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: 'Non-Binding' Bailout - President Bush's parting gifts to Detroit and Obama |
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| | From:  tc101 (Original Message) | Sent: 12/20/2008 5:32 PM |
WSJ DECEMBER 20, 2008
'Non-Binding' Bailout - President Bush's parting gifts to Detroit and Obama
Friday's taxpayer bailout of Detroit's auto makers isn't the worst moment of the Bush Presidency, but we'd put it in the top 10. President Bush will now avoid getting the blame for letting the companies declare bankruptcy on his watch. In return, he's essentially handing over GM and Chrysler to the political ministrations of the United Auto Workers and the green lobby, as mediated by Congress. Taxpayers are likely to own a piece of this Corvair for years -- and tens of billions of dollars -- to come.
Mr. Bush said Friday that allowing GM and Chrysler to file for bankruptcy "would leave the next President to confront the demise of a major American industry in his first days of office." (Ford, to its credit, declined the gilded noose.) That talk of "demise" is hyperbole given the bankruptcy laws that allow an orderly workout. And in any event, he's still leaving Barack Obama a major political fight over whether to restructure the companies with the goal of making money again, or with the goal of paying uncompetitive wages to make "green" cars that Americans may or may not want to buy. Mr. Bush's real motive was betrayed when Vice President Dick Cheney told Senate Republicans recently that if they voted down the bailout for Detroit, it's "Herbert Hoover time."
So the President is lending the last $15 billion or so available in the $350 billion Troubled Asset Relief Program (TARP) to keep GM and Chrysler afloat through inauguration, but not much longer than that. Opening the TARP for the first time to nonfinancial companies is itself a bad precedent that Democrats will cite as they use the next $350 billion for mortgage holders, states and cities, and anyone else with enough political clout.
Mr. Bush also crossed a line by agreeing to rescue a U.S. industry whose business and labor mistakes have been recognized for decades. The President justified it yesterday by noting that "In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action." But any struggling industry would qualify under that logic, and no doubt Congress will prove it before this recession is over.
By the way, a word that Mr. Bush didn't use yesterday was Cerberus, the hedge fund that owns the bulk of Chrysler. Perhaps that's because it would be too embarrassing if Americans figured out that middle-class taxpayers who don't earn anything close to UAW wages will now be rescuing Cerberus's rich investors. That's capitalism, circa 2008.
The Bush Treasury did lay out a set of terms and conditions that Detroit will supposedly have to meet to keep the money. We won't bore you with the details because the most important word attached to those conditions is "non-binding." As yesterday's White House fact sheet put it: "These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations."
Translation: The Obama Administration can wave them away as soon as it takes office in January.
And sure enough, within hours of Mr. Bush's announcement, UAW President Ron Gettelfinger declared that his union "will work with the Obama Administration and the new Congress to ensure that these unfair conditions are removed." These "unfair" conditions naturally include bringing Detroit's wage scales into line with those of foreign-owned auto makers in the U.S. The UAW complains in its press release that its members "have already made substantial sacrifices," and that view is sure to be echoed by the Democrats who run Capitol Hill.
Perhaps Mr. Obama will play against political type and drive a harder bargain with both the union and the companies. He'd also have to stare down the greens who want to dictate to Detroit what cars they can make, even if few want to own them. Mr. Obama would be smart to use his standing to force a bankruptcy-like workout -- both because bailout fatigue is growing among taxpayers, and because a failure to restructure Detroit will leave a running drain on federal resources for the rest of his Presidency.
Perhaps that isn't "Herbert Hoover time," but it's bad enough.
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