Let Detroit Go Bankrupt

[jsteele]

Anonymous wrote:
the choices are pay cut or no job.

Actually, the choices appear to be keep making concessions to Senate Republicans who then move the goalposts, or just wait for Bush to provide the funds without conditions.

[Anonymous]

jsteele wrote:

Anonymous wrote:
the choices are pay cut or no job.

Actually, the choices appear to be keep making concessions to Senate Republicans who then move the goalposts, or just wait for Bush to provide the funds without conditions.

It is not clear to me that Bush can provide TARP funds to the auto companies without further action by congress. The tarp statute was limited to "financial institutions", not sure how the Big 3 qualifies.

[Anonymous]

The auto companies each have a financial institution arm (eg. to finance auto purchases, etc.) , and if I'm not mistaken, that qualifies them to receive TARP funds.

[jsteele]

Anonymous wrote:
It is not clear to me that Bush can provide TARP funds to the auto companies without further action by congress. The tarp statute was limited to "financial institutions", not sure how the Big 3 qualifies.

Since when did the Bush administration care about the law?

Perino added, "Given the current weakened state of the U.S. economy, we will consider other options if necessary including use of the TARP program to prevent a collapse of troubled automakers. A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time."

http://news.yahoo.com/s/ap/20081212/ap_on_bi_ge/meltdown_autos

As the PP says, the manufacturers have finance arms. However, GMAC failed to raise sufficient capital to be declared a bank holding company. Therefore, its not eligible for the funds. I don't think Bush will care if its legal or not. He doesn't want his legacy to be the next depression. He's just going to give the money and nobody will do anything about it.

Its shameful that Congress abdicated its responsibility for this.

[jsteele]

More evidence that the Republicans simply want to crush the UAW. A memo distributed to Senate Republicans called for opposition to the auto bailout, saying:

"Republicans should stand firm and take their first shot against organized labor"

http://thenewshole.msnbc.msn.com/archive/2008/12/12/1713569.aspx

Every crisis of this magnitude has multiple aspects. For instance, the proposed auto bailout can be viewed as simply a business and finance matter, it can be seen from a moral and ethical viewpoint, and, of course, it is a political issue.

Others are better prepared than me to discuss the economic ramifications. My main concern is one of ethics and morality -- tossing hundreds of thousands of people out of their jobs will have a terrible human cost. I lived in an industrial city in the late 70s, early 80s, and witnessed the impact of factories closing and how entire families were devastated. I remember a classmate at school crying when her father lost his job and wondering how they would survive. I saw the domino effect as other businesses closed when their customers lost jobs. It was terrible seeing this happen to a mid-sized city. I can't imagine it happening to the entire upper midwest.

But, the GOP doesn't care about that. What the GOP cares about is that Obama won Illinois, Indiana, Ohio, Pennsylvania, and Michigan, and that the UAW and other unions played an important role in making that happen. Never let it be said that Republicans don't play to win.

[Anonymous]

A while ago I worked at GM in plant as an associate industrial engineer. Truly a horrible place. I also toured alot of the plants in Ohio and Michigan. It was 20 years ago so i assume there have been safety improvements but regardless it was very dysfunctional. The union worked lived to cheat / fool mgmt and mgmt just went along with it (somehow reminds me of poor parenting) figuring I suppose that they would just raise prices on cars and/or pass along poor quality to the consumer. I was the edge of a quality movement but it is still hard to imagine big improvements in that culture that focus on producing a good quality and innovative product. There is no reason to think that Americans can't become a first class car producer again - there just needs to be some tough decisions made. Even then i was appalled at how much the union workers made. Many were alcoholics and in poor health (which lead to accidents on the floor). There was a brothel run out of the one of the huge laundry machines.
I haven't looked deeply into the bailout offers but I would hope it spells out significant restructuring that forces the companies to be more competitive versus just surviving at status quo and hoping for the best.

[Anonymous]

Anonymous wrote:The auto companies each have a financial institution arm (eg. to finance auto purchases, etc.) , and if I'm not mistaken, that qualifies them to receive TARP funds.

But isn't GMAC a separate legal corporation? Can you legally transfer funds like that between separate corporations at-will? I'm not sure it would be as easy as all that.

[Anonymous]

I personally cannot imagine how a government loan of $15 billion, or even $50 billion, could make a wit of difference to the american auto companies. They can restructure now or in March 2009 ... Is the issue here of whether the government should have some larger role in how that restructuring plays out? I think it is up to the UAW and the companies to either work together in a meaningful way or let the courts "help" them do it. I would hope that auto workers have had an inkling trouble might have been brewing and put a bit of their high pay aside for a rainy day ... it is definitely raining now. I am also certain that the American people will be amenable to helping laid off workers in this industry just like in any other industry.

It takes a while to "deleverage" or "unwind" the way Americans have been living for at least 20 years. When people start living at or below their means instead of as if they were all in the upper middle class, jobs will be lost in large numbers. But avoiding that pain by continuing to leverage is no solution.

[jsteele]

Well, Bush just offered up $17.4 billion of TARP funds. The deal included some interesting requirements. I have to say that I agree with Bush on this point:

"In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action."

There needs to be massive restructuring and certainly many jobs will be lost in the process. However, having that process carefully managed is much better than having it happen -- or not happen -- as a result of bankruptcy.

One thing I noted is that while the deal pays lip service to the Senate Republican demand that the UAW accept wage parity with the foreign-owned plants, the requirement is non-binding. During the Senate negotiations, the UAW had agreed to have this as a binding condition, but just not for 2009. Senator Corker demanded that it happen in 2009 and the deal collapsed. Now, there is no binding requirement, so the UAW appears to have been wise in refusing Corker's demand.

Mostly, however, this kicks the ball forward to March when it will be Obama's problem, but with the luxury of larger Democratic majorities in Congress.

[Anonymous]

The Bush administration's simpleminded insistence on cutting back or eliminating regulation has caused this mess. The automakers would have restructured long ago had the U.S. Congress lead by the Bush administration forced them to make more fuel-efficient cars. The Bush administration and the Republicans blocked California from implementing higher fuel efficiency standards and of course opposed any and all efforts to increase fuel-efficency. Automakers, focused on short-term profits, built the most profitable gas-guzzling cars they could, instead of cleaning up their act.

The fact that worldwide oil supplies peaked in 2004 has been old news to geologists for years. That the automakers chose to ignore that simple fact instead of building more fuel-efficient cars was their choice. But the job of government is not to help companies profit, as the Bush people and many Republicans believe. With intelligent regulation of such an important U.S. industry, the Bush administration could have forced the auto makers to accept slimmer profit margins sooner, necessitating the creation of more efficient operations.

The $17 billion Bush offered to bail out the carmakers will last a few months, maybe. Without more money, there will be a bloodbath in Detroit that will prolong this recession for years. So, Obama will have to do something radical. I agree with the PP who suggested the U.S. should nationalize the auto makers and turn them into green operations. Clearly the auto makers can't run their own show. Maybe the government can do better. We're going to be spending the money anyway, else all those Ohio and Michigan voters will turn against Obama, and we'll have a Republican president in 2012.