By on December 16, 2008

It seems scarcely credible that GM and Chrysler’s fate– or lack thereof– now rests entirely in the hands of The President of the United States. Or, more precisely, his staff. Who, according to The Wall Street Journal, “spent the weekend poring over the auto makers’ books to assess their financial needs.” Which, to my mind, is a bit like saying they’re pawing over the automakers’ entrails. Of course, I would never stoop that low, busy as I am wetting my metaphorical finger and sticking it into the rarified air of the autoblogosphere, trying to divine which way the Divine Wind is blowing. Ominously, The Journal reports “The administration is trying to determine how much money it will take to help the car companies, and is discussing a rescue totaling $10 billion to $40 billion or more.” Sneaking in $14b or so from the remaindeer [sic] of the much-vilified $700b Troubled Asset Relief Program by executive fiat to shove this mess on Messr. Obama’s plate is one thing. Finding 40 billion dollars or more for the failed automakers is quite another. In other words, there are only two ways this thing can go. Either a short term “bridge loan to nowhere” or…

“Two people familiar with the situation said the government is also considering requiring any auto makers seeking aid to file for bankruptcy. Under such a scenario, the money would be used as so-called debtor-in-possession financing. Outside experts said such financing could require $50 billion or more for GM and Chrysler combined.”

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36 Comments on “Bailout Watch 292: Yeah, Too Quiet…...”


  • avatar
    Robert Frankfurter

    Mr. Farago please help me

    Kindly point me to the sentence in the constitution mentioning in any form a government takeover, bailout of a private entity directed by The President of the United States.

    if only a word
    a hint
    something wildly interpretable in that very direction

    I was going over the constitution and did not find anything.

    So the great fathers of the constitution had probably something in mind not letting a communistic manifest to be included.

  • avatar
    JG

    On second thought, maybe they’ve been doing pretty well following the constitution. (prior comments to the contrary removed…)

  • avatar
    dgduris

    It was mooted by one of the Sunday morning pundits that relief under (the) TARP may not be a bad thing as, I guess, Paulson gets to set the rules. The thought was, that the rules he would set would be very much along the lines of what Bob Corker wanted – labor cost parity between the Big 2.8 and the foreign auto “assemblers” operating here in ‘merica.

    Personally, I am all for the U.S. auto industry doing what it takes to be competitive…and off the Federal dole. I wish I was sure that they for that too.

  • avatar
    dwford

    Constitution? What’s that?

  • avatar
    John R

    As of late Bush has had some good reflexes. I’m keeping my shoe off the safety…

  • avatar
    psarhjinian

    Constitution? What’s that?

    It’s just a goddamn piece of paper!

  • avatar

    Constitution? What’s that?

    It’s just a goddamn piece of paper!

    Constitution: (noun) 1. Use as a scapegoat when needed (the law is unconstitutional).

    2. Ignore otherwise: see executive order

    John

  • avatar
    CarnotCycle

    Even putting the Constitution aside, the TARP bill specifies only financial companies get the Patriot Crack.

    That could open the way for an injunction from a judge blocking disbursement of said crack to the automotive addicts via some good lawyering. I do not know if that is possible, but anything is legally possible at this point, given the irrelevance of the Constitution cited earlier.

    I’m no lawyer, would such a legal challenge be possible?

  • avatar
    vitek

    Question of constitution is a good one. If I remember right the legislature has power to appropriate funds and can give power to exec to disburse them. Therefore TARP as a source of funds.

    Injunction proceeding would also be a hoot. One issue for the court will be to weigh “irreparable harm” to the parties, i.e. harm that later can not be undone by damages, etc. The plaintiff’s argument will be “if the money is disbursed, its down a rathole, never to be gotten back from a bankrupt company”. GM’s argument will be ” if we don’t get the transfusion now, we can’t get out of the rathole and will be forced into bankruptcy”.

  • avatar
    tesla deathwatcher

    The White House will probably find a way to get the money to the car companies that will stand up fairly well. But you are right, CarnotCycle, that a good lawyer could also find a good argument for an injunction against a bailout.

    Many of the provisions of the House bill are legally suspect. The government cannot just move its debt to the most senior position. Outside of bankruptcy, that is not allowed.

    Whether anyone would find a reason to fight any of this is an open question. You would need legal standing, and it is not clear who would have that. But most of all you would need a lot of money. I can’t think of anyone who would have both motive and money to mount a challenge.

    I seem to hear more and more about the White House considering debtor-in-possession financing after a bankruptcy. That seems like the smartest move for a variety of reasons, including the fact that legally it has the strongest legs.

  • avatar
    autonut

    Well, I am not a lawyer either, I am just paying sky high tuition for one of mine offspring to become a good lawyer. However, good or bad lawyer will not get involved until someone will put a retainer out. Who would challenge this illegal move? Who has enough scratch? And why?

  • avatar
    Justin Berkowitz

    Those short barreled Taurus .45s can be hard to handle (same goes for most compact .45s). It’s sort of like an AC Cobra, but it makes your hands hurt more.

  • avatar
    AG

    Consti-NATIONALSECURITYNATIONALSECURITYNATIONALSECURITY!!!!!

    There, that shut ’em up.

  • avatar
    CarnotCycle

    Who would challenge this illegal move? Who has enough scratch? And why?

    That is an interesting question. Some candidates:

    Ex-Oldsmobile dealers and fans of the marque (they’re not all dead yet) who are I can guarantee chuckling away at this mess and want to see GM die. They could bandy together and form some 527 perversely named the “Friends of Detroit” or “Defenders of Profitable Auto-making in America.”

    Maybe some peer of Cerberus: Somebody wants to make them bleed a little on the relative cheap…Blackstone Group? Nah, all those guys sleep together.

    Enemies of Card-Check: Nothing would slow down the procedural progress of Card-Check legislation and its eventual political acceptance than lighting a brush fire in Big Labor’s pants to distract them from that goal. Stripping away the UAW’s entrenchment via bankruptcy would be that brush fire.

    Big Labor would have to plow a lot of organization, dough, and Donkey-sourced political favors in the ensuing legal battle, before Card Check even showed up on the Congressional docket for a vote…again on the relative cheap.

    One more candidate…Baling 3’s currently senior creditors who stand to get placed in the back of the line (and therefore probably a total loss of their capital) by government tinkering.

  • avatar
    Conslaw

    I am an attorney, and I can tell you that it is an interesting Constitutional claim, but I’m not sure who would have standing to bring the suit.

    From a separation of powers standpoint, it’s disturbing that the President would be relying on a very stretched definition of “financial institution” to do exactly the same thing that just a week before did not get enough votes to pass Congress.

  • avatar

    Question of constitution is a good one. If I remember right the legislature has power to appropriate funds and can give power to exec to disburse them. Therefore TARP as a source of funds.

    In the congressional hearings both legislators and economists agreed that the administration was already empowered through the Fed, TARP and 136 funding legislation to give loans to the car companies. Bernanke says he doesn’t want to do it from the Fed’s money, but he hasn’t said that the law prohibits such action.

    I suppose some Paulian lawyers could litigate, but then lawyers don’t need much of an excuse to litigate. Speaking of lawyers, it’s possible that product liability costs GM more than legacy benefits for retirees.

  • avatar
    CarnotCycle

    In the congressional hearings both legislators and economists agreed that the administration was already empowered through the Fed, TARP and 136 funding legislation to give loans to the car companies.

    Hmmmm…everyone in Washington agreeing amongst themselves that they have whatever power is mentioned? Stop the presses.

  • avatar
    autonut

    Justin, 9mm will kill as much as .45. You don’t have to hurt your hands while killing someone :)

  • avatar
    CarnotCycle

    Speaking of lawyers, it’s possible that product liability costs GM more than legacy benefits for retirees.

    This could be true. But such product liability is as much an albatross on the transplants’ business costs as on Detroit’s, I don’t think the Bailing Three are stuck in some tobacco-type settlement exclusive to them and not the foreign car makers. I can think of a couple lawyer-bombs on foreign makes off the top of my head like the Audi people-stepping-on-the-wrong-pedal schtick that was trial-lawyer nirvana in the late eighties or that strange tort-treasure of a sex-harassment or racism suit at some stateside Mitsubishi plant a few years back.

  • avatar
    Luther

    Exactly right Conslaw…We actually live in a democratic dictatorship where the Establishment chooses the thieving scum we get to vote for.

    legally, Bush cannot use the TARP money to bail out D3…But who/what will stop him?

  • avatar
    no_slushbox

    People will buy Chapter 11 cars:

    http://online.wsj.com/article/SB122945959903711541.html

  • avatar
    twonius

    Ok, so what if they do spend the tarp money. The treasury is down to their last 15billion, and they can’t get the next 350 until congress approves it.

    So what happens if some other bank needs money during Congress’ extended holiday? They have to bring everyone back together and vote on a Sunday? Sweet. Can they use Detroit’s old private jets to get the D.C?

  • avatar
    Redbarchetta

    Where is this so called $40 billion coming from, White house petty cash? If he only has $15b left of TARP what is he going to do print the money, that would royally piss me off. Devalue my money even more to help keep GM alive, f*ck them.

    Justin and autonut, it really depends on the gun, Taurus’ in general are kind of cheap guns. I have shot some 9mm that had more of a felt recoil than my 3.5″ .45 Para. Great gun but punishing after about 200 rounds. The Glock subcompact 45 has a very light recoil for the gun size and weight. It all comes down to shot placement when the sh*t hits the fan and you need to use it, bigger can be better if you can make each shot count. I downsized from the .45 to my CZ82(9mm Makarov) for my carry because it’s lighter on my hip and follow up shots are more accurate, plus its a hi-cap. I do miss those big fat holes the .45 used to make.

    Hoping to get myself a new gun for Christmas before Obama makes gun prices go up even higher, a five7 would be nice. There have been shortages on anything he might ban already just because he got elected, AKs, ARs, etc.

    Back to cars, does anyone know when we will hear the details of this plan. This better not be something he tries to sneak past the public, things have been kind of quiet.

  • avatar
    Qwerty

    From a separation of powers standpoint, it’s disturbing that the President would be relying on a very stretched definition of “financial institution” to do exactly the same thing that just a week before did not get enough votes to pass Congress.

    This is the president who stretched the definition of torture to exclude anything that does cause death or organ failure. How would you like to be interrogated under those rules? Dubya won’t have much of a problem figuring out a “legal” way to get money to Detroit.

    It is more disturbing that the Big Three have sunk to such a leval that they now have to rely on the most incompetent president in a hundred and fifty years for their survival. If that is not a sign that it’s over, I don’t know what is.

  • avatar
    Robert Frankfurter

    Redbarchetta :
    December 16th, 2008 at 6:10 pm
    Hoping to get myself a new gun for Christmas before Obama makes gun prices go up even higher,

    Your gun collections details are now known to a broader auditorium even nobody asked- would you now share your collection of scientific literature and good books you love most please?

    Only one gun manual or indeed a second book?
    Cant wait…

  • avatar
    John Horner

    The track record of Bush’s staff on issues of import makes Rick Wagoner look like the man of the year.

    @ Robert Frankfurter: The federal government has driven freight trains though the “regulation of interstate commerce” section of the US Constitution.

  • avatar
    PeteMoran

    @ no_slushbox

    Our people sat gobsmacked on a Wagoner quarter “results” conference call where he conceded that “yes, GM might run out of cash”, as in insolvent. The CEO? He confirms it???

    Then he went to Washington and said people wouldn’t buy from a bankrupt automaker.

    None of the geniuses on the committee benches asked the obvious; what are you doing right now to combat the perception that you might be bankrupt anyway or well on the way?

    During that month, GM/Chrysler sales dived harder than the others.

    So the reportage and range of thought of this issue has been terrible. What is the difference being “nearly bankrupt” and “Chapter 11” for buyers? Once you recognise the problem is just about identical, what do you do to attend to it??

    It’s unfortunate that GM’s whole plea seemed to revolve around one “truth” that no-one really pushed hard on.

    I think even Congress expect they can’t be rescued, but are just aiming for that soft landing on unemployment. It’s gonna’ be an expensive way to do it.

  • avatar
    Robert Frankfurter

    The core truth is that for way too long Detroit made too many cars that too many people did not want to buy.

    No government intervention can ever bring relieve or save anything.
    But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.

  • avatar
    allen5h

    $700 billion, with no transparency whatsoever, for the bankers; $14-$40 billion DP for American Leyland; $50 billion to make the Norheastern elitist establishment whole from Madoff.

    Where does this all end? How many trillions do we spend borrow bailing out stupid people and entities that need to die a fast, dignified death?

    Maybe the way to fix everything is to simply default on all government bonds, declare the dollar worthless, and start all over with new Federal Reserve Notes?

  • avatar
    Robert Frankfurter

    allen5h :
    December 16th, 2008 at 8:32 pm

    Maybe the way to fix everything is to simply default on all government bonds, declare the dollar worthless, and start all over with new Federal Reserve Notes?

    Probably the only way out.
    But that time secured, as in former times by the Bretton Woods system secured in gold. If Bretton Woods would have been in place until today, scams in such a form would be practically impossible.

  • avatar
    Qwerty

    Maybe the way to fix everything is to simply default on all government bonds, declare the dollar worthless, and start all over with new Federal Reserve Notes?

    We could switch to pesos and forget this whole dollar thing ever happened. If the bondholders want their money back, we can pull a George Castanza and send them a check that we forgot to sign.

  • avatar
    50merc

    John Horner: “The federal government has driven freight trains though the “regulation of interstate commerce” section of the US Constitution.”

    Yep, the reality is that the Supreme Court and history have given Washington a LOT of flexibility to decide what can and should be done. Years ago I used a great little book, called “Executive Spending Power” (IIRC). Lots of interesting stuff, like how retroactive authority kept Army troops and horses fed on the frontier, or how LBJ bought helicopters for Egypt with “Food For Peace” funds.

    Qwerty: “How would you like to be interrogated under those rules?”

    Well, I wouldn’t. But it isn’t about me. I don’t hang out with guys who think suicide vests are the height of fashion. And it doesn’t bother me a bit if such slime are given treatment that’s as tough as the training exercises given our defenders. By the way, what does that have to do with bailing out Detroit, or the president’s and Congress’ thinking on the issue? May I suggest your political critiques will be very welcome over at the Huffington Post?

  • avatar
    mtypex

    $40 billion here and there, and soon you’re talking real money. Or not. Paper money, paper constitution.

    Job One for GeneralChrysler NancyPelosi Motors: Build a car twice as crappy as a Chrysler Sebring with Saturn ION interior. I dare you.

  • avatar
    Redbarchetta

    Robert Frankfurter someone has a bug up their a$$ about guns or you just don’t like what I wrote for some reason. I love the way you instantly label me as some illiterate redneck because I own a few guns, without even knowing me. I’ll humor you anyway.

    Really enjoyed “Tesla – Man Out of Time” by Margaret Cheney, currently reading “Hyperspace” by Michio Kaku and “The Cosmic Serpent” by Jeremy Narby. I also really enjoyed “State of Fear” by Michael Crichton. I have actually read all his books, real shame he just passed away. And I have a bunch of Architectural Record, woodworking, and LEED books and magazines for work. Been wanting to find time to read some short stories from the Hemmingway book I found a few months back, hopefully with my daughter since she loves to read. Hope this satisfies you, not one gun manual in there. I unfortunately don’t get the time to read as much as I would like.

  • avatar
    Robert Frankfurter

    Redbarchetta :
    December 17th, 2008 at 1:20 am

    Robert Frankfurter someone has a bug…

    Ok ok ok
    Sorry –
    I see now your not the dump redneck I supposed but the opposite indeed.
    Take my sincere apology – btw – humor is indeed a medicine.
    That the reason we are her – fun & humor.
    Faragos texts are humorous, crying for publishing anyhow…

  • avatar
    Redbarchetta

    Robert Frankfurter Not a problem.

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