Sign of the Apocalypse: Bush Administration Ready to Use TARP to Bail Out Automakers

I’m probably misusing the word, but I just think it’s incredibly ironic that, thanks to the Senate Republicans who blocked the compromise worked out between the White House and the Democratic majority to extend short-term loans to the automakers, the Bush Administration has now reversed its position and is open to using TARP money to keep GM and possibly Chrysler alive. Who ever thought we would see the day that this administration would prop up the Big 3 – and who thought it would happen because they were forced into it from their right?

10 responses to “Sign of the Apocalypse: Bush Administration Ready to Use TARP to Bail Out Automakers

  1. Can the TARP be legally used to loan money to the car industry? What “troubled assets” are being relieved? Would this mean the money would be used to purchase inventory (cars and trucks)? Could a legal case be brought against using these tax payers funds for this purpose? Just thinking out loud here….

  2. I do not understand what part of this Govt (white house and congress) fails to understand: As a car buyer, I’m first going to look for quality. I will not buy something from a company which produces poor quality vehicles and is going to go bankrupt sooner or later. In fact if GM files for bankruptcy (or prepackaged one) as quickly as possible and restructure itself to compete well, and produces solid quality vehicles, I’ll soon buy a car from it. Until then no way. And these bailouts are just delaying the unavoidable and will make recovery more painful and it will take much longer. Customers are not going to come back as long as there is uncertainty and until there is clear viable plan that companies will survive even if you give them $34bn.

  3. Missmarketcrash has a new term for all of this – Uberwirtschaft –

    http://missmarketcrash.blogspot.com/2008/12/uberwirtschaft-revisited.html

    Kind Regards,

    Missmarketcrash
    Reporting from London (and this one is from a German perspective)

  4. There seems to be a lot of discussion that is reactive and not proactive, whether at baseline or othre publications throughout the world. The possibility that the bill could fail in senate, was not disucssed or analyzed. I wish there is more foresight analysis, rather than hindsight analysis. For example things that need to be discussed are:

    (i) How would one expect GM to behave in the coming year under different scenarios.

    (ii) How is the competition looking at all of this. What can one glean that how would they behave in 2009.

    (iii) What is the future of regulation in auto industry.

    (iv) Are people ready for green cars. Perhaps not. Rhetoric is easy, but deep public analysis needs to be done.

    Thanks,
    Reviewer

  5. It seemed reasonable to expect that the Congress would be willing to redirect $25 billion in loans for retooling, already allocated, to immediate bridge loans for survival.

    The Republican senators who opposed this have seen the national polls and were probably trying to score some political points. In the long run, their tactics may backfire on them.

    Whatever is negotiated between the auto execs and the administration will serve to keep the companies operating into the next Congress, when a more permanent scheme can be worked out.

    I am wondering how different a prepackaged bankruptcy would be from the companies maintaining solvency under the direction of a car czar. In both cases, significant changes and sacrifices must be embraced by auto workers, creditors, and the companies themselves. The main difference seems to be that share holders will fare better if the companies remain solvent. Of course, the companies fear that any sort of bankruptcy will lead to liquidation, not renewal.

    With that as a possibility, and considering the ill effects that bankruptcy would have on the economy at this time, I believe it is wise to extend federal loans at this time to the companies. Considering the amount of money that the federal government has already put on the line, it is a relatively small amount.

  6. It is not legal to use taxpayer dollars from TARP for the auto bailout:

    I cannot adequately express the grief and disappointment I feel in my government. I see America crumbling under the weight of corruption and government intrusion into the private sector. My grievance is not with any one party, but rather with the government as a whole. I lost my job on March 10, 2008. I watched the government throw $700B at the financial markets in a rushed manner, served on a platter of fear, and poorly planned. And now I see the program has failed as banks and other financial institutions are hoarding that taxpayer money. The TARP did not help me or others like me at all. No, the government helped the elite.

    I have watched my government try to pass legislation to bail out a completely dysfunctional auto industry with yet more taxpayer money. I hear much discussion about protecting autoworker’s jobs, but I have heard nothing about the rest of us. I am not greatly bothered by this as I am a proud and principled American who will face whatever destiny awaits me.

    The Legislative Branch of our government has a specific job to perform defined by, and within the limits of, our Constitution. When we do not like what comes out of both houses of Congress, we do not presume to believe that the Executive Branch is unconditionally granted the freedom of running rough shod over the Legislative Branch no matter what the interest of the Executive Branch may be. We let the Legislative Branch do its job and we stand by the result of their efforts whether we like it or not – unless it is unconstitutional.

    Now I read that the President is planning on taking unilateral action to draw funds from TARP to bailout the automakers without the consent of my congressional representatives; my Senators and House Representative. Oh, they may not have a problem with your proposal, but that does not in any way make it right or just. It is wrong in principle, and it violates the Equal Protection Clause as stated in the 14th Amendment of our Constitution. In addition, I am of the opinion that such a proposal annunciated by your administration tramples under trias politica. Indeed this model of a democracy is clearly documented in the United States Constitution, Article I, Section 8: which places all the power of the government in the Congress to make all the laws.

    Yet the sum of all guidance divined from our Constitution is being set aside for what might be considered for the good of the many. However, is setting aside our Constitution, for even the most noble of causes in fact and in truth serve the greater good? I should think the founders of our country and the framers of our Constitution would answer in the negative.

    The TARP was funded for the purpose of assisting Financial Institutions. I direct your attention to the following interpretation of “Financial Institution” as documented in the TARP bill (Emergency Economic Stabilization Act of 2008, Public Law 110-343):

    Financial Institution – The term “financial institution” means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State, territory, or possession of the United States, the District of Columbia, Commonwealth of Puerto Rico, Commonwealth of Northern Mariana Islands, Guam, American Samoa, or the United States Virgin Islands, and having significant operations in the United States, but excluding any central bank of, or institution owned by, a foreign government.

    This definition contained in the statute does not leave much room for interpretation.

    Automakers are not Financial Institutions and thus, to draw funds from TARP for any other purpose than to assist Financial Institutions without the protection of representation afforded me by the Constitution and through my Senators and Representative is wrong by any measure. And should my Senators and Representative not act to prevent such action is to abrogate their Constitutional duties and responsibilities and render them unfit for presiding over the matters of, and brought forth by the people of the United States of America.

    Should you proceed, you will release America into a deep and unexplored abyss of historic proportions. I advise good measure and profound thought before you make any decision in regard to drawing taxpayer dollars from TARP to be given over to any public or private business that does not meet the definition of “Financial Institution”.

    Thank you.

  7. I agree that there may not be a big difference between the government-sponsored restructuring and the a prepackaged bankruptcy. One difference, which worries me, is that the former is a negotiation between all parties, while the latter involves a bankruptcy judge who has power to force the parties to accept a settlement. In a negotiation, each party will only make concessions if it is convinced that each other party is making equal concessions, and because people are naturally biased, it’s almost impossible for any party to believe that every other party is giving up just as much as they are.

    On the other hand, all this means is that if the restructuring negotiation fails, bankruptcy becomes the fallback option.

  8. It’s hard to imagine a legitimate scenario where the incompetence of management of the Big 3, the UAW and the US government (executive and legislative branches) justifies cramming a bailout of all three groups down the throats of US taxpayers, their children and grandchildren.

    A few things are quite clear: 1) the UAW has little incentive to negotiate as long as an option other than bankruptcy exists, 2) management has essentially given up most of what it can short of their jobs (which also should go in my opinion), and 3) the government created a lrage part of the problem with CAFE and will only make it worse if they control the automakers.

    Bankruptcy is proven to work. Fear of the unknown is driving the government to do stupid things. Doing nothing is always an option – and in this case it’s not only a good option, it’s the best option.

  9. The loan program is a finger in the dike solution, the type of dilatory action we’ve come to expect from our dysfunctional federal government. Entering bankruptcy protection will help minimize the political gamesmanship and allow the auto industry to make the painful, but necessary, long-term changes that are needed to survive.

  10. I want to talk solutions.

    I read Chief Runamok’s comment above with great interest. I think many of us, including myself, share his outrage and concern. However, when one starts to dig deep into this financial crisis, you get the impression that all the proposed solutions are simply guesses. I guess with the Austrians in mind and you guess with Keynes.

    The ones in control of government, the elites, will get to make the final guess as we proceed into the bowells of this crisis. The guesses made by the current administration may be wrong but because they are only guesses can they truly be faulted for not finding the correct solution? Should the next administration be praised because they guessed correctly? Maybe our actions or guesses are futile attempts to pretend that we are in control of the uncontrollable and that the only true answer to the crisis is that there is no solution but time and pain.

    I would call everyone’s attention to a Weekly Standard article that goes counter to the Chief’s comments and counter to my own feeling that there is any solution at all. It is a good read that opened my eyes a little more to some differing perspectives:

    http://weeklystandard.com/Content/Public/Articles/000/000/015/921taekw.asp