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Tilting at Windmills

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December 12, 2008
By: Hilzoy

No Bailout

From the NYT:

"The Senate on Thursday night abandoned efforts to fashion a government rescue of the American automobile industry, as Senate Republicans refused to support a bill endorsed by the White House and Congressional Democrats.

The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which say they may not be able to survive through this month.

After Senate Republicans balked at supporting a $14 billion auto rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a deal, but deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009."

Apparently, the plan they were negotiating already required the car companies to reduce their debt by 2/3 between now and March 31, and to bring their workers' pay into line with their foreign competitors. (This in addition to what had already been agreed to -- major restructuring plans, etc.) The sticking point, apparently, was that Senate Republicans insisted that the workers' pay reach parity with foreign competitors in 2009, while Democrats, the UAW, and the car companies wanted the process of bringing wages down to be completed by 2011.

So the Senate Republicans were willing to let a million jobs, give or take, go down because they wanted the UAW to make massive wage concessions, over and above those it has already made, within one year as opposed to three years. That shouldn't be a dealbreaker, except to people who don't want a deal to start with.

The consequences sound delightful:

"With Congress failing to agree on a bailout for Detroit, the odds that General Motors and Chrysler will be insolvent by year's end are growing rapidly.

The companies have been warning that they would run out of money for some time, but crushing bills from their suppliers are coming due. It appeared unlikely that they could hold on until President-elect Barack Obama takes office next month, when he and a new Congress might be able to provide a lifeline, as a Congressional rescue this year looked increasingly unlikely. (...)

General Motors and Chrysler, for example, owe their suppliers a total of roughly $10 billion for parts that have been delivered. G.M. has held off paying them for weeks, and Chrysler is paying in small increments. But the cash shortages at G.M. and Chrysler are getting more severe, according to their top executives and other officials. (...)

Many of their suppliers are teetering on the verge of bankruptcy themselves, and do not have the luxury of extending credit much longer. (...)

When suppliers big and small start failing, the flow of parts to every automaker in the country will be disrupted because as suppliers typically sell their products to both American and foreign brands with plants in the United States."

"There's no question it will hit Toyota, Honda and Nissan too," said John Casesa, principal in the auto consulting firm Casesa Shapiro Group.

"Many of the small suppliers will simply liquidate because they don't have the resources to go reorganize in Chapter 11 bankruptcy," Mr. Casesa said. "They'll just go away."

I support the bailout. I don't think I would if these were normal times, but they are not. And under the circumstances, this seems to me to be an extraordinarily irresponsible thing to do. The Senate Republicans were not, as far as I can tell, so much as trying to do things responsibly. They did not, for instance, seem to consider extending the kind of financing that would allow GM and Chrysler to go through Chapter 11 bankruptcy rather than liquidation. That financing would have involved loans, not gifts. It would have allowed an orderly reorganization.

But no: after years of being willing to spend money on whatever George W. Bush and their lobbyist friends wanted, after supporting Duke Cunningham's and Tom DeLay's buddies in the style to which they had become accustomed, now they decide to prove that they care about fiscal responsibility. In the middle of the worst downturn in half a century. Thanks a million.

Here's my favorite quote from the whole mess:

""We simply cannot ask the American taxpayer to subsidize failure," said Sen. McConnell."

Whyever not? We pay his salary, don't we?

Hilzoy 1:32 AM Permalink | Trackbacks | Comments (35)

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Comments

Make them fillibuster. I want to see R's standing up and talking about why they don't support American jobs.

Posted by: jamie_2002 on December 12, 2008 at 2:23 AM | PERMALINK

Please make them filibuster this! The CSPAN clips of Repub Senator killing American middle class jobs will pay for themselves a thousandfold in 2010 and 2012!!

But now it looks like Paulson/Bush will use TARP money.

Posted by: Glen on December 12, 2008 at 2:39 AM | PERMALINK

Well, we won't have to wait until he's sworn in to see if Obama's going to play hardball.

Posted by: justaguy on December 12, 2008 at 2:40 AM | PERMALINK

Filibuster? Doesn't look like its even going to come to a vote.

A few points:

1. This is a politically calculated move. Make noise about it being about the Unions, which is laughable, but will play great to their base.

2. They want to put it off, so that no matter the consequence they can hang it around the neck of the Obama administration.

3. This crisis is, essentially, one of the GOP's making and refuse to accept what they've created nor take any responsibility.

They are a piece of work, really. The Economy tanking and they just want to give a finger to what's left of the essential manufacturing industry of this country.

I despise these people, I really do.

Posted by: Simp on December 12, 2008 at 2:46 AM | PERMALINK

Reid should allow it to come to the floor for a vote. I don't think the Republicans can stop that part of the procedure.

Then let the Repubs filibuster. Let them filibuster through Christmas. I'd love to see them up there on the Hill jawjacking while the auto industry crumbles around them.

Posted by: JWK on December 12, 2008 at 2:56 AM | PERMALINK

For once, Hilzoy, I completely agree with you !

Posted by: rbe1 on December 12, 2008 at 2:58 AM | PERMALINK

Completely irresponsible and potentially disastrous for the world economy. This version of the GOP is beneath contempt. They have ruined so much, and always reach for more.

Posted by: Sparko on December 12, 2008 at 3:07 AM | PERMALINK

I wonder if this Senator is willing to give up his paycheck and benefits? Or will bring GM executive pay down to match Honda executive pay?

Posted by: Crissa on December 12, 2008 at 3:14 AM | PERMALINK

Do these Republicans think that America is going to reward them for throwing millions of people out of work when the economy is already shedding jobs? Are they looking for the votes of those of us who did buy American cars and who may find our dealers out of business, parts unavailable and our warranties turned into so much asswipe? They are, at long last, delusional: they seem to believe that by the midterms we'll all forget that they chose to have their country die for them.

Posted by: Dennis-SGMM on December 12, 2008 at 3:17 AM | PERMALINK

GOP's agenda has been to destroy unions.

Schwarzenegger in California - Gov. was trying to destroy the unions - The correctional officers in Cali was getting ready to launch a recall in 2008.

They decided against it, said will vote him out. Also, he wanted to pay state workers $6.00 hr. because he said they couldn't pass a budget.

Posted by: Annjell on December 12, 2008 at 3:18 AM | PERMALINK

I agree on forcing a filibuster here, if the GOP wants to kill off unions with this cudgel, let them pay by self identifying with the loss of the industrial midwest and just for the heck of it, the loss of NASCAR. Keep them in DC until Christmas, if you need to. There's not really anything else the Senate needs to be doing. they want open warfare? give it to them.

Posted by: northzax on December 12, 2008 at 3:18 AM | PERMALINK

Crissa,

John McCain gets senate salary, military pension, and Social Security Check for $1938 a month (San Francisco Business Journal July 2008)

**it's not like he needs to SS check, his wife is a millionare over - heir to Anheuser Busch distribution company.

In the article, he said sarcastically, "I told you the system is broken."

I know people who only get $600 a month from social security, if they get a job to supplement income, they can only make, I think $12k a year or their benefits are reduced.

Posted by: Annjell on December 12, 2008 at 3:23 AM | PERMALINK

oh, and did I mention that Sweden just joined the list of countries that ARE bailing out their industry?

Annjell: McCain has reached 'full retirement age' and can therefore collect his full Social Security benefits (presumably from his military service, since his only other job (rep/senator) doesn't include SS). if your friends have reached full retirement age (between 65 and 67 depending on birthdate) then their benefits cannot be reduced.

Posted by: northzax on December 12, 2008 at 3:36 AM | PERMALINK

Northzax,

yes, I understand he is at full retirement age. The question is, does he really need it? The GOP has been banking on privatizing Social Security - just think if your social security was with Goldman Sachs or Lehman Bros.

His wife made more than $6 million dollars, he brings in - or at least reports income of over $400k.

you have military personnel coming home without proper care, homeless, people are losing homes through foreclosures.

Posted by: Annjell on December 12, 2008 at 3:45 AM | PERMALINK

Hilzoy, here's where the senator said there's riots.

London.indymedia.org = this website is telling people "reclaim your streets, burn the banks that robbed you."

Worldfocus.org - "Greece riots spreading to Europe"
apparently, in Italy, France, Belgium, Spain, the young are doing this because of the job, economic problems. You should check it out.

Europe is scared because they said that website in London is having the techie groups spread the word and across Europe to work in solidarity.

Wow, this is crazy.

Posted by: Annjell on December 12, 2008 at 4:07 AM | PERMALINK

What were the demands on the financial industry and their CEOs, bond holders and shareholders? The C-level managers that created the financial crisis that is costing us trillions of dollars had no salary or compensation constraints placed on them.

The bad decisions in building some gas-guzzling unpopular cars pale when compared to damage the financial industry has caused to the nation and the world. Yet, the investment bankers were given hundreds of billions of dollars with no oversight, only the understanding they would begin lending to U.S. businesses. Instead they just pocketed the money and stiffed the Congress, and did so with impunity.

And does anyone really think the masters of the financial universe fly on commercial airlines? The news media has been obtuse and irresponsible in recognizing and reporting on the glaring double standard on display in the Senate.

Posted by: DevilDog on December 12, 2008 at 4:33 AM | PERMALINK

Hilzoy,

Sorry, the website is london.indymedia.org.uk
on the right side of screen you will see video "Dancing on the grave of Capitalism."

Posted by: Annjell on December 12, 2008 at 4:48 AM | PERMALINK

I’m not a union basher, and I’m not a corporate shill - I enjoy experiencing excellent products, and I hate shoddy workmanship.

Many years ago, after having spent some time in Europe, I traveled to the US, got inside a GM vehicle, and thought WTF? The handling, the interior, the bodywork, the controls … everything was a grade back, a step down.
On each subsequent leap back and forth across the Atlantic, I would notice the following:

In Europe, automakers were also succumbing to the need to skimp. Yet they had competing products from Asia breathing down their necks; and there were more carmakers in Europe, that weren’t part of a conglomerate, which forced the various companies to not downgrade too much.
Whereas in the US, whenever I returned, the cars were taken down another notch, and then another, and then another.

And Detroit ignored that US consumers could have my experience, clearly believing shoppers would be patriots, or something. All consumers had to do was to step inside a Japanese car. Toyota and Honda had understood that by adding a couple of hundred dollars to the interior, and providing “free” bells and whistles, as well as a “we’ll fix that” when something went wrong, they would outdo the US cars on perception. While the accountants at GM would go hunting for another 25¢ to cut, anywhere, and institute Nuclear Strength Insults as a model for customer relationships.
And let’s not even consider what US consumers thought when they got inside a BMW, Mercedes, or Lexus - selling at what GM thought was a fair price for a Cadillac.

A company is healthy when you’re lusting for its products.
It’s going to take a hell of a lot more than a bridge loan for anyone to begin lusting for GM’s offerings again - it’s going to take years, and then some.
And the best outcome is probably that this Mastodon company gets broken up, and that entrepreneurs (some the underlings at GM who have solutions ready) rearrange the plants, engineers, designers and workers into new, functioning and rationally operated units.
Smaller, leaner and more future-oriented than GM the bean counter became. When a company spends a lot of time fighting legislation that seeks to improve its products, then that company has lost its lustre - and lustre is what makes me plonk down extra cash, above the average going rate in a product category.

If the Detroit 3 were the only companies making cars, then helping them out might make sense, while still being inordinately costly (and 14 billion is chump change compared to what it’s really going to cost to raise these Leviathans from the bottom of the sea.)

GM’s game of (self)deception seems to have caught up with them. I think what’s happened is terrible, but it was also apparently inevitable, they were that delusional. (Just follow Lutz’ various pronouncements on hybrid technologies over the past eight years …)
We can spend a lot of money trying to fix the broken bones of the elephant which walked off a cliff, or we can release a lot of limber cheetahs into the wild, with the same money.

Posted by: SteinL on December 12, 2008 at 5:04 AM | PERMALINK

"Please make them filibuster this!"

Eh, that would require balls and brains that good ol' Feckless Harry does not possess. Now that the GOP has declared their final opposition, His Flaccidness will undoubtedly be a good boy and not bring it to the floor for a vote. Remember, angering or embarrassing the Republicans just isn't an option for Harry, because that would be uncivil and not nice. Must always be nice, above all.

Posted by: bluestatedon on December 12, 2008 at 5:48 AM | PERMALINK

So you know about the quality of American cars because you drove one "many years ago?"

I suppose that's enough to allow you to go on and on without having to assimilate new information, but I don't see how you can make your various sweeping pronouncements when you apparently have no knowledge of their current quality. It's like you're arguing something 5 years ago.

Posted by: Andrew on December 12, 2008 at 5:48 AM | PERMALINK

The best blog on these issues has been Mickey Kaus, and yes, I know he's a long-time union basher, but on this issue I think he's right. What's the difference between this plan and a bankruptcy trustee? A bankruptcy trustee can void some of the dealership arrangements where we're paying for superfluous car salesmen and dealership palaces, he could force the UAW to allow management to manage without their asinine workrule culture, and he could rollback some of the perks, pay and privileges of the dinosaur management culture. Detroit is still a town where dinner parties are arranged on the hierarcy of the corporate culture, with ladies in waiting gathered around Rick Waggoner's wife like supplicants to Louis XIV.

Posted by: loki on December 12, 2008 at 7:00 AM | PERMALINK

"... in the court of Louis XIV" got deleted from my last entry.

For those that argue bankruptcy would hurt suppliers or customer warrenties, look at the airline example - bankruptcy didn't even ruffle the frequent flier miles programs, the suppliers are still doing fine thank you, and the industries are a lot healthier. We just don't have airplane drivers thinking they're entitled to $300,000 a year for 14 days of work every month anymore.

Posted by: loki on December 12, 2008 at 7:06 AM | PERMALINK

Well, if Mitch McConnell wants to argue that Americans shouldn't pay for failure, then I suppose we ought to ask for a full refund of all monies consumed by the Bush Administration and the GOP-controlled Congress of 1994/2006.

Once that's taken care of, I don't suppose we should be required to subsidize the "logical conclusion***" of Mitch McConnell killing millions of American jobs---even though I think GM and Chrysler are both far beyond saving at this point.

***visions of several hundred freshly-unemployed Americans with Molotov Cocktails and their fervently-GOP-defended right to own heavy-caliber assault rifles with ammunition clips the size of a four-slice toaster at Mitch McConnell's front door on Christmas Day....

Posted by: Steve W. on December 12, 2008 at 7:43 AM | PERMALINK

Another step into rendering the middle class into lower working class grunts all the way to the the grave. The upper class well represented by the Republicans will still have their golden years. While those who comprise the base of the elite's pyramid will have their broken dreams and broken bodies. The new dark age of the long emergency is descending upon us partly due to our dependence upon this river of oil which channeled so much wealth to the top. Ironic that we need to keep the wheels on the system that has predestined our collapse.

Posted by: lou on December 12, 2008 at 8:03 AM | PERMALINK

@Andrew

I have actually been involved with marketing GM, Toyota, Lexus and other automotive products, worldwide.

I know cars quite well, and I am totally dismayed by the systematic wealth destruction that Wagoner's "cross-platform synergies" and "badge engineering" instituted at GM.

We're dealing with a brand that was the world's most valuable not that many years ago, and which now could be bought (100% of the shares) for the profit Toyota made in one year.

Posted by: SteinL on December 12, 2008 at 8:03 AM | PERMALINK

time to boycott. Stop buying domino sugar (a company propped up by us the American taxpayer and David vittter's state is the main beneficiary), stop buying any cars made in southern states (if u r lucky enough to be able to buy a car), stop buying any product made in the south. Time to go all Cuba on the south--if u r visiting only spend on absolute necessities unless u r in a 'safe haven' like Austin or new Orleans proper.

Posted by: bubba on December 12, 2008 at 8:07 AM | PERMALINK

My son-in-law got a grounds operations managerial job in the airline industry four years ago.

He and his wife relocated to another state.

He was well paid and they bought a house they could afford having to look an hour's commute away to find it.

They started a family with the idea that she would stay home and raise the kids (he was making enough) thinking that was the responsible way to have a family (she was trained as a physician, couldn't afford the malpractice insurance, got royally screwed by an unethical partner, and ended up working in an advisory/educational position in the pharmaceutical industry before having kids).

Now, their house is worth half of what they paid for it and he will be laid off in two months. They are facing really hard times and what did they do wrong?

This is the carnage these stupid, unethical, vultures of industry have brought to the workers of the world.

My son-in-law's story is typical of what we've seen and will contiue to see sliding up and down the food chain as more and more of us are facing increasingly dire times.

I myself, as an artist, find a smaller and smaller audience who would even consider buying a painting, let alone be able to afford it, in these times. I think I may have been laid off but I just don't know it yet.

I fear that the chain reaction of financial devastation is going to go well beyond most people's imagination before we start to see any kind of recovery.

It is self-serving, myopic, and/or just plain stupid and mean to cast stones at the workers who may have gone too far in their union powers but are probably the least culpable in this morass.

People who have done the responsible thing throughout their lives: get a job, join the union, buy a house, have a family are being thrown to the wolves. Managers doing the right thing are being thrown to the wolves. Little entrepreneurs are being cast aside. Small manufactuers are being thrown to the wolves.

All of this is happening while the fat cats sit by waiting to see how they can profit and benefit from this tragedy. Blaming the lowly worker for trying to protect themselves and be taken advantage of is immoral. Playing politics with this, just to bust some unions so more fat cats can get fatter - well we know what happened to Marie Antoinette.

Posted by: ej on December 12, 2008 at 8:36 AM | PERMALINK

I am sure when things fall into the crapper like we all know they are going to, they will try to blame Democrats for not agreeing to all of their demands.

Of course the fall-out from the failed bail-out could rebound on Republicans like the government shut down did during the Clinton presidency. It seems like Republicans in the South have written off more swaths of the American voting landscape and want to become a regional party of the former Confederacy.

Posted by: ET on December 12, 2008 at 8:39 AM | PERMALINK

@ej

I fear you're right. The financial devastation about to be unleashed could reduce asset values to 1/10 what they were at their zenith. And the impact of that will be incomprehensible.

Posted by: SteinL on December 12, 2008 at 9:07 AM | PERMALINK

How come labor is the only group that is asked to cut their wages and pension benefits? what about management? are they going to have to bring their compensation and pensions in line with foreign automakers? labor costs (when health care is subtracted) are about the same already, but management compensation is far higher. fair's fair right?

Posted by: Beauregard on December 12, 2008 at 9:16 AM | PERMALINK


Uummmmmmmm... Wasn't it the Republicans who always fought on the side of automakers against better safety and mileage standards? It worked so well when Republicans, big oil, and Detroit were all cozy with one another. Now Republicans are complaining about Detroit's failures? WTF?

Posted by: palinoscopy on December 12, 2008 at 9:20 AM | PERMALINK

Awesome.

I'm not even going to bother to read the post above. I went to google-blog to look for a blog post on the bailout so that I could register my joy.

FUCK THE RICH!!!!!

All of the people telling us about this terrible "disaster" and how "everyone" will suffer are people with lots to lose in the stockmarket when (god willing) it tanks (oh, please god, let it tank, let it tank like ten titanic tanks - huuza!).

Yeah, the less money that the artificially wealthy have to outbid on commodities with, the cheaper widgets and services will continue to become and the more level a playing ground there will be between these rich motherfuckers and the majority of Americans.

What's the you say? That when the wealthy have no money not only will they not be spending it on luxury items (thus causin' a hurtin' on the minimum wage guy standing at the desk at Yachts R' Us) but also they'll have no money to "create jobs" - you know, those jobs that poor people love so much. The one's that let them ALMOST be able to afford dinner from the McDonalds dollar menu.

Yeah, maybe,,, but you don't know and I don't know. Maybe - hear me out here - maybe if we extolled SOMETHING above the profit motive we'd have happier people, living longer and healthier and living MORE because they'd be working less - and working for reasons other than to be able to afford a bigger car that Mr. Jones.

Maybe.

And if not?


Then welcome the revolution baby. Welcome the motherfuckin revolution.

HUUAAAH!!

mnuez

Posted by: mnuez on December 12, 2008 at 10:20 AM | PERMALINK

You wrote
"So the Senate Republicans were willing to let a million jobs, give or take, go down because they wanted the UAW to make massive wage concessions, over and above those it has already made, within one year as opposed to three years. That shouldn't be a dealbreaker, except to people who don't want a deal to start with."

I think it fair to call you an Evangelical Unionist.
What "massive wage concessions" have the CURRENT rank and file given up?

You seem to fell that Union members are somehow the Chosen. Why should a Honda worker in a transplant have HIS taxes used to subsidize a UAW member at higher wage for the same work he is doing?
You don't give reasons, only UAW talking points.
It is not the old fashioned "good fight" of Capitalists vs workers. But one group of workers the UAW insisting that other workers be taxed to pay them. Isn't this the UAW as Capitalists versus average workers?

You are blinded because you can't question your assumptions here. I often applaud your writing but here you have a blind spot. The UAW is using the Left "solidarity" the same way that Bush/Rove used the dumbie Evangelicals.
The UAW got all their goodies by colluding with big3 management. Neither cared that they were ripping off those Americans who patriotically "Bought American".
Like most of us you would like to be able to know good guys from bad guys. Just the powerful and powerless.
In the "seventh seal" the knights fate is doomed when Death acts as his Confessor. The world of the grown up is not the Christian one of known good versus known evil but a Manichean one where evil can pretend to be good. So you must use your awareness always to decide.So the knights use of Faith in his Confession dooms him.
The UAW wants to use its considerable political power to maintain its members standard of living no matter who pays for it. They have no more "right" to keep it, as you somehow are driven to profess, then Management does.
In fact this standard of living was paid for by all those who bought US cars at elevated prices.
Why do you want to keep rewarding them?

Posted by: zendiet on December 12, 2008 at 11:10 AM | PERMALINK

LOKI said this:

"For those that argue bankruptcy would hurt suppliers or customer warrenties, look at the airline example - bankruptcy didn't even ruffle the frequent flier miles programs, the suppliers are still doing fine thank you, and the industries are a lot healthier. We just don't have airplane drivers thinking they're entitled to $300,000 a year for 14 days of work every month anymore."

Funny he mentions that because I worked in corporate finance at Pan Am during its bankruptcy and subsequent liquidation.

There are two HUGE differences between that and this. First, the airline example is not even remotely applicable because the capital is, oddly enough, extremely mobile. Thus, the aircraft can be redeployed across the *globe* to find better uses. Slap some paint on the tail, and voila, the Pan Am plane is now flying as Delta or Air Timbuktu.

That is *not* the case, obviously, with the cars, the plants, the tooling or the parts from the automakers.

Second, the most *critical* part of Pan Am, and most bankrupt companies' orderly reorg/liquidation, is the Debtor-in-Possesion financing that allows the company to pay its suppliers/employees while it restructures/shuts down.

The credit market is stalled in a *big* way.

If the Republicans were truly serious about restructuring Detroit and saving the jobs/industry they, at least, would have ensured that a large and viable credit facility would have been authorized to avoid chaos.

Posted by: jehrler on December 12, 2008 at 11:43 AM | PERMALINK

The majority of people are NOT in favor of this bailout.
Everyone knows that giving them money does not fix the problem.They do not know how to fix (car companies). It is like asking congress to pass tort reform, a bunch of lawyers will never pass laws reducing their potential income. GMC execs, union benefits, etc. etc are ridiculous.
Lay offs are what happens when your products do not sell.
The US gov. should spend OUR money on retraining the auto workers because American auto industry can not compete with in global market that exsists today. You can not turn back the clock people. That is life.

Posted by: rvcc on December 12, 2008 at 11:21 PM | PERMALINK




 

 

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