Aporkalypse Now: End Game
Hear that sound? It’s the fat lady singing a dirge for $7.5b of taxpayer money ($25b at risk in total). It’s now as good as spent on a few undeserving automakers. Industry executives and union bosses alike are celebrating their lobbying victory, ignoring their still-dire position for the glorious moment. Congress may have made with the cash in short order, but they aren’t rid of the freeloaders just yet. In fact, no sooner had the ink dried on President Bush’s signature on HR2638 than industry backers were telling the media what TTAC has surmised all along: $25b is only the first step. In its first story on the new law, the Detroit News reports that “Michigan lawmakers plan to return next year to seek another $25 billion in loans for 2009 and 2010, and more flexibility in how the funds can be used.” And why wouldn’t they?
Last year, Congress passed the Energy Independence Act (EIA), directing the Department of Energy to supervise a $25b low-interest loan program to “retool” 20-year-old American factories to build fuel-efficient automobiles: vehicles that must be at least 25 percent more miserly than “similar models in their class.” Since then, with increasing desperation, Motown has been agitating for fewer and fewer strings attached.
Thanks to tireless industry lobbying efforts (and the electoral clout of Michigans pols), it looks like Motown will get its way. This bailout is shaping-up to be the least accountable giveaway since the 1993 Partnership for a New Generation of Vehicles– which ended-up costing taxpayers $1.25b and produced sweet F.A. for American consumers.
Now that the appropriation has been signed, the law goes into the part of the government that School House Rock didn’t tell you about: the regulatory process. Designating the loan program an “emergency requirement,” HR 2638 gives the Department of Energy 60 days to write the specific rules under which the loan program will be administered. This despite Energy Secretary Samuel Bodman’s assertion that it could take “six to 18 months” to award the loans.
To help Bodman draft regulations on such a short time frame, legislators have appropriated a further $10m for “outside consultants” and other professionals. (The EIA originally requested $100k to be spent on administrative costs, but Congress decided to multiply that number by 100.) In essence, American taxpayers will be spending the money to hire industry lobbyists to ensure that that the loan program rules are as weak and Detroit-serving as possible.
Not that there are even that many preconditions for the industry to gut. Other than the hundred-fold increase in administrative expenses and shortened regulatory period, HR2638 doesn’t add any caveats or terms. And lawmakers are already sending messages to regulators, going on the record to say that loans should not be capped at 30 percent of a given plants retooling cost, as originally written.
The upshot of this bailout: it’s custom-built to the needs of only three companies. Sure, there’s money set aside for companies employing fewer than 500 workers. But only ten percent of the total loan package. By not including the 30 percent project assistance cap, lawmakers have ensured that taxpayer funds will pay the entire retooling cost for several factories. This lack of diversification means the Federal Finance Bank will be heavily exposed to the success or failure of a few products and even fewer companies.
This is exactly what Detroit wanted. With the lions share of $25b invested in only three companies, the U.S. government will become a major stakeholder in three highly troubled firms. If those loans “work,” the D2.8 will come back for more. If Detroit’s woes deepen, the U.S. government will have no choice but to step in to further protect their our investment.
And the possible negative consequences are not limited to taxpayer liability for the success or failure of the D2.8, or even the opportunity costs of $7.5b. The loan program is so uniquely tailored to the needs of American firms that a free-trade dispute is not outside the realm of possibilities. There were distinct rumblings coming out of Paris last week, as European automakers intimated that their tolerance depended on a similar bailout across the pond. After another $50b of “more flexible” loans, and European Union intransigence, the other shoe will drop.
There is considerable irony here. As Rep. Sander Levin (D-MI) puts it, “it’s been a struggle here in Washington to secure acknowledgment that a domestic-based auto industry is vital for America.” If Detroit backers are complaining that there was significant opposition to this bailout, then where’s the beef?
Any number of conditions could have been attached to HR2638 to improve accountability, diversification of risk and economic benefits, or even limiting CEO pay during the loan term. Instead lawmakers tailor-made the loan program to Detroit’s specifications while complaining that nobody cares if the automakers live and die.
The chilling reality laid bare by this bailout is not that automakers can already get exactly what they want from DC. It’s that from here on out the going only gets easier. For Detroit, anyway.
AJ on Oct 09, 2008luscious : October 5th, 2008 at 10:41 am If you REALLY want to be little patriots, do your civic duty and buy a Honda Civic. I recently ordered a Civic Coupe! It should arrive sometime this month. Came down to that I don't want another UAW built vehicle for the party they tend to support. And I am a Jeep guy too.
Joeaverage on Oct 13, 2008
ra_pro: I think you made some really good points. I think another thing to notice is that the guys/gals at the top are making HUGE (GIGANITC) money compared to the average workers near the bottom. So how do you control greed without a Robin Hood tax scheme? While those of us working folks are getting by okay, earnings have risen at the top by leaps and bounds and earnings at the average Joe level are stagnating. I've never gotten much of a raise b/c the places I have worked have always told us "we just can't afford to pay you anymore" despite me getting very good evals. My increased wages have come only from changing employers. My friends report the same. Meanwhile the guys at the top do well... One small business proprietor I used work for during college was entertaining. She used to complain that she couldn't afford to pay us more than the penitence she did yet she vacationed in foreign lands, bought new Mercs/BMWs/Caddies annually and had a full range of toys in her garage. The answer was simple - she was greedy. None of us stayed there for too long. She didn't care if she had a high turnover. What is next in America? A society like the one that I saw in Venezuela - really rich and really poor and not much in between? Is this how a third political party arrives on the scene? I can't imagine the Libertarians doing much taxation of the rich...
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