Topic: Economic Policy
Bush leaves GM on life support for Obama Today's announcement of a $17.4 Billion loan to GM and Chrysler marks another milestone on the road to nowhere currently being followed by the current administration.by Andrew Hughes
(libertarian)
Friday, December 19, 2008
Today's announcement of a $17.4 Billion loan to GM and Chrysler marks another milestone on the road to nowhere currently being followed by the current administration. Under the terms of the loan, "If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury," Meanwhile,another caveat to the deal is that workers' wages will have to be reduced to make them as competitive as those in Japan and Korea. Oh and the corporate jet has to go as well. This passes for a plan these days. Who are they trying to kid ? GM and Chrysler will need this money just to keep the lights on until March before the inevitable industry collapse.
In 3 months, GM and Chrysler will have to become a profit making enterprise by reducing costs to compete with Japanese models. Firstly, profit takes place in a healthy economy not in the grave recession we are in right now. The Japanese, who actually have a very sound business model and make cars that people want to buy, are seeing profits collapsing at an ever increasing rate. Toyota has been making affordable and fuel efficient cars for more than a decade and now GM and Chrysler have to create an equivalent model using $17.4 Billion in 3 months. The U.S. auto industry has just received a stay of execution until March 2009. The real concern in March will not be just how "viable" the industry is but how do we get the loan back. Will the U.S. taxpayer be included at the bankruptcy hearings when the inevitable chapter 11 filing has been handed over ? Judging by the past fiscal irresponsibility of the Government, I wouldn't hold my breath.It will most likely vanish in to the same hole as the $8.2 Trillion thrown at the banking racket.
This whole deal is nothing but Political posturing by Bush and Paulson who would like to finish the year with an illusory aura of fiscal responsibility. They don't want the consequences of the $250 Billion in credit default swaps tied to GM to happen on their watch and prefer to leave it to the next administration. One can only presume that with hedge funds collapsing and economic indicators headed towards uncharted territory, another round of bank failures would leave a bad impression on their otherwise sterling handling of the Economic Crisis. The money could just be given to the auto workers directly to help them after they have lost their jobs. Actually the $8.2 Trillion that Henry and Ben gave away already could have been given to the people who lost their jobs and/or their homes, but it didn't happen that time either. When asked exactly what happened to the money the Fed just refused to disclose the information. But I reckon things will be OK this time around as Paulson said the conditions set out in the loan were to "protect the taxpayers to the maximum extent possible." Bailouts, as has been demonstrated since they started, were never about helping the taxpayer cope with the crisis, but only served to lull a nervous public in to the illusion that something concrete was being done to resolve the problem.
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