By on March 17, 2009

Yes, I’m going to open this can of worms. Detroit News columnist Daniel Howes did so this morning—although his thoughts on Bonusgate somehow didn’t make it to the paper’s homepage. Howes’ main argument: how can the Obama administration claim that they had to pay $165M worth of executive bonuses because they were legally obliged to do so—when they’re happy to force Chrysler and GM to renegotiate legal contracts with the unions and bondholders as a precondition for double dipping at the bailout buffet? And you know what? He’s right, even if he somehow forgets the seven million [taxpayer] dollars ChrCyo and The General are spending for lobbying our legislators and, by extension, commander-in-chief.

Perpetuating this double standard — one set of rules for troubled Wall Street firms with a demonstrable record of fat campaign contributions and another for automakers with union labor and little clout in Washington — is arbitrary, indefensible and deserves the backlash buffeting Congress and the Obama administration.

And then, of course, Howes goes too far.

The issue, here in Detroit, isn’t whether GM’s business model is broken and in desperate need of repair, or that its debt load is unsustainable. All true. It’s that the federal government appears complicit in a campaign to dismantle a cornerstone of American manufacturing even as it allows taxpayer dollars to be rewarded to those at the epicenter of the global financial meltdown.

In this case, just because Howes is paranoid doesn’t mean the feds are out to get him (or his pals). Quite the contrary. They seem to be falling all over themselves to keep the zombie automakers out of bankruptcy court. Still, it’s hard to tell where Danny’s going with this one.

Union deals can be trashed if political critics demand it in exchange for federal loans. Executive employment contracts can be deemed worthless, as AIG’s are likely to be by week’s end. Contracts between a lender and a borrower can be reworked by a bankruptcy judge, weakening a fundamental economic relationship and undermining the recovery of the flat lining mortgage market.

Is this what we want?

So Howes doesn’t want Washington OR a bankruptcy judge to screw around with Chrysler and GM. So . . . what? We just write them a check and piss off? Surely Howes sees that the automakers’ management is broken, and that C11 is the only fair, equitable and realistic way for them to survive as anything other than a government-sponsored enterprise (i.e., not a business per se). Doesn’t he?

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20 Comments on “Bailout Watch 443: DetN’s Howes: Bonusgate Highlights Anti-Detroit Bias...”


  • avatar
    marshall

    The answer is easy:

    The reason that the government can pressure GM and Chrysler is that they have something ($$$) that GM/Chrysler still want – and they can use that as a stick.

    AIG has already received the money – and, in fact, has already paid out the bonuses in question.

  • avatar
    97escort

    I like the idea of taxing AIG and other bonuses paid from bailouts at 100%.

    http://www.nydailynews.com/money/2009/03/17/2009-03-17_aig_bonus_checks_may_be_taxed_at_up_to_1.html

  • avatar
    PickupMan

    Careful what you ask for!

    The easier it is to recapture the AIG bonuses, the easier it will be to micro-meddle a few weeks from now with the D3.

    That said, I love the thought of a special targeted income tax on excessive payouts by firms receiving FedBucks. That’s actually possible and creative. And should have Rick W and others very worried.

  • avatar
    superbadd75

    He must see that there’s a problem. Frustration probably has a lot to do with it. It’s a complete sham that the financial world got bailed out with no strings attached while Detroit gets to stand in the corner and write an essay about why this will never happen again. I feel like there should have been some standards set when the first checks were written by Bush to the banks, but at the time it was total panic mode and the whole idea was to try to keep the boat above water. They basically threw something together, stroked a check, and it didn’t work. Now they seem to be thinking a little bit before handing out the dough, and GM and Chrysler are having to prove that they’re a worthy investment. It’s a good idea IMO, I’d hate to see all of this money getting poured into something that’s going belly up anyway. The shitty thing is that with Chrysler, that’s probably what’s going to happen anyhow. I still think part of the plan should be to axe the entire top end of both companies and get some execs that know how to run a profitable organization.

  • avatar
    creamy

    so it’s not fair that auto manufacturers aren’t getting the same deal money manufacturers did but the deals the money manufacturers got was wrong? and messing with a company’s fundamental economic relationship is wrong but we should still give the company money, thus messing with that relationship?

    and what is it with calling it taxpayer money? from obama to howes to your local congrescritter – it’s not just “taxpayer” money, it’s their money, plain and simple. they should remember that they pay taxes, too. well, most of them.

  • avatar

    The difference between Obama jawboning about AIG employees’ contracts and trying to preserve UAW contracts is the millions in political contributions that organized labor gives to Democrats.

    During the congressional hearings over the auto bailout, the expert economists cautioned that allowing the government to move to the front of the creditors’ line would be a fundamental change in the way business is done in the US and would make future investments in corporate debt a risky move.

    Howes is arguing along the same lines. The amount of moral hazard and monkey wrenching the economy that the Obama administration is creating is staggering. Letting bankruptcy judges rewrite mortgages fundamentally changes the mortgage biz.

  • avatar
    BostonTeaParty

    Sorry couldn’t take the article seriously after you put a pic of a Man utd player on there. But i get it Ronaldo and AIG are linked, money grabbing mercenaries i get it……

  • avatar

    We’ll never know because this is a counterfactual, but what if asian and euro brands with their socialized health care and pension systems were burdened with paying for employee health care and retiree health care and pensions like Detroit is?

    What if the asian and euro auto companies were not subsidized by extremely active industrial policy in the form of R&D grants, free worker training, and a protected domestic market?

    Is the fact that US washing machine, refrigerator, television, etc manufacturing is now dead the fault of management in those industries too? Or might there be larger issues that have nothing to do with unions and the rare example of management that does not seek to crush them at every turn?

    Finally there is the fact that asian countries have manipulated their currencies to make their exports cheaper and more competitive. Do you want to blame Bob Lutz for that too?

    Do you think Detroit would have done better if Asian currencies were not manipulated and imports from this region (including imported parts for US assembled cars) were 25-40% more expensive?

  • avatar
    no_slushbox

    “Union deals can be trashed if political critics demand it in exchange for federal loans. Executive employment contracts can be deemed worthless, as AIG’s are likely to be by week’s end. Contracts between a lender and a borrower can be reworked by a bankruptcy judge, weakening a fundamental economic relationship and undermining the recovery of the flat lining mortgage market.

    Is this what we want?”

    Well no, after reading this Detroit News crap I want real capitalism, late 1800s style, but this is what we are going to have to settle for.

    The Detroit News has absolutely no understanding of it, and often confuses it with kleptocracy, or the government giving free money to businesses to waste, which is what the Detroit News actually supports. But if its editorialists understood true capitalism they would know the following. But for the good grace of the horrible contract breaking government:

    -The UAW workers would be out on their asses, with nothing, because every Detroit automaker would be in Chapter 7.

    -Every AIG executive employment contract would have been deemed worthless more than five months ago when the company became insolvent, not possibly within one week from now.

    -Instead of a bankruptcy court writing down a bankrupt person’s mortgage from $200K to $150K the house would be foreclosed on, and after paying for security and upkeep for a year the mortgage servicer could auction it off for $10K (in a much worse market than the still artificially inflated housing market we have now).

    You want to talk about “fundamentally changing the way business is done and fundamentally changing mortgage writing”? Letting real capitalism function would change those things forever, more than any government intervention could ever hope to.

    If people losing a little bit because the government changes the obligations of only insolvent companies fundamentally changes things, then people losing everything because the insolvent companies are liquidated would change things a lot. The government is under no obligation to not only reduce the impact of bad private investments, but to actually, with my tax money, turn them into good ones.

    Unfortunately I can’t have the above. To answer this babbling editorialist’s rhetorical question, my options are:

    -Use my tax money to pay the UAW workers in full, or change the deals for the people that wouldn’t even have jobs if not for the government.

    I choose the later.

    -Use my tax money to pay AIG executives in full, or change the deals for people that wouldn’t even have jobs if not for the government. Remember, the government owns some shares in AIG, but as a shareholder, it has no obligation to pay those executives or contribute anything to the company. Like Cerberus with Chrysler the government has limited liability with AIG, and no obligation to fund anything.

    I choose the later.

    -Renegotiate mortgages in constitutionally provided for bankruptcy courts, putting the losses on the people that made the bad investments, or use my tax money to bail out the mortgages in full.

    I choose the later.

    I do not think I am the only one.

  • avatar
    Luther

    Instead of paying ransom money to the stupid and childish voting parasites and their Pirates-of-the-Potomac this April 15…We should go to a GM/Chrysler lot and take a car…The cars do belong to taxpayers.

    In order to maintain a civil and prosperous society, it is vital that men destroy the criminal parasites…Especially the taxtakers.

  • avatar
    John Horner

    “Letting bankruptcy judges rewrite mortgages fundamentally changes the mortgage biz.”

    What is strange is that bankruptcy judges don’t already have that power. Other contracts can be altered or canceled in bankruptcy court, so why should mortgages be a specially protected class of debt?

    Fundamentally changing the mortgage biz seems like a dose of just what the doctor ordered.

  • avatar
    tesla deathwatcher

    -Renegotiate mortgages in constitutionally provided for bankruptcy courts, putting the losses on the people that made the bad investments, or use my tax money to bail out the mortgages in full.

    I choose the later.

    Really? Didn’t you mean the earlier?

  • avatar
    George B

    Credit Suisse had a novel and appropriate way to handle the bonus issue. They paid bonuses, but using illiquid assets instead of cash.
    http://www.bloomberg.com/apps/news?pid=20601087&sid=auEEfFRNdqcs
    In the case of banks, the bad investments in mortgage backed securities will be worth something. The problem for Detroit is homeowners are more likely to make payments on their subprime mortgages than GM and Chrysler are to earn profits building cars.

  • avatar
    no_slushbox

    tesla deathwatcher:

    Yeah, on that one definitely the earlier.

  • avatar
    Lumbergh21

    I still think part of the plan should be to axe the entire top end of both companies and get some execs that know how to run a profitable organization.

    You mean like through a bankruptcy sale of their assets, presumably to businessmen who now how to run a business? The more I read, And the more I think about it, all of these bailouts are only prolonging the inevitable and at the same time making things worse for the companys that were still solvent. It gives an unfair competitive advantage to fools and idiots in the name of preserving our economy. Evidently the fools and idiots in Washington think our whole economy is made up of fools and idiots like them and that they need Washington’s protection and help.

  • avatar
    Landcrusher

    Here is the rub:

    http://www.answers.com/topic/bill-of-attainder

    The idea of taxing those people who got the bonuses won’t stand. I had thought this was in the Constitution, but it’s not. It is a matter of law that our courts will uphold though. Maybe a lawyer will chime in on this.

    At any rate, I will be ending my private career if they pass a tax on those bonuses. I will be getting involved in reforming our country back to one based on law, liberty, and private property. You can have none of them without all of them.

    If these bonuses were legal, then that’s the end of it. Blame the folks who made it legal, and stop listening to them demagogue the issue. Congress now runs AIG. They have no one to blame but themselves.

    I hope the folks at other companies are watching all this and rethinking any ideas of begging for cash. The folks at GM would be better off with bankruptcy, and hopefully they see it now.

    As for those who keep wanting to fly the arguement that the auto companies are just as deserving as the banks, well, two wrongs still don’t make a right.

  • avatar
    AWD-03

    Just so that we are clear on the difference here, Those AIG bonuses were retention bonuses for people who were going to quit, but stayed on because of these bonuses. The company was up the creek and begged these people to stay. The government ALREADY KNEW ALL THIS before giving dollar one. No matter what they claim, they had that info. The government pleading ignorance now, is really pleading incompetance.

    In the case of the auto industry handouts and subsequent control, the auto industry didn’t negotiate well enough. Whether that was due to the beggars not doing a good job or the fact that they negotiated from a place of weakness is besides the point.

    The two cases have little to do with each other in reality. Not that it makes much difference, but I understand that congress has its retirement funds handled by AIG, so AIG will not be going under…. ever.

  • avatar
    nonce

    I can’t wait until the government declares that privately held property is theft and taxes it at 100%.

  • avatar
    1996MEdition

    Time to break out my old copies of the Fountainhead and Atlas Shrugged…..we’ve barely had 2 months of socialist wealth sharing and look at how greedy everyone is getting.

  • avatar
    benders

    I think a bigger deal is made of union contracts because they cover all the benefits provided to a very large percentage of the workers. I’m guessing that AIG can up the co-pay on their health insurance unilaterally and not many of their employees receive outlandish bonuses.

    Plus, no one is suggesting that we tax autoworkers at a higher rate until the contracts can be renegotiated. That would be a good way to force the end of the jobs bank; tax anyone earning a paycheck but not doing work in Detroit 100% (I think that would include Wagoner too).

    But no one is suggesting that because that is somehow a necessary wage but the bonuses are frivolous, even though they are in a contract and in fact, a large portion of these people’s income they often depend on.

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