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  • Bush's Awful Auto Bailout

    This morning the President announced that his Administration, acting unilaterally after Congress declined to intervene, will bail out the auto industry to the tune of $13.4 billion now, another $4 billion in February, and who knows how much thereafter.

    What a terrible proposal!

    First of all, this is a bailout, plain and simple. Sure, the White House will point to a long list of requirements in the deal’s terms as proof that this isn’t just another bailout. But that’s bogus: this is a politically-driven plan and none of the important concessions listed by the White House are binding or likely to happen.

    That’s because, unlike in a bankruptcy court, this bailout offers no accountability.There is zero chance that the government will require General Motors or Chrysler to pay back these loans if they are unable to right themselves by March. It is, as Mickey Kaus has put it, too big a stick for the government to ever use.

    Second, it’s an end-run around our representative democracy. Congress spent over one month debating whether and how to support the automakers and, in the end, decided to put no taxpayer money on the line. The White House’s action today nullifies that congressional decision, violating the constitutional command that the legislative branch makes law and the executive branch enforces it.

    Third, it’s just a down-payment. According to industry analysts and economists (e.g., Mark Zandi), future bailouts, or eventual bankruptcy, are inevitable. How much will it cost? Zandi says up to $125 billion.

    Fourth is another small problem: this bailout is illegal. The administration does not have the legal authority to use funds from the bank bailout in this way. Congress earmarked that money for “financial institutions,” which automakers clearly are not. It’s not even a close call.

    Worst of all, though, is that this bailout just won’t work. Put simply, if the goal is turning the automakers around to achieve long-term profitability, this bailout is clearly inferior to a straightforward reorganization under Chapter 11 of the bankruptcy code, which so many large corporations have relied upon to escape dire financial straights and return to profitability. A bailout actually makes achieving this goal less likely.

    The bottom line: Bailing out the automakers is legally wrong, economically wrong, and actually counterproductive to turning around these troubled businesses.That’s a terrible trifecta.

    Posted in Economics [slideshow_deploy]

    28 Responses to Bush's Awful Auto Bailout

    1. Earl B, Lilburn, Ge says:

      Although I'm a member of GM family by being brought into the world by two loving and caring parents. A Chapter 11 Bankruptcy of GM, Chrysler, and Ford would've saved the taxpayers billions of dollars and a legacy that will haunt President George W Bush for the rest of his life. This President had many avenues to help the Big Three which didn't exist in 1929 when President Hoover(R) was in office. He should've exhausted all those instruments first and made it a condition before any bailout monies would be dispersed via the U.S. House of Representatives and the U.S. Senate majority vote. An opportunity lost to bolster his legacy for generations to come to be a voice for the people. May God help us all!!

    2. Bill, Portland, OR says:

      If you are going to quote Zandi, at least get your figures straight. He says 125 billion, and he says the "bailout" is the right thing to do. Zandi suggests that the 17 billion already committed should be matched in a second tranch in the coming months.

      Of course, what does he know? He's just an industry analyst and economist that you value enough to quote in your article.

      Another thing Zandi points out: labor costs were reduced 8% in 2006, and continue to decrease. The UAW made "considerable" wage concessions in 2007 that will continue the wage decrease.

    3. RUFUS says:

      Zandi has no credentials just being an economist nor an industry analyst. Neither are business savy, just reporters and number crunchers.

      If no one will, or can purchase cars…the business is bankrupt already. The money is just to pay the salaries until another administration gets into the White House. This is just using future taxpayer earnings to pretend to help the US economy. The auto makers are at fault for not planning for contingencies, and for locking into labor contracts that cannot be fulfilled. Why not, the USA has done the same with unfunded obligations like SS and Medicare, which cannot possibly survive this economic meltdown anyway.

      President Bush and his idiotic Treasury secretary are just blindly taking the money that the public DENIED them, and doing what they will with it.

      Bush has no clue what he has just done to this country. And the autoworkers and managment of the GMC and Chrysler debacles do not care what they do to this country.

    4. James, Dallas says:

      End run around our representative democracy? You mean like in the 2000 election. Oh, when that happens, its a good thing!

    5. John, Washington says:

      That's funny that you're complaining about Bush doing illegal things. Haven't you gotten used to it yet?

    6. Botchy, Bowie Maryla says:

      Everyone should go on-line and read the UAW contract of 2006-2010 it is not so much the hourly rates that are disportionate with the rest of the country. The problem are the work rules and lack of flexibility of the workers. How can a buisness afford to pay overtime to a group of workers while reducing the overall number of employees, i.e. John does die and cast but not assembly, we cannot ask John to do assembly so we pay an assembly worker overtime when the need arises. The goal of a union traditionally has been to insure wages,benefits and working conditons. As part of this contract, engineers have to take union representative in as partners on strategic company decisons regarding supplies and outsourcing. Have you ever sat down with a union in discussions, I have and it is cumbersome combative and usually unhelpful, yet this process is interjected into company decisions that have nothing to do with worker salaries and benefits. How can a company react to oppourtunities and changes in the market place with a sense of urgency, it's impossible. Every aspect of the contract allows the union to share in any stock growth by the company, but never to share the pain of loss or slow down, they are to be kept whole regardless of the company health. In the GM 2007 annual statement they mention as one of their acheivements a "historic" contract agreement with their union partners. It is historic alright. You lay off employees to save money, yet continue to pay these employees (who qualify for unemployment) 85 percent of their salaries for not showing up, and even 100 percent of their salary if they come on site and sit in the lounge. You have a work force of about 240,000 active employees yet support a retiree base of 800,000 employees (empolyees who qualify for Medicare for their healthcare, and Social Security for additonal income.) No amount of financial releif will allow this work model to suceed, we are only fooling ourselves.

    7. Pingback: Michelle Malkin » Anyone want to sue over the illegal UAW bailout?

    8. Ralph, Ohio says:

      What amazes me is that Hank and his pals left that much money laying around in the first Tarp installment, when it could have been used to fatten bottom lines and pay huge executive bonuses. See what happens when you leave the honey pot unattended?

    9. Pingback: Bush Bailout | The Weekly Point

    10. Pingback: An Insult to the American People | OpenMarket.org

    11. Barb -mn says:

      Seems much has been done illegally when it comes to the government. Who are we to stop it? As we are getting real sick of the kindergartners and their immature behavior, selfish, little spoiled brats making more undeserved money then the private sector. THAT IS WRONG.

      We were middle class, now in poverty thanks to incompetent government. Although the government doesn't recognize people living independently and struggling. Only when you're getting handouts…which are handed out with BIAS. There is no encouragement from the government to the recipients to gain independence just more programs!

      The taxes are needlessly high and the idiotic government handouts are actually proffiting those that get em'. We want nothing but protection from the government and we barely get that! While others the government calls "starving" or "in poverty" is absolutely FALSE as they are making their way with jobs and an added income of government handouts.

      If taxes were efficiently used we wouldn't be struggling or borrowing money week to week just to make it. We'd be able to donate as we once did and keep charities out of the government's greedy little hands. I can't stand how discouraging and bias the government is. If they ever lift their ridiculous, wastes of tax dollars, we're buying a FORD.

      Thanks President Bush…you've disappointed the majority of Americans.

    12. FZ- Hagerstown, MD says:

      GM is a major defense contractor and although, I am hesitant to unconditionally support this bailout, it is of far less concern than those handed over without, so much as a paper trail, to the Financial Industry.

      The automakers are key suppliers to the Pentagon and we are at war, lest we forget. To allow these US manufacturers to fail would have serious ramifications for our Troops in the field.

      Eight years of badly designed and executed Bush Policy has crippled our nation yet, the one he gets right is blasted by his base.

      BUY AMERICAN! If you want to buy Japanese move to Japan.

    13. Pingback: Kicking Over My Traces: Auto Bailout: Bet on the Broken Down Nags to be Back Before March

    14. Pingback: Shopfloor » Blog Archive » On the President’s Decision to Aid the Auto Industry

    15. Rondell Blageovitch, says:

      re: FZ- Hagerstown "If you want to buy Japanese move to Japan."

      Actually, MOST Japanese Products are now "Made in the USA" (clue, clue, clue)

      One of the points being made is that the UAW accept samesame wages as the workers in THOSE factories.

      By the way, whatever happened to our domestic steel industry? (the one that used the millions of WW2 Euro Refugees)

      Priced themselves right out of the market, they did! (thanks to the Unions)

      (Essentially, don’t say anything you wouldn’t say to your mother at the dinner table: my mother is a crack-whore doing setups for $20- bucks a pop)

    16. Barb -mn says:

      We commend and do business with those that make the effort to pull themselves out of the consequences of their own choices. And we thank all the employees that continue their skills in manufacturing.

      Our 97' Ford F150, dual exhaust is still doing great! We got it off the floor in 96'.

    17. Pingback: Bush’s Awful Auto Bailout « Conservative Thoughts and Profundity

    18. AG says:

      Consider the following:

      UAW's wages can't be higher than Toyota's because Toyota pegs its wages to UAW rates. The benefits package is the only difference, and that has been addressed in the new collective bargaining agreement.

      Besides, the UAW never stopped GM from being profitable in the past. You can't cut your way to profitability. Sooner or later you're going to need *SALES*. And that's not going to happen until Red Ink Rick Wagoner starts building cars ppl actually want to buy.

    19. The Intellectual Red says:

      The GM, Chrysler, UAW bailout out is doomed to fail

      The UAW bailout is underway now. The Bush administration has decided to loan billions to GM and Chrysler to keep them afloat for a few more months. By some estimates, this money will run out by the end of March. They are supposed to become financially viable by March 31. They have been instructed to negotiate with debt holders, suppliers and the UAW. I believe the debt holders will play ball. The supply base has already been wrung dry by years of cost reduction demands. They have little to bring to the table. The UAW is already squealing about this plan being unfair to them.

      And while the United Auto Workers said the plan would keep factories running, the union said it was upset by loan conditions "singling out workers."

      "We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed," said Ron Gettelfinger, president of the UAW. Read more here.

    20. rdk, Fairhope, Al says:

      President Bush, whether right or wrong, did what he always does. He had the courage to carry out his convictions. What he did was to temporarily save GM and allow GM to formulate and start executing a plan for survival in some sort of restructured mode. Obama and his economic team will have to complete the job.

    21. Alex, 02138 says:

      This article is hilarious. After enthusiatically supporting Bush and endorsing all his policies, the Heritage Foundation is shocked, shocked to discover that Dubya has no convictions, does not respect the role of Congress, and is motivated entirely by vanity.

    22. Pingback: 3 Little Piggies Gorging Selves at Gov’t Trough « America, You Asked For It!

    23. Pingback: Bush Auto Bailout Illegal, Bailout Supporter Admits | OpenMarket.org

    24. JB says:

      Bush and Obama are going to combine to be little Nero fiddling while Rome burns.

      They could have announced a flat tax across the board to stimulate the economy (which actually stands a chance of working). Instead they choose to hand billions to idiot bankers and moronic unions and car execs.

      Dems are going to get more of that "equality" they so often squawk about; everyone will be equally miserable. The writing is on the wall; those that can read it should be buying guns and ammo. The rest of you should be prepared to burn.

    25. Pingback: Bush pushes limits on presidential authority « Principally Political

    26. Andrea, Louisiana says:

      Whatever happened to Capitalism. If you succeed you succeed through your own good work and ideas. If you fail, you fail it is because you didn't make good business decisions.

      I am in disbelief of what has just occurred. When will the American people take a stand and tell our idiotic leaders that enough is enough especially when we, our children and our children's children will be footing the bill for generations to come.

    27. Mike, Clinton Twp, M says:

      I'm sorry, but, I don't think many of my conservative brother and sisters get this(by the way I am and have been all my adult life a conservative) FIRST, this is NOT a bail out. It is a LOAN, one that had the government (read congress) not totally screwed upped the financial system, the auto makers could have gone to the banks to get. Second, the BAILOUT the banks got was SUPPOSED to open the credit markets. But since in their infinite wisdom, they threw $700 billion at the financial industry with no strings (they saved all of them for the auto industry)attached, the banks all just $ta$hed it away. RESULT – No credit…no car sales. However, I see the execs from AIG had a heck of a time on their retreat. Third, as much as I would like to let the free market work, if you have ANY understanding of the auto industry, you will know that the free market doesn't exist in the auto business. The imports are subsidized by their governments, our automakers are heavily tariffed to sell in those countries. Fourth, The implants waltz with our states throwing billions of dollars at them, so, suprise, they have lower overhead costs. Fifth, the legacy costs, and yes they are too high but they are the cost of building the auto industry, are something that the implants don't have. They sure are able to take advantage of all the American companies did to build the business so they could just come on down. Sixth, you say the Big 3 didn't build want the people wanted…that is why Toyota, Honda and Nissan were killing themselves to get those full size trucks on the market, because they knew they wouldn't sell…yeah right! #7, gas went up to unheard of prices because our congress can't get their proverbial heads out of the sand and open up drilling our own oil. Do that and we solve several issues. My last point, the Auto industry can't not fail…the costs would be far worse if they close. I wish I could see a show of hands on how many people would by cars from a car in company in bankruptcy…gosh, I don't see many hands up.

      Yes there are issues the companies need to address, the Job Bank, is my personal fave, but and I am no union sympathizer, the UAW and the companies have made progress. They still have work to do, lots of work to do (read good by jobs bank), but they do not have wages that are as out of line as has been said. The new hires coming in are doing so at much more competitive rates. One last thing, we, the taxpayers, made money when Chrysler got its loans way back when, and the loan was paid off ahead of schedule.

      There are many different ways taht I would have liked to see this resolved, but, congress pretty much left the auto makers with no viable choices, so I guess they should pony up. Maybe we can get them to reduce their salaries to one dollar until we get the budget ballanced, they can give up their cushy pensions too…

      yes I do believe in the tooth fairy, the Easter Bunny and Santa, too!

    28. aaron4unitruth, DEL says:

      There are many reasons why the bailout of Wall street and the auto industry is wrong but most importantly because the federal government is far more powerful than it was ever meant to be. Now the government can be a stockholder? Sounds too much like socialism.

      http://www.theartdeptchronicles.blogspot.com

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