The Giant Pissing Contest over the Auto Bridge

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mackinaw-bridge-cc.jpg

(Mackinaw Bridge photo from Three if by Bike) 

Ian and Jane described the solution Dems are crafting on the auto bailout: Roughly $15 billion from the DOE funds (originally intended to help automakers retool to make more efficient cars) would be repurposed into providing bridge loans for Chrysler and GM. After President Obama and the new Congress come in, that money will be replaced with TARP money, and a longer term plan will be developed to see the companies through this crisis.

Keep in mind though: this is just one battle in a giant pissing contest that is far from resolved. There have been three original positions in this pissing contest:

  • Pelosi, Dodd, and Frank (and, presumably, Obama): Give the aid from TARP; save the environment and the domestic auto industry
  • Bush, Paulson, and McConnell: Give the aid from the DOE funds after asking for the first born of every union worker
  • Shelby and Corker: Bust the union and to hell with Toyota’s domestic competition and the Democratic voters it employs

A couple of events set the background to hearings in the last two days. Hank Paulson has begun calling for the second half of the TARP funds, as he has blown through most of the first $350 billion. Yet Democrats want to force Paulson to start bailing out homeowners struggling to avoid foreclosure, rather than just bailing out Paulson’s friends on Wall Street.  And since Paulson wanted to avoid spending any TARP funds on the auto industry, he wanted to avoid discussing TARP before the auto crisis was resolved.

In fact, in a stunning bit of arrogance that no one besides Jane really reported, Dodd had asked Paulson and Bernanke to attend Thursday’s Senate hearing on the auto crisis–and they refused! These assholes, who are preparing to ask Dodd for another $350 billion of our money, refused to show up before Congress, presumably because they simply didn’t want to talk about using TARP funds for bridge loans to the auto industry (note: at the hearing GAO agreed with Dodd that the auto loan request would qualify under TARP guidelines). I suppose because they simply believe the auto industry doesn’t fall under their mandate to keep the economy healthy?!?!

And then, of course, yesterday’s jobs report came in, with the news that our economy is hemorrhaging jobs. Which is reportedly when Pelosi blinked, and agreed to use the DOE funds.

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Hold Lifted on Barofsky Nomination

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Two updates from the hold placed on the TARP Inspector General’s nomination.

First, POGO reports the hold has been lifted.

Sources tell us that the secret hold blocking Neil Barofsky’s nomination as the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) has been lifted!  Stay tuned for more…

Second, during the Senate Banking hearing on the auto industry, Jon Tester just said that someone "in this body" had a hold on Barofsky’s nomination. Which supports the widely-held suspicions that Jim Bunning was the guy who put the hold on. (Note, he hasn’t shown up yet, either.)

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RIP Tanta

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Tanta was an example of what is best about the blogosphere: someone with real expertise–expertise (on mortgage finance) that at one point seemed obscure, until it became utterly critical to all of our lives–who contributed pseudonymously and humorously to the great enlightening conversation we conduct in the blogosphere.

Tanta passed away this morning of ovarian cancer.

Calculated Risk has a long post reflecting on her contributions. Here’s my favorite paragraph:

Tanta liked to ferret out the details. She was inquisitive and had a passion for getting the story right. Sometimes she wouldn’t post for a few days, not because she wasn’t feeling well, but because she was reading through volumes of court rulings, or industry data, to get the facts correct. She respected her readers, and people noticed.

I never met Tanta in person, though I remember the joy I had one day when I mentioned her in a post and she emailed me and I discovered she was reading me and I was reading her. It so happens that that exchange came about because she was kicking the NYT’s ass on their inadequate coverage of the mortgage crisis. 

Today, the NYT honored her with an obituary.

My condolences to her family and loved ones. I am thankful that she shared her expertise at a time when we were all so frantically trying to learn about it.

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Obama and the Guvs

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hall_hp.jpgIn a really smart move, Obama is quickly pulling together a meeting between him and the nation’s governors (and always the master of theater, he’s holding it at Independence Hall in Philly).

President-elect Barack Obama is meeting with nearly all the U.S. governors in Philadelphia next Tuesday to discuss how the economic crisis is crimping states and their budgets.

Nick Shapiro, a spokesman for the Obama transition, said the meeting will provide an opportunity for Obama and Vice President-elect Joe Biden to talk with state chief executives about "the unique challenges facing our states." The discussions are being hosted by National Governors Association Chairman Ed Rendell and Vice Chairman Jim Douglas.

Douglas said 40 governors and governors-elect plan to attend the group discussion, which was put together just in the last few days, at the city’s famed Independence Hall.

"It’s short notice, some grumbled, but virtually everyone has cleared his or her calendar," said Douglas, the Republican governor of Vermont.

Alaska Gov. Sarah Palin, running mate to Obama’s Republican opponent in the presidential race, Sen. John McCain, also planned to attend the gathering, her office said.

Originally when I heard Palin was going to be meeting with Obama, I thought it just an elaborate excuse for Sasha and Piper to get together discuss their recently more sophisticated fashion tastes.  But this move is much, much smarter than a sleep-over between Sasha and Piper.

Consider that most observors believe that Republican Governors (including, but not limited to, Palin, Jindal, Pawlenty, Crist, and Utah’s Huntsman) will set the new direction for the beleaguered Republican Party. These governors are increasingly the leaders of the Republican party, not John Boehner or Mitch McConnell.

And Obama has seen to it that–as one of their last orders of business before the holidays, and therefore one of their last orders of business before the new Congress–they will meet with the President-Elect to tell him about how important infrastructure investments and loans to cash-strapped states will be to the nation’s economic recovery. What Governor, after all, Republican or Democrat, doesn’t love getting federal funds to spend in their state?

Obama is soliciting support among the Republican party’s rising leaders for the massive stimulus package that will arrive on Congress’ lap at the beginning of January. He’s doing so just in time for these Governors to give their Congressmen and Senators an earful over the holiday cocktail party season. 

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Uncle Toobz? Are You Obstructing Oversight of TARP?

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by Genista

by Genista

POGO notes something I hadn’t seen reported elsewhere–the last paragraph of a Chris Dodd statement regarding the selection of Neil Barofsky as Inspector General for the TARP bailout funds.

Unfortunately, the confirmation has been delayed by at least one Senator. That delay is regrettable and not in the best interest of American taxpayers.  It is my sincere hope that those who are blocking this nomination will reconsider their actions and confirm Mr. Barofsky at the earliest opportunity.

I posit Ted Stevens as one potential source of the hold only because he has been known to put holds on finance oversight in the past. Plus, he’s probably been in an ornery mood of late.

But there are plenty of other Republicans who like to obstruct good legislation. There’s John Kyl’s hold on FOIA reforms.  John Ensign’s hold on electronic filing of Senate disclosure forms. And there’s Tom Coburn’s hold on just about everything–though to be fair to Coburn, his MO is usually to obstruct things he finds culturally offensive, not matters pertaining to oversight.

Still, someone’s out there making sure that no one is watching over our $700 billion dollars. 

Now why would some corporate shill want to do that?

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Breaking the Consumption Addiction

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Economics Professor Atrios notices that the housing industry is–predictably–asking for its share of the bailout and points out that it’s probably not a good idea to try to reinflate the housing bubble.

 Department Of Really Bad Ideas

While I’ve been more than a little skeptical about Treasury and Fed shotgunning trillions to their rich friends, there are at least germs of arguments here and there for why some of it may be desirable. But the home builders are serving up an even stinkier shit sandwich!

The builders’ lobby is ramping up its sales pitch for a $250 billion stimulus package called "Fix Housing First," arguing that financial markets won’t recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner’s mortgage rate.

REINFLATE THE BUBBLE! REINFLATE THE BUBBLE!

But that’s a problem with bailing out our economy, in general. You can’t bail out the housing industry–at least not in the way they want–because that’ll just encourage the same kind of foolish investments that got us into this problem.

Similarly, though, we need to make sure any auto bridge attempts to shift the profit calculation for manufacturers, because right now, producing gas guzzling behemoths would be the quickest way to pay off federal loans.

And what about the retail industry? While the emails listing tons of retail closings are over-stated, you’ve still got outlets like Ann Taylor and Footlocker and Macys closing stores and crappy chains like Circuit City going into bankruptcy–and that’s before what promises to be a dismal Christmas shopping season. That means that a lot of people who can least afford it–those with minimal education, seniors returning to the workforce, and so on–may lose their jobs. Nevertheless, I sort of regard it as a good thing that people aren’t going to spend $3000 on a fancy new teevee this year–that much money would feed entire families for a year in some developing nations. Eventually, we’re going to need to cushion the losses of the retail sector–but hopefully we don’t do it in such a way that encourages the orgy of conumption we’ve been on in recent years.

Granted, with sound policy decisions, we might be able to help out these struggling sectors while still encouraging sounder consumption choices: Read more →

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Saving Citi But Not GM

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I don’t know which is more insulting to Detroit, as Congress makes the automakers grovel for a bailout. That in one night, with no oversight from Congress, Treasury just risked $300 billion of support for Citigroup. Or that, on top of that, Citi got $20 billion in funds from TARP–more for just one company than any one of the Big Two and a Half had requested (and that’s on top of $25 billion that Hank Paulson has already dumped into Citi)? And while offering this massive bailout for one company, our government had the audacity to claim,

  • We will exercise prudent stewardship of taxpayer resources.
  • We will carefully circumscribe the involvement of government in the financial sector.

Uh huh.

Why isn’t Richard Shelby, ranking member of the Senate Banking Committee, on my teevee talking about the failed business model of our entire financial sector?

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The Boogeyman versus the New Bretton Woods

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Lots of people are posting this YouTube, but no one, as far as I’ve seen, has contextualized it.

This seemingly organized snub took place, after all, at the end of the attempt on the part of the G20 to find some global solutions to our present economic crisis. The snub occurred after Bush welcomed his guests with a radio address pre-empting some of the demands those guests were making.

This is a decisive moment for the global economy. In the wake of the financial crisis voices from the left and right are equating the free enterprise system with greed, exploitation, and failure. It is true that this crisis included failures by lenders and borrowers, by financial firms, by governments and independent regulators. But the crisis was not a failure of the free market system. And the answer is not to try to reinvent that system. It is to fix the problems we face, make the reforms we need, and move forward with the free market principles that have delivered prosperity and hope to people around the world. [my emphasis]

And the snub came during a summit in which Bush championed the adoption of a passage in the Declaration that came out of the summit that, once again, insisted the free market was working fine (this could have–and probably did–come straight out of Administration statements leading up to the summit).

12.  We recognize that these reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems.  These principles are essential to economic growth and prosperity and have lifted millions out of poverty, and have significantly raised the global standard of living.  Recognizing the necessity to improve financial sector regulation, we must avoid over-regulation that would hamper economic growth and exacerbate the contraction of capital flows, including to developing countries.

And the snub came after the rejection of international regulation to control those purportedly functional free markets.

8.  In addition to the actions taken above, we will implement reforms that will strengthen financial markets and regulatory regimes so as to avoid future crises.  Regulation is first and foremost the responsibility of national regulators who constitute the first line of defense against market instability.

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Mitch McConnell’s Undisclosed Location

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I’m utterly fascinated by two aspects of the debate over the bailout. First, why it is that reporters repeatedly cite Richard Shelby–the biggest opponent of the bailout–without noting that if GM goes under, the foreign manufacturers making big inefficient SUVs and trucks in his state will get a huge competitive advantage? Carl Levin is presented as representing Detroit, why isn’t Shelby described as representing Detroit’s foreign-owned competition?

I’m also fascinated by the role of Mitch McConnell–with McCain’s electoral embarrassment and John Boehner’s imminent ouster, the leader of the Republican party. McConnell, of course, represents an auto state–a pretty fascinating auto state, in fact, one that has a bunch of union manufacture of American products, as well as non-union manufacture of efficient Japanese cars. So does Mitch lead the opposition to the bailout–and oppose the interests of thousands of his constituents? Or does he support it, presenting an awkward defection for the Republican campaign to break the unions?

Apparently, if you’re Mitch McConnell, you chose option "C," none of the above. Instead, if this article from McConnell’s state is any indication, you hide.

The article cites,

  • William Parsons Jr., who organizes the annual Global Automotive Conference in Kentucky
  • Ken Troske, director of the University of Kentucky’s Center for Business and Economic Research
  • Toyota spokesman Mike Goss
  • Laurie Harbour-Felax, an industry observer and president of the Harbour-Felax Group
  • Kristin Dziczek, a researcher at the Center for Automotive Research in Ann Arbor, Mich

And of course,

  • Sen. Richard Shelby, R-Ala

But no mention of the hometown Senator and the most powerful Republican in the country, Mitch McConnell.

I’ve got unconfirmed sightings of Mitch in a spider-hole in Iraq, but I’m still working to confirm that report.

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The Auto Bridge Plan

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Here’s what Barney Frank’s Financial Services Committee is proposing to bail out the US auto manufacturers, using money from TARP.

  • Short-term Operating Plan – The automaker must submit a short-term operating plan that describes the intended use of the loans, including the commitment of resources to develop a long-term restructuring plan and repayment of the loan to taxpayers with interest.
  • Long-Term Restructuring Plan – By March 31, 2009, loan recipients must submit to Treasury an acceptable restructuring plan for long-term viability and international competitiveness, including meeting enhanced fuel efficiency standards and for advanced technology vehicle manufacturing,and restructuring of existing debt. 
  • Executive Compensation and Corporate Governance – All executive compensation restrictions from TARP apply to loan recipients for the duration of the loan plus the following additional restrictions:
    • No bonuses to employees making more than $200,000 (which Treasury will adjust for inflation).
    • No golden parachutes under any circumstances.
    • No compensation plan that could encourage manipulation of reported earnings to enhance compensation.
  • Warrants – Treasury must obtain warrants from each loan recipient (or economic equivalent in the case of a privately held firm) equal to 20 percent of the loan or such greater percentage as may be determined by Treasury in consultation with the Oversight Board. 
  • Dividends – Recipients may not pay any dividends for duration of the loan.
  • Acceleration of Repayment for Failure to Comply – If a company receiving a loan fails to prepare an acceptable restructuring plan, the Treasury can demand accelerated repayment of the loan.
  • Terms of Loans:  
    • Term:  7 years (or longer as may be determined by the Oversight Board). 
    • Interest Rate: 5% for Read more →
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