Economics

If G.M. Fails, the Terrorists Win

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Since Congress declined to approve the auto industry's Bridge Loan to Nowhere, President Bush says the Treasury Department will have to help G.M. and Chrysler on its own, using some of the $700 billion Congress appropriated for the Troubled Asset Relief Program (TARP). Along with the usual economic and philosophical objections to an auto industry bailout, this move should provoke concern about the rule of law. The Emergency Economic Stabilization Act of 2008 (PDF), which created TARP, authorizes Treasury Secretary Henry Paulson "to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution." Paulson already was stretching the law when he decided to instead purchase stakes in banks (presumably on the theory that shares of their stock constituted "troubled assets"). But a carmaker is not a "financial institution," and loaning it money is not purchasing a "troubled asset." In other words, Bush is acting not only without legal authority but contrary to the stipulations of a law that Congress passed at his behest. That much is familiar. But usually he does this sort of thing under the banner of national security. Is the failure of the Big Three automakers to produce cars that people want to buy part of an Al Qaeda plot?

Addendum: Episiarch suggests the Bush administration could argue that the automakers' finance divisions makes them "financial institutions." But GMAC and Chrysler Financial are no longer wholly owned subsidiaries of the carmakers: A consortium of investors, including Cerberus Capital and Citigroup, owns a controlling interest in GMAC, while Chrysler Financial became a standalone company in 2007. Ford Credit is still wholly owned by Ford, but a manufacturer with a finance division is plainly not what Congress had in mind when it passed the law authorizing TARP. Ford, in any event, is not seeking a government loan right now.

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  1. But a carmaker is not a “financial institution,” and loaning it money is not purchasing a “troubled asset.”

    Don’t they have huge financial divisions for giving out car loans?

  2. Despite how little I should be, I’m actually surprised at this news.

    With all the loopholes and vagaries they put in that bailout bill, they still can’t obey the law.

    Too bad it’s only going to get worse in five weeks…

  3. If you read the Detroit papers you would learn that in WW II the car companies built tanks and stuff, so, of course the bailout is vital to national security.

    They’re actually saying that.

    Of course General Dynamics makes the Abrams tank and the Stryker fighting vehicle, Boeing makes F-15’s, F/A-18’s, Lockheed-Martin makes the F-22, but the big 2.5 might make something some time.

    I guess…

  4. But usually he does this sort of thing under the banner of national security.

    Yup, auto industry spokesmen have been getting the national security talking point in for a few weeks now.

  5. How many times have the terrorists won already? I think I’m losing count.

  6. Don’t they have huge financial divisions for giving out car loans?

    I believe GM spun off GMAC into its entity, so loaning money to GM can’t be construed as loaning money to GMAC.

  7. Unfortunately, I don’t see anyone with the resources and motivation to challange it in court.

    Who are you going to call? The ACLU? not exactly their usual line of work.

  8. Damn,

    Sullum posted the addendum at the same time I did. No hat tip for me.

  9. Why send money to badly managed companies? In his quest to keep the failure of Detroit from falling on his watch Bush has become an enemy of the Republic. The proper response to the economic meltdown is to go after those who have broken the law, and leave the market alone.

    http://www.wkyc.com/news/news_article.aspx?storyid=102901

  10. How many times have the terrorists won already? I think I’m losing count.

    Pretty much every time you hear/read the news.

    So I guess every Exxon, Walmart, Brooks Brothers, Macy’s, PC Richards, and every other retailer or whoever that have their own credit cards and financing plans are all financial institutions too.

  11. This is going to end up being just one more in a long line of reasons that Bush should have been impeached years ago, before he had the chance to do any more damage.

    It is also one more sign that we no longer under a system of government with even a semblance of “checks and balances”.

  12. It is also one more sign that we no longer live under a system of government with even a semblance of “checks and balances”.

  13. Actually, I think GMAC has been trying, for a while, to get themselves reclassified as an eligible institution, with no success. Eligible for the gravy train which is the TARP, that is.

    And, what’s all this nattering about laws, and proscribed acts? Everybody knows the President is an omnipotent deity, who cannot be constrained in any way.

  14. It is also one more sign that we no longer under a system of government with even a semblance of “checks and balances”.

    Oh there is still in balances, the problem is the checks and the balances are on the same side of the fence. Doesn’t matter democrat nor republican they’re main goal is screwing us in the ass.

    I mean this can’t really be too surprising to anyone, after all it is Bush we are talking about. I won’t stop being surprised at the list of fuck ups that just keep growing until he is actually out of office so he can’t make any more. Although that being said, the next 4 years won’t be any better…

  15. If G.M. Fails, the Terrorists Win

    Can’t wait for GM to fail. The other two as well.

    It’s just bad form to drive the Mercedes to the welfare office and when all three of those CEO’s arrived by private jet…..well, let’s just say that was the final straw.

    Arrogance isn’t becoming a welfare queen.

  16. Lame duck Bush is like playing Risk with the guy who gets pissed because he can’t possibly win so he plays ‘wreck’. Meaning he tries to ruin everybody else’s strategy on his way down.

  17. Ok, so my finance division idea didn’t pan out. What if the auto makers buy a bank or two? That could work, right?

    Or Paulson can just ignore TARP’s wording and not get called on it by Congress.

  18. Epi,

    Just take an easier route. They build things that 99% of people have to get a loan to buy. This will also allow them to bailout housing construction companies sitting on entire neighborhoods of spec houses that are slowly rotting.

    Or easier: Anything involving money is now an eligible financial institution.

  19. Bush, Paulson. “legal authority”, “rule of law” and TARP all in the same paragraph.

    Hilarious.

  20. I’ve always hated the Mustang, but this whole bailout boondoggle is making me look at Ford with much greater fondness. My understanding is that they’re actually basically a viable entity as they are, but they’re concerned that if GM goes under they’ll take the whole supply chain with them. That’s the real problem here, not that GM’s workers might be out of a job or that the world might go without Buicks, but that GM’s failure will bankrupt any number of otherwise-viable companies, as well as inflict a world of pain on their stable competitors (the Japanese manufacturers in America, who are dependent on the same supply chain).

  21. Anything involving money is now an eligible financial institution.

    Auto makers have finances, making them a “financial” institution! Perfect!

  22. Are you all really pretending this is something only Bush would do? Obama would probably do the same thing. Clinton would have. Just about any politician we have right now would do the same in Bush’s position.

  23. sugarfree, epi,

    Considering what they’ve done to the Commerce Clause, that isn’t such a stretch.

  24. I sleep late and THIS is what I have to wake up to? SHIT!!! I have a credit card AND I loan money to family and friends when I feel like it! Where’s my bailout!!!!???? Fuck!

  25. Episiarch,

    Your post at 12:55 just brought my rage down to a tolerable level. I need some caffeine.

  26. This one is easy. The banks, make major loans to the car companies, in exchange for heaping helpings of their near-worthless stock. The stock then becomes a “troubled asset” of the banks, which Paulson can then use the bailout money to buy at an inflated price, effectively repaying the loan. The banks, of course, will gladly do this, since Paulson is now their biggest stakeholder.

    Problem solved.

  27. Ahhhhh . . . I love the taste of cherry pepsi in the morning. I don’t drink coffee. Anyway, GM needs to be starved into bankruptcy so someone can pick up its carcass on the cheap. GM still has millions of customers, it should be worth the risk of picking it up since bankruptcy should break the UAW/management chokehold.

  28. TWC, every time i play Risk it turns into Wreck. That’s just how i roll. But then, i’m not president of anything at the moment.

    tekende, i doubt anyone here (maybe not even joe) is pretending that this is something only Bush would do.

  29. Xeones,

    Sorry to steal your line but . . .

    Yo! Fuck Paulson!

  30. No worries, Naga, it’s Creative Commons licensed. Seriously, though, Paulson can eat a bag of dicks up.

  31. Bridge Loan to Nowhere

    Tee hee hee. I’m really enjoying this game of political hot-potato. Too bad the outcome could destroy the nation. Oh well, we had a pretty good run.

    I wonder if Canada would be interested in some rust-belt border states, cheap? Good fishing, lots of deer, one-third of the original NHL…think about it, Ottawa.

  32. ed,

    You got it backwards, my friend. Start arming yourselves Canadians!

  33. Naga,

    No, really, I will sacrifice Ohio, Michigan, and what the hell…Minnesota too. They’re practically Canadian anyway, what with their sickening niceness and screwball politics.

  34. ed,

    Ah. I’m not sure if you know your history or not but the U.S. doesn’t sell territory, it buys it or takes it. Also, the U.S. has been trying to get their hands on Canada for two centuries. The time is now!

  35. Osama bin Laden could probably do a better job of running GM than Rick Wagoner; I say, give him a chance!

  36. tekende

    No but he is supposed to be from the “capitalist” party. The concept is two parties that have different opinions not just one party with two different names.

  37. P Brooks,

    Ah. A little “keep your friends, and your enemies closer” approach. I like your style.

  38. Damn!!!

  39. bladedoc,

    Oh, I know. Don’t get me wrong, I’m not trying to defend Bush or anything. I just see this as less of a “Blame Bush” situation and more of a “Blame our screwed-up government in general” thing.

  40. the U.S. doesn’t sell territory

    That was before we had a genuine, half-black, big-eared, media-adored change president! Come on! Aren’t Ohio, Michigan and Minnesota worth half of our national debt? I’m sure China would like a piece of that, too. Everybody wins!

  41. I for one welcome my new Chinese masters.
    How do you say “Go Bucks!” in Mandarin?

  42. Caveat: I’d much rather sell off the southern border states (Texas, New Mexico, Arizona), but who the hell would want them, what with all those Beaners? Then again, how is Mexico fixed for cash?

  43. ed,

    I would. Cheap labor. They get uppity over wages and BAM! Off to Mexico you go, buddy. But then I’m aiming to carve me out a kingdom come the apocalypse.

  44. Lame duck Bush is like playing Risk with the guy who gets pissed because he can’t possibly win so he plays ‘wreck’. Meaning he tries to ruin everybody else’s strategy on his way down.

    He’s doing what the majority in Congress wanted him to do two weeks ago. It’s the Senate Republicans who are trying to screw up The Plan.

  45. Beaners?

    What a dick.

  46. Beaners?

    What a dick.

    Yeah, satire is dickish, indeed.

  47. Since when has Bush ever obeyed the law?

  48. Thats like saying the Dallas Cowboys are America’s Team (which they are ) and if you don’t root for them, you are not rooting for America and therefore you’re a terrorist. (Which you are) How ’bout the Cowwwboyyyys!!!

  49. In my fantasy world, the 60%+ of Americans who oppose these bailouts start voting with their wallet by shunning companies suckling at the Federal teat, and supporting companies that resist the temptation, even if their competitors do not. In this case, it would mean buying Ford, boycotting GM & Chrysler. There is far greater manufacturing capacity than there are customers. Why wouldn’t rational customers preferentially buy from a company that shows the minimum management competence of understanding their marketplace and operating without bailouts? If more consumers make this choice, it would keep the Ford lines running, and shut more GM lines down.

    Don’t get me wrong. Ford CEO Alan Mulally did not cover himself or his company in any more glory than the rest of the bozos in either of his two appearances before Congress. But this week, Ford finally got it right, and said they would not take Federal money this round. Maybe I am grasping at straws, but it’s something.

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