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Bridge Loan or Bridge to Nowhere

It's difficult to say whether the bridge loan Congress will likely give to the auto industry is a good idea or just another bridge to nowhere. My view is that a loan is probably the best option, that it will be less costly in the long run. I may be wrong about that, but one thing is clear to me. The criticism of the bailout that takes the form of "if there's one thing worse than Detroit managed by the managers who have been driving the American auto industry into the ground it's Detroit managed by politicians."

The argument is a red herring. Congress isn't proposing to manage the auto industry, but to put guidelines in place that will provide direction, guidelines it should have instituted years ago. It is to enforce the kind of rules that would, had they been in place helped the car industry do the right thing all these years. Enforcing tough CAFE standards for example wouldn't have told Detroit how to build cars, but it would have required them to build fuel efficient cars. And if Congress now sets realistic but tough environmental rules, the Detroit managers will use their expertise to design hybrids, electric cars, whatever it takes to meet those standards. That is not managing that is looking out for the long term interest of the country.

There are always requirements when money is loaned, whether the loan comes from private interests or government. An example could be limits on how the money is spent. Monitoring that spending is not managing the car industry it is making sure that the interests of overpaid executives, who often look only at short-term profits and their next bonus, are not confused or conflated with the country's interest. When corporate behavior harms the nation government is failing in its responsibility if it fails to act. The decision needs to be made on what is in the country's interest and nothing else.

Related:

A government-run auto industry
Study: Auto bailout less costly option

 

Comments

Hear, all ye good people, hear what this brilliant and eloquent speaker has to say!

Option A: chapter 11 bankruptcy and the loss of 1.8 million jobs

Option B: loan $30B to a series of companies collectively worth about half of that (GM: ~$3B, FORD: ~$8B)

Option A sucks, no doubt about it.

Option B is irrational. It is the equivalent of loaning $1m against a house worth $500k- this is the type of thinking that has gotten us into this mess in the first place

Mark my words: if we give this mouse a cookie, it will be back within the decade for more

Too big to fail == too big, PERIOD. Am I the only one left in favor of anti-trust enforcement?

Too big to fail == too big, PERIOD. Am I the only one left in favor of anti-trust enforcement?

no. but no one cares what we think. well put, anyway. reminds me of the science axiom (i paraphrase) " if it can't be disproven, it ain't worth a shit".

I wouldn't say you're the only one...In Ontario we are facing the same sort of dilemma with loss of jobs in manufacturing, namely the auto industry. The problem seems to be in the balance between not letting workers fall through the cracks, and not temporarily propping up corporations that are doomed to failure. Perhaps public oversight and input into long-term goals would be a good thing. Then again, Toyota just opened a new plant here last week, so maybe the free market is working, and these companies going bankrupt have simply grown fat, stupid, and uncompetitive.

I read an article in The Economist recently about how Microsoft hoards enough cash to survive a year without sales, and Toyoto does something similar, whereas the norm is to never have money stagnating, but to always be investing every available cent, which is also supposedly "good for the market". It seems like we are about to go through a sort of financial paradigm shift, hopefully one where spending money you don't have is not looked upon favorably.

The article is here if anyone is interested: http://www.economist.com/opinion/displaystory.cfm?story_id=12637043

I have just received this from a friend - does it make sense?

"Here's something else to think about: Ford has spent the last thirty years moving all its factories out of the US, claiming they can't make money paying American wages.

TOYOTA has spent the last thirty years building more than a dozen plants inside the US The last quarter's results:

TOYOTA makes 4 billion in profits while Ford racked up 9 billion in losses.

Ford folks are still scratching their heads, and collecting bonuses...

IF THIS WEREN'T SO TRUE IT MIGHT BE FUNNY"

I say let'em sink and use the money to give the auto workers temporary assistance and health care until more responsible and efficient auto producers take their place. Such as, say, a company run like Toyota or Honda who will meet or exceed CAFE standards. The government has only been stalwarting this process anyway.

David Brooks gives a good word on the situation: http://www.nytimes.com/2008/11/14/opinion/14brooks.html

I wish Detroit had been making fuel efficient cars. So finding a way to get them to do that seems like a good idea. But I don't know why we should think it will make them more profitable. I'm sure they would have done it by now if that were the case.

At any rate, offering 25 billion at this point is kind of small change compared to a possible $600 billion stimulus package that might be applied in the next year or so. So I'm not against it.

I referenced this in the Season of giving thread.

Anyone remember the Tahoe commercial of 2006?

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