$700b Bailout May– Or May Not– Include Bad Auto Loans

Robert Farago
by Robert Farago
700b bailout may 8211 or may not 8211 include bad auto loans

The logic of fixing the effects of over-liberal lending with a $700b “loan” from U.S. taxpayers– which includes enough boondogglage to keep the snack food industry in pork rinds for a thousand years– escapes me. But one thing is for sure: Motown’s magnates viewed the bailout bill important enough to mount a massive muscle flexing campaign to assure its passage. We’ve already published GM CEO Rick Wagoner’s pre-vote SOS to dealers. The Detroit News now reveals that ChryCo CEO Bob Nardelli called all MI’s reps and provided his employees with a toll-free 800 number to do the same. And just as the $25b Department of Energy low-interest auto industry loans, this is not a done deal. “While the department made no promises, [Representative] Knollenberg got a letter Friday from the Treasury Department. It confirmed that ‘automobile loans can be purchased in circumstances where the secretary and chairman of the Federal Reserve conclude that doing so would be necessary to promote financial market stability,’ wrote Kevin Fromer, assistant secretary for legislative affairs at the Treasury Department, in a letter obtained by The Detroit News.'” The DetN reveals the stakes. “Nearly 4 in 10 auto buyers have been unable to get financing for new vehicles, because of tougher requirements from lenders. A survey released this week said 64 percent of new car buyers had been approved for loans through Sept. 20 this year, down from 83 percent during the same period last year” And this is a bad thing because? Oh right, bad paper is good for business.

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  • Tommy Yoo Tommy Yoo on Oct 05, 2008

    The fact of the matter is - bad credit used to prop a business up should not exist. Would it be such a bad thing to have independent financing and sales for cars?

  • Landcrusher Landcrusher on Oct 05, 2008

    Come on psar, that is too easy. You say to leave partisanship at the door, and throw out the liberal perspective on what happened. How about this version. A bunch of socialists warped the system of home loans in an attempt at social engineering and "fairness". Their method took away the only long term incentive that appraisers and mortgage originators had for acting with scruples. The market demanded large volumes of loans without regards to quality, and that's what the market got. The market wanted that because of a nasty combo of REGULATION. That's correct, REGULATION. There was no lack of regulation anywhere in the process, only the sheer hubris of a bunch of people who thought they could tweak the system a little bit without it breaking. Well, guess what, TINSTAAFL raises it's ugly head, and BAM - crisis. The banks got bullied into making loans that didn't want to make on grounds of redlining. Maybe it was racism, maybe it wasn't, but it didn't end there. Then you get the F&F sisters, securitizing loans to resell as investment vehicles. Only problem here is that the appraisers and originators used to depend on their reputation for ethical and diligent work to stay in business. If they sold a bank a bunch of bad loans, it would come around to bite them. But, NO MORE. Nope, now, the guys who get stuck with the bad paper are so far down the chain, they can't figure out who the bad guys were. At the same time, you stick a bit of good old fashioned REGULATION into the stew again by limiting the number of firms who are approved to rate the securities to a small, fat, and lazy oligopoly instead of doing the American thing and setting a standard that anyone who wants to play has to meet. The finance people get a bit of this crack, and they can't stop. They buy used toilet paper, and resell it as if it were dollar bills. Hell, they even use their own crack to boost their own books. All the while, the REGULATORS approve. Was their greed involved - HELL YES. That's what the system is supposed to COUNT ON. That's what all these social engineers on the left don't get. (The ones on the right get it, but think they are smart enough to game the system.) If the only thing stopping cheaters is fear of getting caught, we might as well stock up on beans and bullets. America works best when honesty and hard work are the more reliable paths to prosperity. We learn this because failure to play along means misery, poverty, shame, and possibly jail. Taking away that lesson is not free, or even cheap. Governance WAS done, the market was NOT allowed to run it's course. All was fine until they tried to FIX it to get something for nothing. The players were reassured by the regulators. Had the players not had such reassurance, THAT would have been lack of regulation, and it may have all never happened because the guys in charge would likely never have accepted the risk. I am no laissez-faire proponent. It cannot, and never will work. But messing with the markets is playing with fire. Too bad the guys who did it are not the ones who are going to get burnt.

  • Nudave Nudave on Oct 06, 2008

    Compared to what's being pissed away in Iraq, this entire bailout is chicken-feed. And for those families whose son/daughter/husband/wife/brother/sister didn't/won't return alive, they will never "recoup their investment".

  • Robert Farago Robert Farago on Oct 06, 2008

    nudave: Moral relativism is bad enough. Financial relativism, with my taxes, is worse.