22, Greenspan admitted to a “flaw” in his ideology of self-regulating markets, saying, “I made a mistake in presuming that the self-interest of organizations, specifically banks and others, was such as that they were capable of protecting their own shareholders.” Greenspan also testified that he didn't recognize the existence of the housing bubble, with home prices inflated beyond their true market value, until early 2006, saying, “I did not forecast a significant decline because we had never had a significant decline in prices.”

Testifying before the Senate Banking Committee in October, former Securities and Exchange Commission chairman Arthur Levitt faulted the SEC for failing to enforce financial regulations and failing to adequately “rein in dangerously risky behavior.” On the November 27 edition of PBS' Nightly Business Report, correspondent Erika Miller explained how “the mortgage market helped lay the groundwork for the crisis”:

MILLER: It was Wall Street's securitization of mortgages that eventually turned a nasty housing downturn into a full-blown global banking crisis. Major brokerage firms bought up risky mortgages, bundled them together and sold them off in slices to investors -- often keeping big chunks for themselves. As bond market expert Tony Crescenzi points out, credit ratings agencies then gave the securities top marks.

ANTHONY CRESCENZI (chief bond market strategist, Miller Tabak & Co.): They didn't think through the risks in their entirety, particularly the liquidity risk, which is to say that the rating agencies didn't think about what would happen if securities were difficult to buy and sell in the financial markets.

MILLER: Former Lehman Brothers CFO Brad Hintz, now a brokerage stock analyst, says the problem was that buyers of mortgage-backed securities didn't know what they were getting.

BRAD HINTZ (brokerage analyst, Sanford C. Bernstein & Co.): Securitization, fundamentally, is a good thing. The problem with securitization is when you take it too far, and that's the idea that I can securitize something and I don't care the quality of what I'm securitizing. You know, it's a box of dirt. “I'm going to sell a box of dirt and that's fine.

MILLER: The crisis also would not have escalated so quickly had it not been for esoteric financial contracts called credit default swaps -- CDS for short. These complex derivatives were supposed to reduce risk by guaranteeing against losses in particular mortgage securities. Instead, they spelled disaster for companies which backed them, like AIG, the nation's largest insurance firm.

CRESCENZI: Where CD's went wrong was that they lacked transparency. We couldn't know for sure how many CDS existed for an underlying security. For example, a company might have $1 billion of bonds outstanding, but there could be $4 billion, $5 billion, $10 billion of CDS outstanding.

But despite the emerging consensus that the financial crisis was due largely to irresponsible practices by lenders and lax oversight by government regulators, conservatives in the media affixed blame to other groups, disregarding facts to set their sights on the poor, minorities, and those seeking to expand affordable housing:

The Community Reinvestment Act

Conservatives in the media attacked the Community Reinvestment Act (CRA), passed under President Jimmy Carter in 1977, claiming that the law forced banks to make “risky” subprime loans to low-income and minority households. In fact, experts have said that approximately 80 percent of high-priced subprime loans were offered by financial institutions that are not subject to the CRA, which applies only to depository institutions like banks and savings-and-loans. Moreover, Janet Yellen, president and CEO of the Federal Reserve Bank of San Francisco, stated in a March 2008 speech that “studies have shown that the CRA has increased the volume of responsible lending to low- and moderate-income households” [emphasis added]. Michigan Law School Professor Michael S. Barr pointed out in his February 13 testimony before the House Committee on Financial Services that lenders subject to CRA face far more scrutiny than other lenders: “Banks and thrifts are subject to comprehensive federal regulation and supervision; their affiliates far less so; and independent mortgage companies, not at all.” Barr said further:

Competition from banks and thrifts can help to drive out abusive practices and improve price transparency in these markets. However, given the large role played by independent mortgage companies and brokers, bank and thrift competition under CRA is not enough, on its own, to drive out bad practices. In recent years, there was intense competition among mortgage market participants to provide harmful products. Further federal regulation is thus also necessary to combat abusive practices, prevent a race to the bottom in bad lending behavior, and restore integrity to our housing markets."

Nonetheless, the CRA features prominently as a focus for blame in many conservatives' assessments of the financial crisis:

• On the October 5 edition of Fox News' Special Report, former Wall Street Journal columnist Amity Shlaes said of the CRA: “We want to have everyone be able to buy a house anywhere. We're going to lend to people of all colors. Nothing wrong with that. We're going to make sure those banks do it, and they don't discriminate. But the law went overboard. Institutions made loans that they probably didn't want to make, because they couldn't seem racist.”

• On the September 25 broadcast of Westwood One's The Radio Factor, Fox News panelist Jonathan Hoenig claimed the CRA “makes banks give loans to bad risks.”

• On the September 25 edition of Fox News' The O'Reilly Factor, radio host Laura Ingraham claimed that 1995 rules strengthening the CRA “pushed all these institutions to lend to minority communities, many were very risky loans.”

• A September 25 Investor's Business Daily editorial claimed the CRA “forced banks to make many more subprime loans.”

Minorities and low-income families

CRA's purpose is “to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income neighborhoods, consistent with safe and sound banking operations.” Those blaming CRA for the financial crisis often also targeted minority and low-income communities:

• On the September 18 edition of Fox News' Your World, host Neil Cavuto asked Rep. Xavier Becerra (D-CA), "[W]hen you and many of your colleagues were pushing for more minority lending and more expanded lending to folks who heretofore couldn't get mortgages, when you were pushing homeownership ... Are you totally without culpability here?" Cavuto later said, “I'm just saying, I don't remember a clarion call that said, 'Fannie and Freddie are a disaster. Loaning to minorities and risky folks is a disaster.'”

• In a September 28 Boston Globe column, Jeff Jacoby wrote: “The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to 'meet the credit needs' of 'low-income, minority, and distressed neighborhoods.' Lenders responded by loosening their underwriting standards and making increasingly shoddy loans.”

Responding to the chorus of conservatives targeting CRA and minorities, Marc H. Morial, head of the National Urban League, reportedly sent a letter to Treasury Secretary Henry Paulson asking him to refute such claims, writing: “It's an effort to shift the climate away from deregulation and the lack of oversight. ... The numbers are becoming clearer each day that a large number of people who ended up with a subprime loan could have qualified for a prime loan. That's the abuse that's inherent here.” In a November 19 speech in Baltimore, United States Comptroller of the Currency John Dugan criticized efforts to blame CRA for the mortgage crisis, saying, “CRA is not the culprit behind the subprime mortgage lending abuses, or the broader credit quality issues in the marketplace.” Dugan added, “Indeed, the lenders most prominently associated with subprime mortgage lending abuses and high rates of foreclosure are lenders not subject to CRA.”

Undocumented immigrants

Several media figures attributed the financial crisis to excessive lending to illegal immigrants, but failed to cite credible evidence to support that claim. On October 9, for example, The Drudge Report linked to an article on Phoenix radio station KFYI's website under the headline, “HUD: Five Million Fraudulent Mortgages Held by Illegals...” But the Phoenix Business Journal reported on October 9 that the Department of Housing and Urban Development dismissed such reports as baseless, and that the “agency has no data showing the number of illegal immigrants holding foreclosed or bad mortgages.”

Nevertheless, conservative and mainstream media figures leaped on the reports to single out undocumented immigrants in the mortgage foreclosure crisis:

• On the October 9 edition of CNN's Lou Dobbs Tonight -- which aired after the Phoenix Business Journal article was posted -- San Diego radio host Roger Hedgecock said: “We have a situation where today HUD was talking about 5 million illegal alien home mortgage loans that have gone bad.”

• Also on the October 9 Lou Dobbs Tonight, radio host Joe Madison said: “You see, this really angers me, because I'm sitting here ... and wondering, how is it that people who are illegal get loans when people in my community who are legal have a difficulty getting loans, and if they do get them, they're often from predators?”

• In her September 24 syndicated column, Michelle Malkin claimed that “there's one giant paternal elephant in the room that has slipped notice: How illegal immigration, crime-enabling banks, and open-borders Bush policies fueled the mortgage crisis.”

AUTO INDUSTRY CRISIS

As the financial situation on Wall Street deteriorated, so too has the outlook for the “Big Three” American automobile manufacturers -- Ford, GM, and Chrysler. The subprime mortgage crisis and the collapse of Lehman Brothers triggered a spike in interbank lending rates, sparking a credit freeze. As The New York Times reported on September 30, lack of available credit further stalled new car sales: “After enduring a brutal sales slump caused by high gas prices and a faltering economy, the last thing the American auto industry needed was a credit crisis.” The Times continued:

The virtual lockdown on credit is hurting Detroit's Big Three and other automakers at every level. More consumers cannot get auto loans. Dealers are hard-pressed to secure financing for new inventories. The auto companies themselves are running short of cash and can hardly afford to borrow more at interest rates as high as 20 percent.

It all adds up to an increasingly dismal forecast for the industry. Vehicle sales fell 11 percent in the first eight months of the year compared with 2007. But September sales, which automakers will report Wednesday, are expected to be down as much as 19 percent, according to the auto research Web site Edmunds.com.

University of California-San Diego economist James Hamilton noted in a December 3 blog post that November 2008 automobile sales were 40 percent lower than sales in November 2007. Hamilton wrote, “Remember that this volume decline is hitting an industry with huge fixed costs, and that these are decreases relative to 2007.” Hamilton further stated that “we may be on the cusp of much more dramatic adjustments in this sector than anything seen so far.” Moreover, an October 2 New York Times article reported:

For the first time since 1993, automakers sold fewer than a million new cars and trucks in a single month in the United States, as a reeling economy scared people away from showrooms in September, and many eager buyers were unable to get loans.

With industry sales dropping 26.6 percent over all compared with a year ago, car companies are likely to cut more production and jobs to compensate for falling revenues.

The credit crisis contributed heavily to the steep decline -- analysts estimated that it cost the industry up to 100,000 vehicle sales in the final week of the month, on top of lost sales because of high gas prices and the shaky economy.

Auto executives said Wednesday that the industry faced more misery ahead until a bailout package was passed in Washington.

“We feel it is critical,” said Michael C. DiGiovanni, chief sales analyst for General Motors. “If it doesn't happen, it's going to set off a continuing downward spiral in the economy.”

Nearly every automaker posted double-digit declines. Sales were down 34.5 percent at the Ford Motor Company, 32.8 percent at Chrysler, 32.3 percent at Toyota and 24 percent at Honda.

Yet despite this, numerous conservative and mainstream media figures have advanced the suggestion that autoworkers and the United Auto Workers (UAW) are solely or primarily responsible for the financial woes that the automakers face, often citing the false claim that autoworkers earn $70 or more per hour, ignoring management decisions that have driven the companies to the edge of collapse.

Ignoring market trends favoring fuel efficiency

The credit freeze and recession, further limiting automobile purchases, are only among the most recent problems facing the auto industry. Industry resistance to the development of more fuel efficient and marketable cars long preceded these economic issues. Indeed, GM itself cited “shifts in consumer preferences ... away from fullsize trucks and utility vehicles” as a cause of its economic problems. From the 2007 annual report:

In North America, the turmoil in the mortgage and credit markets, continued reductions in housing values, high energy prices and the threat of a recession have had a negative impact on consumer's willingness to purchase our products. These factors have contributed to lower unit sales in North America in 2007 and, combined with shifts in consumer preferences towards cars and away from fullsize trucks and utility vehicles, have negatively impacted our results as such larger vehicles are among our more profitable products.

During the December 7 edition of CBS' Face the Nation, New York Times columnist Thomas Friedman said to host Bob Schieffer, “Go on a college campus today, Bob. How many young people do you see driving Pontiacs? You know, you don't see it. That's the core problem. They haven't made cars people want to ride.” Friedman later added:

FRIEDMAN: [W]hat they did was they tried to create a universe, basically, where gasoline would be cheap and you could only or would only have to sell and make those big cars. So just remember a couple of years ago, as gasoline prices rose, what was their response? Was it to move immediately to electric cars or more efficient cars? No, they came out with a program for a $1.99-cent a gallon of gas for a year if you bought a Hummer or a Yukon or a Suburban. It was like a crack dealer saying, “Bob, I'm going to guarantee you free crack or reduced crack for a year.” It wasn't, “I'm going to get you off your addiction.” And so that was -- they created a universe, and then they tried to protect it. And then the world, basically, impinged on them with higher energy prices and many other higher costs.

Discussing fuel economy standards in January 30, 2007, testimony before the Senate Energy Committee, Walter McManus, director of the Automotive Analysis Division of the University of Michigan Transportation Research Institute (UMTRI), stated, “Our research shows for almost a decade consumers have placed a much higher value on fuel economy than Detroit automakers has given it. But Detroit automakers ignored even their own data.” McManus later stated:

Our study found that the consumer value of fuel economy rose each year in direct proportion to the rise in the real price of gasoline. Without some action to offset this trend, demand would have shifted away from large SUVs as early as 2003. What Detroit did (starting immediately after 9/11) was cut their vehicles' prices, and the least fuel efficient vehicles had the biggest price cuts. These cuts in prices offset the fall in what consumers would pay for their vehicles as gasoline prices rose. Consumers would have switched earlier, but Detroit kept making better and better offers they could not refuse as gasoline prices rose from 2002 to 2005. And, as a result, while sales continued to look good, Detroit was experiencing a massive erosion of profits.

Hurricanes Katrina and Rita sent regular gasoline prices shooting over $3 per gallon (nominal) in 2005 and the expectation of other supply disruptions kept the price high (nominal, year over year) for much of 2006. This time Detroit could not offer enough discounts and incentives to prevent a dramatic and sudden shift of American new-vehicle buyers from gas guzzling SUVs and large cars to fuel-efficient cars, crossover vehicles, and hybrids. For the first time since 1981, the truck share of sales fell in 2005 and 2006. (From 1981 to 2004 the truck share grew from 19% to 56%. The truck share fell to 55% in 2005 and to 52% in 2006.) More significantly, for the first time since 1991, the actual number of trucks sold fell in 2005 (by 79 thousand units) and again in 2006 (by nearly 2 million units).

This began a financial freefall for Detroit that has implications for the entire U.S. economy. Less than two years ago, UMTRI released a study that focused on Detroit's vulnerability to rising fuel prices. Both the industry and the media dismissed our findings. We predicted that if gasoline were to hit $3.37 per gallon it would cause $11 billion in losses for Detroit. We underestimated Detroit's vulnerability -- so far the gasoline price spike has cost close to $25 billion in losses, along with thousands of jobs.

In a November 14 article in The New Republic, Jonathan Cohn wrote, “Detroit steadily lost business to companies like Honda and Toyota that managed to make cars more efficiently -- and figured out, early on, that rising gas prices would increase demand for more fuel-efficient vehicles.”

Failure to work for health care reform

During his December 7 Face the Nation appearance, Friedman said, “Look, do you remember when Hillary Clinton was pushing her national health care program?” and continued:

FRIEDMAN: Do you -- did you see the auto companies out there saying, “We need a national health care program. After all, we have these huge burdens of health care costs”? No, they were fat, dumb and happy then. Now they tell us, “Oh, it's terrible. We've got these health care costs. Woe is me.” But were they out there campaigning for a national health care plan that they would've been the biggest beneficiaries of?

No. They were brain-dead, and it's a travesty that the American people are in this terrible choice today which the two senators outlined, which is either we bail out people who really don't deserve to be bailed out -- by the way, one of these car companies, let's remember, is a private equity firm, Cerberus Capital. We're going to be bailing out a private equity firm.

Indeed, Rep. James McDermott (D-WA) in a December 15, 2005, statement on the floor of the House of Representatives, introduced a letter he said was sent to the Canadian government separately by officials from Chrysler, Ford and General Motors expressing support for publicly funded health care in Canada. In the letter, automotive industry officials wrote, “Publicly funded health care also enhances Canada's economic performance in several important ways,” and that “Employers in the auto industry, meanwhile, enjoy significant total labour cost savings because most health care services are supplied through public programs (rather than through private insurance plans).” Introducing the letter, McDermott said, “That is the U.S. auto industry acting outside the United States. It is time for them to act inside the United States and for us to act. ”

And in fact, the $70 or more per-hour labor cost figure often cited by conservatives to attack and scapegoat the UAW includes wages and benefits -- including health care -- for current and retired employees.

Ignoring the UAW's recent concessions

Further, in scapegoating unions and employees, media accounts often fail to acknowledge significant concessions that unions have made to the automakers in recent years. In his November 14 New Republic article, Cohn noted:

But what's missing in the tsk-tsk editorials is any recognition that the culture of Detroit has been changing, however belatedly, starting with its labor relations. Ford led the way years ago by reaching site-specific “competitive operating agreements” with locals at different plants, rather than sticking to one national agreement, thereby enabling it loosen work rules and engage in the sort of collaborative quality management on which industry leader Toyota made its reputation. Then, last year, the UAW reached a breakthrough agreement in which it granted the companies similar flexibility, agreed to a two-tier wage structure for new hires, and set up a separate trust fund to finance future retiree health benefits. The companies would provide the initial money for this trust, but, henceforth, the unions would manage it--thereby taking off the companies' books a tremendous burden that had, on its own, accounted for about half the gap in compensation between unionized workers for the Big Three and non-unionized workers for foreign-owned automakers. “I think they've shown unprecedented ability to change and transform the union,” says Kristin Dziczek, who directs CAR's Automotive Labor and Education program. “They understand what is at stake.”

During a December 4 hearing of the Senate Banking Committee, Sen. Bob Casey (D-PA) also noted numerous concessions the UAW has made in recent years:

Point number one: In 2005, cuts in wages for active workers and health-care benefits for retirees -- point number one. I'm reading from your testimony. Cuts for new workers, bringing the wage level down to 14 bucks an hour. How many industries are doing that? Reducing the company's liability for retiree health care by 50 percent. And I realize these have been in the record before, but it is very important.

And wages and benefits. You said yourself that they're about 10 percent -- 10 percent of the budget? You would think listening to some of the people talk out there, some of the so-called experts, that wages and benefits were 70 percent of the cost. So there's a lot of mythology, a lot of myth generally that has been put on the record.

In 20 -- since 2003, downsizing by the companies has reduced their workforce by 150,000 people. That doesn't get said very often. The labor-cost gap with foreign transplant operations will be largely or completely eliminated. OK? So, it's -- I think it's important to put this information on the record for this hearing. And then we've heard this garbage about 73 bucks an hour. It's a total lie, and some people have perpetrated that deliberately in a calculated way to mislead the American people about what we're doing here. It's a lie, and they know it's a lie.

Media Matters has identified numerous instances of media blaming the UAW and autoworkers for the financial problems at Chrysler, Ford, and GM:

• In his November 11 column, nationally syndicated columnist Cal Thomas wrote:

The latest, but by no means the last supplicant at the public trough, is the auto industry, which wants a bailout to save jobs because its cars are not selling. There is a reason for that and it can be summed up in five words: The United Auto Workers Union.

Half of the $50 billion the auto industry wants is for health care for its current and retired employees. This is the result of increasing UAW demands, strikes and threats of strikes unless health care and pension benefits were regularly increased. While in the past UAW settled for some benefit decreases while bargaining with the Big Three U.S. automakers, according to the Wall Street Journal in September 2006, “on average, GM pays $81.18 an hour in wages and benefits to its U.S. hourly workers.” Those increased costs, including the cost of health care, were passed along to consumers, adding $1,600 to the price of every vehicle GM produced. In February 2008, after General Motors offered buyouts to 74,000 employees, the Center for Automotive Research estimated the average wage, including benefits, for current GM workers had dropped to $78.21 an hour. New hires pulled down a paltry $26.65.

• During a CNN report that aired on the November 17 edition of Anderson Cooper 360 and the November 18 edition of CNN Newsroom, reporter Randi Kaye said: “It is the engine that's supposed to keep automakers running. But some say the United Auto Workers Union has helped bring the Big Three to a grinding halt. UAW workers earn as much as $75 an hour, including pension and future health care. James Sherk, a fellow at the Heritage Foundation, a conservative think tank, calls the contract greedy.” Kaye then aired a clip of Sherk saying: “Every so often management will try to insist on more competitive contracts and then you'll have the unions go on strike. Rather than take billions and billions of dollars in losses, management caves.”

• As Media Matters documented, during the November 19 broadcast of his Westwood One radio show, Lars Larson said: “When you're paying $73.73 an hour to those people with salary and benefits and your competition is paying $48 to its workers, you're going to get your butt kicked in the marketplace unfortunately.”

• During the November 20 edition of CNBC's Squawk on the Street, Sherk claimed, “You've got to look for the union label to understand why the Big Three are going under. The UAW, they're insisting on $75 an hour in wages and benefits for their workers. That's triple what most Americans earn. They insist on provisions like the jobs bank where they want their members to get full pay, six-figure salaries to sit around and play Trivial Pursuit and not work. No company can bear up under that kind of competitive burden. And the Big Three haven't been able to.”

• In his November 23 El Paso Times column, Joe Muench wrote: “Here's why an auto giant may well come to El Paso: Detroit is being crippled by union demands, workers making $70 an hour, plus benefits we dream await us only in heaven. They can't make a car in Detroit, anymore, for the price of a three-bedroom ranch-style house. We don't need $70 an hour because we've never dreamed of making $70 an hour. And benefits? We're in heaven if the insurance company actually covers most of a bill.”

• In his November 26 syndicated column, Ben Shapiro wrote: “General Motors Corp., Ford Motor Co. and Chrysler are in danger of bankruptcy. It isn't because they lack the technical know-how or the manufacturing capacity -- it's because the United Auto Workers have made the cost of labor untenable. Writing Nov. 19 in the New York Times, former Michigan Gov. Mitt Romney stated that because of the UAW, American cars cost an average of $2,000 more to make than foreign cars. The average UAW worker makes $75 per hour in salary and benefits, as compared to $42-$48 per hour for workers in Japanese plants in the United States.”

In addition, Media Matters has documented numerous examples of media figures repeating the falsehood that autoworkers at Chrysler, Ford, and GM are paid $70 or more per hour.