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Next entry: White House will bail out automakers instead Previous entry: Friday Genius Ten “Enchilada Sauce Vs. Writer’s Block” Edition

Auto bailout fails. What a mess.

CongressEconomy

The deal died in the Senate, so Wall Street’s likely to take a dive.

The failure of Senate talks on a $14 billion deal to rescue the U.S. auto industry sent Asian shares lower Friday, while the Japanese yen and government bonds gained on renewed risk aversion.

“It’s a very bad sign. U.S. stocks will likely nosedive later,” said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC in Tokyo.

U.S. stock futures were lower in screen trade with Dow Jones Industrial Average futures down 320 points; spreadbetting firms in Europe were calling stocks sharply lower with CMC Markets tipping London’s FTSE 100 to fall 154 points and the French CAC-40 176 points.

The future of the U.S. auto sector was thrown into doubt after a marathon meeting of the GOP Senate Conference; Senate Majority Leader Harry Reid acknowledged on the floor of the Senate that lawmakers would be unable to reach agreement.

Several Republican senators pointed the finger at the United Auto Workers labor union as being unwilling to accept reductions in employee compensation.

It’s hard to figure out which is worse, the prospect of GM and Chrysler going belly up, or the GOP’s sadism by voting against this to try to break the unions by letting GM and Chrysler go belly up. More below the fold.
The demands by the Republicans included concessions already made by the UAW:

Concedes the elimination of Supplemental Unemployment Benefits; Concedes elimination of the Jobs Bank Program; Agrees to either reduce company retiree health care obligations or otherwise convert a portion of such obligations into equity; and Agrees to reduce wages and benefits to the levels paid by non-Big Three manufacturers.

I think it’s safe to say that last item is the crux where the Republicans are going when you have “right to work” state South Carolina’s U.S. Senator Jim DeMint saying Sen. Jim DeMint (R-SC) said yesterday on NPR that, in regards to an auto loan, “we’re not going to do it with the barnacles of unionism wrapped around their necks.”

In the end, what makes me ambivalent about this bailout is the prospect that the car companies will fail anyway, because they will not be able to retool and rethink their business models in time to avoid financial ruin. I haven’t seen any compelling evidence (by the banks re: the first bailout as well) that suggests they can stop this runaway economic train. Oliver Willis agrees.

I think the GOP did this for the wrong reason - to screw the unions - but at the end of the day I don’t think the auto industry made a strong enough case for this money. They didn’t sell the idea that they would really change and innovate.

And it doesn’t help that the first bailout for the banks and AIG looks like a boondoggle because of such pitiful oversight to suss out waste and corruption. AIG took your taxpayer dollars and decided to use it to pay bonuses (renamed “retention payments”) to keep some of the same executives who ran it into the ground on the payroll.

But so far, no one’s stopping AIG from paying millions to some employees in its new retention program. The company has told 168 employees they’ll receive between $92,500 and $4 million per individual if they stay with the company for one year. That angers some on Capitol Hill.

“These so-called retention payments are nothing less than bonuses,” Rep. Elijah E. Cummings, D-Md., told CBS News. He sent letters to AIG, demanding details of the retention program.

“No one is indispensable, particularly when you’ve got tens of thousands of people being laid off from Wall Street and financial firms every day,” Cummings said.

...“It’s very unfortunate, but a culture of entitlement has emerged among Wall Street executives,” said Peter Morici, a University of Maryland economist. “They’re paid far too much money and they’re trying to find ways around the rules.”

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Posted by Pam Spaulding on 11:34 AM • (36) Comments

Bailout money should come with oversight.  How that can fail to happen is amazing to me.

My conditions?  All execs should be fired.  Sans golden parachutes.  Complete restructuring or no tax money.

Plus, the immediacy of the bailout was to keep money liquid.  Banks were supposed to LEND THAT MONEY, instead, they keep tightening their rules, which ...you know would have been nice in the first place, but is NOT what they need to do right now.

It is not the subprime borrowers that caused the problem.  It’s the banks who loaned to them, then bundled those loans into large marketable securities (junk bonds) and sold them off over and over.  That bundling and sell off means that the local bank that initiated the loan no longer has any interest in its solvency.  They don’t care when the borrowers come in and ask for a restructuring or for any type of temporary relief.  They don’t own the debt anymore.

The large companies that own the debt…do not care about any single borrower.  They have a huge bundle, and most of those succeed, at least for a while, and they have no interest in restructuring a single loan b/c it doesn’t effect the bottom line overall enough.

The subprime borrower—totally screwed.  Given 10+% loans in the first place that adjust higher no matter what the Prime rate does.  No one will listen.  No one will adjust the rate to anything resembling normal, even if all payments have been made and on time.  Subprime borrowers are just screwed, and the bailout did nothing at all to help them.

Comment #1: Caren-Sun-blocking Creator of Animorphic Pancakes  on  12/12  at  11:52 AM

If they bust the unions, I’ll never buy American again.

OK, that’s kind of a hollow threat since I can’t imagine buying a piece of shit American car anyway.  I was happy to buy a Saturn back in 1996 but GM has since screwed over that division and now Saturns are just another piece of shit American car.  I’m driving that Saturn into the ground and then buying a Prius.  Fuck ‘em.

Comment #2: BadKitty  on  12/12  at  11:56 AM

“we’re not going to do it with the barnacles of unionism wrapped around their necks.”

Yah. Cuz it’s the workers who build the damned things that are the real parasites, not shareholders that suck out profit from their toil, or highly paid executives that have already proven themselves incapable of running a profitable business.

That kind of talk makes me see Red. raspberry

Comment #3: BlackBloc  on  12/12  at  11:57 AM

“we’re not going to do it with the barnacles of unionism wrapped around their necks?”  So unions are supposed to give all the concessions and allow their members to sink below the waves with the “cement shoes of corporate piggy bankism strapped to their feet”?  It’s the greedy union’s fault that the company is failing?  How dare they want their health care!  We have CEO’s who need their raises, so suck it up, Mr. Middle Class!

Union bashers piss me off so much!  As a teacher, I refused to work in a private school because it didn’t have a union.  I’ve seen our union save teachers’ jobs by paying for a lawyer when the teacher was falsely accused of molesting a student (she was angry that he took her phone away when she used it during class).  Our union saved our failing district when they insisted the district raise teacher salaries and provide full coverage on health care to attract better teachers.  It was our union that insisted on more meaningful professional development so teachers actually learned something instead of just “doing time” in state-mandated inservice days.  Sure, it costs more money.  That’s why the union asked us to donate extra money so they could lobby for bond measures and bills that would give more money to the district.  It asked us to donate time to phone banks urging voters to vote for governors and representatives that would support education funding.

Republicans who blame unions for the failure of companies are so full of shit.  What they really mean is, “How dare you think you have any say in how you’re treated while you work here.  You have no say in this company.  As a worker, your job is to shut up and do what the CEO tells you.  This is my company, you are my workers, and you will be a good little cog or you will be replaced.”

Comment #4: Mrs. W's class  on  12/12  at  12:08 PM

No persuasive reason has been offered to divert money away from the productive part of the economy to put the big 3 on life support.  For the amount bailing them out would eventually cost, we could fund infrastructure projects and hire a lot of the auto-workers to do things like build railroad tracks and power transformers.  Yes, yes, we bailed out the financial industry and shouldn’t have, but just because we made a huge mistake doesn’t mean we have to make a similar big mistake at a later date.

Comment #5: Dave  on  12/12  at  12:09 PM

I’m with BadKitty on this one.  Even though I haven’t bought an American-made car in 25 years, it was a piece of shit and I’m not going back.  I do not, however, blame the line worker for that.  I am currently driving a Lexus which is made in the States.  This is after a car history of Volvo, Subaru, Audi, BMW and Mercedes.  The Lexus is by far my favorite.  So, American-worker made, foreign management making the decisions.  Seems to be working.

American car makers have done nothing for 30 years but push environment-busting SUVs and Hummers on us and I don’t feel too damn sorry for management.  The bail-out SHOULD go through to save the millions of workers that had no real hand in this predicament.  The blatant union-busting of the GOP on this one makes me literally sick to my stomach.

Comment #6: kac90b  on  12/12  at  12:14 PM

Same here BadKitty.

I bought a Saturn in 98 and I’ve been very happy with it. I was at the dealer last summer getting some repair work done (nothing that was unreasonable for a 9 year old car) and the current Saturn offerings are horrible - big bloated-looking things that are way too expensive for what they are. I wouldn’t trade my 10 year old car for anything they have on the lot now. And when the current car dies, I think I’m also going to find myself at the Toyota or Honda dealer.

Comment #7: Tom Winter  on  12/12  at  12:26 PM

If Chrysler and GM go under, perhaps we could use the money we were going to spend on the bailout to hire the workers directly.

But it’s not going to happen.  The White House is bailing out the auto companies directly.  We officially have a dictatorship.  I fail to see why we even have Congress if this entire debate was for nothing.

Comment #8: Amanda Marcotte  on  12/12  at  12:34 PM

I had a ‘95 Saturn.  If I sat in one place for more than a few minutes, even in the middle of winter, the thing would overheat.

Every time there is a recession, companies use it as an excuse to take a little more from their workers.  When times are tough, there is always someone willing to do the job for less, and unions are in place specifically to oppose these market forces.  If they give in every time the market calls for it, what is the point of having them around?

Comment #9: Jose  on  12/12  at  12:41 PM

In the end, what makes me ambivalent about this bailout is the prospect that the car companies will fail anyway, because they will not be able to retool and rethink their business models in time to avoid financial ruin.

True—and (to paraphrase DeMint) they’re certainly not going to do it with the barnacles of incompetent executive management wrapped around their necks.

These are distressed companies—big ones, but that’s what they are. If a private company bails such a company out by either acquistion or loan, the first order of business is always kicking out the overpaid and entitled MBAs (in management and on the board) who drove the company into the wall in the first place. And yet somehow the GOP, which is always demanding government work more like a business, is happy to make an exception for these greedhead clowns.

No conditions, no oversight, no ROI—no Benjamins.

Comment #10: Gracchus  on  12/12  at  12:44 PM

The Congress can pass strings to the financial system bailout money to prevent President Bush from doing that, but they won’t even try.

Comment #11: Dana  on  12/12  at  12:45 PM

As for American vehicles, I have a 2000 Ford F-150, standard transmission, V-6, with 181,000 miles on it and no major problems at all.  Other than normal wear parts—brakes, hoses, tires, belts &c;—everything is original.  An F-150 I had before that as a company vehicle was in solid condition as well.

Comment #12: Dana  on  12/12  at  12:49 PM

The government could, of course, simply purchase all three car companies for about the same amount of money. Then, we the people would be the shareholders: we could toss these idiot executives out on their asses, and then sue them for having mismanaged the company’s so badly. We could demand that our new investments retool themselves to produce nothing but small, plug in electric cars, and then we could turn around and have the government and any companies with which the government does business purchase only these cars. We could continue to pay the union workers what they are due—I, for one, would love to see these Republican senators work one day, let alone one week or 30 years, on an assembly line—and use the excess production capacity to begin turning out wind turbines and the equipment needed for geothermal power.

But we the people, of course, are not stakeholders in our own government.

Comment #13: felagund  on  12/12  at  12:50 PM

Ford might actually be able to turn things around:  they’re not in as bad of shape as the other two, they still make a couple of vehicles that people want, and even they said that all they need is a loan, not a full bailout.  They realized a few years ago that their business model was unsustainable and they have made some changes, but not quickly enough to stand up to a tanking economy.

Chrysler is dead in the water.  They’ve made a crap product for years.  I knew people 20 years ago who had brand-new Chryslers that were constantly in and out of the shop.  Time for them to go.

Comment #14: Mnemosyne  on  12/12  at  12:58 PM

I couldn’t be more pissed off about this. They’ll vote in a heartbeat to dump 700 billion on wall street’s doorstep, but they’ll intentionally let millions of blue collar jobs go down the toilet in order to breakup the unions. What a bunch of fucking assholes.

Comment #15: Mark  on  12/12  at  01:01 PM

The Congress can pass strings to the financial system bailout money to prevent President Bush from doing that, but they won’t even try.

It’s too late. TARP (which I also opposed) didn’t have offer any real oversight or equity. Giving that to Bush, Cheney and Paulson was like handing the keys to the bank to a gang of looters.

Reid and Pelosi both carry a lot of blame for what’s happening—both useless hacks, almost as incompetent as auto industry execs.

Chrysler is dead in the water.  They’ve made a crap product for years.

It goes beyond that—after it was acquired, Chrysler was destined to be stripped for assets. The government bailing it out is like going to a junkyard, buying up all the parts of the stripped cars, and then spending more money to re-assemble them. Insanity.

Comment #16: Gracchus  on  12/12  at  01:07 PM

Just to review, the Republicans won’t support mortgage relief for homeowners because they believe in the sanctity of contracts. And they oppose a bail-out of the auto industry because it respects the sanctity of contracts.

Well, at least they are consistently inconsistent.

Comment #17: BStu  on  12/12  at  01:57 PM

Well, if they survive….

You can buy a Northern Union Democrat American car, or….

You can buy a Souther Scab Republican Transplant car.

I’ve had 12 American cars/trucks and never had anything major go wrong with any of them.  My current Jeep (Chrysler made) has about 150,000 mi. and no major repairs.

Money talks, bullshit walks.

Comment #18: Magis  on  12/12  at  02:00 PM

The mid-nineties Saturns were indestructible, while the new new Saturns are really Opel/Vauxhalls—i.e. European cars.

Alabama Senator Richard Shelby is the most infuriating actor in the whole fiasco. He praises the overseas companies who assemble in his state, comparing their management favorably to the Big Three’s, for “producing vehicles Americans want to buy” instead of Detroit’s gas-guzzlers.

Let’s look at what the foreigners build in Alabama for us Americans:

Mercedes M-Class SUV: Curb weight, 4705 lbs. Engine: 379 cu. in. V-8 EPA mpg estimate: 11 city, 14 hwy
Honda Pilot: Curb weight, 4506 lbs. Engine: 216 cu. in. V-6 EPA mpg estimate: 16 city, 22 hwy
Toyota V-8: When used in Toyota Tundra pickup, gets 14 mpg city, 18 mpg hwy

These are not the engines and vehicles that will help Americans reduce dependence on foreign oil. Instead these are merely foreign copies of the vehicles that Americans have been most likely to buy from the Big Three over the past 20 years.

Comment #19: Hector B  on  12/12  at  02:14 PM

I have been informed that Saturn is now made in Europe by Opel and sold as a GM vehicle.  Still not buying from GM, though, unless they come up with some way to protect their workers.

Comment #20: BadKitty  on  12/12  at  02:22 PM

Whoops.  Thanks Hector B.

Comment #21: BadKitty  on  12/12  at  02:22 PM

Several Republican senators pointed the finger at the United Auto Workers labor union as being unwilling to accept reductions in employee compensation.

Imagine that.  They want to keep their jobs and decent wages.  How dare they!  It’s like they think they are people or something.

Oh wait . . .

Comment #22: Kyra  on  12/12  at  04:22 PM

As for American vehicles, I have a 2000 Ford F-150, standard transmission, V-6, with 181,000 miles on it and no major problems at all.  Other than normal wear parts—brakes, hoses, tires, belts &c;—everything is original.  An F-150 I had before that as a company vehicle was in solid condition as well.

Thanks for letting us know.

Comment #23: Triage  on  12/12  at  04:41 PM

The only problem with our economy is the unions.  Their workers make approximately $3000.00 an hour in wages and benefits while the non-union workers make a more acceptable $4.78 per hour.  This has cause American car companies to make huge vehicles that get 6-8 Miles per gallon, oil that we could be drilling on the beaches of this country if it weren’t for elite LIEbrals worrying about the deaths of penguins and such, which aren’t good for eating anyway.

Comment #24: Rugged in Montana  on  12/12  at  05:03 PM

The thing is, the UAW did agree to more reductions; the issue was the timing.  Corker, et al wanted two main changes in place by the end of March 2009:

1.  Reduction of debt by 2/3 (this, I believe, was mainly directed at GM)

2.  Wage and benefit parity between union and non-unionized workers.

The UAW wanted more time - until 2011, when the current contract expires.  The GOP wouldn’t agree to that.

I think this compromise was bogus from the get-go.  For one thing, I don’t see GM’s creditors voluntarily reducing GM’s debt obligations by that much that quickly.  They’d wait for a bankruptcy court to do that.

Comment #25: Linnaeus  on  12/12  at  05:09 PM

Fords are generally good-quality.  My family’s been driving them (and their subsidiary, Mercury) almost exclusively for years, and they’ve been solid, dependable vehicles that we’ve almost always gotten upwards of 200,000 miles out of.

I think that quality should be made a centerpiece of the restructuring.  The aura of “NEW! NEW! MUST HAVE NEW!” marketing needs to disappear; they should be marketed and sold with the expectation of it being a quality investment that will deliver years or decades of service.

One of my favorite things about cars is seeing classic, ‘60s-and’70s-era Mustangs, Camaros, Chargers, et cetera, still in awesome condition; another is seeing a 40-year-old pickup truck still running and still doing its job—-this is how cars should be built and marketed, with an eye towards their value being lasting rather than ephemeral, classics in the making rather than “the hottest new thing, at least until next year’s model comes out.”

Also, a better job on both producer and consumer sides of cars being better suited to one’s intended use for them, and maybe some specialization rather than looking for one-size-fits-all, which too often gets used to justify a massive SUV or mega-pickup that really isn’t needed.  If you’re buying a car to last for twenty years instead of five years, then you have financial leeway to buy two cars if you have two different uses for them.  A two-or-three-seat rather than six-seat pickup truck, for example, and a passenger sedan, both of which get better gas mileage than a super-cab pickup or an SUV.  Or a lightweight two-seater car (which needs to be made and marketed in more than just the ultra-luxury class, and is an excellent place to put hybrid and electric technology into use) for commuting purposes and a passenger sedan for family use.  SUVs for people who fill them up with camping gear on a regular basis, commuter cars or family cars for those same people to use when there isn’t a load of cargo to be carried or offroading to be done.

Such a restructuring would serve to create more efficient use of cars without cutting down production and sales too much (which would of course hamper employment), and it would cut down on the unnecessary energy use demanded by gas-guzzling specialty vehicles put into everyday use.

Comment #26: Kyra  on  12/12  at  05:21 PM

I think this highlights a key difference between Republicans and Democrats.  Bush/Paulson/Bernanke say that we’re facing a catastrophic financial market meltdown, and our economy will collapse if we don’t give them $700 billion, and the Democrats roll over.  Whatever you say.  Almost no questions asked.  Here’s the money. 

We tell Republicans we’re facing a catastrophic collapse of the American auto industry, and our economy will be in ruins if we don’t fork over $15 billion, and the Republicans yawn.  They’ll believe it when they see it.  Doesn’t fit their agenda, take a hike.

I actually think the Republicans have it right.  Would things be catastrophically different right now if we hadn’t agreed to fork over the $700 billion two months ago (or whenever it was)?  Has the bailout worked?  Or, $400 billion later, is this nearly exactly how things would have been anyway? 

On the other hand, maybe prevention is cheaper than waiting for it to happen and having to pay for a cure.  But the whole thing makes me feel like we’re a bunch of clueless suckers.  Especially on the financial thing.  We gave them exactly what they wanted, and let them posture like they were against it, without making any effort at all to advance our own agenda.  We try the same thing on them and they laugh at us.

Comment #27: Wallace  on  12/12  at  05:34 PM

ugh, the sense of entitlement these auto execs, just like the wall street execs, are displaying is seriously sick-making.

i feel like the auto bailout is ultimately a stupid idea for the reasons stated above.  surely we could find better use for that money to help the workers who didn’t create this mess?  i just don’t get how people so obsessed with free market wankery can feel in any way like they have a right to take taxpayer money when what they’ve really done is made their own bed and now it’s time to lie in it.  in what other context is one allowed to epic fail at business and be propped up?  the economic clusterfuck is hitting other industries, some pretty big ones in fact, namely the one i work in—entertainment.  viacom alone has laid off something like 800 people.  where is our hollywood bailout package?

Comment #28: chareth  on  12/12  at  05:48 PM

the economic clusterfuck is hitting other industries, some pretty big ones in fact, namely the one i work in—entertainment.  viacom alone has laid off something like 800 people.  where is our hollywood bailout package?

The difference is layoffs vs. extinction. The US auto workforce is a small fraction of what it once was. If the US film industry was in danger of collapse, then the federal government should bail them out, because they are a large source of jobs.

Comment #29: Hector B.  on  12/12  at  06:29 PM

...someone doesn’t know what a barnacle looks like.

Comment #30: Rebecca  on  12/12  at  06:36 PM

Well, so much for the GOP being the party of the working class.

Comment #31: Bitter Scribe  on  12/13  at  12:08 AM

The founders recognized the power of Congress to establish laws to allow for bankruptcy (Art. I, sect. 8) exactly for this purpose.  If Congress wants to help automakers and the workers, they can establish guarantees for auto warranties, so consumers have confidence in the product.  After that, Chapter 11 reorganization will allow the bankruptcy court to spread the pain of the automakers’ failure among all of the parties—unions, suppliers, management—in a fair manner.  Merely propping up current bad practices will just mean that the auto makers will be back before Congress in January or February begging for more money.  We had more than one airline file Chapter 11, and people still fly, and we still have an airline industry.  Bankruptcy has been designed specifically to make fair and reasonable decisions that can allow business to restructure and reorganize.

I can’t see taxing working class people in fly-over country to bail out (a) well-paid union members; (b) suppliers who kept selling to failing automakers; (c) shockingly incompetent auto maker executives; and (d) shareholders and bondholders of automakers.  If the industry can’t afford to pay the wages in the union contracts, which appears to be the case, then no bail out will keep those jobs for more than a few months until the money runs out.  Those jobs at those wages WILL disappear.  The question is what happens to those people—are they kept working for a few more months, and then dumped in the cold, or are they brought to the bargaining table in bankruptcy court to work out something that the company in reorganization can afford for the long term.

Comment #32: Watergate  on  12/13  at  05:11 AM

Shorter Watergate: “DEM YOONYUNZ IS TUH BLAME!  LET DEM DIRT-EATERS WORK FOR TWO CENTS A DAY!”

Corporate whore.

Comment #33: Blue Field Damian  on  12/13  at  06:26 AM

“Shorter Watergate: “DEM YOONYUNZ IS TUH BLAME!  LET DEM DIRT-EATERS WORK FOR TWO CENTS A DAY!”

Corporate whore.”

It’s hard to top that incisive analysis.  Just keep screaming incoherently—that’s the ticket, as long as you call people as many names as you can.

Comment #34: Watergate  on  12/14  at  04:26 AM

For the sake of the economy it would be good if this passes, but the asshole political hack inside of my bleeding heart says “Good! The GOP will never win the electoral votes or Senate seats of Michigan, Ohio, Indiana, and Pennsylvania for the next fifty years!”

Comment #35: Ben D.  on  12/14  at  05:16 PM

“I can’t see taxing working class people in fly-over”

The rustbelt isn’t fly over country? Since when?

Comment #36: Ben D.  on  12/14  at  05:17 PM
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