Bailout Watch 239: Moody's Chief Economist "$125b, But Do It Anyway"
Sadly C-Span‘s coverage of today’s Senate Banking Committee didn’t kick off with a red carpet arrival of America’s automotive future. Similarly, a longish hearing with only the GAO General Comptroller didn’t do much to raise the pulse. It seems that TARP funds are still rhetorically on the table, and some form of oversight board will go along with any bailout. In fact, the seventies were back in a big way, as the 1979 Chrysler bailout is referenced as a model on numerous occasions. As if Chrysler’s CEO weren’t sitting there asking for more money. MarketWatch reports that Comptroller Dodaro said the Federal Reserve also has authority under current law to lend money to the Big Three, if the Fed board of governors determined that the need is urgent and that the loans would be repaid. However, the Fed has determined that it cannot lend to the companies because the loans cannot be collateralized as required.
Then we had prepared statements which ranged from surly and defensive (Gettelfinger), to contrite and reborn ( Mulally), and from wildly optimistic ( Nardelli) to wildly pessimistic (JCI Boss Keith Wandell). But the only shocker so far has come from Moody’s Chief Economist Mark Zandi, who stated that the Detroit auto firms would need $75 to $125b to avoid bankruptcy over next several years. He argues that reorganization is absoloutly necessary, but that it would be “better” if it didn’t happen in bankruptcy court, and thus he is in favor of the bridge loans. What, does this guy not pay taxes? Anyway, this issue is dominating the questioning as the hearings go on, so we’ll keep you posted as more answers come in.
Update: The Freep has excerpts from the witnesses’ statements.
More by Edward Niedermeyer
Comments
Join the conversation
The best comment so far was Sen. Bennett pointing out to the comptroller that one of the obstacles to GM restructuring its debt was that bond holders wanted the bonds paid, not replaced with equity. Bennett noted that many, if not most of the bond holders are the same financial institutions that are getting large amounts of money from the TARP, so why not tell them that if the swap bonds for stock, the TARP will give them enough money to cover the difference on their balance sheets. Gene Dodaro, the acting comptroller general for Congress' GAO, replied saying it was an intriguing idea.
Just to be clear, Mark Zandi is not Moody's chief economist. He's the head economist for Moody's Economy.com. Economy.com was a separate consulting agency before being bought by Moody a few years ago, and I highly doubt he does any of the credit rating BS. Sounds like an accurate number to me - take what they need to get through the next couple months and double or triple it.
Nardelli needs some serious PR. As Corker pointed out, there is a snowball's chance that Congress will give money to a private company that has billions in cash under the mattress but wont spend it (sorry, unless they are a bank). I predict GM gets $4B to hold them over until March, Ford "passes" in order to avoid forced restructuring, and Chrysler gets left to twist in the wind. Who says they all have to get the same?
Zandi's figures include the $25 billion already allocated. Add $34 billion they asked for today and you get $59 billion. He said they'd need a total of $75 to $125 billion total, meaning if they get the $34 billion they're asking for now, they could potentially need an additional $16 - $66 billion. While that's a lot of money, it's not $125 billion.