No Bailout

by hilzoy

From the NYT:

"The Senate on Thursday night abandoned efforts to fashion a government rescue of the American automobile industry, as Senate Republicans refused to support a bill endorsed by the White House and Congressional Democrats.

The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which say they may not be able to survive through this month.

After Senate Republicans balked at supporting a $14 billion auto rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a deal, but deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009."

Apparently, the plan they were negotiating already required the car companies to reduce their debt by 2/3 between now and March 31, and to bring their workers' pay into line with their foreign competitors. (This in addition to what had already been agreed to -- major restructuring plans, etc.) The sticking point, apparently, was that Senate Republicans insisted that the workers' pay reach parity with foreign competitors in 2009, while Democrats, the UAW, and the car companies wanted the process of bringing wages down to be completed by 2011.

So the Senate Republicans were willing to let a million jobs, give or take, go down because they wanted the UAW to make massive wage concessions, over and above those it has already made, within one year as opposed to three years. That shouldn't be a dealbreaker, except to people who don't want a deal to start with.

The consequences sound delightful:

"With Congress failing to agree on a bailout for Detroit, the odds that General Motors and Chrysler will be insolvent by year's end are growing rapidly.

The companies have been warning that they would run out of money for some time, but crushing bills from their suppliers are coming due. It appeared unlikely that they could hold on until President-elect Barack Obama takes office next month, when he and a new Congress might be able to provide a lifeline, as a Congressional rescue this year looked increasingly unlikely. (...)

General Motors and Chrysler, for example, owe their suppliers a total of roughly $10 billion for parts that have been delivered. G.M. has held off paying them for weeks, and Chrysler is paying in small increments. But the cash shortages at G.M. and Chrysler are getting more severe, according to their top executives and other officials. (...)

Many of their suppliers are teetering on the verge of bankruptcy themselves, and do not have the luxury of extending credit much longer. (...)

When suppliers big and small start failing, the flow of parts to every automaker in the country will be disrupted because as suppliers typically sell their products to both American and foreign brands with plants in the United States."

"There's no question it will hit Toyota, Honda and Nissan too," said John Casesa, principal in the auto consulting firm Casesa Shapiro Group.

"Many of the small suppliers will simply liquidate because they don't have the resources to go reorganize in Chapter 11 bankruptcy," Mr. Casesa said. "They’ll just go away."

I support the bailout. I don't think I would if these were normal times, but they are not. And under the circumstances, this seems to me to be an extraordinarily irresponsible thing to do. The Senate Republicans were not, as far as I can tell, so much as trying to do things responsibly. They did not, for instance, seem to consider extending the kind of financing that would allow GM and Chrysler to go through Chapter 11 bankruptcy rather than liquidation. That financing would have involved loans, not gifts. It would have allowed an orderly reorganization.

But no: after years of being willing to spend money on whatever George W. Bush and their lobbyist friends wanted, after supporting Duke Cunningham's and Tom DeLay's buddies in the style to which they had become accustomed, now they decide to prove that they care about fiscal responsibility. In the middle of the worst downturn in half a century. Thanks a million.

Here's my favorite quote from the whole mess:

""We simply cannot ask the American taxpayer to subsidize failure," said Sen. McConnell."

Whyever not? We pay his salary, don't we?

Comments

[bedtimeforbonzo]

Gary, it is probably unfair to single out Reid and Pelosi on the bailout thing. I mean, all of them -- Dems, Republicans, Independents -- seem to have been asleep at the wheel ever since the Merrill Lynch blow-up.

They never really gave a coherent explanation to the American public as to what exactly was wrong and why exactly so many billions of dollars were needed to fix things.

Just as Congress seemed to be transfixed by Greenspan all of those years as if he was some kind of Money Buddha, they reacted in a similar manner to Paulson.

It's funny that Congress gave Paulson and Wall Street a blank check, but already, from watching the Sunday morning news shows and the like -- and we're talking specifically about the GOP here -- are already sending signals about how unholy (is that the right word?) that Obama's stimulus-plan-in-the-making is going to be.

Unfortunately, the Age of Obama must succeed in the Age of the Double Standard or we are all fncked.

(I don't know what's going on but I've been posting with a torrent of typos, which I hate, even though I almost always hit the "Preview" button. The eyes aren't going, but they definitely are not sharp lately.)