The Socialist Bush Administration?

As the Wall Street bailout program morphs from one helping banks to one benefiting insurers and (perhaps) automakers, the Bush administration is having a hard time explaining what rules are dictating the process — and where it’ll draw lines of eligibility.

It’s an unlikely spot for a conservative White House that once lived and died railing against big-government interventionism. But these are lean times — and no town knows this better than Detroit.

Indeed, faced with free-falling sales, it appears likely that General Motors and Chrysler — two of Detroit’s struggling Big Three auto giants — will be merging, perhaps within days. The companies want Washington to pitch in billions to catalyze the deal — and administration officials are looking ever more likely to oblige.

It’s not quite how Adam Smith imagined things. By definition, businesses suffer in recessions. And true-market capitalism, at least in theory, exists only by the rules of financial Darwinism — the enduring concept that weak businesses must fail to make room for the strong.

Yet asked this week if including the automakers in Washington’s bailout plans encroaches too far on private markets, White House spokeswoman Dana Perino responded incomprehensibly:

Well, I think what I would point you back to is that decisions on whether or not — that these companies have in front of them as to how they will move forward and how they will deal with these changing market conditions and changing consumer preferences will be ones that they make. What we’re doing in the administration is working with the tools that Congress has provided us.

So when it comes to loans for retooling the factories and their floors so that they can produces more energy-efficient cars, we’re working within those means that Congress passed for us to be able to do that. And the same is true when it comes to the Troubled Asset Relief Program, where we’re looking at that.

The confusion, to an extent, is understandable. Mulling the best strategy for partial nationalization of the once-proud auto industry must be no easy position for a White House that sold itself to America as a champion of free-market conservatism. But Detroit CEOs have taken their plight directly to the Treasury, which Congress recently gifted with sweeping power to scoop up any troubled asset that threatens the nation’s economic stability.

Congress might have thought this bailout would be limited to Wall Street’s failing financial institutions. But, at this point, who would argue that Detroit’s automakers aren’t troubled assets as well?

The evidence, after all, is striking. GM’s domestic sales have fallen 18 percent this year, and Chrysler’s are down 25 percent. On Wednesday, news got bleaker when GM announced an 11.4 percent drop in global sales for the third quarter alone. The question remains whether Bush officials will deem these automakers, like Wall Street firms, too big to fail.

For some members of Congress, the answer is a no-brainer. In an Oct. 23 letter to the Treasury Sec. Henry Paulson Jr. and Federal Reserve Chairman Ben Bernanke, Michigan’s entire congressional delegation urged the administration to use its powers under the financial rescue bill to save the state’s famously regional industry.

Every segment of the U.S. automotive industry –- automobile manufacturers, dealers that are engaged in sales of autos and light-duty trucks, and auto finance companies that provide financing to dealers and to consumer and commercial purchasers of vehicles -– is experiencing devastating effects that have resulted from the worldwide crisis in financial and capital markets and the freeze-up in credit markets. … In this current economic environment it is imperative that the government ensures that liquidity is restored, so that the U.S. auto industry is able to function until normalcy is restored to credit markets.

Not everyone, though, agrees.

Steven Pearlstein, the Pulitzer Prize-winning business writer for The Washington Post, ran a piece Wednesday under the heading, “A Detroit Bankruptcy Beats a Bailout.” And an editorial in the Boston Globe Thursday points out that Detroit’s troubles go much deeper than the recent credit crisis. A historical over-reliance on gas-guzzling SUVs, for example, has disadvantaged America’s automakers as fuel costs have leapt in recent years. “A merger of GM and Chrysler would not fix these problems,” the Globe writes. “And federal backing for such a deal risks entrenching the status quo.”

Even Perino conceded this week that the failure of Detroit’s automakers is largely their own doing.

Complicating the saga, $25 billion in federal loans to help Detroit shift to more fuel-efficient vehicles could take between six and 18 months to arrive, the Bush administration announced earlier this month. To complete their merger deal, GM and Chrysler are requesting an early $10 billion from that allotment. They also want GMAC, their lending arm, to become a bank holding company, which would allow it to tap the $700-billion financial bailout program.

That merger could be finalized by Election Day, the Detroit Free Press reported Thursday.

Meanwhile, reporters might want to aim their questions about the administration’s bailout plans to someone other than Perino. Asked if any retailers offering lines of credit (Maytag was mentioned) would be eligible for bailout funding, the White House spokeswoman didn’t have the answer.

It’s a good question. It’s not one that I can answer, because I’m not part of the — I’m not an economist, that is a regulator looking at the Troubled Asset Relief Program. I don’t want to — I don’t think the White — I don’t think the White House would be open to that, but I just don’t know.

No wonder there’s so much confusion surrounding this program.