NEW UPDATE--BIG THREE BAILOUT

(Originally posted 2008-12-04 16:38:35 -0500. Bumped by Carol because of new update)

With a 533 reported job loss in November, according to CNN Speaker Pelosi has indicated that she is now open to a proposal to take funds already earmarked for developing green technologies, as part of a bridge loan to bail out the Big Three. 

Congressman Paul Kanjorsi [Dem,-PA] is reported in Auto News to have a compromise proposal which he will be presenting to Congress next week.

Kanjorski was one of the first lawmakers to comment today as the Detroit 3 CEOs and UAW President Ron Gettelfinger testify for $34 billion in loans and credit lines before the House Financial Services Committee.

He said an interim package sufficient to get GM and Chrysler into the new administration of President-elect Barack Obama would give Congress time to build controls and safeguards into a larger loan package.

Thaddeus McCotter, R-Mich., said at the hearing today that he will propose that Congress approve an auto bridge loan of $25 billion equally split between Troubled Assets Relief Program (TARP) and the Department of Energy (DOE) Section 136 green energy innovation loan program

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ABC news reports that Pelosi and Reid have laid down the gauntlet to George Bush:

But in a letter Thursday night, Democratic leaders in the House and Senate told President Bush he must commit funds from either the TARP or the federal reserve or they will be unable to pass anything in Congress.

"Your decision to utilize the TARP funds, or to work with the Federal Reserve to make available assistance through its existing lending programs, or both, are essential to the Congress’ ability to address this critical economic situation in a timely manner, and would also eliminate the uncertainties inherent in the legislative process, " say Senate Makority Leader Harry Reid, House Speaker Nancy Pelosi and Democratic committee chairmen in the letter.

IMO this is a very important move on their part, which I would assume has been made after consultation with the incoming Administration. As Krugman and others have been warning the intergnum period is very dangerous; however, even more dangerous would be for the Democrats to be panicked into caving in to Republican pressure to use the bailout as a pretence for more corporate giveaways (with the attendant percs to top management etc.)

A similar situation faced  FDR in 1933 in the last days of the lame-duck Hoover Administration. He refused to fall into the trap of endorsing Hoover's proposals for dealing with the worsening economic crisis even as panic was sweeping the country

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Seems like a bailout package for the Big Three automakers is stilled stalled, with Congress, the Treasury and the Fed at odds about who is to pay the bill. Here is the NY Times coverage.  Sen. Dodd took the point. Excerpts from the  David Herszenhorn and David Stout  story, Back on Capitol Hill, Auto Executives Still Find Skeptics.

As the Senate banking committee debated a potential rescue package for American automakers, the committee chairman, Senator Christopher J. Dodd of Connecticut, suggested that it would be difficult for lawmakers to approve a financial lifeline for the three companies.

...snip...

“There are a number of ways that we could address this issue,” Mr. Dodd said. “The one that has received a lot of attention is whether Congress will act. If Congress is going to act, it is going to require some significant effort of the coming days. There are alternatives to that.”

Mr. Dodd then used his questioning of a witness, Gene L. Dodaro, the acting comptroller general of the United States, to highlight the authority that the Treasury or the Fed could use to aid the auto companies, either by tapping the $700 billion economic stabilization program approved by Congress in the fall or the Fed using its existing powers to aid imperiled industries.

“Both of those avenues of authority are available,” Mr. Dodaro said.

Mr. Dodd’s skepticism about the ability of Congress to generate enough support for a new rescue plan, coupled with opening comments by Senator Richard C. Shelby of Alabama, the senior Republican on the banking committee, who announced that he would strongly oppose a taxpayer bailout for Detroit, signaled just how steep a challenge the auto executives were facing even before any them fielded a single question Thursday.

INO Bloomberg's coverage is a bit more informative.

 

[Congressman Paul] Kanjorski [D-PA] was one of the first lawmakers to comment today as the Detroit 3 CEOs and UAW President Ron Gettelfinger testify for $34 billion in loans and credit lines before the House Financial Services Committee.

 

He said an interim package sufficient to get GM and Chrysler into the new administration of President-elect Barack Obama would give Congress time to build controls and safeguards into a larger loan package.

 

Thaddeus McCotter, R-Mich., said at the hearing today that he will propose that Congress approve an auto bridge loan of $25 billion equally split between Troubled Assets Relief Program (TARP) and the Department of Energy (DOE) Section 136 green energy innovation loan program

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Leo Gerard, writing in the progressive blog,  OurFuture.org argues persuasively that saving the jeep is not optional because it loosing it we are loosing the productive capacity of America. He writes:

In 1941, car manufacturer Willys-Overland demonstrated the strength and sturdiness of its new Army scout vehicle — the Jeep — to Congress by driving it up the U.S. Capitol steps.

Invented and manufactured in the USA, the Jeep would become an icon of American ingenuity, durability and mechanical ability. Soldiers loved the lithe little vehicle for its uncanny capacity to go anywhere. The New York Museum of Modern Art would exhibit it in 2002 and describe it as a masterpiece of functional design. Now it’s 58 and constructed by United Auto Workers for Chrysler in Toledo, Ohio.

...snip...

Just after the end of World War II, when the Jeep first became a civilian vehicle, 35 percent of workers belonged to labor unions. That’s significant because union members earn 30 percent higher wages than non-union workers and are 59 percent more likely to have health insurance. Those better wages and benefits helped create the great middle class in America. Workers earned enough money to buy refrigerators and homes and cars and, later, college educations for their children. The money they earned and spent churned through the economy and kept it humming.

carol

I had to read the comments about the use of green technology innovation funds to bailout the automakers.  I think that the author of this idea must be one of the most cynical people on the planet and that Pelosi has achieved the status of a complete sellout to even put it forward.  Was it too much to take it out of her TARP Frankenstein?  Is The Money Party now officially taunting those who would like to preserve life on the planet in the form of this absurd financing proposal?  It will be difficult for members of either chamber of Congress to exceed the cynicism and decadence of using green technology funds for this effort.  Congratulations Speaker Pelosi.  You have outdone yourself.

"Furthest from him is best, whom reason hath equaled, force hath made supreme above his equals." Milton

I think there is a real possibility that the economy is rapidly tanking and may be getting out of control. I base this on the fact that European insurance companies that routinely cover short term contracts are refusing to insure contracts between part suppliers and the Big Three auto-makers on the grounds that they may be going to declare bankruptcy. Couple this with a general, world-wide credit freeze and we may see an economic paralysis world-wide, the price deflation and rapidly growing rate of unemployment. Not an easy thing to deal with.

While at first I didn't see why they automakers couldn't just go into chapter 11 bankruptcy and reorganize. BUT I have subsequently realized that this would nullify their pension and health benefit agreements with the union, leaving the present work force and pensioners high and dry. Not something that we want to happen.

I think the Dems are trying for a compromise solution that will allow them to bridge the month and a half until Obama takes office. This really may be necessary. It may be that they are running scared when they should hang tough, but I don't think we can judge from here. Even if that is the case, it doesn't constitute a sell out but an unnecessary punt.

carol

In his latest post, Reich discusses the kind of economic stimulus package that is needed right away. The loss of more than 500,000 because of a Big Three shutdown would have an enormous ripple effect on the already worsening unemployment numbers, but it pays to bear in mind as well that most jobs in the U.S. today are in the service sector, and that is where unemployment is greatest right now. The answer is not hiring more workers fto flip Big Macs but an upgrade in service sector employment (a point Robert Kuttner also makes in his book). We need more qualified hospital workers who are paid a decent wage, the same for people who staff day care centers and nursing homes,  as well as more teachers and a major infrastructure program that will pride construction jobs.  Here's what he has to say:

When FDR took office in 1933, one out of four American workers was jobless. We're not there yet, but we're trending in that direction.

...snip...

Two things are needed: First, the massive Treasury bailout of the financial industry must be redirected toward Main Street -- loans to small businesses, distressed homeowners, and individuals who are still good credit risks. Second, a stimulus package must be enacted right away. It needs to be more than $600 billion -- which is 4 percent of the national product. It should be focused on job creation in the United States -- infrastructure projects as well as services. Construction jobs are critical but so are elder care, hospital, child care, welfare, and countless other services that are getting clobbered. Service businesses accounted for two-thirds of the job cuts in November, meaning that the weakness in labor markets has shifted from the goods-producing sector of the economy to the far larger services sector.

 

carol

That's the title of an interesting
commentary in the nytimes today.

excerpt:

Last year, Cerberus and about 100 co-investors bought 80.1 percent of Chrysler for $7.4 billion from the German carmaker Daimler. It also bought a controlling stake in GMAC, the finance arm of General Motors. Since then Chrysler has eliminated more than 30,000 jobs and struggled to keep itself afloat while its sales have plummeted. Cerberus is pressing to have Chrysler merge with G.M., but G.M. has said a tie-up is off the table. Chrysler is asking the government for $7 billion to get through the next few months.

Cerberus, named after the mythical three-headed dog that guards the gates of Hades, has a fierce reputation on Wall Street. Many bankers and investors are reluctant to talk openly about the company, which is renowned, even feared, for its hard-nosed deal-making.

!
Wonder how new fuel efficiency standards are viewed now...or perhaps that part is over looked!

“They are very, very well-connected,” said Harry Cendrowski, a consultant and co-author of the book “Private Equity: History, Governance and Operations.” Senator Bob Corker of Tennessee can attest to that. Last year, he was on vacation when his phone began ringing. It was Mr. Snow, and then Mr. Quayle, both calling on behalf of Cerberus. They wanted the senator to know that Cerberus opposed new fuel efficiency standards, Mr. Corker recalled. Days later, Mr. Feinberg visited Mr. Corker’s Washington office. Mr. Corker told Cerberus he was unmoved.(emphasis mine)

A little more background on Cerberus can be found in this commentary Guarding the Gates to Hell

What a mess the U.S. economy is.

Off topic of Avahome's last but relevant to our broader discussion. It is going to be very interesting who Obama picks for Labor Secretary.

carol

Me thinks maybe Seth Harris because:
he is "professor and the director of the Labor & Employment Law Programs at NY Law School & was chair of Obama campaign's "Labor, Employment, and Workplace Policy Committee," & co-chair of Disability Policy Committee. (formerly worked as Clinton counselor to Sec of Labor & Acting Assist Secretary of Labor for Policy)"

and for some reason from the announcement Obama just made regarding public works I keep thinking John Edwards...

I think he outed himself. What really rankles with me is not necessarily what he did (maybe he couldn't face Elizabeth's battle with cancer--which would not make him a particularly reliable person) but the fact that he could have given the election to McCain. What if he had won the nomination and then the sordid story came out? How could it have been covered up, considering the degree of scrutiny public figures are subjected to these days?

carol

John Edwards For Labor Secretary

The article does ask when was the last time we heard the word "poverty" mentioned.

I hate to say anything bad about John's
infidelity/stupidity/deception/ignorance..I could just go on...but alas, he is a man. And long ago my mother explained men to me..........

I think the point is that not only was Johnny unfaithful but he seems kinda dumb.

Listen I was CRUSHED by the whole thing. I really was behind his candidacy. I thought Obama was the light weight and Edwards was the real thing. However, I did read that Elizabeth was constantly coming to his Senate offce in bygone days, helping him figure out how to vote on complicated issues.

carol

It is important to always prioritize those beneficial things. This must be one of the government's ideologies. IBERIA and Northern Trust Bank are both giving back the funds that they accepted as part of the TARP bailout program, claiming that they never needed the money in the first place.  Both banks have said that they only accepted the funding in the spirit of cooperation with the government programs giving aid to financial institutions.  IBERIA recently came out with a statement to the effect that accepting TARP funds would put them at a disadvantage.  It’s admirable that they are giving the money back, but why would they take bailout money in the first place? Another is that I read an article that even libraries requesting for bailout for them to continue helping those that earning money by this industry. Quite hard to make sure that this bailing out of different industries will cause good thing to the flow of the economy. Paulson continually changing plan that in the end fails.