So, now that the last federal taxpayer bailout has sailed through Congress, let’s check the queue again to find out who’s next. According to the Wall Street Journal, it’s Detroit and the auto industry:
First came Bear Stearns, then mortgage lenders and borrowers, followed by Fannie Mae and Freddie Mac: They’ve all looked to Uncle Sam for a bailout, and now the word around Washington is that Detroit will be next on the taxpayer supplicant list.
Earlier this month, the Detroit Free Press reported that the top dogs at Ford, GM and Chrysler had a meeting of the minds and decided that the way out of their current losing streak would be to ask the feds for a lifeline. They figure they’ll need $40 billion or so to ride out their current troubles until they reach the promised land of hybrids, the Chevy Volt, and, who knows, maybe even profits.
We’ve since heard that lobbyists for the car makers are taking their pitch for direct federal loans around Washington, with a goal of unveiling the plan after Labor Day — conveniently in the frenzy of the fall election campaign. They’ve briefed Congressman John Dingell, the dean of Michigan Democrats, as well as officials in the Bush White House.
The plan is for the government to lend some $25 billion to auto makers in the first year at an interest rate of 4.5%, or about one-third what they’re currently paying to borrow. What’s more, the government would have the option of deferring any payment at all for up to five years. Meanwhile, Barack Obama recently signaled that he’s open to federal money to help the auto makers invest in “renewable” technology, and Michigan Senator Debbie Stabenow and Mr. Dingell are supporting the $25 billion in loans to the not-so-Big Three as part of a second-round economic “stimulus.”
Detroit’s political calculation is plain: Having seen the way Washington has bowed to rescue the mortgage industry and Wall Street, why shouldn’t auto makers give it a try? Michigan is up for grabs in the election, so now is the time to strike with a goal of getting the Bush Administration and both Presidential candidates to agree.
The car makers can also claim with justification to have been hurt as badly as anyone by Washington’s policy blunders. The weak dollar has contributed to the spike in oil prices that has socked their most profitable vehicles. And the nonsensical way that fuel-economy standards force Detroit to subsidize cars that consumers won’t buy has helped put the Big Three in this hole.
Then again, the car makers saddled themselves with a cost structure in flush times that has proved unsustainable as their market share has eroded. They have made great strides of late in shedding legacy pension and health-care costs, but they took decades to do so. The fact that GM’s lending arm, now 51% owned by the owners of Chrysler, dipped its toes in mortgage lending hasn’t helped either.
There also happens to be a thriving U.S. auto industry outside of Michigan. These plants are owned by foreign companies, but they employ 92,000 Americans and build and sell cars here. Tens of thousands of their shareholders are Americans. Would these companies and plants get equal consideration under any bailout plan? And if Toyota and Honda get help, why not Delphi and other auto suppliers? We’re told the low-interest loan proposal would give priority to the “oldest” plants — which is another way of saying those plants organized by the United Auto Workers.
Bailing out “national champions” because of their long history or politically connected work forces is something you’d expect from France. With rare exceptions — Chrysler in the 1970s — the U.S. government has managed to remain immune to that European disease. But as the nearby table shows, Washington has begun to make a habit of bailing out any business or industry that can marshal enough political clout. That’s a lot of risk to put on the taxpayer dime, and that’s not counting such other runaway liabilities as Medicare.
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We wish the Treasury and Federal Reserve hadn’t started all this with its Wall Street rescues, but at least Bear Stearns was put out of business and its shareholders lost nearly everything. That’s also typically what happens when the Federal Deposit Insurance Corp. takes over a failing bank, as in the case of IndyMac in July.
If Fannie and Freddie require a taxpayer infusion, we can’t believe Treasury wouldn’t wipe out their shareholders and fire their managers as well. And if Detroit’s executives really want taxpayers to save them, then at a minimum they should suffer the same fate as these other companies and shareholders. Somehow we doubt this is what the Big Three really have in mind.
Regardless of where and why these federal bailouts started, American taxpayers can’t save everyone. The only way to stop this parade of supplicants is to start saying no — and Detroit is as good a place as any.
This Democrat-led Congress is out of its mind when it comes to spending. I said it before, and I’ll say it again: once they start down this road, they’ll have to be dragged — kicking and screaming — back by the American public. If that chart doesn’t clue you in to the fact that they have no intention of stopping, nothing will. The only question will be who’s next in the queue. This irresponsible behavior won’t stop until the American people demand it.
Of course, the question can be rendered moot if American citizens would ditch the current members of Congress who are spend-happy, which would be about 90% of them.
New rule of thumb: if you don’t know anything about the candidates, vote for the challenger and send the incumbent home.
There’s my two cents.