After the emergency loan bill had collapsed last night under the pressure of Republican senators’ demands that the bill include immediate pay concessions from the UAW, the White House has breathed new life into it:
WASHINGTON – Worried about the weakening economy, the Bush administration said it was ready to step in and prevent the U.S. auto industry from collapsing after the Senate refused to pass a rescue bill endorsed by President George W. Bush and congressional Democrats. The most obvious source of help was the Wall Street bailout fund.
“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,” White House press secretary Dana Perino said.
Treasury spokeswoman Brookly McLaughlin said, “Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry.”
I don’t believe that there’s anybody who’s informed on the subject and in possession of his or her faculties who believes that the $14 billion will do any more than keep GM and Chrysler in a state of living death until a new administration is on hand to support more loans or handouts.
Today Nobel Prize-winning economist Joseph Stiglitz came down in the Financial Times on the side of Chap. 11 bankruptcy as being the proper recourse for the auto makers:
The debate about whether or not to bail out the Big Three carmakers has been mischaracterised. It has been described as a package to help the undeserving dinosaurs of Detroit. In fact, a plan to bail out the carmakers would benefit shareholders and bondholders as much as anybody else. These are not the people that need help right now. In fact they contributed to the problem.
Financial markets are supposed to allocate capital and monitor that it is used to good effect. They are supposed to be rewarded when they do that job well, but bear the consequences when they fail. The markets failed. Wall Street’s focus on quarterly returns encouraged the short-sighted behaviour that contributed to their own demise and that of America’s manufacturing, including the automotive industry. Today, they are asking to escape accountability. We should not allow it.
What needs to be done is to help the automakers get a fresh start and allow them to focus on producing good cars rather than trying to juggle their books to meet past obligations.
And that’s what Chap. 11 bankrupty is for.
Even if Congress does now give carmakers $15bn as a “stay of execution,” postponing the hard decisions, before the next multi-billon dollar dose of medicine we need to think more carefully about who we are really bailing out and why. This should not end up as just another rescue package for bondholders and shareholders.
The loans themselves clearly do nothing to make auto makers viable; they just maintain them in a lifelike state. I’ve read GM’s plan: it’s no better—little more than wishful thinking based on bad assumptions.
If we’re bound and determined to spend $5 billion a month for the sake of people who work in the auto industry, here’s my suggestion: pay the money to them directly. We don’t need GM or Chrysler for that. Let’s start a roster of people who’ve been laid off or fired from the auto industry. They’ll need a W-2 and documentation of the termination.
The estimate I’ve seen is that may be as many as 2 million people. If it’s that many and if you pay them directly, that would come to $2,500 per person per month. Not princely but enough to get by on.
Let that payment expire in 2011 (when the UAW contracts expire). That should be enough time for them to make other arrangements.