Winners and Losers: Wall Street Trumps the Real Economy

The irony is killing me. Two stories run next to each other in today’s (July 15, 2009) Washington Post. Together they show the triumph of the pseudo-economy over the real economy.

Page A12 carries an article called, The Trickle-Down Effect: An Auto-Parts Maker Fades in the Fallout From Detroit. [1]It’s about a man whose auto-parts supply company used to employ 225 people. Now it’s down to three, two of whom are breaking down machinery to sell as scrap metal.

Don’t get sad yet. He just got an order from GM for $250,000 worth of new parts, and a promise to pay $150,000 for work already rendered. Hooray! But no. His shrunken company doesn’t have money to buy raw materials or workers to fire up his production line. He can’t fulfill the order. And the banks won’t lend him the money.

Now you can get sad. But here’s the irony.

Page A16 carries a different story. Goldman Sachs Earnings Easily Surpass Expectations. [2] "[T]the decimation of its Wall Street rivals allowed the investment bank to romp across the financial landscape, buying low and selling high. ” Now it’s on track to pay record bonuses.

Buying low and selling high is smart trading, of course. But does it add value to the real economy?

While Goldman “romps” the little auto parts supplier is going out of business. On Wall Street, paper value led to paper gains and record bonuses. In Detroit, real machinery is worth more as scrap metal. Page A12 followed by A16. The irony is killing me.

   PS: Don’t worry. I bet GM can get parts from suppliers in China who get low-interest loans from government banks. [3]