We Will Control the Vertical…

Not content with the $5 trillion already going into the various bailout efforts Barak Obama is suggesting that the U.S. auto industry also get its fair share of time at the trough.

President-elect Barack Obama is pushing Congress to approve as much as $50 billion in automaker aid this year, a move that would require President George W. Bush’s support, people familiar with the matter said.

Obama’s economic advisers are convinced that if General Motors Corp. doesn’t get a financial lifeline soon, it will file for bankruptcy by the end of January. And if GM and other cash-starved U.S. automakers don’t get almost $50 billion, Obama will be dealing with the issue again by next summer.

In other words, President Obama, or even President Bush get to decide which companies fail and which ones don’t. Why? Well because these people vote, and Barak Obama is probably thinking about 2012 already.

Advisers such as former Federal Reserve Chairman Paul Volcker and former Treasury chief Lawrence Summers are said to be telling Obama that the cash is needed now. Obama also wants Congress to appoint a czar or board to oversee the companies, the people said.

Great a car czar, but this isn’t about the government controlling anything. The suggestion that Obama was a socialist was roundly dismissed by many, but a government official that is to oversee private companies strikes me as very much a step in the direction of socialism.

Senior Democrats want to carve out part of the $700-billion Wall Street bailout for loans to the three major auto companies in exchange for a government ownership stake. They hope to push the measure through next week.

That bailout is becoming like a school’s multi-purpose room. What, the auto makers were foolish too? Oh, well here lets fling some cash at them too. What is next? Oil companies? After all the price of gasoline has plummeted in recent months. Maybe we need to drop some billions in their bank accounts too.

Do those of you who supported the bailout feel like suckers now? Seriously, D.C. has become the slop trough for corporate pigs who have mismanaged their companies, but it is supposed to be a good thing to keep them going? Yeah, yeah, I know think of the workers, think of the children!!!1!!!one!!

FILED UNDER: Economics and Business, Government
Steve Verdon
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.

Comments

  1. Dave Schuler says:

    When Chrysler asked for and received its relatively paltry loan guarantee nearly 30 years ago, the company submitted a business plan. I’d love to see a credible business plan under which GM becomes profitable going forward. Until some of the fundamentals of GM’s business situation change, neither loans nor czars nor much of anything else will help GM out. Under present circumstances a bailout is nothing but postponing the inevitable and, based on GM’s present rate of burning through cash, not postponing it for very long.

    This isn’t 30 years ago. GM’s problem isn’t that its products are too low in quality or that their engineering is poor. It’s that it can’t make any money making cars that people will buy.

    Chapter 11 bankruptcy is the right remedy for GM’s problems.

  2. PD Shaw says:

    I supported the financial bailout as it was presented for public approval. That seems to have become moot now. But I don’t understand the notion that having approved of one bailout, all comers get similar treatment, regardless of circumstance and relative importance.

    Chapter 11 seems appropriate here, thought we might want to consider whether bankruptcy or the government can provide some warranty security so the manufacturers can continue as a going concern while reorganized.

  3. just me says:

    And this is why I wasn’t in favor of any bail outs.

    Sure there might be some pain, and there might be a crisis, but at some point we have to stop protecting people from their risks. When you take a risk, you shouldn’t expect the taxpayers to come bail you out.

    Of course part of the problem for the auto industry isn’t so much risk but that they have huge obligations to the retired and active work force, but the solution isn’t money from the taxpayer it is restructuring and renegotiating with the unions-or telling the unions to go jump in a lake (although that one is unlikely to happen).

    Toyota, Honda and other foreign companies built plants in the US and are not unionized and their work forces are well paid.

  4. I saw a report which i did not read as the excerpt was adequate. Many corporations are lining up for their piece of the pie now that the wholesale emptying of the US Treasury has begun.

    And the irony of AIG using some of their government payoff to fund legal battles at the federal level exemplifies the insanity.

  5. odograph says:

    Huh. In one of my blog comments (somewhere) I said “if it’s less than $50B it probably doesn’t matter.”

    Is Barak listening, or does he have the same sense of what matters in the $5T?

    We’re talking 1% of the total, which means it probably isn’t a critical part of the story.

    (The main thing is to keep it less than 1%, and to get some structural change for the money.)

  6. […] But of course. It’s only cost us about $5 trillion thus far, why not bailout the failed auto industry, too. President-elect Barack Obama is pushing Congress to approve as much as $50 billion in automaker aid this year, a move that would require President George W. Bush’s support, people familiar with the matter said. […]

  7. odograph says:

    In other words, President Obama, or even President Bush get to decide which companies fail and which ones don’t. Why? Well because these people vote, and Barak Obama is probably thinking about 2012 already.

    Right. What I was saying in my earlier posts and again today is that they should throw them a politically expedient sop, but keep it on the cheap.

  8. JKB says:

    Only way this helps the Detroit automakers is if the car czar bans the sale of non-detroit-made cars, jacks up the price of the detroit junkers and generally defies human nature. Oh, wait, that is socialism.

    Of course, that requires scrapping the Constitution since free commerce between the states is kind of a big part of that.

    If they want to use $50 billion in a useful manner, they could use it to shore up the pension guarantees when the companies go bankrupt. Do it now with the first $50 billion not later with bailout cash infusion number 5 or 10.

  9. Dave Schuler says:

    Let’s not confuse Chapter 11 bankruptcy (voluntary reorganization) with Chapter 7 bankruptcy (forcible bankruptcy). A Chapter 7 bankruptcy for GM would be a thoroughgoing disaster. To avoid that the company needs a voluntary reorganization now.

  10. Steve Verdon says:

    Odograph,

    Yeah man, lets protect people from their own mistakes!

    In the spirit of Obama’s election I’m going to submit my tax bill this year to Obama himself. Let him pay it. He seems eager to dole out the cash.

    That and he can pay of the rest of my student loans.

  11. odograph says:

    Steve, we could probably get on the same wavelength … if we laid out where the real money was going and attacked that problem.

    $5T, right?

    Is the vast majority of that still going to broadly speaking banks, bond insurers, brokerage entities? IOW, Paulson Pals?

  12. odograph says:

    BTW, we WON’T get on the same wavelength if you seriously think “Obama’s $50B” … that is 1% of “Bush’s $5T” is the root of our nation’s problems.

  13. Steve Verdon says:

    Is the vast majority of that still going to broadly speaking banks, bond insurers, brokerage entities? IOW, Paulson Pals?

    FDIC deposits, and who knows who else. But so what? The fact that it is Paulson’s pals doesn’t mean we should let Paulson’s non-pals belly up to the trough. We should slap Paulson’s pals away from the trough, and empty the trough.

    Oh and last I checked, Paulson is not the head of the Federal Reserve. Nice try though.

    BTW, we WON’T get on the same wavelength if you seriously think “Obama’s $50B” … that is 1% of “Bush’s $5T” is the root of our nation’s problems.

    This speaks volumes of your ignorance. The $5 trillion is actually mostly the result of:

    1. The Federal Reserve.
    2. The FDIC.

    Yes Bush appointed Bernanke, but Bernanke has a great deal of autonomy in what he does.

    The FDIC increase in deposit insurance was bipartisan.

    Calling this “Bush’s $5T” suggests a level of partisan bias that is approaching the level of blindness.

  14. odograph says:

    That is the most partisan and least rational thing I’ve read on OutsideTheBeltway since my return, Steve. In fact, I can enjoy it as the OTB I remember.

    You seriously don’t want to talk about 99% of the problem … because you can’t lay it at Obama’s feet.

  15. odograph says:

    Shorter: in this environment we can throw $50B in the street and not worry about it.

    The reason $50B doesn’t matter is the real story.

  16. Deanna says:

    Soooo what would you call Medicare? How about Freddie Mac and Fannie Mae? What about the new insurance program for all Americans? We have been heading down that socialist path for years.
    Attempting to use the weak stick that Obama is already looking for votes in 2012 shows that it is actually people such as yourself that are the problem.
    While you might think that picking and choosing who goes down the tubes in this country is fun, those who are working for the Big 3 are people who have bills to pay and if you put 3 million people out of work? Good luck keeping your own job. It’s easy to bitch right after an election but all I’ve seen for the last 8 years? Is total waste so I’m willing to take a chance on a different plan. Only difference between you and I? I KNOW I’m not as smart as Obama and the team he has working with him………

  17. James M. says:

    I wasn’t for the bailout because let’s face it it wasn’t the right answer. I also have a serious problem leaving people in charge who are responsible either directly or indirectly, Paulson and Cox. Now it looks as though Obama is following in Bush’s footsteps and possibly on a bigger scale. So I see a bleak future at this rate. This is starting to look like a new New Deal to me with all the earmarks of failure written all over it.

  18. odograph says:

    Seriously there are 3 paths:

    1) do nothing(*) and accept the business cycle

    2) do politically driven quasi-stimulus actions(**)

    3) do rational economic stimulus

    On the last, I like Bang for Your Stimulus Buck. I mean, I’d like choice 1 if I though we wouldn’t see more people living on the streets. If that’s a real possibility, and not just Paulson scare-stories, then I’ll take 3.

    * – beyond required FDIC etc. obligations

    ** – Paulson’s Pals

  19. Steve Verdon says:

    You seriously don’t want to talk about 99% of the problem … because you can’t lay it at Obama’s feet.

    I lay it at everybody’s feet who has held elective office in DC in the last…mmm…thirty years. So spare me your ramblings about partisanship Odo. Further your moniker of Bush’s $5T is even worse. Sure Bush deserves blame, but so do lots of others.

    So spare me. Please.

    Deanna,

    Soooo what would you call Medicare? How about Freddie Mac and Fannie Mae? What about the new insurance program for all Americans? We have been heading down that socialist path for years.

    Yes I know. Americans can’t seem to take care of themselves anymore. They need Uncle Sam to take care of them.

    Attempting to use the weak stick that Obama is already looking for votes in 2012 shows that it is actually people such as yourself that are the problem.

    Pandering to voters, by both Republicans and Democrats is the root problem.

    While you might think that picking and choosing who goes down the tubes in this country is fun, those who are working for the Big 3 are people who have bills to pay and if you put 3 million people out of work?

    That whooshing sound, was my point going right over your head. I don’t think anyone should decide which firms fail or succeed, especially politicians. That you appear to think otherwise means YOU are part of the problem.

    Good luck keeping your own job. It’s easy to bitch right after an election but all I’ve seen for the last 8 years? Is total waste so I’m willing to take a chance on a different plan.

    Your unstated premise is that I think Bush has done a good job, especially in the last few years. If you look through the archives I’ve been rather critical of Bush.

    Only difference between you and I? I KNOW I’m not as smart as Obama and the team he has working with him………

    Oh I know Obama is smart. Problem is that just makes him a despicable liar, like all politicians.

    See, I’m not playing favorites here. I dislike all politicians as venal scoundrels. I’m truly equal opportunity in my scorn for politicians.

  20. odograph says:

    I lay it at everybody’s feet who has held elective office in DC in the last…mmm…thirty years. So spare me your ramblings about partisanship Odo. Further your moniker of Bush’s $5T is even worse. Sure Bush deserves blame, but so do lots of others.

    Stop right there. Congress already voted $25B to Detroit, before Obama was President-Elect, right?

    And I’m sure every realist amongst us here would acknowledge that Congress would vote more were Obama not in the picture. Arguably the only think any President or President-Elect could do at this point is manage expectations and try to limit the size of the inevitable bailout.

    You are making a strange claim of my partisan ship when (a) I am still technically a Republican, and (b) I’m focusing on 99% of the problem.

    I’m not the one focusing in on 1% with tunnel vision.

  21. odograph says:

    Yikes Steve, look at that headline:

    Bush signs $25B auto loan bill

  22. anjin-san says:

    Sure Bush deserves blame, but so do lots of others.

    There is a lot of blame to go around.

    But there is only one President. And President Bush has been focused damn near exclusively on Iraq, which is exactly what Bin Laden wanted.

    Keep in mind that Bin Laden is on record saying he intends to destroy America’s economy, because he knows he cannot defeat our military.

    Wonder why Bin Laden keeps talking about “the central front” in Iraq. Our President has been led around by the nose by our greatest enemy, while the GOP stood and cheered. Now we get to try and dig our way out of the wreckage…

  23. Bithead says:

    Soooo what would you call Medicare? How about Freddie Mac and Fannie Mae? What about the new insurance program for all Americans? We have been heading down that socialist path for years.

    Yep.
    I’d call it, the wrong direction.

  24. G.A.Phillips says:

    Please, please send my hard earned tax money to bail out the spoiled rotten cry baby union workers cause their special. I work hard to make my tax money and I want a say in who gets it if I can’t have any, and just cause they might be spoiled rotten cry babies, and extra special cause they are spoiled rotten cry baby union workers, AT LEAST THE WORK!!!!!! so give it to them.

  25. G.A.Phillips says:

    OOPS, sorry I messed up THEY.

  26. mike says:

    unless they bust the union and pay the workers the wages they earn vs. what the unions got for them (esp medical care) – we will be back in the same situation – a bailout is delaying the inevitable without busting the unit and making the industry (at least the MI portion) profitable again

  27. Steve Verdon says:

    Odograph,

    You are a gift that keeps on giving. I’ve been very hostile to Bush for quite some time. Your ignorance only does you a disservice. But feel free to revel in like a pig in mud.

    And no Odo you are focusing on a small part of the problem. You really should go through the archives. For example, Fannie Mae traces its history back almost 80 years to the Great Depression. Ginnie Mae securitized the first bundle of mortgages back in the late 70’s. Fannie and Freddie got involved in the maddness when they got caught in a scandal. Glass-Steagall was sponsored by Phill Gramm, among others, but passed with largely bi-partisan support and signed by Bill Clinton. CRA was the umbrella under which many to lending were enacted. Private industry was happy to ride the gravy train while it could and excacerbated the problem with bad incentive structures to bonuses. So lots of blame to go around. To focus on Bush is to demonstrate tunnel vision. It is your problem not mine.

  28. anjin-san says:
  29. G.A.Phillips says:
  30. odograph says:

    I was reacting to your opening line Steve:

    Not content with the $5 trillion already going into the various bailout efforts Barak Obama is suggesting that the U.S. auto industry also get its fair share of time at the trough.

    In your fantasy world the bailout was proceeding swimmingly … until Barak Obama suggested that it go to auto companies.

    Obviously factually false, to start.

    But go ahead, try again to make it about me.

  31. odograph says:

    BTW, I hope you don’t think it’s cute to tell me I’m “focusing on a small part of the problem” when I’ve repeatedly asked for a focus on the “99%” and the “$5T”. On that, here is a bigger number than the automaker bailouts:

    Of course, this is all part of a larger Kabuki drama. Paulson is insisting that Congress release the remaining $350 billion of the now-misnamed Troubled Assets Repurchase Program so he can hand out more cash to his industry buddies. Congress will be damned if it gives Treasury any more money, given that the funds have so clearly been dispensed with no controls to favored parties. But since they don’t dare say the taxpayer has been ripped off (that would call their judgment into question for acquiescing to the hastily drafted and aggressively sold TARP), they will pound on Treasury as many ways as they can.

    If you are about making this even-handed, and not casting the bailout as “Obama’s” … dig in!

  32. Tadas says:

    Today’s figures may not be conclusive of the trend in the days ahead, but it puts into black and white what lies in the minds of the American people and the various countries dependent on the US economy: Sen. Obama may have won the election, but the harder challenge still lies ahead.