Illegal. Illiberal. Ill-Fated.
Why Washington shouldn't run Detroit
Facebook
Twitter
Tumblr
Blogger
StumbleUpon
Digg
Delicious
Reddit
GoogleOn March 30, 2009, the president of the United States told an anxious nation: “Let me be clear: The United States government has no interest in running G.M.” If only he were telling the truth.
One way you could tell Barack Obama was being less than honest was that the day before, he had fired General Motors Chief Executive Officer Rick Wagoner. This unprecedented hostile takeover of a former American manufacturing giant signaled that the basic social contract between U.S. government and private business was being ripped up on live television. The fact that Obama followed his unpersuasive declaration of disinterest with a stern lecture about G.M.’s product lines (“They must ask themselves: have they consolidated enough unprofitable brands?”) only confirmed the suspicion: Not only will this White House seize any company it deems to pose a “systemic risk” to the economy, but it will do so without regard to restraint, to the law, or to basic economic principles. All while dissembling enough to keep its most loyal political supporters distracted from the fact that robbing taxpayers to pay failed corporate executives is almost the definition of economic unfairness.
Now that the U.S. government is indeed running G.M., after having divvied up failing Chrysler between itself, Canada, the United Auto Workers, and Fiat, it’s worth stepping back and taking measure of this almost unthinkable chain of events. After decades of Europe and most of the West enjoying the fruits of selling off state ownership in private industry, the U.S. is going on a nationalization bender. An inventory of the steps that led us here leads to three inescapable conclusions: This bailout is illegal, illiberal, and ill-fated.
Illegal: The auto bailout makes a mockery of the rule of law. By Jacob Sullum.
The last time the federal government bailed out Chrysler, Jimmy Carter’s administration reached a deal with the carmaker in August 1979, but the agreement did not take effect until Congress approved implementing legislation that December. The Constitution, after all, gives exclusive power of the purse to Congress. This time around, George W. Bush dispensed with the legal niceties, loaning more than $13 billion in taxpayer money to Chrysler and General Motors without any statutory authority.
Although he ran on a promise to repudiate Bush’s sweeping view of executive power and respect the constitutional role of the legislative branch, Barack Obama applauded his predecessor’s illegal loans. Since taking office he has followed Bush’s pattern, expanding the bailout without seeking congressional approval. The president’s high-handed personal involvement in the pending merger between Chrysler and Fiat, a deal that flouts well-established bankruptcy principles by forcing secured creditors to the back of the line, confirms that when it comes to industrial meddling Obama is no more committed to the rule of law than Bush was.
The new administration continues to subsidize Chrysler and G.M. (and even the companies that sell them parts) with money that Congress allocated last fall to the Troubled Asset Relief Program (TARP). As the program’s name suggests, the Treasury Department was supposed to use that money to buy mortgage-backed securities and other “toxic” assets from financial institutions, with the aim of making them more stable and encouraging more lending. There is not a word in the Emergency Economic Stabilization Act, the law that created TARP, about automobile manufacturers.
Some bailout supporters claim that G.M. and Chrysler qualify as financial institutions because they loan money to car buyers. The people who make this argumenttend to overlook the fact that Chrysler’s finance division became an independent company in 2007 and that GMAC, formerly a G.M. subsidiary, was mostly owned by Cerberus Capital Management when Bush approved the automaker loans. In any case, this rationale would make any business that extends credit, including department stores, jewelers, appliance dealers, and plastic surgeons, eligible for TARP money.
The Bush administration, recognizing what a stretch it was to describe loaning money to car manufacturers as purchasing troubled assets from financial institutions, strongly resisted using TARP to bail out automakers—right up to the moment when Congress declined to appropriate funds for that purpose. Now Obama is using loans that never should have been made as a pretext to reshape the auto industry. For those who are inclined to forget that Congress never authorized the bailout (a group that seems to include most members of Congress), here is a review of how Bush and Obama trampled the Constitution in their rush to save American automakers from the consequences of their own bad business decisions.
October 3, 2008: President Bush signs the Emergency Economic Stabilization Act of 2008, which creates TARP,allocates $700 billion for it, and authorizes the treasury secretary “to purchase…troubled assets from any financial institution,” the aim being “to restore liquidity and stability to the financial system.” As examples of financial institutions, the law mentions banks, savings associations, credit unions, security brokers or dealers, and insurance companies.
November 8, 2008: House Speaker Nancy Pelosi (D-Calif.) and Senate Majority Leader Harry Reid (D-Nev.) send Treasury Secretary Henry Paulson a letter urging him to “review the feasibility of invoking the authority Congress provided you under the Emergency Economic Stabilization Act…for the purpose of providing temporary assistance to the automobile industry during the current financial crisis.” The Democratic leaders argue that “a healthy automobile manufacturing sector is essential to the restoration of financial market stability.” The Treasury Department’s response: “We continue to work on a strategy that most effectively deploys the remaining TARP funds to strengthen the financial system and get lending going again.” Deputy White House Press Secretary Tony Fratto likewise says that TARP money “should be used to strengthen the financial system and get lending going again,” not to assist automakers.
November 12, 2008: Regarding a TARP-funded automaker bailout, Fratto says, “We do not welcome efforts to weaken the Treasury program. The Treasury program is working to deal with the financial crisis, and that is what it ought to continue doing.” Paulson says the rest of the TARP money should be used solely “to deal with the financial industry.”
November 17, 2008: White House Press Secretary Dana Perino rejects a Senate proposal to allocate $25 billion from TARP to the automakers, saying it would “raid” the program “of funds needed to stabilize our financial system.”
November 20, 2008: GMAC, once the financial subsidiary of General Motors but now mostly owned by Cerberus Capital Management, announces that it has asked the Federal Reserve Board for permission to become a bank holding company, largely so it can qualify for TARP money.
Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time.
-
And why Al Gore shouldn't run the world:
Gore: U.S. Climate Bill Will Help Bring About 'Global Governance'
http://www.climatedepot.com/a/1893/Gore-US-Climate-Bill-Will-Help-Bring-About-Global-Governance
THE CAT IS OUTTA THE BAG! -
a company created and owned by Fiat, the United Auto Workers, and the U.S. and Canadian governments.
Could there be a combination of words put into one sentence that would be more laughable and inspire less confidence than the ones quoted above? -
Because only the private sector could run car companies well!
Er, that is... -
Paul
How about a company created and owned by profit motivated individuals and rational self-interested investors? Because the GM and Chrysler that were run into the ground were examples of that... -
MNG, don't you ever get tired of sucking union dick?
-
Timmy
Your mom and I have the same color eyes, but please don't confuse us! -
How about a company created and owned by profit motivated individuals and rational self-interested investors? Because the GM and Chrysler that were run into the ground were examples of that...
Sure. Thousands of businesses fail every year.
Your point, MNG? -
Because only the private sector could run car companies well!
Government doesn't do anything "well" ya moron.
Yeah, like MNG says, the only possible way to run a car company is with a "Five Year Plan" designed by people who's main success in life is similar to "American Idol", that will work.
How about a company created and owned by profit motivated individuals and rational self-interested investors? Because the GM and Chrysler that were run into the ground were examples of that...
A typical absurdity, Toyota, Honda and Kia seem to be doing OK, in spite of government subsidies to their competition. Probably something to do with their freedom not to be owned by their employees?
And Timmy, in answer to your question, no. -
MNG, you have miles to go before you come close to equally joe's in regards to mother/sister jokes.
Don't bother. -
After decades of watching the US government pressure European companies to divest their interests in car and airplane companies to allow free and fair competition, we know have the US government taking major ownership positions in two of the three American brands.
Even if you assumed that the government could actually make GM and Chrysler run better, the conflicts of interest between owner and regulator of a major industry like manufacturing cars will poison the entire US, if not global, market. -
Scores:
Sullum: A
Welch: C-
Bailey: B
for their attempts to effectively make their respective points.
For the record I agree with all 3 points but some were better illustrated than others. -
Im glad I drive a Ford now.
-
...Toyota, Honda and Kia seem to be doing OK,...
I was under the impression Toyota and Honda are not doing OK, and are receiving subsidies from their government. But here we are. In essence, defending companies of foreign countries, that come into the US to set up their own factories, to directly compete with American manufacturers. Is there an irony in this? It seems most of the hoopla is coming from the states that allowed these foreign manufacturers into their states. So, here we have American politicians, defending these companies, and their governments, against American companies. Is this what manufacturing in general, in this country, destined to become? Really. What other car manufacturers are there? It's not like government intervention into GM and Chrystler is going to have any adverse effects on any other small or medium size car manufacturers, because there aren't any (unless you include DeLorean). And Ford isn't exactly clear yet either. Now, when you start talking about propping up big banks, to the detriment of smaller community banks, that's a different story. I despise Corporatism and Neo-Corporatism, but I'll be damned if the government should sit back and watch a national pride go down the tubes for the benefit of foreign manufacturers operating here in this country. -
. . . . but I'll be damned if the government should sit back and watch a national pride go down the tubes for the benefit of foreign manufacturers operating here in this country.
I remember when Zenith died. I didn't shed a tear for them then, I won't for GM or Chrysler.
The US government should give a rat's ass for whether or not a poorly run company goes under. -
What's "American" about GM, other than the location of their central corporate office? America's parasites are nothing to be proud of! If "foreign" car companies are setting up shop here in America, bringing more efficient and more affordable cars to our shores along with more manufacturing jobs (that don't come attached to anti-American unions like the UAW), I'd say those are the truly American companies, not the home-grown union dick suckers who leech off our nation's credit and credibility to try to push their crappy bailout plan to us.
Speaking of those crappy bailout plans, this recent spoof of one of GM's more retarded recent ads says pretty much all you need to know about parasitic "American" car companies:
http://www.youtube.com/watch?v=ts_fZStHYbA -
So, here we have American politicians, defending these companies, and their governments, against American companies.
Tough shit. You don't seem to mind the government getting involved and propping up companies in the marketplace. Sometimes they pick companies you don't want them to pick. Perhaps they shouldn't be involved at all?
What other car manufacturers are there? It's not like government intervention into GM and Chrystler is going to have any adverse effects on any other small or medium size car manufacturers, because there aren't any (unless you include DeLorean).
And of course propping up these gargantuan losers will only serve to prevent new companies from entering the market.
I despise Corporatism and Neo-Corporatism, but I'll be damned if the government should sit back and watch a national pride go down the tubes for the benefit of foreign manufacturers operating here in this country.
So really what you meant to say was "I don't have a problem with Corporatism and Neo-Corporatism." -
Let's be completely honest... You're an asshole for not buying our cars.
I'm sorry, I didn't mean that.
The American taxpayers gave us 50 billion dollars... and we spent a lot of it on this ad: that shot required a helicopter; cha-ching!
But don't worry about General Motors. From now on, we're going to be so super-good at all that car stuff...
How? Well, here's the game plan in clear, plain English:
Horses.
Space.
Amputees.
Lightning.
Windmills.
Baseball.
Solar panels.
A sad black guy.
Dogs.
Foam hands.
Joe Louis.
And butterflies.
Still concerned? Don't be. Because the only chapter we're focused on... is Chapter 1.
Excuse me, I misread that. I meant Chapter 11.
Y'know... on account of the bankruptcy. -
... because the government take over of the auto industry worked so well in England during the late 60s and early 70s.
-
And of course propping up these gargantuan losers will only serve to prevent new companies from entering the market.
Are you kidding? What possible prospects are there for any car manufacturer entering the market?
Perhaps they shouldn't be involved at all?
No, they shouldn't be. Especially when it comes to foreign companies. And OK, I have a soft spot for GM. Call me a sentimental fool.
So really what you meant to say was "I don't have a problem with Corporatism and Neo-Corporatism."
No, I'm calling exception.
Damn, I knew I was going to get into trouble on this one. I let my emotions get the better of me. -
How about a company created and owned by profit motivated individuals and rational self-interested investors?
Oops, MNG, you fucked up. You stepped in it, and I'm sorry, but I'ma gonna hafta kick ya while you're down.
You see, in this here libertarian world of ours, the profit motivated individuals and rational self interested investors take a bath when their operation isn't run well. See where I'm going with this? See?
*pausing to make sure you fully grasp where I'm going with this*
Amtrak.
What's that you say? What does that random word have to do with any of this? Amtrak? Wha?
Yes, Amtrak. GM is the next Amtrak. Oooh lookey! Someone else thought of this analogy too!
So your snarky retort, MNG, only serves to bolster the libertarian position. GM is supposed to fail. Chrysler, fail. All of them, FAIL. But the Party of Corporate Welfare just can't seem to let them do it. So in reality, you've offered a non-sequitir as a solution. "Well, if Big Al can't succeed in running a bowling alley properly, then by god, the Obama administration will have to do it."
In case you haven't figured out The Point(tm), the Obama administration has No Fucking Business Running Big Al's Bowling Alley.
-
Welcome to Italy, 1925.
-
Can't wait to drive a GM Trabant.
-
"A typical absurdity, Toyota, Honda and Kia seem to be doing OK, in spite of government subsidies to their competition."
Yeah, Japan never provided any support for those companies! -
Tricky Prick-
But here we are. In essence, defending companies of foreign countries, that come into the US to set up their own factories, to directly compete with American manufacturers. Is there an irony in this?
Given that Ohio is the home of both Wendy's and White Castle, we should obviously prevent McDonald's from ever opening a restaurant here to compete with our "home-grown" businesses...
-
Could there be a combination of words put into one sentence that would be more laughable and inspire less confidence than the ones quoted above?
I only need two words, British Leyland -
"Why Washington shouldn't run Detroit."
This piece of shit president has shown he isn't fit to run for dog catcher. -
B:
I bet Obama would make a far better dog catcher than you. Probably whoops your ass in B-ball too. -
http://briandeutsch.blogspot.com/2009/07/kia-saves-small-georgia-town.html
Good God, it's yellow fever all over again! UAW protect American automobile industry! You heroes! -
Really, MNG tell me about how the Japanese Government took over Toyota and screwed its secured creditors to pay off one of its biggest political constributors after they ran it into the ground.
Or did the South Koreans do it to Hyundai?
There are subsidies and subsidies. Reason ran stuff back in the eighties that pretty much showed that Japan's MITI really didn't do much good. In fact Honda grew and thrived in spite of the fact that it got no help from MITI at all in its beginning. It wasn't part of Japan's industrial "legacy". It was started by an upstart outsider.
They should just name it American Leyland. That's what it resembles, not the mildly subsidized Asian companies. -
Abner
The Japanese government gave their companies support throughout, though of course never rising to the level of taking them over late in the game, but that's kind of the point... -
On Nov. 22 '08, I had an article published on LewRockwell.com in which I wrote: "But the fundamental failing of Buchanan's manufacturers-good/consumers-bad [protectionism] is that it contravenes the primary dictate of sound economics: Focus not on one party in the short run, but on all parties in the long run. We are not all the CEO of GM, but we are all consumers - including GM's CEO."
Well, now "We" really are "all the CEO of GM"!
Then again, maybe Washington isn't really "We" ... -
Government incentives are an important part of the market. Always have been. Always will be. So the question is...is the GM investment different in any significant way from:
Free land for factories
Tax breaks
Partnerships in building factories
Or any of the other incentives that state and local governments use to attract companies to their location?
Is stock ownership more of a problem?
Why?
Is the conflation of ownership and regulation any different than the conflation of regulation with "attracting business to our city." -
I don't buy the argument at all. The reason being is that multinational corporations, banks, and insurance companies are so ethically and morally challenged that congress has to legislate laws to keep them from stealing from us. They are so corrupt that we have to have laws to keep them from pilfering our money. It's what we euphemistically call regulation. I would have fired the CEO of GM as well, he was obviously not up to the job. Now if we can just get the President to end corporate personhood, and dissolve the Fed.
-
Government incentives are an important part of the market. Always have been. Always will be. So the question is...is the GM investment different in any significant way from:
Free land for factories
Tax breaks
Partnerships in building factories
Or any of the other incentives that state and local governments use to attract companies to their location?
Massive direct capital infusions that exceed the market cap of the companies involved and bankruptcies structured and sponsored by the government are different both in kind and in scale than these limited supports for specific projects.
Is stock ownership more of a problem?
Why?
Yes, for two reasons. First, if it is ownership of voting stock (as I believe it is in the restructured GM and Chrysler), then it gives a measure of control over corporate affairs. Second, by giving the government a direct stake in the market value of the stock, it places the government, as the impartial regulator of these companies and their competitors, in a massive conflict of interest.
Is the conflation of ownership and regulation any different than the conflation of regulation with "attracting business to our city."
Yes, it is. The conflict of interest in owning a company and regulating that company and its competitors is different in kind and in scale from the kinds of specific project support that attracting business to a specific location might entail. -
RC Dean,
I don't buy a single one of your counter arguments.
You usually have more to offer. -
I currently have one Chrysler Mini Van and one Tahoe, these will be the last cars I purchase from GM or Chrysler.
I refuse to give them even more of my hard earned money. They have had enough. Sorry UAW auto workers, I'm done, next car I buy: anything but you and your compulsory tax payer funded companies. -
I personally believe that Obama doesn't actually want to run the auto companies-he just doesn't want them to fail now with the economy so bad. He knows they will probably fail later, but he wants to postpone that failure until after the economy in general has recovered.
-
My only point is that if you take the Bible straight, as I'm sure many of Reasons readers do, you will see a lot of the Old Testament stuff as absolutely insane.
-
jtfdg
-
is good