by Teh Nutroots | To prevent the collapse of Chrysler and GM, Bush has approved emergency loans of $17.4 billion from TARP. (NYT) Because he couldn't get Congress to agree, he's done it via a contract between the government and the two of the big three that are going to die if not given any life support. The Malkin is already off and away with the rabble rousing.
This package---unlike Bank-Aid---is going out in the form of a loan, all tied up with strings. Meanwhile, Paulson continues agitating to hand out the rest of the fund, despite the fact that the first no-strings-attached bailout of the banks didn't give us the promised results.(NYT)
But I always look for the rainbow behind the storm cloud. At least---unlike their Wall Street counterparts---these guys have at least said thank you. (CNN) Even the CEO of Ford---the only one of the Big Three not asking for emergency aid---has expressed gratitude.
Ford, which is in better financial condition that G.M. and Chrysler, has said that it does not intend to tap the emergency government aid...
There's just one thing. Though I think anyone would agree that there need to be strings attached to any hand-out of taxpayer money, there's such a thing as too many strings. Neither Chrysler nor GM is likely to be able to meet the conditions in the time they have. In which case, that money is wasted.
The loans, as G.M. and Chrysler teeter on the brink of insolvency, essentially throw the companies a lifeline from the taxpayers that will keep them afloat until March 31. At that point, the Obama administration will determine if the automakers are meeting the conditions of the loans and will continue to receive government aid or must repay the loans and face bankruptcy.
The loan deal requires the companies to quickly reduce their debt by two-thirds, mostly through debt-for-equity swaps, and to reach an agreement with the United Auto Workers union to cut wages and benefits so they are competitive with those of employees of foreign-based automakers in the United States....
The plan announced on Friday offered a compromise between the positions, by making the requirements non-binding and allowing the automakers to reach different arrangements with the union, provided that they explain how those alternative plans will keep them on a path toward financial viability.
To gain access to the loans, G.M. and Chrysler must agree to a range of concessions, including limits on executive pay and the elimination of their private corporate jets.(NYT)
Weirdly, the short time period---till March 31---may ensure failure because three months isn't enough time for the companies to find the requisite savings. (NYT) I speak here as an "ignorant layperson" as well as a taxpayer.
In other words, this is a "gesture."
Under the plan, Mr. Bush essentially handed off to President-elect Barack Obama
what will become one of the first, most difficult calls of his
presidency: a political and economic judgment about whether G.M. and
Chrysler are financially viable. (NYT)
And so it will fall to Obama to decide whether to let GM and Chrysler die. That's quite a challenge for his first 90-odd days. But hey....he wanted the job.
Bush wasn't happy about the failure of the bailout legislation, but he hadn't planned to do anything for the automakers. Who cares about a fundamental industry that provides thousands of jobs to ordinary people when we could be handing over the money to bankers? After all, the bankers and stock-brokers only started making bad decisions during Bush's watch---our auto industries have been making bad decisions for decades.
But as it became increasingly clear that GM and Chrysler weren't kidding about need immediate help, he increasingly found himself in a bind. Before the decision was finally taken, naked capitalism observed:
Contrarian Profits wrote:
“The consequences of the Senate Republicans’ failure to act could be devastating to our economy, detrimental to workers, and destructive to the American automobile industry unless the President immediately directs Secretary Paulson to explore other short-term financial assistance options,” said House Speaker Nancy Pelosi. Action by President Bush is the “only viable option,” she added.
Detroit’s Big Three employ more than 200,000 people and support millions more U.S. workers indirectly through suppliers and dealerships. Their collapse could ultimately cost the economy more than 2 million jobs total. And that doesn’t count the estimated 1 million Americans - including many retired autoworkers - who rely on the U.S. auto companies for pension and healthcare benefits.
So....Bush, pressed by Paulson, had to cave.
Mr. Bush chided the Congress for failing to approve the auto rescue legislation, but he did not note that it was his fellow Republicans in the Senate who were responsible for scuttling the bill in what amounted to a sharp rebuke to the White House in the waning days of his administration.
The decision to use the stabilization fund was also a major turnabout for Mr. Bush, who for weeks had insisted that the Treasury program should not be used to help the automakers.
Annnnd....
“The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry,” said White House press secretary Dana Perino. (Contrarian Profits)
Republican senators continue to oppose a bailout. At Salon, Michael Lind has a piece on what he calls "the economic civil war": the attempt by union-hating southern senators to kill off a northern industry.
Many states, particularly in the South, collaborate with foreign economic rivals of the U.S. in order to compete against other American states. Any British or French or German leader who proposed collaborating with Japan or the U.S. in order to wipe out industry and destroy jobs in neighboring EU member states would be jeered out of office. But it is perfectly acceptable for American states to connive with Asian and European countries in the destruction of industry elsewhere in the U.S....
Now with the help of Nissan, Toyota, and BMW, the South is trying to replace Detroit as the center of U.S. automobile production, using low wages, anti-union laws, and low taxes to benefit from the outsourcing of industry from societies more advanced than the South, like Japan and Germany. The economic Axis is collaborating with the neo-Confederates against their common opponent -- the American Union. If they succeed, the losers will be not only non-Southern regions in the U.S., but the majority of Southerners of all races, whose interest in decent wages, good education, and adequate public services have almost always been sacrificed to the greed of the well-connected few by Southern statehouse gangs.
Wow. Fightin' words. If true, how tragic.
This is one thing I know: most Americans would like to save the auto industries and all those jobs. The problem is that most of us no longer believe that the Bush administration has any idea how to make this happen. It's not that we hate the unions....we just hate throwing more taxpayer dollars down the toilet.
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