Bailout Watch 272: Bernanke: "No Freaking Way"

Edward Niedermeyer
by Edward Niedermeyer

Bloomberg reports that Fed Chairman Ben Bernanke has ruled out any Fed loan to automakers. In a letter to Senate Banking Committee chair Chris Dodd, Bernanke questions whether automakers have “unencumbered assets of sufficient amount and quality” to qualify even for emergency aid. “Even if the companies have sufficient collateral,” continues Bernanke, “lending to an auto manufacturing company would represent a marked departure from that policy, and would take us into distinctly new realms of policymaking. In particular, it would raise the question as to whether the Federal Reserve should be involved in industrial policy, which has traditionally been outside the range of our responsibilities.” Bernanke identifies the “critical unknown” in the automakers’ plans as “their ability to develop and produce vehicles that the public wants to buy.” Even more tellingly, Bernanke says the Fed is “not able to verify” the assesments that GM and Chrysler can even survive on the $14b the say they need. Congress should consider a “range of possible policy actions” besides direct aid, including a government-assisted “orderly bankruptcy reorganization” according to the letter. While we scurry around looking for a full copy of this letter, consider this Bloomberg article titled “Democrats Tone Down Prediction of Automaker Bailout Approval.” It looks like we may have just taken another turn on this crazy roller-coaster ride, away from consensus on a $15b plan.

Edward Niedermeyer
Edward Niedermeyer

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  • Vozilka Vozilka on Dec 10, 2008
    Ronnie Schreiber wrote: Bottom line is the bottom line: Bernanke and Paulson are Wall Streeters. Some insolvent businesses are more equal than others. It is indeed true. Only the other way round. For the financial market and attached services, as lousy as they may work in the US (compared to in financial services far more developed countries) there is huge demand. Still. Therefore the business as a whole has a chance and is a business indeed worth saving. Logic. The US car industry can not shuffle their lousy product to the customer by any means - so they try to get money without product or service by state forced rectoskopy on the taxpayer. That business has proven to the market is a genetical loser. PLEASE! Let evolution have its way. Let them go c11 to be replaced in their niche by firmer, elegant and more clever one. Dont force feed a big dead horse - with my money! Some insolvent businesses are more different then others
  • Stein X Leikanger Stein X Leikanger on Dec 10, 2008

    Help me out here - what should get priority? The enemy is at the gate, and the threat is a total collapse of value assignment, without which the foundation for a lot of assets goes deep six. Behind the gate, at a healthy distance from the immediate onslaught, are a collection of car companies. Some doing well, though not as well as when credit was easily attained; some doing terribly, but they were doing disastrously before. Do you channel money towards propping up the perceived value set on capital transactions, in an attempt to salvage the wall -- or do you channel money into the hinterlands, where a trio of clueless automakers have been burning money for over a decade, while dissing the automakers who have been making money for "not getting it"? Just wondering. You can't compare the money going to AIG with the money going to Detroit. If AIG's insurances go belly-up, then your house (anyone's house) is worth 1/20 the next day, if we're lucky. If GM goes belly-up, that doesn't affect my housing value in the same way, unless I live in Michigan - where a house on a plot of land costs USD9.000-20.000 today.

  • CarnotCycle CarnotCycle on Dec 10, 2008

    I've personally been against any bail out for anything since the bail-out mania began back in September. However, bailing out the financials versus the auto companies are different critters. Saving the financials isn't about salvaging these individual firms, though that is the reality on the ground. This economy runs on credit and debt, not cash and savings. Its a defect but it is what it is. The American consumer was tapped out on debt two and even three years ago, but with the housing bubble there was always a new "asset" for a homeowner to borrow against so the party went on. Once that bubble popped, everyone realized that indeed, they WERE tapped out on debt. "Saving" the financial system is really more about trying to get Americans to assume more debt to keep the party going. That's why there's all the talk about politicians getting mad at the bailed-banks because they are not lending money "fast enough." The pols don't realize that maybe people are just tapped out and don't want more debt, but that means a recession...no way around it. But that's the gist with "saving the financial system." The D2.5 are there to save their own skins. As many people have noted, the collapse of the D2.5 does not mean a collapse of any strategic import relative to the United States. If Michigan sank in the lake tomorrow, America would still make cars, and America would still have the most sophisticated manufacturing base in the world. If southern Manhattan fell in the ocean tomorrow, there would be no more financial system in this country. The differences between the two are stark.

  • Martin B Martin B on Dec 10, 2008

    So taking a bunch of toxic mortgages, bundling them together and slapping a Triple-A rating on them is different from badge engineering, how? There are financial regulations because everyone knows: people get reckless with other peoples' money. Unfortunately, those regulations were allowed to slip, thanks to Greenspan and his stupid belief that bankers worry about their reputations, not their incomes. The only way to turn this around is for executives to keep hurting until their companies are back on the right path. That applies to Wall Street, Main Street, and Detroit.

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