By on December 11, 2008

The New York Times is reporting that the auto bailout bill passed by the House “appears dead in the Senate” today. Opposition from Republican senators is well summarized in an op-ed by Senator Bob Corker in today’s Detroit News. But another reason the bill might fail has emerged only recently, as the Times also reports that the House version of the bill was packed with pork shortly before passage. A provision in the bill asks the government to help municipal transit agencies by guaranteeing the economics of a complex tax shelter known as SILO (Sale In, Lease Out), despite years of efforts by the Treasury Department and the Internal Revenue Service to shut it down and collect billions of dollars of unpaid taxes, interest and penalties. SILO involves buying and then leasing back depreciation rights and assets at the transit agencies, in yet another poorly-understood derivatives scheme. According to the Times “Many of the deals are faltering because of the credit crisis and have put the agencies at risk of having to make large payments to banks and insurers. Last month, the agencies asked the government to back their role in the deals. The I.R.S., which banned the shelter in 2004, offered a so-called amnesty in August to more than 45 corporations that engaged in more than 1,000 Silo deals involving municipal property.” The House bailout bill also includes a cost-of-living pay increase for Federal district judges, reports the Wall Street Journal. In lieu of (what might be an all-too obvious) editorial commentary, let me simply say that if and when this bill fails, the world will not end. The American economy is incredibly resilient, and real opportunities will arise from the creative destruction of a GM reorganization. It won’t be easy, but it couldn’t be more necessary. Good afternoon, and good luck.

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24 Comments on “Bailout Watch 282: Bailout D.O.A. in Senate. For Now....”


  • avatar
    Detroit-Iron

    Usually pork is attached to “must pass” bills like defense appropriations and medicaid. Whoever thought it would be a good idea to pin their hopes on this dead turkey should be fired.

  • avatar

    Damn congressmen and their amendments!

    Sad they can’t keep their cooties off something at least -a little- pressing.

    Business >> Government.

  • avatar
    CarnotCycle

    Considering that the bail-out itself is kind of a big pork earmark for Michigan “special interests,” this is fitting.

  • avatar
    EricTheOracle

    A few days ago I made a stupid video for my bearish friends. http://www.youtube.com/watch?v=eFKarCMxChA

  • avatar
    gamper

    You are giving the Republican Senators too much credit. Perhaps there is simply “not enough” Pork for their liking. Thus, the bill will be burdoned with yet more pork from the Senate Republicans, pass both houses and get signed into law. Those darned Republicans and their high and mighty principles.

    The Republican Senators opposing the bill have their price, it just hasnt been made public what that price is.

  • avatar
    johnthacker

    SILO involves buying and then leasing back depreciation rights and assets at the transit agencies, in yet another poorly-understood derivatives scheme.

    SILO isn’t that difficult to understand. Businesses can deduct the depreciation of assets from their income taxes; government agencies and other non-profits that don’t pay income taxes can’t. The transit cars depreciate. Some bright person at a transit agency (or the DoT) realized, “Hmm, if a private business owned our transit cars, they could get a tax break. What if we sell them the cars and then lease them right back for what we sold them for? Then the company we sold them to would get a tax break, but we’d otherwise be even. Well, then we’ll do that but we’ll make sure to ask for our share of the tax break.”

    It’s particularly ridiculous in the case of public agencies. Since they can’t get $50 million from the government directly, they instead create a $100 million tax break, taking half of it for themselves and giving half to the lucky company that “owns” the transit vehicles. It’s obviously worse from the government’s perspective than just giving them the money.

    These deals have previously been declared illegal, but existing ones were allowed to go on. However, the financial crisis affected this– and AIG was also guarantor on a lot of these deals. AIG (and others) needed money, so they asked to cancel the deals and return the cars, which was allowed under the contracts. But now the transit agencies have to come to grips with suddenly losing their revenue stream from the tax deal.

  • avatar
    Edward Niedermeyer

    Thanks johnthacker. Poorly-understood no more!

  • avatar
    Steve_S

    Seriously so when Chrysler goes down can I get a Challenger SRT for like $15-20k?

  • avatar
    Albnyc

    Explain to me again how these guys get voted into office? Oh, wait, it’s us, isn’t it?

    Damn.

    Seriously, what do you expect from a society that can’t say “No?”

    Prediction: Much Pain, both physical and existential.

  • avatar
    snabster

    The SILO deals are a serious problem. Yes, they should have been illegal. But once the termination clauses were triggered you had a real opportunity to extract billions from transit agencies.

    AIG didn’t renege — it is just that once AIG was taken over that automatically triggered termination clauses. There is only one company that can do the guarantees besides AIG (some element of Berkshire Hathaway) so there is a good-faith argument for having the USG step in and sign on the dotted line. There is little financial risk to USG — I mean we’re providing those transit systems with our gas tax money anyway, no.

    And gamper is correct — there are a few Democrats and Republican senators who want some more goodies. You really think 5 republican senators are going to filibuster this deal? Really? All GM has to do is wait until Saturday, announce (in concert with suppliers and dealers) that is planing to fire 200K people, and watch several trillion dollars melt away from people 401(k). Those senators will shut up real fast.

    I’m not saying it is right, just saying that is how politics works. Somebody is looking for more crumbs.

  • avatar
    tesla deathwatcher

    Trust politicians to load down an emergency bill with all kinds of crap that never gets a fair hearing. I couldn’t believe that the original $25 billion in loans for making “green” cars got put on the $700 billion financial bailout. Now Congress has an emergency session to bail out the carmakers and we get pay raises for federal judges and the blessing of an abusive tax shelter.

    Shame on all these politicians. As Henry Kissinger said, 90% of politicians give the other 10% a bad reputation. I’m beginning to wonder if any of them have any shame.

  • avatar
    autonut

    NYTimes is hardly republican paper. And if they NOTICED pork, it must all pure pork. Please explain to me what is wrong with Republican proposal?
    Then again, perhaps captains of industry can survive on their professional acumen and leave our taxes for road upkeep.

  • avatar
    psarhjinian

    Business >> Government.

    Unless those are shell pipe characters, I think what you want is Business == Government.

  • avatar
    Robbie

    Amazing. The White House wants this thrown at Obama as an unresolvable puzzle (four years of ever-increasing subsidies? admit defeat and let them go bankrupt?) and I would think the Senate Republicans would go along. Instead, Republicans for the first time in eight years act economically responsible even in the face of possible voter anger… it’s a strange world !

  • avatar
    Droid800

    @Robbie

    Plenty of them didn’t want the $700 billion either.

    The problem here is that these companies should be allowed to fail, and a lot of these republicans that have worked in big business (like Corker) know that any government aid will be like putting a band-aid on a shotgun wound. They can’t stomach any aid, because they know that they’ll be back in 6 months or less asking for $20-$30 billion more, and little will have changed.

  • avatar
    Adub

    Here’s the real truth:

    Barney Frank on Auto Bailouts

    http://www.cbsnews.com/stories/2008/12/11/60minutes/main4663945.shtml

    “No. We’re not propping up companies. That’s your mistake,” he tells Stahl, who had asked him about taxpayer money going to prop up companies that had made bad decisions. “We’re propping up individuals. The world doesn’t consist of companies. The world is people. The country is people.”

    When Stahl points out that Frank is then talking about welfare, he responds, “Yeah, I’m for welfare. You’re not? Are you for letting people starve?”

    Enjoy your welfare!

  • avatar
    Justin Berkowitz

    Adub:
    When Stahl points out that Frank is then talking about welfare, he responds, “Yeah, I’m for welfare. You’re not? Are you for letting people starve?”

    Agree or disagree, I appreciate him being straightforward. I grow tired of eight years of Bush claiming to be a fiscal conservative and then doing the exact opposite.

  • avatar

    @psharnnninininijjjaiiaiiaannn: Very Funny, Commie.
    very funny…

  • avatar
    kurtamaxxguy

    As of 8:31 PT, the auto bail out bill died in the Senate. The Senate Republicans demanded the UAW take wage concessions to match Foreign auto manufacturers, the Democrats said no, and the bill died in procedural voting.

    Reuters predicts there will be no Congressional action this year. The decision now lies with Secretary Paulson on whether or not to use TARP funds to help the industry.

  • avatar

    As of 8:31 PT, the auto bail out bill died in the Senate.

    You gotta think what Wagoner really thinks of this.
    Under the proposal he’d keep the company but lose his golden parachute (and his testicles will be impounded by the new car Czar). If GM goes Tango Uniform he floats off to a retirement villa in Antigua. If it were me, I’d do a lousy job in front of Congress while simultaneously picking out a good selection of flowery short sleeve shirts at Macy’s.

  • avatar

    (putting this in the right thread)

    I’m not a union basher, and I’m not a corporate shill – I enjoy experiencing excellent products, and I hate shoddy workmanship.

    Many years ago, after having spent some time in Europe, I traveled to the US, got inside a GM vehicle, and thought WTF? The handling, the interior, the bodywork, the controls … everything was a grade back, a step down.
    On each subsequent leap back and forth across the Atlantic, I would notice the following:

    In Europe, automakers were also succumbing to the need to skimp. Yet they had competing products from Asia breathing down their necks; and there were more carmakers in Europe, that weren’t part of a conglomerate, which forced the various companies to not downgrade too much.
    Whereas in the US, whenever I returned, the cars were taken down another notch, and then another, and then another.

    And Detroit ignored that US consumers could have my experience, clearly believing shoppers would be patriots, or something. All consumers had to do was to step inside a Japanese car. Toyota and Honda had understood that by adding a couple of hundred dollars to the interior, and providing “free” bells and whistles, as well as a “we’ll fix that” when something went wrong, they would outdo the US cars on perception. While the accountants at GM would go hunting for another 25¢ to cut, anywhere, and institute Nuclear Strength Insults as a model for customer relationships.
    And let’s not even consider what US consumers thought when they got inside a BMW, Mercedes, or Lexus – selling at what GM thought was a fair price for a Cadillac.

    A company is healthy when you’re lusting for its products.
    It’s going to take a hell of a lot more than a bridge loan for anyone to begin lusting for GM’s offerings again – it’s going to take years, and then some.
    And the best outcome is probably that this Mastodon company gets broken up, and that entrepreneurs (some the underlings at GM who have solutions ready) rearrange the plants, engineers, designers and workers into new, functioning and rationally operated units.
    Smaller, leaner and more future-oriented than GM the bean counter became. When a company spends a lot of time fighting legislation that seeks to improve its products, then that company has lost its lustre – and lustre is what makes me plonk down extra cash, above the average going rate in a product category.

    If the Detroit 3 were the only companies making cars, then helping them out might make sense, while still being inordinately costly (and 14 billion is chump change compared to what it’s really going to cost to raise these Leviathans from the bottom of the sea.)

    GM’s game of (self)deception seems to have caught up with them. I think what’s happened is terrible, but it was also apparently inevitable, they were that delusional. (Just follow Lutz’ various pronouncements on hybrid technologies over the past years …)

    We can spend a lot of money trying to fix the broken bones of the elephant which walked off a cliff, or we can release a lot of limber cheetahs into the wild, with the same money.

  • avatar

    Steven Chu, the incoming Secretary of Energy, to the New Yorker.

    Take it out of the hands of the lobbyists, and give it to the engineers, then you’ll see improvements.

    He uses refrigerators as an example:
    http://www.newyorker.com/online/blogs/tny/2008/12/note-to-detroit-consider-the-r.html
    Refrigerators consume a lot of energy; all alone, they account for almost fifteen per cent of the average home’s electricity use. In the mid nineteen-seventies, California—the state Chu now lives in—set about establishing the country’s first refrigerator-efficiency standards. Refrigerator manufacturers, of course, fought them. The standards couldn’t be met, they said, at anything like a price consumers could afford. California imposed the standards anyway, and then what happened, as Chu observed, is that “the manufacturers had to assign the job to the engineers, instead of to the lobbyists.” The following decade, standards were imposed for refrigerators nationwide. Since then, the size of the average American refrigerator has increased by more than ten per cent, while the price, in inflation-adjusted dollars, has been cut in half. Meanwhile, energy use has dropped by two-thirds.

    The transition to more efficient fridges, Chu pointed out, has saved the equivalent of all the energy generated in the United States by wind turbines and solar cells. “I cannot impress upon you how important energy efficiency is,” he said.

    GM spent more time and resources lobbying against change, than they did on changing their technology in a direction consumers would find attractive. QED.

  • avatar
    ronin

    Everybody already knew that the bailout would do absolutely nothing to increase sales of too-expensive cars.

    Everybody always already knew this bailout would do nothing beyond a couple months, unless it was the harbinger of perpetual rolling layouts.

    It didn’t matter, cuz Congress always knew the bailout was about pork to the UAW; payback to unions for very strong Dem support- monetary and influence and working- in the last few elections.

    The unions chose their sides. And instead of rolling over the Republicans told them too bad so sad.

    This is what happens when you pay brinksmanship in the big leagues.

    Hopefully this breaks the back of the UAW, to the benefit of workers and consumers who would actually like to buy an affordable American car.

    If it turns out later that labor is treated badly, they can always choose to form another union. Just like labor at the Toyota, Honda, Hyundai, BMW, Nissan, Subaru, etc etc plants in the US did.

  • avatar
    jolo

    This is a great time to file for chapter 11. This is December, when car sales are low anyway. Let them get the judge to issue the marching orders and let their PR folks remind people that it will be alright to buy from their cars because the government will back up their warranties. By the time January and February come around, when people start considering new cars, everything will be in order and they will not see too much of a drop, at least not much more than what has been happening for decades.

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