$9 Billion of “Just In Case Money”
Tuesday, December 2, 2008
Ford Motor Company wants a $9 billion line of credit with the government…just in case it needs it.
Hey, here is stimulus package idea, how about I decide to pay my taxes or not. You never know I might just need it…like Ford might need that $9 billion.
Is it too late to call Congress a canker on our society?
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.
You’re saying that because Ford asked for a $9 billion line of credit that Congress is a canker on society. Why not just say that it’s Tuesday and so you hate the government. There that was easy and now you can get back to your copy of Atlas Shrugged.
No, I’m saying Congress is a Canker because they keep bailing out failing companies.
Suppose Ford gets not bail out what happens? Chapter 11. That is what companies that may still be viable, but in financial problems do. Bailing them out allows them to continue with the very management/plans that have gotten them into trouble in the first place. Further, it encourages additional requests for bailouts.
Oh, and I’ve never read Atlas Shrugged or the Fountainhead.
That’s too bad Steve, you should read them some time, if only to understand how silly the gentleman’s comment was. Maybe he should read them as well.
How about any
bailout rent seeking fairy dustline of credit for Ford is accompanied by an absolute moratorium of political donations to any politician or political entity by the company and any of its officers? Let’s at least try to keep the graft and corruption down if we can.
Any help on how I can get a government line of credit for my business would be appreciated. Hell, I’ll even do a DBA or reincorporate with the name Ford if that will help.
An excellent idea.
(I might make a breakup a condition of bailout, make them small enough to fail.)
It’s worth noting that Ford is asking for a letter of credit while the other two guys are going to be asking for cash, right now. You’re picking on the least offensive of the three.
The problem with saying “Oh, just file Chapter 11” is that a Chapter 11 bankruptcy can’t happen unless a company can secure operating loans for the duration of the bankruptcy. With the collapse of the credit market, those loans ain’t there. So chapter 11 isn’t an option for them.
Note that out of all the Big 3, Ford is the one that has done the best at turning themselves around. They have a solid business plan in place, and under normal economic circumstances would almost certainly be able to secure a private line of credit. But, due to circumstances that have nothing whatsoever to do with Ford, that credit isn’t available anymore, and the only option they have is to file Chapter 7 if they can’t pay their bills, meaning no more Ford anymore.
Now, you might be okay with that outcome. I myself probably lean in that direction. But you have to face it eyes open, and the fact of the matter is that Chapter 11 simply is not an option for any of the Big Three.
Lets also remember the strings of governmental control that are attached to this loan. You think the business model wasn’t sustainable before the added governmental involvement? Wait a few.
I think this is over-stated, especially for a company with a solid business plan going into Chapter 11. Show me the data that indicates that there is absolutely zero credit available out there.
I don’t see it here. In fact, things look amazingly good for a recession.
Here is the 5 year version. Consumer loans here. Commercial paper issuances. Yeah, the AA financial data for 2008 is lower in total, but it isn’t zero. I don’t see the data justifying the hysteria. What do you got Alex?
Frankly Ford would be stupid not to do this, even if they don’t foresee any need for $9 billion. When the government is giving away money, you don’t say: “No thanks, I don’t need any”, because then the government is just going to give that money to your competitor. It looks to me like Ford is trying to get as much of the money as they can without the stipulations that Congress is putting on pure bailout funds.
Does anyone know if Ford actually has a viable business plan, or is it just more of the same? It doesn’t matter how much money the banks have, they aren’t going to loan it if they don’t think they are going to get it all back.
Some have missed the point here. The way I hear it, Ford is actually turning down cash flow loans , and has stated something like … No, thanks for the loan offer , but do you mind if we take a line of credit, just in case, since you are going to loan tens of billions to our competition.
As you know they have already divested themselves of Jaguar and Rover.
Ford will come back strong as it returns to it’s core business IMHO.
If this is true, and I’d really like to see some evidence of this so I can post it, then it makes my position even more solid. I don’t buy this, “There is no credit the sky is falling, run for your lives!!!11!!One!!” nonesense.
We’ve had credit crunches before and we’ve gotten through them. It isn’t clear that we need to start giving large multi-billion dollar corporations who have made poor decisions access to the treasury.
It is another sign of panic on the part of Bernanke/Paulson.
I seem to have read that car companies don’t survive Chapter 11 because it makes their warranties look iffy.
But I’m not an economist, so I don’t know.
No doubt on the Bernanke/Paulson panic comment!
Thirty minutes of a televised Paulson speech would cause Pollyanna to resort to suicide![lol]
Steve, Ford nailed down a huge line of credit long before this stuff happened. And, of course, they have a far better medium-term outlook than GM or Chrysler anyways.